Organizational culture plays a vital role in mergers and acquisitions as it determines the practices, working styles and structures. Each organization has different sets of beliefs and value systems which may clash in the course of M & A as the workers not only need to abandon their own values and beliefs but also have to accept an entirely different set of practices. Generally the management experiences severe culture shocks unless care is taken to best match the varying cultures. According to the statistics, 70% responsibility of the failed mergers and acquisition cases is due to the mismatch of culture. The difference ranges in all sectors … from work practices to workers in due course results in something unexpected.

The classic example could be Tata’s acquisation of Jaguar and Land Rover where the business giant outrivalled M & M as Tata was backed by manufacturing workers’ union UNITE.

The Secret of Tata’s Success

Tata Steel’s acquisition of Corus few months back may have helped its sister concern Tata Motors to get green signal from the Unite. Tata Steel had agreed on Corus’ demand to pay 126 million pounds into the firm's pension scheme which was a potential stumbling block to a deal. This step created a good impression on the workers’ union and helped the acquisition of Jaguar and Land Rover. The prior acquisitions over the past few years by the same group in Europe and USA, Tata Tetley being one of the prominent acquisitions, further helped to paved way to quench the deal.

Role of employee in M & A deals
Presently in India the workers’ unions do not enjoy any rights over M & A deals as labour laws and PF acts or others do not give them any rights bargain with the acquirer or transferee company. All the amalgamation or demerger schemes are done through the high court. But Indian law considers employees and workers as any other input of the transaction. It only ascertains that employees of the transferor or target company will continue to avail the benefits of the transferee company. All the schemes are generally passed if they are not against the employees’ interests. In the case of Hindustan Lever Limited acquiring TOMCO, the employees in TOMCO enjoyed better terms and services compared to the HLL employees.

The HLL employees argued that since both the set of employees now belong to same firm, one set enjoying better facilities would create discrimination among the employees. However the court supported TOMCO employees in the process. Thus, disputes between workers and acquirer are generally resolved through law.

Should Indian employees should be given “veto” in such deals…

This is a much debated topic which needs reviewing the subject matter from various angles like politics, socio-economics, law etc. In India, workers have the rights to strike on un-favorable issues. As supply of worker in the labor market is more than the demand, strikes may lead to job cuts and early retirements. This fear always looms large on the minds of the dissidents and does not allow them to continue with their protests.

We believe that the present political situation in India is not supportive to give such sort of veto to the workers’ union as it may be used against the companies’ strategy and may hinder the whole process. Giving veto to employees to M&A deals will not work in Indian scenario.

Instead, Indian companies can do something towards this effect:

• Be pro-workers and
• Convince the workers of future prospects and welfare

It becomes imperative for the Indian companies to have a global strategy in order to build the brand as a reliable employer. A committee representing workers may be set by the government to look into the employees’ welfare but it should be supportive to acquisitions until there are unwarranted motives on the part of the acquirer.

Prashant Kumar is an alumnus of IBS, Pune from the Class of 2006. He works with HU Consultancy Pvtss. Ltd. at Maharastra. Prashant can be reached at prashant@mergersindia.com