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People management in mergers and acquisitions in Sri Lanka: Employee perceptions
Wickramasinghe, V.
Karunaratne, C.
Department of Management of Technology, University of Moratuwa, Sri Lanka.
Citation:
Wickramasinghe, V., & Karunaratne, C. (2009). People management in mergers and
acquisitions in Sri Lanka: Employee perceptions. The International Journal of Human
Resource Management, 20(3), 694-715.
This Version is available at: doi: 10.1080/09585190802707508
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Abstract
Though there is an increasing interest in and a growing amount of literature available on people
management aspects of M&As, few studies have empirically examined employee experiences.
Further, no such studies have been conducted in the Asian developing country context. From a
practical standpoint results will provide practitioners with information that would be valuable for
better understanding of employee experiences of M&As to better understand and address people
management issues in M&As. The aim of the article is to present, compare and discuss empirical
evidence on employees’ interpretations of their experiences of people management in two different
types of bank mergers- extension merger and collaborative merger in Sri Lanka. For the study two
banks were selected which had undergone an extension merger and a collaborative merger. 109
employees from the two banks responded to the survey questionnaire. The findings led to reveal
that the employee perceptions are affected by the type of the merger and employees are less
satisfied in the collaborative merger than in the extension merger. Further, findings led to revel that
age, gender and marital status do influence the perceptions of the respondents and among those age
is the most influencing variable. The article concludes with a discussion on the implications of the
findings and research areas for further inquiry and understanding.
Key words- mergers, acquisitions, people management, Sri Lanka
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Introduction
Mergers and acquisitions (M&As) are becoming an increasingly popular strategic option for
organizations (Chew and Sharma, 2005; Marks and Mirvis, 2001; McEntire and Bentley, 1996).
From the 1980s countries have witnessed an increase in M&As between firms of different sizes
and different industry types (Tetenbaum, 1999) and this trend does not seem to show signs of
diminishing in the near future. Advantages that could be achieved through M&As are well
documented (Birkinshaw et al, 2000; Marks and Mirvis, 1996; Napier, 1989).
Though due diligence includes numerous financial elements, at the core of reasons for
success/failure of M&As are personnel and behavioural issues, such as blending cultures and
several sets of policies, practices and procedures of the two organizations; designing the new
organization and its jobs, and loss of key personnel, all of which indicate the importance of the
human factor (Appelbaum et al., 2000a, 2000b; Cartwright and Cooper, 1995; Risberg, 1997;
Rhoades, 1998; Schuler and Jackson, 2001). However, human aspects tend to take second place to
commercial and financial considerations in M&A’s and are often neglected (Huang and Kleiner,
2004).
Understanding employees’ experiences of M&As is important for several reasons. First, although
there is lot of literature available on people management aspects of M&As, much of the
information is anecdotal or offers prescriptive advices or very general case studies (Mirvis, 1985;
Schweiger and Weber, 1989). As Napier (1989) noted there is no dearth of literature on the topic
but there is a dearth of research. Published material provides little significant evidence supporting
their findings and recommendations. Second, there is an increasing evidence for the need of an
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ongoing analysis of employee perceptions towards employee relations, remuneration, performance
evaluation, training, and other related aspects before and after a merger/acquisition has been
consummated (Dolan and Weil, 1998). Third, individual differences in terms of demographic
characteristics could influence the interpretations of their experiences. However, M&A research
addressing differences in employee perceptions by gender, age, or marital status are not available.
Therefore, investigations are required to identify needs and concerns of the individuals to gain
support to M&As (Schraeder and Self, 2003). This constitutes an important gap in the M&A
literature. The analysis in this article addresses this, presenting empirical evidence of employees’
experiences of people management in two different bank mergers in Sri Lanka.
For the study two banks were selected which had undergone two types of merger: an extension
merger and a collaborative merger. Literature suggests that employee perceptions could be affected
by the type of the merger (Napier, 1989). Therefore, specific aims of the article are to present,
compare and discuss the results of employees’ interpretations of their experiences of people
management in M&As of the two banks in terms of: 1) the level of satisfaction employees have
with the information received; 2) communication consequences; 3) employee expectations
following the merger; 4) the actual situation employees experience following the merger; 5)
consequences following the merger; 6) the level of satisfaction employees have with the
involvement of human resource department in the merger. As the two banks investigated belong to
two different types of mergers, it is expected that there would be significant differences in
employee perceptions by bank. Further, it is expected that there would be significant differences in
employees’ interpretations of their experiences in terms of age, gender or marital status of the
individuals. Therefore, the article addresses the findings of the study at three levels, namely, the
results of the data analysis of responses given by the total sample of respondents, the comparison
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of results by the type of the merger, and the comparison of results by demographic variables
namely age, gender and marital status. However, it should be noted that the study conducted was
basic in nature to identify specific research areas to be further investigated using interviews and
analysis of archival material. In order to provide the context for the article, in the next section,
relevant literature is briefly reviewed. This is followed by the methodology adopted. Subsequently,
the main findings are presented and discussed. The article concludes with a discussion on the
implications of the findings and research areas for further inquiry and understanding.
Context of the Study
Sri Lanka had been under Western rule (Portuguese, Dutch and British) for several centuries and
became independent in 1948. At the time of regaining independence, Sri Lanka was mainly an
agricultural economy. The production of and trade in three plantation crops – tea, rubber and
coconut– contributed to a major share of the national income. There was little interaction between
the plantation sector and the domestic non-plantation agricultural sector. The plantation sector
performance dominated the activities of the other sectors of the economy such as trade, banking,
insurance, transport and manufacturing. By the time of regaining independence, the economy was
open to free trade and exports and imports accounted for about 70 per cent of gross domestic
product (Central Bank of Sri Lanka, 1998). However, from the mid 1960s the governments of Sri
Lanka had gradually introduced an array of controls to promote local industrial and agricultural
activities. In 1977, far-reaching policy reforms were introduced to free the economy from the array
of controls (Central Bank of Sri Lanka, 1998). Since 1977, the Sri Lankan governments have
adopted an economic strategy designed to industrialize through foreign direct investment. On the
other hand, in response to several factors, such as increasing global competition, lower labour costs
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in Sri Lanka and inducements from the Sri Lankan governments, the number of international
businesses coming into the country has been increasing since 1977.
The financial sector of the country was dominated by the foreign owned (foreign-privately owned
and foreign-government owned) commercial banks at the time of regaining independence. They
engaged almost exclusively in the financing of the plantation sector and import and export trade.
Since 1950s, a wide array of financial institutions has been established (Central Bank of Sri Lanka,
1998). Among these, the most important ones are Central Bank of Sri Lanka, licensed commercial
banks (LCBs), licensed specialised banks (LSBs), registered finance companies (RFCs),
specialised leasing companies (SLCs), pension and provident funds, insurance companies, rural
banks, merchant banks, unit trusts and thrift and credit co-operative societies. The major growth in
financial services occurred after the liberalization of the economy in 1977. This is clearly reflected
in the growth of assets of financial institutions and the contribution of the financial sector to GDP.
Sri Lanka is one of the countries having a well-developed human resource base in Asia. The total
working age population of the country was 16.9 million in 2005, of which 48.2 per cent were
economically active: 67 per cent males and 33 per cent females (Dept. of Census and Statistics,
2005). Sri Lanka is trying to promote gender equality in terms of increasing women’s participation
in the workforce and in terms of the range of jobs open to them. The labour force participation rate
for males is 94 per cent for those who are in the age range of 25 - 29 years. The highest
participation rate for females is reported as 45 per cent in the age range of 30 - 39 years. However,
there is no significant change in labour force participation rate in year 2005, compared to previous
years. Of the total employees, 69 per cent were engaged in the non-agricultural work (25% in
industries and 44% in services). Though no specific segregation of data on financial sector is
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available, of the total male employees 46 per cent and of the total female employees 38 per cent
were engaged in services. Of the employed females in the total workforce, 22 per cent has an
educational qualification of General Certificate in Education (Advanced Level) or above,
compared to a proportion of 13 percent employed males having the same level of education (Dept.
of Census and Statistics, 2005). Therefore, one of the significant observations in Sri Lanka is the
increasing number of educated women entering into the economically active population and this
trend is projected to continue.
Theoretical background
Mergers and acquisitions
A merger is the integration of two previously discrete entities. It occurs when two firms integrate
to form a new organization with shared resources and corporate objectives (Horwitz et al, 2002).
An acquisition occurs when an organization acquires sufficient shares to gain control or ownership
of another organization (Horwitz et al, 2002). For the purpose of this study the terms mergers and
acquisitions (M&As) are used interchangeably because the result is the same – one organization
takes control of another (Waight, 2004).
There is a growing amount of publications exists on different aspects of M&As (Appelbaum and
Gandell, 2003; Conyon et al, 2002; Griffith, 2000; Gugler and Yurtoglu, 2003). However, most
research might be framed in terms of the discipline it originates from such as economics, finance,
organizational behaviour and strategic management (Papadakis, 2005). Behavioural research
stream mainly deals with corporate culture (Bijlsma-Frankema, 2001; Burns and Rosen, 1997;
Riad, 2007; Stahl and Voigt, 2004), structure (Mirvis, 1985), and human resource policies (Kerr,
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1995). Mergers and acquisitions cannot realize their full potential without positive employee input.
Yet, M&As significantly affect the working lives of employees. However, not enough attention is
given to employees’ experiences of people management aspects in M&As in behavioural research
stream.
Employee experiences of M&As
The available literature on employees’ experiences suggests that the first consideration of
employees in M&As is how it will impact on them personally as M&A is a beginning of a period
of uncertainty and unpredictability (Csoka, 1997; Shirley 1973). There are many emotions
encountered in the workplace due to the expectations, questions, and reservations among the
employees at all levels of both organizations. It is not uncommon for management to use M&As as
an opportunity to reduce staff and claw back employment conditions (Bryson, 2003; Craven, 2004;
Schweiger and Weber, 1989). Hence, employees often articulate many fears about personal
impacts that they are confronted with following an M&A, of which the most obvious is losing
one's job. Others include changes in pay and benefits, changes in the job, roles and assignments,
changes in performance evaluation systems, transfers to new jobs/geographical locations, changes
in career paths, changes in bosses and co-workers, changes in organizational power, status and
prestige, changes in corporate culture and loss of identity with the organization, etc (Huang and
Kleiner, 2004; Ivancevich, et al, 1987). A high level of uncertainty could result in higher
absenteeism, stress, low job satisfaction, a general negative behaviour, resistance to change, lower
productivity and commitment to the organization (Papadakis, 2005; Nikandrou et al., 2000;
Schweiger and Weber, 1989).
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In the above context, M&A literature identifies that maintaining the stability of the workforce
throughout a merger as a key priority. The literature reveals that the same merger rumours, facts
and activities would be perceived as a threat by one person and an opportunity by another. As
work is an integral part of most people’s lives and helps them attain the things that they value,
M&As are powerful events that have the potential to change these relationships. However, not all
M&As threaten the outcomes and values that the work provides. The fears could be offset by
several hopes, which include advancement opportunities, meeting new people and forming new
working relationships, learning new skills, and setting new goals as well as creating an
organization that is better than the two originally separate organizations (Marks and Mirvis, 1992).
Though these might enhance value attainment, until the initial shock is over and the dust begins to
settle, seeing personal benefits from M&As is difficult (Ivancevich, et al, 1987).
Since the perceived events and consequences were deemed to be an important part of employees’
lives, (Marks, 2006), in the absence of actual information concerning the M&A, an individual’s
appraisal will be determined primarily by his/her speculations about events that might occur and
rumours associated with them. In this context, frequent and honest communication to employees
has a stabilizing effect (Marks and Mirvis, 1997; Schweiger and DeNisi 1991). Further, a number
of programmes, such as stress management training, career counselling, merger sensitisation
workshops, small group meetings, etc. have been suggested to help facilitate the coping process
(Eisenberger et al. 1990; Elliot and Maples, 1991). Further, re-training programmes help
employees develop new job skills, and training in conflict resolution and team building help
employees deal with new work situations (Covin et al., 1996; Kusstatscher, 2006; Pollitt, 2004;
Schweiger and Weber, 1989; Yeung et al. 1991).
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Types of M&As and people management aspects
Napier (1989) suggests that motives and characteristics of the merging firms may suggest a type of
merger to pursue- whether extension, collaborative or redesign. Extension mergers typically
develop out of non-value maximizing motives and would be expected to be conglomerate mergers
(Napier, 1989; Pikula, 1999). This involves the acquisition of an unrelated business, which
provides profitable diversification. Collaborative mergers occur when two firms whose product or
service is closely related or of the same type join to generate gains through a blending of
operations, assets or cultures, or through an exchange of technology or other expertise (Napier,
1989). Redesign merger is likely to be common in related acquisitions- concentric mergers. The
motive for redesign mergers may be the desire of one firm to gain control of the management or
Board of another firm (Napier, 1989).
The literature suggests that the type of the merger could influence human resource (HR) practices
(Napier, 1989; Pikula, 1999). In an extension merger since the two firms are unrelated in product
or service, internal changes to the acquired firm, which will remain relatively autonomous, are like
to be minimal, and there will be few cultural consequences (Pikula, 1999). Thus, the impact on HR
and other practices in an extension merger is likely to be low (Napier, 1989). On the other hand,
from a HR perspective, collaborative mergers are the most difficult mergers to be implemented,
since the acquiring firm already has expertise in the business operations and will act to consolidate
the two firms to avoid redundancy and become more cost-effective. Downsizing and voluntary
quits usually recede or immediately follow the merger (Pikula, 1999).
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Research problem area
Napier (1989) suggests that the type of the merger that the firms are going to pursue may help plan
for and implement the required changes in HR practices. However, M&A literature does not
provide data of empirical research on employee experiences of M&As. Especially, though
literature suggests that people management matters have to be handled differently in extension and
collaborative mergers, no empirical studies available. Hence, there is a need for better
understanding of employee experiences of M&As to better understand and address people
management issues in M&As. If people management aspects are not designed according to the
type of the M&A, it could be expected that there would be differences in employees’
interpretations in terms of: 1) the level of satisfaction employees have with the information
received; 2) communication consequences; 3) employee expectations following the merger; 4) the
actual situation employees experience following the merger; 5) consequences following the
merger; 6) the level of satisfaction employees have with the involvement of HR department in the
merger. Therefore, this research assumes that there would be differences in employees’
interpretations of their experiences of people management aspects of extension mergers and
collaborative mergers. Further, when drawing upon evidence from organizational behavior and
psychology related research, individual differences in terms of demographic characteristics could
influence the interpretations of their experiences. In this regard, the vast majority of M&A studies
have been undertaken primarily in the West, US in particular. The extent to which employee
experiences of these countries could be generalized to Asian context has not been widely tested. It
could be assumed that what is wanted by individuals from one country in terms of jobs could be
different from what is wanted by individuals from another country. Therefore, there could be
differences in employees’ interpretations of their experiences of people management aspects of
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M&As in terms of cultural demographic characteristics such as age, gender and marital status.
Therefore, the article intends to address the findings of the study at three levels, namely, the results
of the data analysis of responses given by the total sample of respondents, the comparison of
results by the type of the merger, and the comparison of results by demographic variables- age,
gender and marital status.
Empirical research context
To achieve the objectives of the study, two bank mergers were investigated. The resulting two
banks following the mergers are identified as BankAB (the merger of BankA and BankB) and
BankCD (the merger of BankC and BankD). BankAB could be identified as a result of an
extension merger while BankCD could be identified as a result of a collaborative merger. Brief
descriptions of the banks are as follows.
BankAB
From its formation in 1979, as a fully government owned entity, the BankA played a catalytic role
as a leading development bank lending for large scale projects in every economic sectors through a
network of branches across the country. After its successful transition to a privatised entity in
1993, the BankA expanded its range of financial products and services as a successful leading
domestic development bank in Sri Lanka. There were approximately 530 employees in BankA. As
most of the commercial banks of the country have entered into the lending industry with new
marketing strategies it has been difficult for BankA to dominant in the market with a single
business line. This led BankA to acquire or merge with a commercial bank operating in Sri Lanka.
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BankB, which was established in Sri Lanka in 1979, was a foreign private owned bank. There were
about 130 employees in BankB. By the early 2000, BankB planned to closedown its Sri Lankan
operations as a part of restructuring of its global operations as well as relatively poor prospects in
Sri Lanka. BankA and two other local commercial banks were interested in acquiring BankB. Even
though BankA’s bid was the lowest, it was identified as the successor by Central Bank of Sri
Lanka above the other two commercial banks. Thus, BankA acquired BankB and got merged in
August 2003. The merged bank is referred as BankAB in this article.
After the merger, BankAB remains as a local owned domestic bank. There are about 710
employees in BankAB. It has introduced debit cards, phone banking and Internet banking after the
merger. The bank is also planning to enter into the credit card business. As BankA and BankB
were from two different specialized areas of business, Bank AB had not laid off any employee due
to the acquisition and merger.
BankCD
BankC, which was established in Sri Lanka in 1892, was a foreign private owned bank in the
commercial banking operations specialized in consumer credit through credit cards. It had 8
branches in Sri Lanka with about 180 employees. Though BankC had gone series of evolution
during its existence in Sri Lanka, by the late 1990s Sri Lankan operations were running at a loss.
According to the details given in the BankC’s web site, it is listed on both the London Stock
Exchange and Stock Exchange of Hong Kong and is in the top FTSE-100 companies.
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BankD, which was established in Sri Lanka in 1881, was also a foreign private owned bank in the
commercial banking operations. It had 7 branches in Sri Lanka with approximately 325 employees.
In the year 2000, BankC acquired Middle East and South Asia Operations of BankD. Thus, the Sri
Lankan wings had to merge their operations under the supervision of the international head office.
The merged bank is referred as BankCD in this article.
After the merger too BankCD remains as a foreign private owned commercial bank operating in
Sri Lanka. Integration process of BankC and BankD involved streamlining of the operational
aspects of the two banks and introduction of new technology. However, the revenue contribution
from the Sri Lankan operations is low- around 4 percent within the Middle East and South Asia-
where as in terms of staff numbers it accounts for around 12 percent- the highest in the region.
The original staff strength when alliance become formal was over 500 in the two banks (BankC
and BankD) and currently stands around 380 in the BankCD. It was in 2001 that the first phase of
the voluntary retirement scheme was introduced and was accepted by around 60 staff members.
The second phase of the voluntary retirement scheme was introduced in the year 2002 and it was
accepted by around 100 employees. Both BankC and BankD have prior experiences of M&As over
the years of their global existence.
Data collection instrument and methods of data analysis
For the study, a self-administered questionnaire was designed as the research instrument. Though
the majority of M&A literature is anecdotal or offers prescriptive advices or very general case
studies, it was decided to get insight from those in constructing the questionnaire. Considering the
literacy of the target population and amenability of the research questions, the questionnaire was
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constructed in the English language. Most of the questions took the form of closed-ended with
responses on a Likert scale, as this approach has proven to be more efficient and ultimately more
reliable. To address the research objectives of the study, the areas covered in the survey
questionnaire were as follows:
• The methods used to communicate about the merger- invited the respondent to indicate
methods used to communicate by simply ticking the communication methods used. An item
labelled “other” was also added to the list;
• The level of satisfaction with the information received- listed a range of items. A five-point
Likert-scale ranging from (1) ‘very dissatisfied’ to (5) ‘very satisfied’ is used;
• Communication consequences- A five-point Likert-scale ranging from (1) ‘very low’ to (5)
‘very high’ is used;
• Expectations following the merger- A five-point Likert-scale ranging from (1) ‘very low’ to
(5) ‘very high’ is used;
• The actual situation following the merger- A five-point Likert-scale ranging from (1)
‘strongly disagree’ to (5) ‘strongly agree’ is used;
• Consequences following the merger- A five-point Likert-scale ranging from (1) ‘very low’ to
(5) ‘very high’ is used;
• The level of satisfaction with the involvement of HR department in the merger- A five-point
Likert-scale ranging from (1) ‘very low’ to (5) ‘very high’ is used.
The questionnaire was piloted with a random sample of 20 employees from both BankAB and
BankCD to get their comments on the readability, accuracy and comprehensiveness of the
questionnaire. After several revisions, the questionnaire was distributed in 2006 to the employees
employed in BankAB who were attached either to BankA or BankB prior to the merger and to the
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employees employed in BankCD who were attached either to BankC or BankD prior to the
merger. 109 respondents (57-BankAB, 52-BankCD) voluntarily responded within 4 weeks of
questionnaire distribution. Table 1 shows the characteristics of the sample. The z statistic and
associated significance value of Kolmogorov-Simirnov (K-S) test indicated that the shape of the
two distributions of employees from BankAB and BankCD is not significantly different for gender
(K-S z=.26, p>.05), marital status (K-S z=.46, p>.05), age (K-S z=.05, p>.05), or profession (K-S
z=.26, p>.05).
--------------------------------------------------
Take in Table 1
--------------------------------------------------
Data analysis was conducted using SPSS. Inter-item correlation test was conducted separately for
each of the set of items investigated. Test results for each category received standardized item
alpha values higher than 7, i.e., for the items on the level of information satisfaction .71,
communication consequences .79, expectations following the merger .77, etc. As the research
aimed to compare and to identify significant differences in employee experiences by the type of
the merger and demographic characteristics (age, gender or marital status), independent sample t-
test was conducted as the main method of data analysis.
Results
The level of satisfaction employees have with information received
With regard to the methods used to communicate information regarding the merger, of the 109
total respondents, 100 received information during staff meetings (BankAB 51, and BankCD 49);
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77 received information through e-mail/intranet (BankAB 54, and BankCD 23) and 28 from
BankAB also received information from public news papers. Thus, the results suggest that the two
banks used more than one medium. However, although data source methods such as official letters
and newsletters were mentioned in the questionnaire as options, none of the respondents indicated
that banks had used these. Since not all employees necessarily receive the same information,
respondents were asked to indicate their level of satisfaction with the information received. The
results are shown in Table 2.
--------------------------------------------------
Take in Table 2
--------------------------------------------------
Table 3 shows the differences in the level of satisfaction with the information received by age,
gender and marital status.
--------------------------------------------------
Take in Table 3
--------------------------------------------------
Communication consequences
Table 4 shows the level of communication consequences. All the items considered have significant
differences by the bank, where employees from BankCD suffered more.
--------------------------------------------------
Take in Table 4
--------------------------------------------------
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Table 5 shows the differences in terms of age, gender and marital status. None of the items
considered had significant differences by gender or by marital status.
--------------------------------------------------
Take in Table 5
--------------------------------------------------
Employee expectations following the merger
Table 6 shows employees’ expectations following the merger.
--------------------------------------------------
Take in Table 6
--------------------------------------------------
The actual situation employees experience following the merger
Table 7 shows employee perceptions for the actual situation following the merger.
--------------------------------------------------
Take in Table 7
--------------------------------------------------
Consequences following the merger
Consequences following the merger are shown in Table 8. Overall, results do not reveal high level
of job satisfaction following the merger.
--------------------------------------------------
Take in Table 8
--------------------------------------------------
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The differences in employee perceptions by age, gender and marital status are shown in table 9.
--------------------------------------------------
Take in Table 9
--------------------------------------------------
The level of satisfaction employees have with the involvement of HR department in the merger
Table 10 shows employees’ level of satisfaction with the involvement of HR function in the
merger.
--------------------------------------------------
Take in Table 10
--------------------------------------------------
Differences in perceptions by age, gender and marital status are shown in table 11.
--------------------------------------------------
Take in Table 11
--------------------------------------------------
Discussion, concluding remarks and managerial implications
The main of objective of this investigation was to evaluate employees’ experiences of people
management aspects in M&As and to report empirical evidence from Sri Lanka. The article
addressed the findings of the study at three levels, namely, the results of the data analysis of
responses given by the total sample of respondents, the comparison of results by the type of the
merger, and the comparison of results by demographic variables- age, gender and marital status.
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First, the findings of the data analysis of 109 responses suggested that the number of media used in
the communication of the M&A is limited though communication and information flow can take a
variety of forms. However, according to the findings, the majority of the employees received
information during staff meetings, where employees can voice their opinions, concerns and desires
and responding to their questions with information that is known at the time. In this regard, Lengle
and Daft (1988) and Richardson and Denton (1996) argue that all forms of communication do not
have the same effect and Lengle and Daft (1988) suggest that though routine messages be best sent
through lean forms of media such as memos and e-mails when the message becomes increasingly
non-routine it is important to communicate through richer forms of media, such as face-to-face
meetings. The findings further suggested that considerable number of respondents received
information from public news papers. In this regard, literature provides evidence to the role that
media plays in shaping the social context for M&As (Schneider and Dunbar, 1992). For instance,
Schraeder and Self (2003) suggest that during M&As media could fuel anxieties or constrain
anxieties depending on the journalistic perspective presented. Napier et al (1989) suggests that
whether management communicates or not, employees will seek answers to their questions.
Findings of the study also revealed the high level of reliance on gossips regarding the merger, a
high level of rumours being spread regarding the mergers and high level of uncertainty about the
future. Inaccurate rumours would intensify employees’ anxieties. Schweiger and DeNisi (1991)
suggest that it is the uncertainty that creates stress for the members rather than the actual changes
associated with the merger. Therefore, the lack of satisfaction with the information received could
result in employees feeling apprehensive and even hostile toward the merger, making any
subsequent communication difficult. In this regard, numerous recommendations concerning
communication philosophy, communication media, and types of information to communicate
abound in the literature (Marks and Mirvis, 2001; Schweiger and Weber, 1989).
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Though M&A literature identifies losing one's job as the most articulated fear that employees are
confronted with following a merger (Bryson, 2003; Marks and Mirvis, 1992), the findings of this
study suggest that the employees mostly expected changes in salary and other financial benefits
and changes in performance evaluation system. It is logical for employees to expect changes in
these HR policy areas as those affect all types of employees, are more technical in nature and
likely to lead to cross-firm comparisons among employees. Therefore, this emphasizes the need for
consistency of HR policies.
Findings of the actual situation faced by the employees following the merger revealed that some
had to compete for the same job with colleagues due to lay offs. This suggests that employees felt
threatened by the seemingly high level of talent in the merged organization. Findings of the actual
situation further revealed that career prospects and prospects for training and development have
not highly improved in the merged organizations though Millward and Kyriakidou (2004)
identified that individual’s aspirations could be balanced with business needs and subjective
permanence can be assured by actively managing individual careers and opportunities for
development.
There are two general types of outcomes of M&As commonly mentioned in the literature-
objective performance measures and employee reaction measures (Napier, 1989). In the study, the
employee reactions were investigated. The findings suggested that employee’s attitudes in the
areas of job satisfaction and commitment are not at high levels. However, the findings also
revealed that improvements in individual identity as an employee following the merger is
moderate. M&A literature suggests that as long as employees view merger as an opportunity to
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preserve or enhance one’s self-esteem, it could help to increase employees’ overall adjustment
(Ivancevich et al, 1987). Though findings suggest that employees do not feel highly as if given
false promises, merger encouraged them to look for employment opportunities elsewhere. Thus,
results suggest that merger might be traumatic for some, who are long-term employees with
dissolved banks, leading them to seek other opportunities. Thus, the findings imply the importance
of realistic communication through the form of a realistic merger preview that appraise or re-
appraise the situation faced by the employees to minimize the problems of employee adjustment.
However, the findings also suggested that employees are less satisfied with HR departments’
involvement in mergers. Though M&A literature identifies the importance of counselling on an
individual basis to help employees overcome fear and help alleviate negative reactions (Pikula,
1999), the findings revealed that employees are less satisfied with its provision.
Since BankA and BankB are from two different areas of specialization, in the merger of BankAB,
BankA acquired BankB for growth related reasons- as a way to diversity. On the other hand, the
merger of BankCD could be identified as a merger of equals, where both BanakC and BankD were
foreign owned banks operating in commercial banking activities in Sri Lanka. Though the review
of M&A literature revealed that mergers of related firms are more likely to realize synergies than
mergers of unrelated firms (Appelbaum, 2000a, 2000b), in this study scope was to explore
employee perceptions. Employee perceptions for the extension merger of BankAB are more
positive than employee perceptions for the merger of BankCD, which is a collaborative merger.
Thus, employees from BankCD would find that they are working with their former competitors.
They have highly expected job loss, felt more uncertain about their future, and have to work much
harder to keep their existing position in the merged bank, which led them to search employment
opportunities in other organizations following the merger. It could be noted that dissatisfied
23
employees from BankCD could provoke discontent among others. Employee perceptions imply
that in the merger of BankC and BankD, the changes expected in the people management aspects
are much higher and they are less satisfied than in the merger of BankA and BankB. Thus, the
findings imply that the employee perceptions could be affected by the type of the merger.
Further findings revealed that there are some differences in employee perceptions by age, gender
and marital status. Respondents belong to the young age group were less satisfied with the
information received on changes in banks identity, changes in administration system, about job
security, and changes in reporting relations while respondents belong to older age group were less
satisfied with the information received on changes in salary and other financial benefits. Further
respondents belong to older age group revealed that they felt uncertain about their future, they
have to concentrate planning their future career, and felt as if they were given false promises than
respondents belong to the young age group. With regard to the satisfaction with the involvement of
the HR function in the merger, respondents belong to the older age group were less satisfied. In
terms of gender, females were less satisfied with the information received on changes in reporting
relations, and find that they have to concentrate planning their future career than males. In terms of
marital status, unmarried respondents were less satisfied with the HR involvement in organizing
staff events involving employees from both banks that intend to merge. Therefore, findings of the
t-test imply that demographic variables do influence the perceptions of the respondents and among
those age is the most influencing variable.
Overall, this article contributes to an important dimension of people management aspects in
M&As. As there could be different HR policies and practices exist in the banks that intended to
merge, it is evident that employees are concerned of the possible changes and the way in which
24
those were handled and how those affects the individual’s employment relationship. Thus, from
the employees’ perspective, M&A brings uncertainty. It also implied that the merger encouraged
some to look for employment elsewhere. Although attractive benefits could be instituted to retain
individuals, these palliatives might not be sufficient to retain employees as findings had not
revealed high level of satisfaction with the situation following the merger. However, findings of
this study are not sufficient to comment conclusively on the extent to which employees are made
to feel part of the day-to-day organization and accepted as members of the new team. Findings also
implied the importance of the effort and dedication from HR departments in the merger. On one
hand, the involvement of the HR function is a matter of a humanitarian concern for absorbing grief
among employees. In the both situations investigated in the study, as argued by Hunsaker and
Coombs (1988) related to merger-emotions syndrome, the time period for the feelings of denial,
fear, anger and sadness had elapsed. Therefore, what is the most important is preparing employees
to become hopeful about the new situation, preparing them to perceive the new situation as a
challenge in which they can prove their abilities and worth to their organization, and helping them
to discover new opportunities that they had not envisioned before (merger-emotions syndrome,
Hunsaker and Coombs 1988, p58). On the other hand, it is also implied that HR professionals have
to be cognizant of the entire process, including the desired outcomes, and should possess skills and
experience to handle the sensitive people management areas of M&As effectively.
Limitations and directions for future research
The study has some limitations. The study was confined to investigate employees’ interpretations
of their experiences of people management in two different types of bank mergers- extension
merger and collaborative merger. Though there are two general types of outcomes of M&As
25
commonly mentioned in the literature- objective performance measures and employee perception
measures- the current study is based on employee perceptions utilizing self-report measures. When
considering the sample selected for the study, all the respondents could be labelled as those who
“survived” the merger. This happens due to difficulties in contacting the employees those who left
due to the merger. Further, this study was conducted as a preliminary investigation to identify
specific research areas to be investigated using interviews and analysis of archival material.
Therefore there is a need to triangulate the findings of this study with data from other sources.
As previously noted, very little work has been directed toward the identification of employee
experiences of M&As. There are several possible areas where this study could be expanded. One
possible area for the investigation is the influence of the type of the merger on the extent to which
people management practices of the two organizations are integrated following the merger. There
is a need for an ongoing analysis of employee perceptions towards human resource management
practices relating to M&As such as performance evaluation, career development, salary and other
benefits before, during and the first few years after a merger has been consummated. Thus,
detailed investigations could be conducted on each of the people management aspects to compare
how those have been handled in the two types of mergers. Thus, the current study could be
extended to various directions as the questionnaire survey provided access to the breadth of
experience while qualitative research methods such as interviews and archival information may
provide further insight and substance to survey data.
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Tables
Table 1: Characteristics of the sample
Characteristic Total (N=109) AB (N=57) CD (N=52)
n % n % n %
Age: Bellow 35 61 56 39 68 22 42
35 or above 48 44 18 32 30 58
Gender: Male 54 50 24 42 22 42
Female 55 50 33 58 30 58
Marital status: Unmarried 59 54 28 49 31 60
Married 50 46 29 51 21 40
Profession: Professional banker 27 25 13 23 14 27
Accountant 39 35 15 26 24 46
IT professional/Legal officer 28 26 20 35 8 15
Banking Assistant 15 14 9 16 6 12
Table 2: The level of satisfaction with the information received
Type of information received Total
sample
Bank
Mean
(SD)
AB
Mean
(SD)
CD
Mean
(SD)
t-test
t Sig.(2-
tailed)
Changes in bank’s identity 2.32
(.94)
2.92
(.77)
1.65
(.59)
9.59 .000***
Changes in management/administration system 2.46
(.93)
3.14
(.66)
1.73
(.56)
11.89
.000***
About your job security 2.58
(1.05)
3.35
(.76)
1.75
(.58)
12.26
.000***
Changes in reporting relations 2.92
(.73)
3.38
(.55)
2.42
(.53)
9.15 .000***
Changes in career paths 2.94
(1.07)
3.51
(1.15)
2.31
(.46)
7.25 .000***
Changes to bank’s policies 2.43
(.51)
2.47
(.53)
2.38
(.49)
.90 .370
Changes in salary & other financial benefits 2.83
(.40)
2.72
(.49)
2.94
(.23)
3.06 .003**
Changes in performance evaluation system 2.64
(.55)
2.77
(.50)
2.50
(.57)
2.61 .010**
Notes: **p<0.01; ***p<0.001.
33
Table 3: The level of satisfaction with the information received by age, gender and marital status
Type of information
received
Age Gender Marital status
Bellow
35 Yrs
Mean
(SD)
35 Yrs
or above
Mean
(SD)
t-test Male
Mean
(SD)
Female
Mean
(SD)
t-test Married
Mean
(SD)
Unmarried
Mean
(SD)
t-test
t
Sig.(2-
tailed)
t
Sig.(2-
tailed)
t
Sig.(2-
tailed)
Changes in bank’s identity 2.56
(.95)
2.02
(.83)
3.11 .002** 2.22
(.90)
2.42
(.97)
1.08 .279 2.40
(.96)
2.25
(.92)
-.80 .423
Changes in management/
administration systems
2.72
(.93)
2.15
(.85)
3.32 .001***
2.41
(1.00)
2.53
(.87)
.66 .508 2.46
(1.01)
2.47
(.87)
.08 .936
About your job security 2.87
(.99)
2.23
(1.03)
3.27 .001***
2.59
(1.03)
2.58
(1.08)
-.053 .958 2.60
(1.12)
2.58
(1.00)
-.11 .908
Changes in reporting
relations
3.08
(.73)
2.73
(.67)
2.57 .011** 2.76
(.75)
3.09
(.67)
2.42 .017** 2.98
(.79)
2.88
(.67)
-.70 .484
Changes in career paths 2.95
(1.01)
2.92
(.91)
.16 .870 2.83
(1.04)
3.04
(1.10)
.98 .326 3.04
(1.04)
2.85
(1.09)
-.93 .353
Changes to bank’s policies 2.43
(.53)
2.44
(.50)
-.113 .910 2.50
(.50)
2.36
(.52)
-.386 .169 2.42
(.49)
2.44
(.53)
.208 .836
Changes in salary & other
financial benefits
2.75
(.47)
2.92
(.27)
-2.24 .027* 2.80
(.41)
2.85
(.40)
.750 .455 2.76
(.43)
2.88
(.37)
1.55 .124
Changes in performance
evaluation system
2.75
(.50)
2.50
(.58)
2.39 .019** 2.61
(.56)
2.67
(.54)
.580 .563 2.64
(.63)
2.64
(.48)
.03 .970
Notes: * p<0.05; **p<0.01; ***p<0.001.
34
Table 4: Communication consequences
Communication consequences Total
sample
Bank
Mean
(SD)
AB
Mean
(SD)
CD
Mean
(SD)
t-test
t Sig.(2-
tailed)
Relied on gossips regarding the merger 3.33
(.99)
2.47
(1.00)
4.26
(.44)
-11.305
.000***
Rumours spread around the workplace regarding the merger 3.94
(.55)
3.64
(.48)
4.26
(.46)
-6.94 .000***
Felt uncertain about my future because of the merger 3.19
(.78)
2.02
(.76)
4.48
(.54)
-19.18 .000***
Notes: ***p<0.001.
Table 5: Communication consequences by age, gender and marital status
Communication
consequences
Age Gender Marital status
Bellow
35 Yrs
Mean
(SD)
35 Yrs
or above
Mean
(SD)
t-test Male
Mean
(SD)
Female
Mean
(SD)
t-test Married
Mean
(SD)
Unmarried
Mean (SD)
t-test
t
Sig.(2-
tailed)
t
Sig.(2-
tailed)
t
Sig.(2-
tailed)
Relied on gossips
regarding the merger
3.30
(1.08)
3.38
(1.04)
-.34 .732 3.52
(1.10)
3.15
(1.20)
-1.58 .117 3.16
(1.16)
3.47
(1.21)
1.32 .188
Rumours spread around
the workplace regarding
the merger
3.95
(.66)
3.94
(.38)
.13 .896 4.02
(.59)
3.87
(.51)
-1.36 .175 3.84
(.46)
4.03
(.61)
1.82 .071
Felt uncertain about my
future because of the
merger
2.90
(1.44)
3.56
(1.20)
-2.49
.014** 3.37
(1.11)
3.02
(1.03)
-1.31 .192 2.96
(1.13)
3.39
(1.04)
1.60 .112
Notes: **p<0.01
35
Table 6: Expectations following the merger
Notes: ***p<0.001.
Expectations Total
sample
Bank
Mean
(SD)
AB
Mean (SD)
CD
Mean (SD)
t-test
t Sig.(2- tailed)
Job loss due to merger 3.14
(.92)
2.04
(1.01)
4.37
(.81)
-13.10
.000***
Early retirement 3.00
(1.01)
1.89
(.82)
4.23
(.64)
-16.63
.000***
Transfer 2.74
(.85)
1.91
(.80)
3.65
(.48)
-13.81
.000***
Better designation 2.89
(.63)
2.89
(.74)
2.90
(.49)
-.07 .940
Changes in job responsibilities 2.90
(.92)
2.77
(1.03)
3.06
(.77)
-1.61 .109
Changes in salary & other financial benefits 3.44
(.49)
3.47
(.50)
3.40
(.49)
.72 .468
More defined career path 2.93
(.69)
3.15
(.67)
2.69
(.64)
3.67 .000***
Changes in performance evaluation system 3.38
(.70)
3.10
(.77)
3.69
(.46)
-4.85 .000***
Improved working conditions 2.83
(.97)
2.18
(.80)
3.56
(.53)
-10.61
.000***
Changes in corporate policies 2.74
(1.00)
2.23
(1.01)
3.31
(.54)
-6.22 .000***
Changes in management/administration system 3.34
(.88)
2.91
(.71)
3.81
(.82)
-6.06 .000***
36
Table 7: Actual situation following the merger
Actual situation Total
sample
Bank
Mean
(SD)
AB
Mean
(SD)
CD
Mean
(SD)
t-test
t Sig.(2-
tailed)
Compete for the same job with colleagues due to job cuts
3.29
(.74)
2.43
(1.08)
4.23
(.92)
-9.24 .000***
More defined job responsibilities
3.33
(.69)
3.35
(.58)
3.31
(.81)
.32 .747
Improved reporting line
3.19
(.75)
2.74
(.58)
3.69
(.57)
-8.57 .000***
Improved salary and other financial benefits
2.79
(.56)
2.84
(.59)
2.73
(.52)
1.03 .304
More defined career path
2.82
(.64)
3.02
(.69)
2.59
(.49)
3.61 .000***
Higher prospects for training and development
2.85
(.62)
2.96
(.68)
2.73
(.52)
1.99 .049*
Improved performance evaluation system
2.57
(.53)
2.61
(.49)
2.52
(.57)
.91 .360
Improved conditions of work
2.83
(.72)
3.12
(.64)
2.54
(.69)
4.38 .000***
Improved management/administrative system
2.87
(.66)
3.31
(.46)
2.38
(.49)
10.12 .000***
Notes: * p<0.05; ***p<0.001.
37
Table 8: Consequences following the merger
Consequences Total
sample
Bank
Mean
(SD)
AB
Mean
(SD)
CD
Mean
(SD)
t-test
t Sig.(2-
tailed)
Job satisfaction following the merger
2.93
(.93)
3.61
(.52)
2.17
(.64)
12.78 .000***
Committed to work following the merger
3.00
(.69)
3.37
(.61)
2.60
(.53)
6.96 .000***
Improvements in my individual identity as an employee of the bank
following the merger
3.28
(.63)
3.37
(.55)
3.19
(.71)
1.44 .152
Felt as if I was given false promises about the merger
2.36
(.96)
2.61
(1.08)
2.08
(.73)
3.05 .003**
Searching for employment opportunities in other organizations following the
merger
3.28
(.74)
2.75
(.54)
3.85
(.45)
-11.35 .000***
I have to concentrate planning my future career following the merger
3.57
(.84)
3.44
(.82)
3.71
(.84)
-1.70 .091*
I have to work much harder to keep my existing position following the
merger
3.12
(.82)
2.84
(.90)
3.42
(.60)
-3.97 .000***
Notes: **p<0.01; ***p<0.001.
38
Table 9: Consequences following the merger by age, gender and marital status
Consequences
Age Gender Marital status
Bellow
35 Yrs
Mean
(SD)
35 Yrs
or
above
Mean
(SD)
t-test Male
Mean
(SD)
Female
Mean
(SD)
t-test
Married
Mean
(SD)
Unmarried
Mean
(SD)
t-test
t
Sig.(2-
tailed)
t
Sig.(2-
tailed)
t
Sig.(2-
tailed)
Job satisfaction following the
merger
3.03
(.94)
2.79
(.89)
1.34
.180 2.85
(.97)
3.00
(.88)
.83 .408 3.12
(.84)
2.76
(.97)
-2.02 .045*
Committed to work following the
merger
3.21
(.66)
2.73
(.64)
3.83 .000*** 3.00
(.67)
3.00
(.72)
.00 1.00 2.92
(.69)
3.06
(.67)
1.10 .270
Improvements in my individual
identity as an employee of the bank
following the merger
3.36
(.54)
3.19
(.73)
1.41 .162 3.33
(.61)
3.23
(.66)
-.79 .431 3.34
(.65)
3.23
(.62)
-.834 .406
Felt as if I was given false promises
about the merger
2.08
(1.05)
2.57
(.76)
2.80 .006** 2.38
(.91)
2.32
(1.01)
-.33 .741 2.30
(1.03)
2.40
(.91)
.573 .568
Searching for employment
opportunities in other organizations
following the merger
3.18
(.78)
3.39
(.67)
1.51 .134 3.23
(.74)
3.31
(.75)
.54 .584 3.37
(.78)
3.16
(.68)
1.49 .137
I have to concentrate planning my
future career following the merger
3.80
(.83)
3.27
(.76)
3.43 .001*** 3.42
(.87)
3.72
(.78)
1.90 .059* 3.68
(.91)
3.44
(.73)
1.47 .143
I have to work much harder to keep
my existing position following the
merger
3.09
(.88)
3.14
(.74)
.303 .762 3.01
(.84)
3.22
(.79)
1.29 .198 3.24
(.83)
2.98
(.79)
1.63 .105
Notes: * p<0.05; **p<0.01; ***p<0.001.
39
Table 10: The level of satisfaction with the involvement of HR function in the merger
Involvement of HR function Total
sample
Bank
Mean
(SD
AB
Mean
(SD)
CD
Mean
(SD
t-test
t Sig.(2-
tailed)
Organized seminars/workshops on the merger. 2.58
(1.04)
3.14
(1.07)
1.96
(.55)
7.26 .000***
Provided individual counselling 2.26
(1.06)
2.79
(1.01)
1.69
(.80)
6.21 .000***
Surveyed/interviewed employee attitudes 2.57
(1.00)
3.19
(.78)
1.88
(.73)
8.95 .000***
Provided information on changes to employee related policies due
to the merger
2.59
(.84)
2.82
(.96)
2.32
(.58)
3.28 .001***
Introduced integrated HR plan for the merger 2.33
(.73)
2.58
(.65)
2.06
(.72)
3.94 .000***
Helped to clarify my role in the bank through out the merger 2.45
(.63)
2.56
(.60)
2.35
(.64)
-1.72 .087*
Organized staff events such as get together and trips involving
employees from both banks that intend to merge
2.83
(1.10)
3.67
(.66)
1.90
(.66)
13.84 .000***
Organized outward bound training involving employees from both
banks that intend to merge
2.90
(1.090
3.75
(.60)
1.98
(.67)
14.49 .000***
Notes: * p<0.05; **p<0.01; ***p<0.001.
40
Table 11: The level of satisfaction with the involvement of HR function in the merger by age, gender and marital status
Involvement of HR function
Age Gender Marital status
Bellow
35 Yrs
Mean
(SD)
35 Yrs
or
above
Mean
(SD)
t-test Male
Mean
(SD)
Female
Mean
(SD)
t-test Married
Mean
(SD)
Unmarried
Mean
(SD)
t-test
t
Sig.(2-
tailed)
t
Sig.(2-
tailed)
t
Sig.(2-
tailed)
Organized seminars/workshops on
the merger.
2.93
(.99)
2.13
(.93)
4.31 .000*** 2.57
(.98)
2.58
(1.11)
.03 .969 2.56
(1.09)
2.59
(1.01)
.16 .870
Provided individual counselling
2.56
(1.00)
1.90
(1.03)
3.35 .001*** 2.28
(.99)
2.25
(1.14)
-.11 .910 2.24
(1.07)
2.29
(1.06)
.23 .816
Surveyed/interviewed employee
attitudes
2.85
(.92)
2.21
(.98)
3.49 .001*** 2.57
(.98)
2.56
(1.03)
-.05 .957 2.60
(.92)
2.54
(1.07)
-.29 .767
Provided information on changes to
employee related policies due to the
merger
2.70
(.90)
2.44
(.74)
1.66 .100 2.52
(.92)
2.65
(.75)
.84 .401 2.68
(.91)
2.51
(.77)
-1.06 .291
Introduced integrated HR plan for
the merger
2.41
(.69)
2.23
(.77)
1.28 .203 2.30
(.69)
2.36
(.77)
.47 .634 2.36
(.80)
2.31
(.67)
-.38 .699
Helped to clarify my role in the
bank through out the merger
2.49
(.62)
2.40
(.64)
.787 .433 2.46
(.63)
2.43
(.63)
-.21 .827 2.48
(.64)
2.42
(.62)
-.46 .645
Organized staff events such as get
together and trips involving
employees from both banks that
intend to merge
2.93
(1.02)
2.69
(.90)
1.20 .231 2.67
(1.08)
2.98
(1.11)
1.49 .137 3.06
(.95)
2.63
(1.12)
-2.10 .037*
Organized outward bound training
involving employees from both
banks that intend to merge
3.00
(1.12)
2.79
(.87)
1.02 .306 2.80
(1.12)
3.01
(1.06)
1.06 .292 3.16
(.93)
2.69
(1.17)
-2.29 .024*
Notes: * p<0.05; **p<0.01; ***p<0.001.
