Communicating with Employees during Mergers and Acquisitions: How is the Use of the Authentic Communication Principles Associated with Employee Outcomes?

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Communicating with Employees during Mergers and Acquisitions: How is the Use of the Authentic Communication Principles Associated with Employee Outcomes?

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Article and Author Information

Renata Figueiredo (MSLOC 2013) wrote this article in December 2012 for the Capstone 3 Research Analysis and Interpretation course. This executive summary assignment is the culmination of a nine-month capstone research project. 
Renata is a Manager at Integration Consulting, a strategy, management, and process consultancy headquartered in São Paulo, Brazil. She works on projects related to organization and people management and has experience with Merger & Acquisition integration. She presented this research at the Thirteenth International Conference on Knowledge, Culture and Change in Organizations.

Abstract

As frequently mentioned by researchers and practitioners, many mergers and acquisitions (M&A) fail to achieve their expected results. Among the factors that impact M&A performance is the quality of the communication with employees. The purpose of the present study is to examine whether the use of Bishop’s (2006) ten principles of authentic communication is associated with the following employee outcomes in the context of M&A: employee satisfaction, employee commitment, and perceptions of the long-term effects of the M&A. Seventy seven professionals who have been employed at a company that went though an M&A completed an on-line survey. This research found that the use of the following of Bishop’s principles is highly correlated with at least one positive employee outcome in M&A situations: caring; clear; comprehensive; consistent; fundamental; relevant; timely; and truthful. No correlation was found between the principles of “responsive to feedback” and “accessible” and the employee outcomes considered in this study.

Introduction of the Question and Methodology

Mergers and acquisitions (M&As) are increasingly seen by companies as a way to expand into new markets, acquire new capabilities, globalize, or achieve economies of scale (Papadakis, 2005). As frequently mentioned in the M&A literature, despite their growing rates, most M&As fail to achieve their expected results (Teerikangas, 2012; Brahma & Srivastava, 2007).

Among factors such as unrealistic expectations, poor planning, integration difficulties, and changing external environmental conditions (Papadakis, 2005), human variables are repeatedly cited by researchers as one of the most important reasons for M&As poor outcomes (e.g., Larsson & Finkelstein, 1999; Teerikangas, 2012). Bringing two companies together “creates a widespread anxiety about layoffs and may require employees from former rivals to work side by side towards an uncertain future” (Ribbink, 2003, p. 3). “The human side of mergers and acquisitions”, which started to be explored by the M&A literature in the late 1980s/early 1990s, has been studied by the researchers in different ways, ranging from studies that investigated the impact of cultural clashes (e.g., Buono, Bowditch & Lewis, 1985) to studies that investigated employees’ reactions to M&A events (e.g., Teerikangas, 2012; Schweiger & DeNisi, 1991).

Among the factors that impact employees’ reactions and, ultimately, M&A performance is internal communication. Different studies have suggested that high quality communication has a positive relationship with employee outcomes, such as satisfaction, commitment and decision to stay in the organization (e.g., Schweiger & DeNisi, 1991; Whalen, 2001; Brahma & Srivastava, 2007). An effective communication system “reduces the energy expended by employees in searching for answers to their questions… it helps the employees to accept the changes. And finally, it explains matters and provides the underlying rationale to employees” (Brahma & Srivastava, 2007, p. 8).

Despite the fact that communication is a broadly studied issue in the M&A literature (Hogan & Overmyer-Day, 1994), few studies have explored and explained what it means to have a high quality and effective internal communication process. Practitioners therefore have little support from the existing literature to design effective internal communication plans. The present study aims to contribute to closing this gap by investigating the role of using a specific method of communication with employees during M&As. This method is based on Bishop’s (2006) ten principles of authentic communication.

Bishop (2006) found theoretical and empirical (survey conducted in large US water utilities) evidence that the incorporation of ten principles of authentic communication – clear, relevant, timely, truthful, fundamental, comprehensive, consistent, accessible, caring, and responsive to feedback – was correlated with communication success (success was defined as the level of satisfaction with the results of the communication). The purpose of the present study is to examine whether the use of the same ten characteristics of authentic communication is associated with the following employee outcomes in the context of M&A: employee satisfaction, employee commitment, and perceptions of the long-term effects of the M&A. While the purpose of Bishop’s (2006) research was to investigate the relationship between the principles and communication success, the present study was interested in examining the relationship between the principles and employee outcomes in M&A situations.

The three dependent variables of this study (employee satisfaction, commitment, and perceptions of the long-term effects of the M&A) are important outcomes of the post-M&A phase (Nikolaou, Vakola, & Bourantas, 2011; Krug & Hegarty, 2001). Employee satisfaction and commitment are broadly studied employee attitudes in organizational behavior research, and have been studied as consequences of organizational change. Perceptions of the long-term effects of the M&A have been found to have a significant impact on determining whether employees stay or leave the organization (Krug & Hegarty, 2001).

By answering the research question below, the present study aims to provide guidelines for practitioners responsible for designing internal communication strategies to improve employee outcomes during M&As.

Research Question

How is senior managers’ use of Bishop’s (2006) ten principles of authentic communication, during the first three months after the M&A announcement, associated with employees’ satisfaction, commitment, and perceptions of the long-term effects of the M&A, regardless of the objective success of the M&A?

Figure 1 Figure 2

Summary of the Method and Measures

A self-administered online survey was used to collect responses from professionals who had been employed at a company during the first three months that the company went through an M&A. The survey measured ten independent variables – the degree to which survey participants perceived that the communication was: clear, relevant, timely, truthful, fundamental, comprehensive, consistent, accessible, caring, and responsive to feedback – and three dependent variables – employee satisfaction, employee commitment, and perceptions of the long-term effects of the M&A. Two open-ended questions were included to further understand participants top three reasons for the general satisfaction with the communication, as well as the top suggestions to improve the communication during the M&A process.

See Appendix A for a summary of the adopted measures.

Survey Participants

Seventy seven participants who were employed at a company that went through an M&A during the first 3 months of the process (qualified participants) took a self-administered online survey. Although it might be difficult for participants to remember specific dates, the survey was designed to try to make sure all participants were thinking about the same time period. The first 3 months period was chosen because it tends to be the most stressful and volatile time post an M&A. 73% of the participants participated in the M&A less than five years ago.

Participants were recruited from the researcher's professional network via social media forums (e.g. LinkedIn, Facebook) and email.

See Appendix B for sample characteristics.

Analysis and Results

Relationship between the use of the principles of authentic communication and employee outcomes

Item reliability (Alpha score) was checked for all dependent variables and for the independent variables that had more than one item (see Appendix A). Due to the Alpha score results, items were kept separate for the following independent variables: comprehensive, caring and responsive to feedback, as indicated bellow.

  • Variable: Comprehensive - Items: 1. You heard many different views of the situation; 2. All the main points were covered
  • Variable: Caring - Items: 1. Presenters were considerate and courteous; 2. Some back and forth conversation with the leadership team occurred
  • Variable: Responsive to Feedback - Items: 1. You had a chance to speak; 2. The presenters reported back when people raised questions

Mean scores were calculated for each of the dependent variable’s Likert scale measures in order to create a scale score.

The table below summarizes the correlation results and indicates that many of Bishop’s (2006) principles of authentic communication are highly correlated with positive employee outcomes in the context of M&A. It shows that the use of the following of Bishop’s principles is highly correlated with at least one positive employee outcome in M&A situations: comprehensive; truthful; fundamental; clear; relevant; caring; timely; and consistent. The use of the principle “comprehensive” was significantly positive correlated with all three employee outcomes considered in this study when defined as “main points covered in the communication”. Nevertheless, when defined as “different views of the situation heard”, no positive significant correlation was found with the dependent variables. No correlation was found between the principles of “responsive to feedback” and “accessible” and the employee outcomes considered in this study.

Figure 3

Top reasons for satisfaction and dissatisfaction with the communication

Participants were asked to rate their general level of satisfaction with the communication (Likert scale), as well as list the top three reasons that contributed to that level of satisfaction (whether it was high or low). After coding the responses, the researcher found the reasons below to be the top key contributors to participants overall satisfaction and dissatisfaction.

Figure 4

Variables impacting differences in the level of satisfaction with the communication

T-tests were done to discern whether there is a difference in the level of satisfaction with the communication between the following groups of participants:

  • subjects who were involved in a merger vs. in an acquisition
  • subjects who left the company within the first year after the M&A announcement vs. subjects who did not
  • subjects who were part of the acquired vs. acquiring company
  • subjects who had a leadership role in the M&A integration vs. subjects who did not

The results indicate that the general satisfaction with the communication for subjects who were involved in a merger is lower than for subjects who were involved in an acquisition. It also indicates that the general satisfaction with the communication is lower for subjects who left the company within the first year after the M&A announcement vs. subjects who did not. No difference in the level of satisfaction with the communication was found between subjects who were part of the acquired vs. acquiring company. Conversely, no difference in the level of satisfaction with the communication was found between subjects who had a leadership role in the M&A integration vs. subjects who did not.

Suggestions to improve the communication

Participants were asked to give suggestions to improve the quality of the communication with employees during the M&A. This open-ended question was coded. Below are the results.

Figure 5

To improve communication participants emphasized the need for communication that is frequent, transparent and relevant. They also suggested communicating short and long-term vision and strategy.

Limitations

The main limitations of this study are:

Measurement. Although the measures of the dependent variables have been tested by other researchers and presented satisfactory Alpha scores in the present study, seven out of ten independent variables were measured through a single item and the three independent variables with multiple items had unsatisfactory Alpha score results.

Other variables related to M&A. Other M&A variables (e.g., level of integration, cultural differences between the two companies) were not tested to see whether or not the employee outcomes contemplated in the present study are due to communication vs. other variables.

Sample nationality and cultural differences. Because of the researcher’s networking, most survey participants are either from the United States or from Brazil (western cultures). This may limit the capacity to generalize the results to other cultures.

Interviews. Interviews were not conducted to understand in more depth the context behind the results.

Time when the M&A was announced. Twenty six percent of the subjects participated in an M&A more than five years ago. As this study relied on participants’ memory about the communication during the M&A, subjects who participated in an M&A process a long time ago may not remember how they felt about the communication process and survey results may therefore be impacted.

Interpretation and Recommendations

Main Conclusions

This research study indicates that Bishop’s (2006) authentic communication principles are a good framework to guide practitioners to design internal communication strategies in the context of M&As. Eight out of ten principles were found to be highly correlated with at least one of the employee outcomes contemplated in this study.

Employee satisfaction was associated with the most principles (seven), whereas five principles were correlated with perceptions of the long-term effect of the M&A, and only two principles were correlated with employee commitment. A qualitative study might help researchers understand the reasons behind these results.

The use of the principle “comprehensive”, which is defined as telling the whole story, including the context, meaning, and implications of the issue in question (Bishop, 2006) was correlated with the three employee outcomes contemplated in this study and was the top reason for the satisfaction with the communication. As such, it seems to have great importance in the context of M&A.

Also noteworthy, is the use of the principle “relevant”, which is defined as addressing people’s specific interests and concerns, was highly correlated with two employee outcomes (satisfaction and perceptions of the long-term effect of the M&A). Moreover, the lack of this principle was the top reason for the dissatisfaction with the communication.

No correlation was found between the principles “responsive to feedback” and “accessible” and the employee outcomes considered in this study. However, in the open ended responses “accessible” was the third most cited reason for satisfaction with communication and “responsive to feedback” was the fifth most mentioned suggestion to improve the communication. A qualitative study might help researchers to understand what seems to be a discrepancy in the results between the quantitative and qualitative data.

Finally, through the analysis of answers to the open-ended questions, other aspects of communication, beyond the ten principles, that play an important role in the context of M&A were identified. In particular, the following aspects were found to be relevant:

  • Frequent communication. Frequent communication was the top suggestion for improvement. Communication not only must happen, be relevant etc., but also needs to occur throughout the M&A process. It is not enough to communicate once or twice; it is critical to communicate in every step of the way. A defined minimum frequency for communication (e.g., weekly) is recommended.
  • Participation of both companies. The participation of both companies and, in particular, the participation of the acquired company’s leadership team in the communication process was found to be important – 18% of the reasons for the satisfaction with the communication was due to this participation. This result might occur because the participation of the leadership teams of both companies allows taking into account the needs of employees from both companies.

Implications and Recommendations

The results of this study are particularly relevant for leaders and practitioners responsible to design and implement communication strategies during mergers and acquisitions. Bishop’s (2006) authentic communication principles can be used as a framework and checklist for M&A communication plans, as well as to evaluate each communication piece – e.g., are we telling the whole story? Are we addressing employee’s interests and concerns? Moreover, in the context of M&As, other aspects of communication, beyond the principles of authentic communication, should be taken into account.

Areas for Future Research

Some additional analysis could be conducted with the data collected for this study that is outside the scope of the original research question:

  • Correlation between the use of the principles of authentic communication and the level of satisfaction with the communication
  • Correlation between the level of satisfaction with the communication and employee satisfaction, commitment and long-term effect of the M&A

Qualitative studies could be conducted to understand the context behind the results. For instance, are there principles that are more important when there is a high level of integration or when there are cultural clashes?

Another interesting aspect to explore would be whether there are differences between professionals from the acquired versus the acquiring company. For instance, are there principles of authentic communication that are more important for the satisfaction of one group versus the other?

As mentioned, one of the limitations of the present study was that seven out of ten independent variables were measured through a single item and the other three independent variables had unsatisfactory Alpha score results. A relevant area for future research would be to revise and validate an instrument to measure Bishop’s principles of authentic communication.

Finally, studies to understand cultural differences would also be relevant. For example, are there principles that are more important for a particular culture?

References

Bishop, B. (2006). Theory and practice converge: A proposed set of corporate communication principles. Corporate Communications: An International Journal, 11(3), 214–231.

Brahma, S. S., & Srivastava, K. B. L. (2007). Communication, executive retention, and employee stress as predictors of acquisition performance: An empirical evidence. ICFAI Journal of Mergers & Acquisitions, 4(4), 7–26.

Buono, A. F., Bowditch, J. L., & Lewis III, J. W. (1985). When cultures collide: The anatomy of a merger. Human Relations, 38(5), 477–500.

Hogan, E. A., & Overmyer-Day, L. (1994). The psychology of mergers and acquisitions. In C. L. Cooper & I. T. Robertson (Eds.), International review of industrial and organizational psychology 1994, Vol. 9., International review of industrial and organizational psychology; 0886-1528 (Print); (pp. 247–281). Oxford England: John Wiley & Sons.

Krug, J. A., & Hegarty, W. H. (2001). Predicting who stays and leaves after an acquisition: A study of top managers in multinational firms. Strategic management journal, 22(2), 185–196.

Larsson, R., & Finkelstein, S. (1999). Integrating Strategic, Organizational, and Human Resource Perspectives on Mergers and Acquisitions: A Case Survey of Synergy Realization. Organization Science, 10(1), 1–26.

Nikolaou, I., Vakola, M., & Bourantas, D. (2011). The role of silence on employees’ attitudes “the day after” a merger. Personnel Review, 40(6), 723–741.

Papadakis, V. M. (2005). The role of broader context and the communication program in merger and acquisition implementation success. Management Decision, 43(2), 236–255.

Ribbink, K. (2003). The most critical messages to communicate in a merger. Harvard Management Communication Letter, 6(2), 3.

Schweiger, D. M., & Denisi, A. S. (1991). Communication with employee following a merger: A longitudinal field experiment. Academy of Management Journal, 34(1), 110–135.

Teerikangas, S. (2012). Dynamics of acquired firm pre-acquisition employee reactions. Journal of Management, 38(2), 599–639.

Whalen, D. P. (2002). How communication drives merger success. International Association of Business Communicators.

Appendix

Appendix 1 Appendix 2 Appendix 3

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