AN EVALUATION OF THE EFFECT OF MERGERS AND ACQUISITIONS ON THE MORALE OF EMPLOYEES
Chapter I
1.1 Introduction
Mergers and Acquisitions (abbreviated M&A) refers to the aspect of management dealing withthe buying, selling, dividing and combining of different companies and similar entities that canaid, finance, or help an enterprise grow rapidly in its sector or location of origin or a new field ornew location without creating a subsidiary, other child entity or using a joint venture
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Organizational merger and acquisition has been occurring more often due to the globalization,technological change, competitive business environment and many other factors. During therecession of 2008 and 2009, many smaller companies merged with giant companies. One of themost difficult part is to create a strategy in which employees of both the companies can adapt. Itis very difficult as there is a change in organizational culture. The data shows around 50% to70% of merger and acquisition fail. (Schineider, 2003). The following examples helps to figureout both successful and unsuccessful merger and acquisitions.Success. Colarelli (1987) describes a successful acquisition in which a distributor and truckingcompany acquired a warehouse facility and operation. The reason behind the successfulacquisition was because of good financial deal, few changes were made at the beginning andmoreover the purchasers had meeting with the employees one to one and in a group also in orderto know them and give them opportunity to ask question.Failure. Back in January 2000, ALO announced its acquisition of Time Warner Ellis, (2003).Shortly after merger was announced, the president of time Warner declared that he sold thecompany because he could not figure out how to utilize the power of internet. Later, he became aCEO of AOL Time Warner. By 2003, the acquired Time Warner had a total control over AOL
Time Warner. The company’s debt has exceed billion of bucks and it was also loosing its market
share value. The products and services brought by two companies after merger and acquisitionwere competing each other.Presently, the Nepalese banking industry is facing a huge problem and in a critical situation. Inorder to cope with these problems, Nepal Rastra Bank(NRB) has directed many bank andfinancial institutions to go in the process of merger and acquisition. Moreover NRB has decidedto provide several benefits to the merging company.
Mergers and acquisitions ensure tremendous profit in terms of financial gains and work performance. However employees on the other hand,often cope with the uncertainty surrounding a merger by reducing levels of commitments andinstead use the energy either to cope with anxiety and confusion or try to find new employmentopportunities (Fulmer & Gilley, 1998). Morale is an essential ingredient of organizationalsuccess. It reflects the attitudes and sentiments of an individual and group towards the organizational objectives. Morale can be understood as a group of phenomenon, it refers to theoperation of the group. It is the way the group thinks, feels and acts.Looking to the present scenario of Nepal this research aims how merger and acquisition effectemployees performance on their work setting. Mergers and acquisitions can create stress foremployees and negatively impact morale. The effects of mergers and acquisitions on employeemorale can be significant if the reorganization of the business is not handled effectively. Duringany merger or acquisition effort, there are at least two groups of employees involved, oftencoming from organizations with distinctly different cultures and styles. Learning a new culturecan be challenging, but is especially so when employees are faced with uncertainty about whatthe future may hold and whose job is on the chopping block. Change is often difficult foremployees, especially if they were not directly involved in decisions that impact their jobs.During mergers and acquisitions, change can be especially difficult and can lead to stress whichcan have a negative impact on morale if not handled effectively. Communication is criticalduring these times. To the extent possible organizations should strive to share as muchinformation about what is happening and, most importantly, how the changes will affectindividual employees, as they possibly can.The objective of Nepal Rastra bank to prescribe all the commercial banks to increase their capitalto Rs.8 billion was to make all the commercial banks of the nation financially strong. Though itis not easy for banks to meet these requirement as prescribed by NRB. All the commercial banksof the country are involved in the process of issuing right shares, FPO and are in the process ofmerger and acquisition. Thus, this study is made to see the effect of merger and acquisition onorganizational performance. Will the growth of organization possible after M&A or is it going tohave negative impact on it?. According to Marks & Mirvis (2001), and Hunt & Downing (2006),the success rate of M & A vary from a pessimistic twenty three percent (23%) in the UnitedStates (US) to a more optimistic fifty percent (50%) in the United Kingdom (UK). Recentresearch has indicated that in more than half of merger failures the root cause is a failure toattend to the people factors (Arora & Kumar, 2012). Thus, it is a matter to be concerned to seethe effect of M&A in the Nepalese economy. Moreover the regulatory board of the nation shouldset out necessary directives to prevent all the banks of the county from the consequences thatarise due to M&A. Thus, this research is conducted to explore the success and failure rate oforganization in Nepal after M&A and also to recommend valuable suggestions to cope with the problems arising out of M&A.A lot of speculations have been going on in the financial sector whether the merger policy will be fruitful to strengthen the Nepalese bank and financial institutions. Some positive signals have been visible in the financial institutions as 43 financial institutions including commercial banks,development banks and finance companies have merged so far and a few BFIs are in pipelinesand some have got the letter of intent.
1.2 Problem Statement
The initial headlines announcing mega-corporate mergers and acquisitions typically focus onappreciation for improved finances, less duplication of services and staff, the ability to grow acompany faster, and the anticipation of higher returns for shareholders (Strategic Management,2005). Merger and Acquisition are increasing day by day but their success seems to have beenachieved by very few acquired company. Only few organization are successful in accomplishingtheir goals. M&A is considered as a most painful, challenging event than any other event.`In Nepal, M&A is becoming a prominent feature in all banking and financial sector. When NRB, a regulatory board, announced all the commercial banks to raise their capital up to Rs.8 billion, creates a painful condition as most of the commercial banks are going under merger andacquisition processes. The data shows the success rate of M&A varies from 23% to 50% in thedeveloped countries like USA and UK respectively. Recent research indicated that in more thanhalf of merger failures the root cause is a failure to attend to the people factor.(Arora & Kumar,2012). So it is a matter to be concerned the effect of M&A in Nepalese Banking and Financialsectors.Merger and Acquisition negatively affect whether they are giant corporation or smaller. Whentwo cultures blend together, it creates a feeling of being unvalued, helplessness, job loss etc.Moreover M&A causes loss of key people and organizational effectiveness.
Bowditch (1989)address the hidden costs of combining organizations that include tardiness, absenteeism,turnover, reduced output, declining morale, loyalty, commitment, and trust of those who remainin the post combination firm.When employees are concerned about their own job security they are more likely to becomecompetitive with others and this competitiveness can result in conflict- sometimes even violence.During M&A it is important for managers and HR professionals to be alert to signs of negativecompetition and to ensure that employees are being kept informed about impact on their jobs andtheir futures with the company. While some competition is good, competition is not good when itcreates tension and negative conflict in the organization (Leigh, 2008).During M&A, change can be especially difficult and can lead to stress which can have a negativeimpact on morale if not handled effectively (Illoh, 2002). There is no relevant researchconducted on the effect of M&A on employee morale in context of Nepal, which is also a gap ofthis research. Moreover, there is lack of concerned paid by the regulatory board to examine theeffect of M&A on organizational setting which is another gap of this research. so to fulfill thisgap, this research is conducted to explore the necessary factors resulting out of merger andacquisition.
1.3 Research Question
The main objectives of this research is to elaborate the effect of M&A on employee morale in banking sector of Nepal. There are several purposes for this study.
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What are the effect of workplace environment on employee morale after merger andacquisition?
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What are the areas of employee satisfaction and dissatisfaction?
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What are the measures, valuable suggestions and alternatives to address those areas ofdissatisfaction?
1.4 Significance of Study
This study is significant for several purposes. This study presented a number of opportunities foremployee participation and will lead to interventions aimed at improving employee morale. Thisstudy contributes to new comers of Ace Institute of Management while conducting research. Thestudy described the quantitative methods of data gathering and the results of those methods. Thisstudy also presented valuable recommendation to banking and financial institutions regarding theeffect of merger and acquisition.Lawrence and Lorsch (1986) argue that most merger research that addresses people issuesfocuses on the one best way to organize in all situations, instead of utilizing divergent managerialstyles, organization structures and climates, and types of management training. To avoid this,Henn, Krinsky, and Warshaw (1989) believe there has to be a continuous level of customizing tomake these things work
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that there is no single procedure that fits every individual and everysituation.The study will aid organizations currently undertaking strategic changes through merger andacquisition to design and implement corporate governance policies that will benefit bothemployees in the acquired firm and that of parent company. Various insights into howconfidence, zeal commitment and overall productivity of employees can be affected by mergerand acquisition has been clearly highlighted in the study which will help managers of variousorganization on proper ways to go about merging and acquiring other firms without risking productivity of employees.This study helped me to enhance and sharpen my knowledge in the banking and financial sector,where I am interested and also support me to broaden my knowledge towards bank and financialsector. Furthermore, the study will serve as a guide to student researchers who may wish toexplore more into the effect of merger and acquisition on overall performance of the organization.
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