Corporate mergers and acquisitions are undertaken with the belief that the combined companies will be able to grow more rapidly and be competitively stronger than they were as independent companies. The management teams of both companies face ethical dilemmas prior to beginning the merger, as negotiations proceed and after the transaction is closed.
Disclosure by Target Company
The company being acquired is often called the target company. When negotiations begin, its management team faces the issue of how much to disclose about the company’s current operations and future prospects. They might be aware of competitive factors that will make it difficult for the company to retain its market share in the future. Disclosure of such negative factors can cause the other company to offer a lower price to the shareholders of the target company or decide to not go through with the merger at all.
A company might decide to acquire a company that is not for sale. The management team of the target company might view the acquisition offer with hostility because they will lose control of the company. They might lose their executive positions as well when the other company’s team takes over. The ethical dilemma for the company proposing the acquisition revolves around whether the benefits to the shareholders of both companies from the merger being a success -- greater revenues and profits -- outweigh the need of the target’s management team to remain autonomous. Sometimes unfriendly takeovers involve companies that were staunch competitors. The employees of the company being acquired may resent having to be a part of a former rival’s organization and decide to seek employment elsewhere.
Companies in discussions regarding a merger face the issue of how much to tell employees about the proposed transaction. Parties in the merger have to ask themselves whether employees have the right to know that a seismic change in their lives is in the works. It’s normal for rumors to start within both organizations when merger negotiations begin. If the rumors are incorrect they can damage morale and productivity, such as a rumor of a manufacturing plant being closed when no such event is contemplated.
One of the benefits of a merger is the opportunity to cut costs by consolidating certain business functions of both companies and being able to reduce the total number of staff positions of the combined entities. The harsh reality of a consolidation is having to fire employees. Valued, loyal employees who have contributed to the company’s success for a number of years might lose their livelihoods. Managers who are planning a merger must deal with the uncomfortable moral issue of whether firing people is the right thing to do.
Those employees fortunate enough to be retained after the merger may still face the challenge of having to relocate if the company intends to consolidate operations into one central location. For families this can cause a considerable amount of hardship. Kids have to enroll in a new school. Spouses have to quit their jobs and find new ones at the new location. Employees may not want to move from a warm climate to a colder one. They might not want to move from a smaller town to a big city. Managers planning a merger must be sensitive to the potential concerns of employees who will be asked to move.
- “Mergers and Acquisitions from A to Z”; Andrew J. Sherman; 2010
Brian Hill is the author of four popular business and finance books: "The Making of a Bestseller," "Inside Secrets to Venture Capital," "Attracting Capital from Angels" and his latest book, published in 2013, "The Pocket Small Business Owner's Guide to Business Plans."