HR Due Diligence
An estimated 70% – 90% of all Mergers & Acquisitions (M&A) fail to achieve their anticipated strategic and financial objectives. This rate of failure is often attributed to various HR-related factors, such as incompatible cultures, management styles, poor motivation, loss of key talent, lack of communication, diminished trust and uncertainty of long-term goals.
What is HR Due Diligence?
During a business merger or an acquisition, the acquirer also takes on the human capital of the company. The process of understanding this human side of the target company is known as human resource or HR due diligence.
Human due diligence lays the groundwork for smooth integration. Done early enough, it also helps acquirers decide whether to embrace or terminate a deal and determine the price they are willing to pay. In hostile situations, it’s obviously more difficult to conduct due diligence. But there is still a certain amount of human due diligence that companies can and must do to reduce the inevitable fallout from the acquisition process and smooth the integration.
Key Areas of Investigation & Analysis
Organization Structure
Assessment of the organizational structure and the HR function. This includes:
Functional reporting relationships
Administrative reporting relationships
Position responsibilities
Vertical and horizontal levels and departments
Department responsibilities and inter-department co-ordination
Physical office arrangement, etc.
Compensation & Benefits
Employee compensation is a major cost to the company which the acquirer will be taking over after the merger or acquisition. Compensation and benefits include the following points:
Basic Compensation
Bonus Plans
Pension plans and insurance
Leave and vacation policies
Employee stock options
Other benefits
Key Areas of Investigation & Analysis
People & Culture
Focus is on employment structure, people demographics, transfers and independent contractor agreements.
Labour Relations
Mapping of regulatory issues and risks associated with the Target’s former and current management practices as well as compliances with established agreements.
The key focus of HR Due Diligence in Merger & Acquisition is:
Mapping of regulatory issues and risks associated with the Target’s former and current management practices as well as compliances with established agreements.
Identifying human resource management risks
Ascertaining availability of fitting interventions for mitigating identified human resource management risks
Determining employment costs of the target company
Assessing the organizational leadership models
Assessing the human resource management process of the deal
Influence of HR Due Diligence Result
Snapshot of the internal and external corporate identity and business circumstances
Recognition and status of the formal and informal leaders within the organization
Personal characterizations to support individual career planning process
Recognition and motivation of the key employees as well as the strategy to keep loyalty
Action plans and scenarios to support change management any time
SWOT analysis of both individuals and close-working-groups
Position and relationship analysis
Strengths to highlight, weaknesses to improve, opportunities to take and threats to avoid
Comprehensive Study of the Target Company
The focus of study is the identification of current state and potential problems in the following key areas:
Human Resource Planning and Development
Organizational Behaviour
Organizational Infrastructure
Human Resource Management Processes
Talent
Employee Relations
Human Resource Services
Performance Management & Rewards
Health, Safety, and Environment
Human Resource Information System
HR Value Proposition
Social HR & Traditional HR Integration
Employer Brand Competitiveness
Cultural Alignment/Paralysis
Strategic Retention Management
Common HR related Risks:
Poor retention strategy or key employees at high risk
Potential employment transfer complications
Failure to reconcile information from systems, resulting in losses of historical records and regulatory issues
Failure to renegotiate contracts with vendors
HR Due Diligence – Integration & Implementation
Integration of human resource management policies and processes, organizational culture and employee information systems
Consolidation of employee benefits
Consolidation of organizational structure
Consolidation of career path and succession plan
Consolidation of talent profile
Establishment and deployment of communication plan for effective change management
Benefits of HR Due Diligence
Below is a non-exhaustive outline of the benefits of conducting HR Due Diligence: