A Study Concerning The Changes in The Psychological Contract and Labour Turnover During International Mergers and Acquisitions

Word Count: 3289 words (excluding references and appendix)

EXBank is a UK based organisation. As part of its global growth strategy to develop an international presence EXBank is considering acquiring MMBank which is located in Malaysia. The Board is aware that acquisitions often fail because HR issues have not been adequately considered in the feasibility stage. The fact that the acquisition target is based in another country brings additional challenges.

Task:

You have been asked to prepare a report for the Board which discussed two key Human Resource areas that will need to be considered if MMBank is acquired.

Table of Contents
  1. 1. Executive Summary

3

  1. 2. Defining the problem

3-5

  1. 3. Two Key Areas of Human Resource Management (HRM) to be considered

3.1 The Psychological Contract

5-6

3.2 Labour Turnover and Retention

7-8

  1. 4. Merger and Acquisition Challenges in the Financial Services Industry

8-10

  1. 5. Responses

10-11

  1. 6. Conclusion

12

  1. 7. Bibliography

13-16

  1. 8. Appendices

17-26

1. Executive Summary

Mergers and acquisitions have in recent years become increasingly common as both the forces of globalisation, deregulation and advances in technology enables large multinational corporations deploy resources far from their country of origin. This working paper attempts to highlight two key human resource issues that should be considered by a UK bank when acquiring a Malaysian bank. Both the psychological contract and labour turnover and retention issues will be highlighted and discussed to provide a better picture on the role that Human Resource Management would play in an acquisition. Results from this paper indicates that these two issues must be pre-planned during the pre-integration stage before other human resource issues are managed.

2. Defining the problem

Geographical scope is normally positively associated with a firm’s profitability (Tallman and Li, 1996) because of the availability of new markets and business opportunities.[1] However, Cartwright and Cooper (2000) have noted that 50% of mergers and acquisitions (M&A) do not achieve anticipated outcomes.[2] This fact is augmented by Carleton’s (1997) research of how 55-77% of M&As fail to meet their anticipated purposes and outcomes.[3] Weber (1996) suggested that the anticipated benefits and gains from M&As are often unrealised due to productivity losses and traumatic effects on a firm’s human resources.

At the heart of an international mergers and acquisitions (IM&A) are two distinct but not mutually exclusive problems. The first category, are the problems related to a normal M&A that occur domestically. Overman (1999) stated that despite their recent popularity, the outcomes of M&As are statistically disappointing.[4] IM&As merely bring the complexity and chance of failure to a higher level by introducing problems related to international human resource management. Multinational corporations (MNCs) have a more complex business model as indicated by Prahalad and Doz’s (1987) ‘Integration and Responsiveness (IR) Grid’ and are more likely to fail in successfully conducting an IM&A.[5]

The combination of these two problems would require two levels of adaptation by employees in both the acquiring and the acquired organisation. The first would be adapting to new members of employees coming into the parent organisation from a foreign organisation while the second involves working together with new employees from a totally different country with different cultures and social norms. Both problems present a serious challenge as many companies underestimate the complexities involved in international operations (Briscoe, 1995)[6], thus leading to high failure rates in the process of internationalisation (Loustarinen et al., 1994).[7]

Early models (Johanson and Vahlne, 1977)[8] suggested that internationalisation is a sequential and orderly process and can be considered as a series of stages through which a company moves, as it progressively enters  markets that are closest in “psychic” distance before moving into markets that are more “foreign” and difficult (Hallen and Wiedersheim-Paul, 1979).[9] However, by acquiring a foreign bank, EXBank would be skipping the normal steps of internationalisation by directly acquiring a direct subsidiary in a foreign country. The fundamental strategic problem posed to top managers in international firms is to balance the economic need for integration with the social, cultural and political pressures for local responsiveness (Barlett and Ghoshal, 1989).[10]

According to Cartwright and Cooper (2000), failures of M&As can be attributed to human resource factors such as culture and management differences, poor motivation, leaving of personnel and uncertain long-term goals.[11] Schuler and Jackson (2001) implicitly support these factors by stating that M&As fail frequently because of the neglect of human resource issues and activities.[12] This is probably due to the fact that human resource policies have a significant effect on the acquirer’s ability to get the best of the acquired firm (Faulkner (2002).

(Please refer to table 1, 2, 3 and figure 1)

3. Two Key Areas of Human Resource Management (HRM) to be considered

3.1 The Psychological Contract

At the heart of an international acquisition lies the inevitable change that would occur when two organisations merge to become a single entity. Perhaps the most serious damage to both parties would be a change in the psychological contracts between employer and employees. According to Rousseau (1995), it is generally accepted that the psychological contract is concerned with an individual’s subjective beliefs regarding the terms of the relationship between the individual employee and the organisation.[13] The psychological contract is subjective in the sense that it is an unwritten and an often not discussed contract that goes beyond the formal contract of employment.

The fact that the psychological contract is unwritten makes it extremely elusive yet undoubtedly important during an international acquisition. There are two forms of psychological contracts that are generally accepted. The first is termed as relational, with employee offering loyalty, conformity, commitment and trust in return for security of employment, promotion prospects, training and development and flexibility during times of difficulty (Arnold et al., 1998).[14] Should relational contracts be violated, transactional contracts in which ‘employee offers longer hours, broader skills and tolerance for change and ambiguity in return for high pay, rewards for high performance and simply a job’ are imposed.

An acquisition of a new organisation changes the nature of the psychological contract by introducing a high degree of uncertainty in both organisations. This would cause a significant change in the unstated expectations of the past that because of the old psychological contract have over time become relatively stable. This would likely cause the relational psychological contract to be void and replaced with a transactional contract that would be narrower and highly undefined. Rousseau (2001) also suggested that a negative change in the employment relationship may adversely affect the psychological contract.[15]

The danger in an international acquisition is that the acquirer shatters the old psychological contract and fails to negotiate a new contract with the acquired organisation’s employees. Sparrow (1996) noted that psychological contracts are similar to Herzberg’s hygiene factors in the sense that a good psychological contract may not always result in superior performance or satisfied employees while poor psychological contracts tend to act as demotivators that cause lower levels of employee commitment, higher absenteeism and turnover, and reduced performance.[16] The outcome of a unilateral breaking of the psychological contract and the failure to negotiate a new one would most likely lead to a decrease in commitment, motivation, morale, and performance.

In relation to performance management, the psychological contract also points out that it would be wrong for the acquiring organisation to assume that employees seek primarily monetary rewards. Both quality in relationships, work experiences and more importantly the concept of mutuality found in the psychological contract are important motivational factors that foster a higher level of performance in employees. It is important that the acquiring organisation renegotiation of a new psychological contract that transcends both contractual and statutory obligations to rebuild the trust and relationship between employees of both organisations and the newly formed corporate entity.

The reestablishment of a new psychological contract should be considered an imperative first step that should be planned during the pre-integration stage of the acquisition. Due to the different cultures in different organisations and countries, it is likely that the nature of the psychological contract in different geographical regions is different. As Fralicx and Bolster (1997) put it, “cultures can be a make-or break factor in the merger equation.”[17] Cartwright and Cooper (1993) also stated that financial benefits anticipated from M&As are often unrealised because of incompatible cultures. The acquiring organisation must take into account that cultural differences would lower the possibility of successful integration because of the failure of understanding psychological contracts of different cultures.

(Please refer to table 4 and figure 2)

3.2 Labour Turnover and Retention

The psychological contract answers three of the four human resource factors (Cartwright and Cooper 2000) namely culture and management difference, poor motivation and uncertain long-term goals, which lead to the failures of M&As. While the renegotiation of a new psychological contract may not be a direct way to manage the three factors as stated above, the presence of a new psychological contract will help in the integration of the two organisations. The last factor as stated by Cartwright and Cooper (2000) is the leaving of personnel during the pre and post-integration stage.

The problem of labour turnover and retention is not one that is completely independent of the problems faced from the dissolution of psychological contracts during acquisitions. On the contrary, the problems of labour turnover and retention are a mere extension of the problems created when psychological contracts are broken. According to Wallum (1980), people feel threatened and defensive during takeovers and mergers.[18] Among the factors influencing individuals during a M&A includes uncertainty, loss of identity, job loss, changes in reporting relationship and new co-workers (Bruckman and Peter, 1987).[19]

The CIPD survey (CIPD, 2005) identified the main reasons for employee turnover which include promotion outside the organisation, lack of development or career opportunities, change of career and level of pay.[20] Lack of development or career opportunities is a problem that is prevalent during an acquisition because corporate restructuring (downsizing and rightsizing) will increase redundancies, lower job security and promotional opportunities. This is usually done by removing a layer of employees from the organisational structure and thus removing the previous path for career development. The level of pay factor may also be relevant in an acquisition as some personnel may find that their pay are not as high as it previously was.

Although high labour turnover may not necessarily be problematic if the acquiring organisation is seeking to reduce costs (Sadhev et al., 1999)[21], high labour turnover rates after an acquisition may potentially disrupt the organisation’s business operations (CIPD survey data, 2005).[22] This is especially true when the acquisition is done in order to ‘purchase’ certain expertise or experienced personnel from another company. It would defeat the purpose of acquiring the company to obtain key personnel and then on a later date realise that those individuals would not remain with the organisation. Also due to the fact that EXBank is acquiring a foreign organisation, retaining key individuals in Malaysia would be an imperative for the success of the acquisition.

A report from a HR benchmark group (IRS, 2002) listed down five factors affecting labour turnover which include, the quality of the relationship with their supervisor or manager, an ability to balance work and home life, the amount of meaningful work and the feeling of making a difference, the level of cooperation with co-workers, and the level of trust in the workplace.[23] In the event of an acquisition, the likely relevant factors are the decrease in quality of the relationships with supervisors and managers, the level of cooperation with co-workers, and the absence of trust in the workplace.

(Please refer to table 3, 4 and figure 5)

4. Merger and Acquisition Challenges in the Financial Services Industry

Mergers and acquisitions are not something new in the Malaysian financial system. After the Asian financial crisis in 1997, the Malaysian central bank engineered many mergers and acquisition in order to prevent the recurrence of failures in smaller financial institutions. By the end of 2001, there were only 10 anchor banks left, out of the previous 54 financial institutions that existed in Malaysia (Bala 2003).[24]

However, mergers and acquisitions are not something that guarantees success regardless of how well the potential benefits are. This is especially true for workers in both organisations that suffer from “survivor syndrome” after the placement of a poor psychological contract (Baruch and Hind, 1999).[25] Herriot and Pemberton (1997) also noted that continuous change and restructuring were shown to lead to increase feelings of insecurity, inequity and powerlessness which would likely affect morale and motivation in employees of both organisations.

Evidence of this can be seen in the recent acquisition of Bear Sterns by JP Morgan Chase. In the process of acquiring Bear Sterns, JP Morgan Chase would have to cut 4,000 of its own employees worldwide to take in 6,000 of Bear Stern’s employees.[26] While the taking in of Bear Stern’s employees would fill in areas that JP Morgan is not strong in, namely, prime brokerage, clearing, energy trading and investment banking coverage, potential synergies may be disrupted as the performance of existing staff plummets. One of the reasons for this is that many employees face the “survivor syndrome” as the duplication of functions particularly in the technology and operations arm would mean that some people must be made redundant.

Another recent example is the acquisition of Merrill Lynch & Co. by Bank of America. After the acquisition, Bank of America announced plans to cut 30,000 to 35,000 jobs for the next three years after acquiring Merrill Lynch.[27] The New York Times reports that this move would reduce the total workforce of both firms by a significant 11 percent. The rationale is that both Bank of America and Merrill Lynch have significant duplication in the areas of research and investment banking. This move would also likely trigger the “survivor syndrome” among employees and have a negative impact on employee performance. Furthermore, problems in remuneration policies triggered a huge problem as Bank of America had to pay bonuses amounting to $3.6 billion to employees in Merrill Lynch.[28]

On the other hand, the acquisition of Bankers Trust by Deutsche Bank can be viewed as one of the most successful integration processes in the financial industry (Salama et al., 2003).[29] Although potential synergies were expected at the beginning of the merger, the real cause of its success was the careful planning undertaken to tackle difficulties of integrating two organisations. What is relevant here is that Deutsche Bank, a German bank, acquiring Bankers Trust, an American Bank, runs parallel to EXBank acquiring a Malaysian bank. Harold Stoehr noted that the pre-integration stage was crucial as a cultural assessment was carried out to better understand the perception of employees in both organisations.

Adding oil to the flame was that the previous acquisition of Alex Brown by Bankers Trust was not done properly, leaving Alex Brown’s employees feeling a ‘loss of identity.’ This ended in Deutsche Bank rebranding the merged company as The Deutsche Bank – Alex Brown Investment Bank in the USA. During the implementation stage, some employees from both organisations were made redundant and retention strategies were used to hold key individuals. Harold noted that retention programmes were carried out swiftly in order to avoid undesirable labour turnover and uncertainties.

(Please refer to table 6)

5. Responses

Harper and Comeraie (1995) noted that one of the major reasons for the failure of a M&A is “a lack of adequate preparation of the personnel involved and a failure to provide training which fosters awareness, cultural sensitivity and the spirit of co-operation.[30] Both the psychological contract and labour turnover remains highly volatile during the pre and post-integration stage of an acquisition. These two HR issues must be managed first before other important HR issues are taken into consideration.

To overcome these challenges during an acquisition, Walker (1998) identified a series of steps that include 1) celebrating small wins, 2) acknowledging value in past practices, 3) measuring integration processes at regular intervals, 4) involving employees in managing the integration process, 5) identifying ingrained behaviours that might become obstacles, 6) communicating how integration will be implemented, and 7) providing a clear rationale for the merger and acquisition.[31]

Culture shock and to a certain degree the psychological contracts between employer and employees can be managed through the following steps highlighted by Fralinx and Bolster (1997) that calls for letting employees know 1) where the firm is going, 2) recognizing the diversity in each organisation’s culture, 3) being honest and patient, and 4) harmonizing leadership to drive the new culture.[32] This is in line with Buono et al., (1985) that suggested that even though typical individuals resist changes, they are more likely to support change if they understood it.[33]

The risk analysis grid on the other hand, is a useful tool to help manage labour turnover. Bevan et al., (1997) identified two factors, namely, the likelihood that an individual will leave and the consequences of resignation.[34] According to the IRS (2001), people who are younger, better qualified, holding a shorter service record, few domestic responsibilities, marketable skills and low morale are the most likely to leave.[35] The consequences of any resignation would on the other hand be determined by their position in an organisation, performance and the ease of replacement.

Lastly, Schneider and Dunbar (1992) emphasised the role that the media plays in shaping the social context of M&As.[36] The media can work to fuel the anxiety levels of employees according to the perspective presented by journalist. The higher management should utilise this outlet of communication through either press releases or interviews to guide the media in publishing material that are in line with goals and objectives of the acquisition. Media materials that are in direct conflict with these goals and objectives should be met with quick and decisive responses to clarify any uncertainties concerning the acquisition.

(Please refer to table 7 and 8)

(Please refer to table 9, 10, 11 and 12 for data on the Malaysian workforce)

6. Conclusion

The success of an acquisition depends highly on the level of anticipating and pre-planning human resource issues that will occur during the pre and also post-integration stage. It is important from the pre-integration stage to involve human resource personnel throughout the entire acquisition process. This should be done to give human resource personnel a better overall understanding of the desired outcome of the acquisition and also put them in a better position to foster a more transparent way to re-negotiate psychological contracts with employees and prevent a drastic spike in labour turnover.

7. Bibliography

Alzira Salama, Wayne Holland, and Gerald Vinten (2003), Challenges and Opportunities in mergers and acquisitions: three international case studies – Deutsche Bank-Bankers Trust; British Petroleum-Amoco; Ford Volvo, Journal of European Industries Training, pp313-321.

Arnold, J., Cooper, C. and Robertson, I. (1998), Work Psychology: Understanding Human Behavior in the Workplace, 3rd Ed, Harlow: Financial Times.

Bala Shanmugam (2003), Mergers and Acquisitions of Banks in Malaysia, Vol. 30, No.4 Available at: http://www.emeraldinsight.com.lcproxy.shu.ac.uk/Insight/viewContentItem.do;jsessionid=518EA667781C97AA7E0BDA2A1F505824?contentType=Article&contentId=865920 Accessed: 12 September 2009

Bank of America to cut 30,000 jobs, 11 Dec 2008, Business News, United Press International, Inc, Available at: http://www.upi.com/Business_News/2008/12/11/Bank-of-America-to-cut-30000-jobs/UPI-55991229044012/ Accessed: 12 Sept 2009.

Barlett, C. And Ghoshal, S. (1989), Managing across Borders: The Transnational Solution, Harvard Business School Press, Boston, MA.

Baruch, Y. and Hind, P. (1999), Perpetual motion in organization: effective management and the impact of the new psychological contracts on survivor syndrome, European Journal of Work and Organizational Psychology, Vol. 8, No. 2, pp. 295-306.

Beardwell and Clayton (2007), Human Resource Management: A Contemporary Approach, 5th ed, Prentice Hall, Pearson Education Limited, Essex, England.

Bevan, S., Barber, L. And Robinson, D. (1997) Keeping the Best: A Practical Guide to Retaining Key Employees, London: Institute for Employment Studies.

Bou-Wen Lin, Shih-Chang Hung, and Po-Chien Li (2005), Mergers and acquisitions as a human resource strategy: Evidence from US banking firms, International Journal of Manpower, Vol. 27, No. 2, pp 126-142.

Torsten J. Gerpott and Brian Bloch (1992), Strategic Human Resource Management for the Integration of Foreign Acquisitions, Journal of Management Development, Vol. 11, No. 5, pp 3-15.

Briscoe, D. (1995), International Human Resource Management, Prentice Hall, Englewood Cliffs, NJ.

Bruckman, J.C. and Peters, S.C., (1987), Mergers and Acquisitions: The Human Equation, Employment Relations Today, pp. 55-63.

Buono, A. F., Bowditch, J.L. and Lewis, J. W. (1985), When cultures collide: the anatomy of a merger, Human Relations, Vol. 38 No. 5, pp 477-500.

Carleton, R.J. (1997), Cultural due diligence, Training, Vol. 34, pp.67-80.

Carol Atkinson (2002), Career management and the changing psychological contract, Career Development International, Vol. 7, No. 1, pp 14-23.

Cartwright, S. and Cooper, C. (2000), HR Know-how in Mergers and Acquisitions, Institute of Personnel and Development, London.

Cartwright, S. and Cooper, C. (2000), HR Know-how in Mergers and Acquisitions, Institute of Personnel and Development, London.

Charted Institute of Personnel and Development (2005), Recruitment, Retention and Labour Turnover, CIPD Survey Report.

Elina M.Antila and Anne Kakkonen (2008), Factors affecting the role of HR managers in international mergers and acquisitions: A multiple case study, Personal Review, Vol. 37, No. 3, pp 280-299.

Fralinx, R. D. and Bolster, C. J. (1997), Preventing culture shock, Modern Healthcare, August, Vol.11, p.50.

Gerald Vinten (1993), Employee Relations in Mergers and Acquisitions, Employee Relations, Vol. 15, No.4, pp 47-61.

Hallen, L. and Wiedersheim-Paul, F. (1979), Psychic distance and buyer-seller interaction, Organisation, Markand och Samhalle, Vol.16, No.5, pp 308-324.

Harper, J. and Cormeraie, S. (1995), “Mergers, marriages and after: how can training help?”, Journal of European Industrial Training, Vol. 19 No. 1, pp. 24-9.

IRS (2001), Risk Analysis and Job Retention, IRS Employee Development Bulletin 141.

IRS (2002), The changing face of successful planning, IRS Employment Review 756, 22 July;37-42.

James Belohlav and Helen LaVan (1999), The impact of corporate restructuring on human resource management functions, International Journal of Management, Vol. 10, No. 3, pp 24-27.

Johanson, J. and Vahlne, J-E. (1977), The internationalisation process of the firm – a model of knowledge development and increasing foreign commitment, Journal of International Business Studies, Vol. 8 No. 1, pp.23-32.

Kathy Monks, Hugh Scullion and Jane Creaner (2001), HRM in international firms: Evidence from Ireland, Personal Review, Vol. 30, No. 5, pp 536-553.

Loustarinen, R.K., Korhonen, H., Jokinen, J. And Pelkonen, T. (1994), Globalization of Economic Activities and Small and Medium-Sized Enterprise Development, Helsinki School of Economics, Helsinki.

Michelle C. Bligh and Melissa K. Carsten (2006), Post-merger psychological contracts: exploring a “multiple foci” conceptualization, Employee Relations, Vol. 27, No. 5, pp 495-510.

Mike Schraeder and Dennis R. Self (2003), Enhancing the success of mergers and acquisitions: an organizational culture perspective, Management Decision, pp 511-522.

Overman, S. (1999), “Learning your M&ABC’s”, HR Focus, Vol. 76 No. 8, pp. 7-11.

Pralahad, C.K. and Doz, Y. (1987), The Multinational Mission: Balancing Local Demands and Global Vision. New York: The Free Press.

Rousseau, D. (1995), Psychological Contracts in Organizational Behavior: Texts, Readings and Cases, 2nd Ed, London: McGraw-Hill.

Rousseau, D. (2001), ‘Schema, promise and mutuality: the building blocks of the psychological contract’, Journal of Occupational and Organisational Psychology, 74:511-541.

Sadlev, K. Vinnicombe, S. and Tyson, S. (1999), Downsizing and the changing role of HR, International Journal of HRM, 10,5:906-923.

Sarah O’Connor, 31 March 2009, Merrill’s $3.6bn bonuses under fire, Financial Times Limited, Available at: http://www.ft.com/cms/s/0/ea5bfba6-1d7e-11de-9eb3-00144feabdc0.html?nclick_check=1 Accessed: 12 September 2009).

Schneider, S. C. and Dunbar, R. L. (1992), A psychoanalytic reading of hostile takeover events, Academy of Management, Vol. 17, No. 3, pp 537-59.

Schuler, R. and Jackson, S. (2001), HR issues and activities in mergers and acquisitions, European Management Journal, Vol. 19 No. 3, pp. 239-53.

Sparrow, P. (1996), Transactions in the psychological contract, Human Resource Management Journal, 6,4:75-92.

Tallman, S. and Li, J. (1996), Effects of international diversity on the performance of multinational firms, Academy of Management Journal, Vol. 39 No. 1, pp. 179-96.

Victoria Bellou (2007), Psychological contract assessment after a major organizational change: The case of mergers and acquisitions, Employee Relations, Vol. 29, No. 1, pp68-88.

Walker, K. (1998), Meshing cultures in a consolidation, Training and Development, Vol. 52, No. 5, pp 83-8.

Wallum, P., (1980), “Personnel’s Role in Company Mergers”, Personnel Management, Vol. 12 No. 10, pp. 58-61.

Xieli Lee, May 2008, 4,000 JP Morgan staff Face the Axe, Human Resources Online, Available at: http://www.humanresourcesonline.net/news/6725 Accessed: 12 September 2009.


[1] Tallman, S. and Li, J. (1996), Effects of international diversity on the performance of multinational firms, Academy of Management Journal, Vol. 39 No. 1, pp. 179-96.

[2] Cartwright, S. and Cooper, C. (2000), HR Know-how in Mergers and Acquisitions, Institute of

Personnel and Development, London.

[3] Carleton, R.J. (1997), Cultural due diligence, Training, Vol. 34, pp.67-80.

[4] Overman, S. (1999), “Learning your M&ABC’s”, HR Focus, Vol. 76 No. 8, pp. 7-11.

[5] Pralahad, C.K. and Doz, Y. (1987), The Multinational Mission: Balancing Local Demands and Global Vision. New York: The Free Press.

[6] Briscoe, D. (1995), International Human Resource Management, Prentice Hall, Englewood Cliffs, NJ.

[7] Loustarinen, R.K., Korhonen, H., Jokinen, J. And Pelkonen, T. (1994), Globalization of Economic Activities and Small and Medium-Sized Enterprise Development, Helsinki School of Economics, Helsinki.

[8] Johanson, J. and Vahlne, J-E. (1977), The internationalisation process of the firm – a model of knowledge development and increasing foreign commitment, Journal of International Business Studies, Vol. 8 No. 1, pp.23-32.

[9] Hallen, L. and Wiedersheim-Paul, F. (1979), Psychic distance and buyer-seller interaction, Organisation, Markand och Samhalle, Vol.16, No.5, pp 308-324.

[10] Barlett, C. And Ghoshal, S. (1989), Managing across Borders: The Transnational Solution, Harvard Business School Press, Boston, MA.

[11] Cartwright, S. and Cooper, C. (2000), HR Know-how in Mergers and Acquisitions, Institute of

Personnel and Development, London.

[12] Schuler, R. and Jackson, S. (2001), HR issues and activities in mergers and acquisitions, European Management Journal, Vol. 19 No. 3, pp. 239-53.

[13] Rousseau, D. (1995), Psychological Contracts in Organizational Behavior: Texts, Readings and Cases, 2nd Ed, London: McGraw-Hill.

[14] Arnold, J., Cooper, C. and Robertson, I. (1998), Work Psychology: Understanding Human Behavior in the Workplace, 3rd Ed, Harlow: Financial Times.

[15] Rousseau, D. (2001), ‘Schema, promise and mutuality: the building blocks of the psychological contract’, Journal of Occupational and Organisational Psychology, 74:511-541.

[16] Sparrow, P. (1996), Transactions in the psychological contract, Human Resource Management Journal, 6,4:75-92.

[17] Fralicx, R.D. and Bolster, C.J. (1997), “Preventing culture shock”, Modern Healthcare, August, Vol 11, p.50.

[18] Wallum, P., (1980), “Personnel’s Role in Company Mergers”, Personnel Management, Vol. 12 No. 10, pp. 58-61.

[19] Bruckman, J.C. and Peters, S.C., (1987), “Mergers and Acquisitions: The Human Equation”, Employment Relations Today, pp. 55-63.

[20] Charted Institute of Personnel Development (2005), Recruitment, Retention and Labour Turnover, CIPD Survey Report.

[21] Sadlev, K. Vinnicombe, S. and Tyson, S. (1999), Downsizing and the changing role of HR, International Journal of HRM, 10,5:906-923.

[22] Charted Institute of Personnel and Development (2005), Recruitment, Retention and Labour Turnover, CIPD Survey Report.

[23] IRS (2002), The changing face of successful planning, IRS Employment Review 756, 22 July;37-42.

[24] Bala Shanmugam (2003), Mergers and Acquisitions of Banks in Malaysia, Vol. 30, No.4 Available at: http://www.emeraldinsight.com.lcproxy.shu.ac.uk/Insight/viewContentItem.do;jsessionid=518EA667781C97AA7E0BDA2A1F505824?contentType=Article&contentId=865920 Accessed: 12 September 2009

[25] Baruch, Y. and Hind, P. (1999), Perpetual motion in organization: effective management and the impact of the new psychological contracts on survivor syndrome, European Journal of Work and Organizational Psychology, Vol. 8, No. 2, pp. 295-306.

[26] Xieli Lee, May 2008, 4,000 JP Morgan staff Face the Axe, Human Resources Online, Available at: http://www.humanresourcesonline.net/news/6725 Accessed: 12 September 2009.

[27] Bank of America to cut 30,000 jobs, 11 Dec 2008, Business News, United Press International, Inc, Available at: http://www.upi.com/Business_News/2008/12/11/Bank-of-America-to-cut-30000-jobs/UPI-55991229044012/ Accessed: 12 Sept 2009.

[28] Sarah O’Connor, 31 March 2009, Merrill’s $3.6bn bonuses under fire, Financial Times Limited, Available at: http://www.ft.com/cms/s/0/ea5bfba6-1d7e-11de-9eb3-00144feabdc0.html?nclick_check=1 Accessed: 12 September 2009).

[29] Alzira Salama, Wayne Holland, and Gerald Vinten (2003), Challenges and Opportunities in mergers and acquisitions: three international case studies – Deutsche Bank-Bankers Trust; British Petroleum-Amoco; Ford Volvo, Journal of European Industries Training, pp313-321.

[30] Harper, J. and Cormeraie, S. (1995), “Mergers, marriages and after: how can training help?”, Journal of European Industrial Training, Vol. 19 No. 1, pp. 24-9.

[31] Walker, K. (1998), Meshing cultures in a consolidation, Training and Development, Vol. 52, No. 5, pp 83-8.

[32] Fralinx, R. D. and Bolster, C. J. (1997), Preventing culture shock, Modern Healthcare, August, Vol.11, p.50.

[33] Buono, A. F., Bowditch, J.L. and Lewis, J. W. (1985), When cultures collide: the anatomy of a merger, Human Relations, Vol. 38 No. 5, pp 477-500.

[34] Bevan, S., Barber, L. And Robinson, D. (1997) Keeping the Best: A Practical Guide to Retaining Key Employees, London: Institute for Employment Studies.

[35] IRS (2001), Risk Analysis and Job Retention, IRS Employee Development Bulletin 141.

[36] Schneider, S. C. and Dunbar, R. L. (1992), A psychoanalytic reading of hostile takeover events, Academy of Management, Vol. 17, No. 3, pp 537-59.

  1. 1. Appendices

Table 1: Profitability of the Malaysian banking system

2001

2002

2003

2004

2005

Pre-tax profit (Rm mil)

6,923

9,328

10,177

11,569

12,380

Return on assets (ROA)

1.0

1.3

1.3

1.4

1.4

Return on equity (ROE)

13.4

16.3

15.3

16.3

50.5

Source: Bank Negara & AmResearch

Table 2: Summary of the pressures making up the I-R grid (adapted for financial services organisations)

I-R grid Pressures
Strategic coordination need is high where:
  • Multinational customers are a large proportion of customer base making it important to coordinate pricing, service and product support because multinational customers have the ability to compare prices on this basis.
  • Global competition is likely as the company is operating in multiple markets.
  • Investments in one or more parts of business must be coordinated globally to increase benefits and yields.
Operational integration need is high where:
  • Technological intensity is high as the company is serving geographically dispersed markets.
  • Cost reduction through economies of scale is a priority.
  • The product is universal and requires minimal adaptation to local markets.
Local responsiveness is high where:
  • Customer demands vary across nations and regions.
  • Distribution channels need to be tailored to suit the characteristics of local regions.
  • There are other similar products that may have to be tailored to suit local needs.
  • Local competitors rather than multinational competitors define the market competition.
  • Restriction by host country on operating subsidiary.

Table 3: Stages in a merger

Stage Characteristics of merger
  1. 1. Preparatory
Degree of environmental uncertainty (technological, market, sociopolitical) may vary, but respective organizations are relatively stable, and members are fairly happy with the status quo.
  1. 2. Planning
Environmental uncertainty increases, which precipitates discussion of merger/takeover possibilities; fears rise that unless the firm grows, larger companies will destroy it or the organization will become less competitive or even fail; the firm is still relatively stable, and discussion is confined to top executive level.
  1. 3. Announcement
Environmental uncertainty continues to increase, influencing decision; the organization is still relatively stable, and while members have mixed emotions about the merger, expectations are raised.
  1. 4. Initiation
Organizational instability increases, demonstrated by structural ambiguity (high) and some cultural and role ambiguity (low); although members are generally co-operative at the outset, goodwill quickly erodes.
  1. 5. Formal
Organizational instability increases as structural, cultural and role ambiguities increase; mechanistic organizations take on some organic characteristics for a period; conflict between organizational members increases.
  1. 6. Aftermath
High organizational instability, lack of co-operation, and “we-they” attitude exist; violated expectations lead to intra-and inter-unit hostility; structural ambiguity decreases, but cultural and role ambiguity remains high; dissenters leave the organization.
  1. 7. Psychological
Organizational stability recurs as ambiguities are clarified and expectations are revised; renewed co-operation and intra-and inter-unit tolerance; time-consuming process.

Source: Buono, A.F. and Bowditch, J.L. (1989) The Human Side of Mergers and Acquisitions, Jossey-Bass, London.

Table 4: Types of Psychological Contracts

Relational and Transactional Contracts
Transactional Relational
Primary focus Economic factors Economic factors
Time frame Closed ended and short-term Open ended and indefinite
Stability of relationship Static, rarely changing Dynamic and frequently changing
Scope of relationship Narrow Broad and pervasive
Tangibility of terms Well defined Highly subjective

Source: Julie Beardwell and Time Clayton (2007), Human Resource Management: A Contemporary Approach, 5th Ed, Prentice Hall, Pearson Education Limited, England.

Figure 2: Corporate Culture

Source: Charted Institute of Personnel Development (2005), Recruitment, Retention and Labour Turnover, CIPD Survey Report.

Source: Charted Institute of Personnel and Development (2005), Recruitment, Retention and Labour Turnover, CIPD Survey Report.

Table 5: Risk analysis grid

Likelihood of leaving
High Low
Impact on organisation High Danger zone Watching brief
Low ‘Thanks for all you have done’ No immediate danger

Source: Bevan (1997)

Table 6: Examples of acquisitions

Stages Details
Integrating Deutsche Bank and Bankers Trusts
Reasons for acquisition
  • Strategic fit
  • Changing a German bank into a global organisation
  • Bankers Trust include people from Alex Brown (the oldest US investment bank)
Pre-integration period
  • Crucial successful action taken by top management
  • Two companies operated independently after acquirer commits to the acquisition
Cultural assessment exercise
  • Powerful strategy to minimise culture clashes between the German and the US bank
  • Cultural assessment was conducted by an external company to provide neutral results
Cultural assessment outcomes
  • Deutsche Bank employees were not convinced that Bankers Trust would help the German bank’s reputation
  • Top management sees this as an information gap and better communication to employees on the rationale and validity of the deal was implemented
  • Results also show that employees in Alex Brown felt they had lost their identity after being acquired by Bankers Trust
  • Top management decided to name the merged company in the USA, The Deutsche Bank – Alex Brown Investment Bank
  • Results revealed national culture differences
Integration Phase
  • An integration team of key executives was made in charge of making the necessary decisions relating to integration strategies
  • Team consisted of the human resource head and the CEO
  • Some employees from both organisations were made redundant
  • Redundancy packages were introduced in an incentive programme
  • Retention strategies were introduced to avoid undesirable employee turnover and minimise uncertainties
Integrating British Petroleum and Amoco
Pre-merger phase
  • Success lay in the preparation phase with an integration team created to face the challenges of merging two international groups (US and British)
  • Integration team was lead by a senior line manager reporting o the CEO
  • During this phase, the team assessed the possible synergies and focused on combining two head offices and merging two operating divisions
Integration phase
  • Integrating duplicated areas
  • Establishing the management for the new company with importance being placed to create opportunities for personnel from both companies
  • Integrating systems was necessary to ensure smooth running of operations
  • Integrating benefit packages, training, recruitment activities etc
  • Building a new corporate culture for the organisation
Monitoring the progress of implementing the integration strategies
  • Survey was conducted on a sample of staff on a monthly basis for 18 months to see how people felt as the merger unfolded
  • This strategy helped to inform the subsequent communication effort as well as providing top management with good data for monitoring the integration processes

Source: Alzira Salama, Wayne Holland, and Gerald Vinten (2003), Challenges and Opportunities in mergers and acquisitions: three international case studies – Deutsche Bank-Bankers Trust; British Petroleum-Amoco; Ford Volvo, Journal of European Industries Training, pp313-321.

Table 7: Key Success Factors for Acquisitions

Key Success Factors for Acquisitions Importance
Ability to integrate company

85

Synergies

84

Competitive position of company acquired

81

Evaluation of acquisition candidate

80

Management abilities of company acquired

77

Prior experience of making acquisitions

69

Market growth of company acquired

69

Technology position of company acquired

68

Compatibility of management styles

67

Price paid

64

Aid from public authorities

24

Source: Ansoff, H.I., Brandenburg, R.G., Portner, F.E. and Radosevich, R., Twenty Years of Acquisition Behavior in America. A comparative study of mergers and acquisitions of US manufacturing firms 1946-1965, Cassell, London, 1972.

Table 8: Post-acquisition surprises

Post-acquisition surprises Occurrence (%)
Dishonest presentation 31
Lack of management control 23
Management calibre 19
“Problem” vendor subsidiaries 15
Personnel policies 8
Production capability 4

Source: Gerald Vinten (1993) Employee Relations in Mergers and Acquisitions, University Press MCB 0142-5455  pp. 47-64.

Table 9: Different HR issues in different countries

National Employment Systems Details
Germany: Social partnership model
  • A framework of law: allows employers and workers to regulate their own affairs with little direct interference from the state
  • A dual structure of interest representation: issues of interest (wages and hours) and issues of rights (industry-wide collective agreements), trade unions and work councils are separate legal entities with different functions
  • Centralisation and coordination of collective bargaining at sectoral level: private sector collective bargaining taken place in each region, public sector collective bargaining conducted on a national level
  • Encompassing organisations of workers and employers: Unions are legally required to represent all workers, not just their own members, work councils represent all workers in a workplace
  • Social partnerships: Strong emphasis on labour-management cooperation supported by the state, peak confederations of employees’ associations and trade unions, participate in a three-way ‘political exchange’
  • Bargained corporatism: employment protection laws are stricter than USA and UK but not as strict as Italy, Spain and France
  • The vocational education and training system: most school leavers who do not go on to higher education spend three years as apprentices in the vocational education system
Japan: Enterprise-based model
  • Lifetime employment: Large Japanese corporations have filled the vast majority of their permanent vacancies by recruiting school-leavers and university graduates as trainees which once hired, usually remain with the company until retirement
  • Seniority-based pay and promotion: instead of pay being job-related, it is also person related (age and length of service)
  • Enterprise unionism: Japanese union organisation is based around individual enterprises (Nissan, Toyota)
  • Vocational education and training system: New recruits are selected on their ability to fit in to company values, work cooperatively with others and benefit from training in company-specific skills
The American model: Managerial model
  • Pluralism: The New Deal introduced during the Great Depression promised a series of government interventions to create jobs, provide a measure of social security, and address the historic imbalance of power in the employment relationship (written contracts, detailed job descriptions, formalised grievance and disciplinary procedures, seniority rules to determine lay-offs)
  • Sophisticated unitarism: Welfare capitalism, a management approach to labour relations based on non-unionism and strong mutual commitment between employer and employees
  • Nature of state regulation: As a liberal market economy, the government is reluctant to play an active role in the regulation of business.
  • Vocational education and training system: does not have a strongly developed system of vocational education and training

Table 10: Employment by Gender and Sectors, 2000 and 2005

Sector

Number (‘000)

%

2000

2005

2000

2005

Male

Female

Male

Female

Male

Female

Male

Female

Agriculture, Forestry, Livestock

and Fishing

1,030.3

392.7

4,046.9

358.8

17.3

11.9

15.2

9.0

Mining and Quarrying

36.5

5.3

39.9

2.8

0.6

0.2

0.6

0.1

Manufacturing

1460.0

1,105.8

1,865.8

1,266.3

24.5

33.5

27.0

31.7

Construction

704.3

47.9

703.5

56.1

11.8

1.5

10.2

1.4

Electricity, Gas, and Water

66.8

8.2

81.5

11.5

1.1

0.2

1.2

0.3

Transport, Storage

and Communications

402.8

58.8

536.3

94.9

6.7

1.8

7.8

2.4

Wholesale and Retail Trade, Hotels

and Restaurants

954.7

628.2

1,176.6

750.6

16.0

19.0

17.0

18.7

Finance, Insurance, Real Estate

and Business Services

296.4

203.8

421.4

310.9

5.0

6.1

6.1

7.8

Other Services

1019.0

853.1

1,026.6

1,144.4

17.0

25.8

14.9

28.6

Total

5,970.8

3,303.8

6,898.5

3,996.3

100.0

100.0

100.0

100.0

Source: Economic Planning Unit cited from: Abdul Rahman Embong, 2007, Social Science & Malaysian National Development, Ampang Press Sdn. Bhd., p.112.

Figure 11: Employment by Major Occupational Group, 2005-2010 (‘000 persons)

Source: Kam Racheal et. al, 2008. Jobless rate fell to 3.2% last year. The Star, 27Jun. B10.

Figure 12: Population by Age Group

Source: Department of Statistics Malaysia, 2007. Population by Age Group. [Online]. Available at:    http://www.statistics.gov.my/images/graf/pop2007.jpg [Accessed 19 June 2008]

Comments
One Response to “A Study Concerning The Changes in The Psychological Contract and Labour Turnover During International Mergers and Acquisitions”
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