Moral and Legal Concerns in Mergers

Companies pursue mergers with the sole reason of taking advantages of the synergy effects that accrue to combining operations of two or more entities- such as market widening and transfer of skills and resource (Sawaki, 2015). However, the variance in organizational culture between the merging entities tends to pose various legal and ethical challenges before, during and after the merging exercise. Human Resource Department (HR) operates as a moral yardstick to which it guides the merging companies by raising and addressing questions of fairness, honesty, and accountability throughout the process (Uday, 2012). As a strategic HR director, the responsibility of ensuring and helping all employees adhere to the resultant code of ethics agreed upon by the two companies. Further, HR must develop an ethical and safe work environment that ensures every employee enjoys their rights-such as the right to information pertaining their jobs and freedom to perform their roles without any form of coercion or duress.

            As HR personnel we are caught in a very tight ethical and legal dilemma, balancing between the welfare of the employees and financial gain of the company (Uday, 2012). However, facing the alternative of criminal or civil penalties as a result of breaking the law or unethical practices would tarnish our company’s image and lead to employee demoralization. As a Strategic HR Director, I am experienced and trained to address and foresee all the ethical and legal surrounding mergers. It is my understanding that all merging companies would want to extend their cultures and maintain continuity in their moral codes throughout the alliance. In this regard, I have developed a plan that will efficiently resolve the underlying ethical and legal issues to create a conducive and cohesive work environment for all the employees. In this paper, I will point out the moral and legal concerns in mergers subsequently culminating in devising an implementation proposal for managing the issues.

Ethical and Legal Concerns Surrounding Mergers

Vital ethical concerns that most occasions do not receive enough focus of the acquiring organization are employee rights, responsibilities and roles of shareholders in the course of merging process. Workers’ rights address issues such as health and safety of the workplace, accounting fraud, environmental protection and discrimination (Sawaki,2015). Even though, mergers significantly affect employees and shareholders, on many occasions they are the last group to be informed of any forthcoming merger.

            During the initial stages of merger negotiations, it is the duty of the management to decide the volume of information it may want to disclose and the correct timing to inform the employees about the impending merger (Sawaki,2015). The management from both companies also needs to decide how well to treat the employees who might lose their jobs in case of a merger. Moreover, the administration should have controlled the internal communications to avoid the spread of false rumors that can lead to devastating damage to employee hence productivity. Layoffs also present ethical concerns of any merger process.

 Mergers involving layoffs naturally leaves employees anxious before and after announcing of layoff plans. Anxiety grips both workers who lose their jobs and those who remain employed. For those who stay, they are always worried about the added responsibilities left by an employee who leaves the company. Therefore, the management from both organizations should ensure that in case the transaction triggers Worker Adjustment and Retraining Notification (WARN) requirements of noticing them a notice should be given and by who ( Uday, 2012). The act provides that companies provide adequate notice period of sixty days before closure or significant layoffs failure to which the companies pay the affected workers in addition to civil penalties. The dilemma facing many managers at this stage is how to decide the when and how to give the notice to employees.

 There exist laws that require fair and ethical treatment of employees and their benefits such as the Title Seven of Civil Rights Act, 1964. The law discourages employee discrimination on the grounds of color, race, sex, religion, or country of origin. Supplementing this act are laws of equal pay and Age and Discrimination at Workplace Act of 1967 (Uday, 2012). These policies touch on virtually in all areas that may face potential discrimination at workplaces includes unfair termination, equal pay regardless of gender, and provides for protection benefits for older employees. Even though laws exist that cover wellbeing of employees, ethical considerations play a critical part during the merging process. If any of the merging companies were to break any of the laws, it would be unethical, immoral and illegal behavior on the part of the company.

            Behaving ethically is a prerequisite factor during the merging process on the part of the acquiring company- in regards to consideration of reactions of the employees of the target company. Ethical review is a critical factor in the determination of severance pay even though not a legal requirement, it is moral. After communicating potential layoffs or relocations due to an impending merger, the management of the merging firms  faces the task of encouraging employees who are laid off or those who do not want to be part of the merger to accept severance pay.

            Acts of honesty, fair practice, good faith and watching over the interests of both company’s interests are required of the directors of both merging companies because they have entrusted each other’s business operations. As HR personnel, we are required to communicate to employees of both companies’ accurate statements disclosing vital information relating to the merger.

Implementation Plan to Manage Potential Ethical and Legal Merger Concerns

As managers, we use implementation plan to illustrate the steps required in developing and uniting companies to form one formidable entity. The program acts as a guide that propels and directs staff towards proactivity before, during and after the merger. The plan allows everybody-including the management- to follow the same path and foresee any legal and ethical issue as well as identify strategies to mitigate any concern arising. The plan details the crucial steps to undertake before, during and after mergers. Furthermore, the method shall adhere to the time constraints and shall undergo revision from time to time as the need arises. The begins by conducting an internal audit of the target company, setting up of the healthy work environment and lastly addressing legal and ethical issues found at the evaluation stage.

Evaluation of Target Company

 Before the merging process, a careful internal audit of the target company shall be conducted to ensure their procedures and policies-including HR- conform to the state and federal laws (Alaranta and Kautz, 2012). Any problems noted on the employee records are used to arrive at whether to retain to offer the employees severance pay. At this point, we can point out the legal non-compliance and address them adequately. Evaluation of the target company’s corporate culture and business strategy enable the management to examine and test the viability of the intended merger. The assessment also provides the management to gauge and identify any conflict of interest and cultural differences present or that may arise in the course of operation. It is also essential to pay close attention to the targets company’s level of disclosure; low level might mean they are hiding something.

            The plan requires that all the actions undertaken by the various merger committees at every stage thoroughly documented and any person or individual held accountable (Alaranta and Kautz, 2012). Employee rights, discrimination, and safety of workplace shall give particular attention. After the evaluation process, a detailed plan touching on the establishment of an ethical work environment.

Ethical Work Environment Establishment

No matter how viable the merger process might seem, without an ethical work environment the intended goals can never be attained (Uday, 2012). Therefore, the management of both companies should work towards streamlining their policies, culture, and operations towards a common goal. The structures should align towards the standard strategy. In this regard, setting up vision, mission and operational goals should be a collaborative approach from across all the levels of management in both the companies. Paying close attention to the target company’s corporate culture is vital at this point. My next task as a Strategic HR director is to set up structures for resolving any ethical or legal issue that may arise.

Resolving Ethical and Legal Issues

HR is considered the “bridge” in any merger negotiation; it is, therefore, vital for them to maintain healthy relationships across all the levels of management between the two organizations (Uday, 2012). As HR personnel we should be proactive in identifying and resolving any ethical or legal disputes that may arise. The perfect way to settle such issues is by use of committees encompassing members from diverse professional backgrounds.

Conclusion

Mergers at times can prove to be a headache to most HR personnel because of the difference in culture and operational procedures. However, due diligence taken in addressing every ethical and legal issue is worthwhile.

References

Alaranta, M., & Kautz, K. (2012). A framework for understanding post-merger information systems integration. JITTA: Journal of Information Technology Theory and Application, 13(1), 5.

Sawaki, H. (2015). Horizontal Mergers Under Asymmetric Information About Synergies. Australian Economic Papers, 54(3), pp.167-184.    

Uday Bhaskar, A. (2012). HR as a business partner during mergers and acquisitions: The key to success is to get involved early. Human Resource Management International Digest, 20(2), 22-23.