The human side of mergers: Those laid off and those left aboard (page 1 of 3)

But what about low morale and decreased productivity among the rank-and-file, a by-product of many corporate mergers that attempt to slam together two diverse corporate cultures? Or the impact on employees who lose their jobs, and the employees left behind after layoffs are announced? How will these so-called survivors deal with the loss of institutional knowledge, increased workloads and a sense of uncertainty about their own futures?

The story of what happens to the rank and file employees after these corporate weddings is rarely headline-grabbing news. When Procter & Gamble announced in January that it would buy Gillette for $57 billion, the fact that 6,000 people would lose their jobs was all but buried in the details of a deal that would link some of the world's most well-known household brands.

The reasons why, many say, are simple. "The investment community focuses on costs. They generally always like the idea that you can cut workers and save money when mergers and acquisitions are announced," says Peter Cappelli, director of Wharton's Center for Human Resources. "But it's difficult for them to factor in the associated costs of layoffs, declining morale, and the chaos that comes from restructuring. Because the investment community can't easily measure these costs, they don't factor them in, and that's one reason why mergers rarely work out."

Also, mergers of large corporations rarely consider the effects of layoffs on local communities because they are seen to be such a small part of the overall global economy and their effect on it is tiny. Corporate boards used to care about the local economy, but the change in governance of corporations means that they focus primarily on the concerns of the shareholders. "When it comes to the well-being of the employees," Cappelli says, "they don't care."

Perhaps they should. Mergers that result in layoffs can be a devastating experience, both psychologically and physically for those who lose their jobs. People who are fired or laid off often get sick and develop stress-based illnesses. Recent studies have even shown that being laid off and then rehired is associated with more work-related injuries and days off than just receiving a warning notice, or of course, not being laid off at all. So even if you rehire employees, there can be damage.

Furthermore, says Cappelli, companies typically "don't pay attention" to the potential loss of institutional knowledge when there are layoffs. Why? Because on paper, the merger of two corporations means an opportunity for some companies to increase their quality of talent - two people for every position - so they pick the best one. But the process through which this happens is messy. Some companies that do this are good at it - particularly when they are making small acquisitions, for example, or acquiring smaller companies. But when big mergers are involved, it is perhaps as bad as the others.

Management professor Nancy P. Rothbard points out that institutional knowledge can "have two meanings. One is the idea of skills and knowledge of information that is relevant. But another is the knowledge of the way things are done in the company. Often, that changes with the merger. It's not clear, but sometimes retaining the people who are wedded to the old ways might be problematic if they are not able to adapt. It might become a hindrance if it creates a barrier to change."

Another way to look at institutional knowledge is to view its retention as a competitive advantage, says John Paul MacDuffie, co-director of Wharton's Reginald H.