Best Practices for HR: Solving the Top 4 Challenges During Mergers, Acquisitions, and Partnerships

The global pharmaceutical industry witnesses more merger and acquisition (M&A) activities than any other industry. 2024 alone has seen many major M&A events in the pharmaceutical space. For example, Merck acquired Eyebiotech Limited in July, Thermo Fisher Scientific acquired Olink Holding AB in July, and Johnson & Johnson signed a definitive agreement to acquire Proteologix Inc. in May. While these M&A activities need to be well handled on the media front, the HR department of pharmaceutical companies also plays a critical role in alleviating employees' stress and conflict during M&A activities.

In a previous article, we highlighted the challenges faced by pharma leadership during M&A activities. On a similar note, this article highlights the challenges faced by HR during M&A. But before diving into that, let's understand HR's role in M&A activities.

The role of HR in pharmaceutical M&A

Due diligence

HR has several tasks:

• HR reviews all employee data of both companies, including employment contracts, compensation, and benefits. HR must ensure compliance of these contracts with labour and employment laws.
• HR harmonises the compensation and benefits of all employees in both organisations to ensure they meet the industry standards. In case of any changes to compensations and benefits, HR has to inform all employees and provide explanations and timelines for the changes.
• Finally, HR also conducts cultural assessments to understand potential areas of conflict. They have to align the cultures of both companies by developing and implementing change management strategies.

Workforce management

Workforce management includes various roles, as follows:

• HR must identify key employees who are critical to the success of the merged organisation and create plans to retain them.
• HR should develop employee retention plans, e.g., bonuses, incentives, perks, and promotions. These contingency plans must be ready before implementing any organisational changes.
• HR must design a new organisational structure by defining roles, responsibilities and reporting times. It also includes designing teams according to skillset, experience, and job profile.
• HR must help integrate the workforces of two companies into one. It includes smoothing the transition from old to new teams and providing resources and support.
• HR must identify redundant roles and manage workforce reduction activities (e.g., cancelling contracts and firing employees).
• HR has to determine severance packages and outplacement services in case of workforce reductions.

Employee well-being and support

HR must offer support programs such as counselling services, employee assistance programs, and stress management sources to all employees to help them deal with the change. To this end, HR must also monitor employee morale and engagement using feedback sessions and surveys to identify employees needing support. HR should also promptly identify and address other interpersonal or M&A-related issues for employees.

Communication

HR is also responsible for maintaining clear communication in the company. Various rumours circulate during the M&A process, which affects employee morale and company loyalty. To alleviate this, HR must ensure clear communication within the organisation. It includes developing appropriate communication channels and sharing information with employees before it is made public to ensure the company can appropriately handle any fallout.

These activities considerably affect employee's well-being, morale, and company loyalty during M&A activities. Hence, HR must handle all situations delicately. However, HR professionals often face various challenges during M&A activities.

Common challenges for HR in pharmaceutical M&A

HR faces several challenges during pharmaceutical M&A activities; the most common are as follows:

Cultural integration

Merging two companies with distinct cultures is challenging because of their difference in values, work ethics and business practices—poor cultural integration results in low employee morale and high turnover. In global pharmaceutical companies, cultural and language differences can lead to miscommunication and friction, slowing the integration process.

Workforce Sustainability

The uncertainty around a merger or an acquisition can lead to attrition among employees who may fear losing status or job redundancy. Losing employees can weaken the merged company's competitive edge and disrupt projects, especially in specialised areas such as R&D and clinical trials.

Employee’s Job Security and Role Changes 

HR has to handle organisational changes to ensure employee satisfaction appropriately. Poorly managed transitions can lead to attrition or legal issues. Poorly managed layoffs can lead to lawsuits or high compensation demands, harming the company's reputation. HR must also manage employees' concerns about job security and role changes. Poor management of such situations can lead to decreased engagement and productivity or increased attrition.

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Compensation and benefits harmonisation

Merging companies may have different compensation structures and benefit packages. HR must harmonise these to ensure they are fair for all employees. Disparities in pay and benefits can lead to job dissatisfaction and loss of talent. 

However, these challenges can be handled by following simple strategies.



Best practices for addressing these HR challenges during pharmaceutical M&A

Here are some strategies to overcome the previously mentioned challenges:

Cross-Cultural Fusion

Before a merger, HR should perform thorough cultural assessments of both organisations to identify similarities and differences. Next, a detailed plan that outlines how the different cultures will be integrated must be created. Next, leadership from both organisations must be involved so they are committed to modelling and reinforcing the desired culture. Finally, employees should be briefed about changes. Transparent communication about cultural changes should be maintained, and all employees should receive regular updates.

Leadership Retention

During the due diligence phase, HR must identify high-performing employees who are essential to the organisation. HR must develop individual retention plans for these employees. They can offer retention bonuses, stock options, financial incentives, and career development opportunities to retain critical employees.

Provide Opportunity to Adapt

Any layoffs or demotions should be well-planned and timed, and employees should be provided with detailed explanations to ensure no legal consequences. Layoffs should be conducted fairly and transparently, and layoff criteria should be communicated and used. In case of demotions, employees should be offered cross-training or skill development opportunities so that they can adapt to their new roles or have the opportunity to be eligible for future promotions. HR should monitor workforce sentiment and address concerns promptly.

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Benefits Parity

HR should perform a detailed comparison of both organisations' compensation and benefit packages to identify critical differences. Next, a strategy to harmonise these differences should be developed after considering market competitiveness, equity, and employee expectations. Changes in compensations and benefit packages should be implemented in phases to minimise disruption. The reason for changes should be communicated, and FAQs, one-on-one meetings, or education sessions should be held to address concerns.

Conclusion

These strategies can help HR manage the complexities of pharmaceutical M&A and overcome some challenges they face during M&A activities. M&A is a lengthy process, and employees may face anxiety, loss of job security, and redundancy fears at any stage. HR plays a crucial role in identifying and addressing or mitigating these concerns before they can decrease employee morale. HR should always be in touch with employee sentiments, and to this end, it is necessary not only to conduct surveys and feedback sessions but also to talk to them personally.

FAQs

1. What is the biggest challenge for HR during the M&A of two companies?

Most experts believe that cultural integration is the biggest challenge for HR because two companies can have vastly different working cultures, prompting employees to reject changes.

2. What are the legal and compliance issues HR needs to consider during M&A?

HR must ensure compliance with all labour laws and employment laws. To this end, HR may have to review existing employment contracts to ensure they comply with the regulations and draft new contracts for future employees.

3. Which part of the M&A process is HR involved in?

HR is involved in pre-merger activities (e.g., due diligence and communication planning), merger activities (e.g., onboarding and cultural integration), and post-merger activities (e.g., employee support, evaluation, and monitoring).