- Email: [email protected]
Mergers and the executive
IDEAtional I t e m s from the desk o f RICHARD J. WYTMAR
M e r g e r s a n d the e x e c u t i v e
50
Mr. ICytmaris president of Maichle & Wytmar, Inc. The president of a medium-sized company recently met with his management group to announce a pending merger with another company. The surprising news was greeted with mixed reactions of anticipation, concern, and dismay. Such an event is no longer uncommon; the number of mergers in 1967 rose a dramatic 37 percent over those of the previous year. The impact on the corporate executive is significant. With increasing frequency, expanding corporations are searching for qualified executives to assume significant responsibilities in newly acquired companies. Other companies are seeking stronger management in order to be more attractive as acquisition prospects. At the same time, executive displacements are rising as a result of corporate mergers. The merger movement, as we know it today, began roughly ten years ago. At that time, the accepted corporate philosophy held that the easiest way to increase profit was to increase sales volume, and the best way to increase sales volume was to acquire and expand established companies. Unfortunately, many acquisitions were made on the basis of
their balance sheets and profit-and-loss statements, and insufficient attention was paid to the study and evaluation of the strength and potential of the management group. As a consequence, any number of acquisitions failed to produce the desired or expected results and turned into unprofitable or untenable situations. Fortunately, time and experience have matured the merger movement. The successful corporations of today that have grown and prospered via the acquisition route characterize the professionalism of the modem merger movement. Corporations such as these include two basic rules in their acquisition programs: Acquire companies that possess sufficient executive talent to operate the company successfully in the future. Allow the acquisition the broadest management latitude in the conduct of its business unless its profitability or return on investment falls below a predetermined or desirable level. Despite this prevailing policy, executive dislocations still occur. If the parent company plans for the acquisition to function as a separate entity, there is, relatively speaking, not as much-danger of executive dislocation as
BUSINESS HORIZONS
Mergers and the Executive
when the parent organization intends to absorb the acquired company into its own larger structure.
THE EXECUTIVE'S COURSE Generally speaking, the executives of the acquired company with direct line responsibilities are less subject to termination than the executives in staff capacities. For example, the sales manager and the manufacturing manager are less likely to be displaced than their financial, legal, or public relations counterparts. The reason for this is simply that the operating executives are needed to run the organization while the staff functions may very readily be absorbed into the existing staff of the parent company. Then there is the matter of equity ownership. If the acquired company is family controlled or closely held, the executives who hold significant stock control can and often do negotiate a management clause to protect their employment future. But what about those executives in upper and middle management levels who are not so fortunately protected? How does the executive know what is going to happen to him when he learns of the intended or actual merger of his company? How does he know that he will not be displaced? The point is, he doesn't know. What then should the executive do when he is caught up in a merger situation? He should not panic. It is unwise for the executive to immediately assume that he will be replaced. From a practical standpoint, he should realize that most successful companies are aware that good executives are hard to come by and cannot afford to lose capable management talent for whatever the reason. He should be positive. It does not behoove the executive to fight the new situation. He should show a genuine and real interest in adapting and contributing to the new organization. In the f'mal analysis, the best defense is a good offense. It becomes incumbent on the
DECEMBER, 1969
executive to impress his new management with his desire to be of continuing value to the organization. He should communicate. Under no circumstances ~ould the executive stick his head in the sand and hope for the best; he must ascertain his future status as soon as possible. If the new conditions are to his liking, so much to the good. If not, he should arrive at an amicable termination arrangement and initiate his own job search. It is in the nature of business that executive displacements will always occur, whether as a result of mergers, consolidations, reorganizations, untenable working conditions, dead end jobs, incompetence, or personality conflicts. What then is the executive's best defense against displacement whatever the reason? The answer is job competence. Executive excellence always has been and always will be in short supply. Manifestation of excellence is accomplishment. Accomplishment is a tangible record of success whatever the endeavor. Executive excellence is that valuable commodity which is least likely to be displaced, but, if it should be, is highly marketable.
THE COMPANY'S COURSE Most corporations contemplating a merger are not anxious to lose executive personnel. How best can a company minimize managerial displacements under these circumstances? Announce the decision. If practical, thg management group should be advised of the company's decision to actively pursue a merger course. The circumstances, facts, and reasons for the action should be explained, and the business and economic advantages to be gained by the company and its employees from a strategic corporate marriage must be stressed. Rumors and panic reaction ca~ be avoided by treating merger activity as a straightforward management consideration, normal and advantageous in today's business economy. Work out an employment policy. A realis-
51
RICHARD J. WYTMAR
tic policy relative to executive job tenure must be chosen. The management group can be told that the merger course is a planned step in the growth of the company and is calculated to maximize corporate expansion and increase executive job potential and opportunity. They should know that every attempt will be made to utilize existing management capability to the fullest extent. Direct action is recommended with key executives (those the company can least afford to lose). They ought to feel reassured of their future with the company and to be prepared to make realistic commitments to ensure their tenure with the company. Continue communications. The management group must be kept informed of the progress of merger negotiations. Their interest can be stimulated and sustained by a demonstration of the company's concern for their involvement and understanding.
roll iIII
merger movement is a natur
[[I I1 and predictable development in the continuing evolution of our highly prosperous, expanding and technologically oriented age. Presumably mergers have stimulated and increased the efficiency of a growing segment of our business and industrial community. Certainly mergers have accelerated the need for the professional manager capable of producing profit in a highly competitive economy. To be sure, the merger movement has resulted in executive dislocations, but so did automation and computer technology-yet all of these developments have significantly strengthened our country's business and industrial stature, The corporation and the executive of today must accept the challenge of change if they are to grow and prosper. The merger movement is in current trend; tomorrow will bring still another vital challenge.
52
Now Available Out-of-print and Back Issues of Business Horizons Volumes I-IX JOHNSON REPRINT SERVICE 111 F i f t h Avenue New York, N.Y. 10003 Volumes X-XI BUSINESS HORIZONS Graduate School of Business Indiana University . Bloomington, Indiana 47401
BUSINESS HORIZONS
M e r g e r s a n d the e x e c u t i v e
50
Mr. ICytmaris president of Maichle & Wytmar, Inc. The president of a medium-sized company recently met with his management group to announce a pending merger with another company. The surprising news was greeted with mixed reactions of anticipation, concern, and dismay. Such an event is no longer uncommon; the number of mergers in 1967 rose a dramatic 37 percent over those of the previous year. The impact on the corporate executive is significant. With increasing frequency, expanding corporations are searching for qualified executives to assume significant responsibilities in newly acquired companies. Other companies are seeking stronger management in order to be more attractive as acquisition prospects. At the same time, executive displacements are rising as a result of corporate mergers. The merger movement, as we know it today, began roughly ten years ago. At that time, the accepted corporate philosophy held that the easiest way to increase profit was to increase sales volume, and the best way to increase sales volume was to acquire and expand established companies. Unfortunately, many acquisitions were made on the basis of
their balance sheets and profit-and-loss statements, and insufficient attention was paid to the study and evaluation of the strength and potential of the management group. As a consequence, any number of acquisitions failed to produce the desired or expected results and turned into unprofitable or untenable situations. Fortunately, time and experience have matured the merger movement. The successful corporations of today that have grown and prospered via the acquisition route characterize the professionalism of the modem merger movement. Corporations such as these include two basic rules in their acquisition programs: Acquire companies that possess sufficient executive talent to operate the company successfully in the future. Allow the acquisition the broadest management latitude in the conduct of its business unless its profitability or return on investment falls below a predetermined or desirable level. Despite this prevailing policy, executive dislocations still occur. If the parent company plans for the acquisition to function as a separate entity, there is, relatively speaking, not as much-danger of executive dislocation as
BUSINESS HORIZONS
Mergers and the Executive
when the parent organization intends to absorb the acquired company into its own larger structure.
THE EXECUTIVE'S COURSE Generally speaking, the executives of the acquired company with direct line responsibilities are less subject to termination than the executives in staff capacities. For example, the sales manager and the manufacturing manager are less likely to be displaced than their financial, legal, or public relations counterparts. The reason for this is simply that the operating executives are needed to run the organization while the staff functions may very readily be absorbed into the existing staff of the parent company. Then there is the matter of equity ownership. If the acquired company is family controlled or closely held, the executives who hold significant stock control can and often do negotiate a management clause to protect their employment future. But what about those executives in upper and middle management levels who are not so fortunately protected? How does the executive know what is going to happen to him when he learns of the intended or actual merger of his company? How does he know that he will not be displaced? The point is, he doesn't know. What then should the executive do when he is caught up in a merger situation? He should not panic. It is unwise for the executive to immediately assume that he will be replaced. From a practical standpoint, he should realize that most successful companies are aware that good executives are hard to come by and cannot afford to lose capable management talent for whatever the reason. He should be positive. It does not behoove the executive to fight the new situation. He should show a genuine and real interest in adapting and contributing to the new organization. In the f'mal analysis, the best defense is a good offense. It becomes incumbent on the
DECEMBER, 1969
executive to impress his new management with his desire to be of continuing value to the organization. He should communicate. Under no circumstances ~ould the executive stick his head in the sand and hope for the best; he must ascertain his future status as soon as possible. If the new conditions are to his liking, so much to the good. If not, he should arrive at an amicable termination arrangement and initiate his own job search. It is in the nature of business that executive displacements will always occur, whether as a result of mergers, consolidations, reorganizations, untenable working conditions, dead end jobs, incompetence, or personality conflicts. What then is the executive's best defense against displacement whatever the reason? The answer is job competence. Executive excellence always has been and always will be in short supply. Manifestation of excellence is accomplishment. Accomplishment is a tangible record of success whatever the endeavor. Executive excellence is that valuable commodity which is least likely to be displaced, but, if it should be, is highly marketable.
THE COMPANY'S COURSE Most corporations contemplating a merger are not anxious to lose executive personnel. How best can a company minimize managerial displacements under these circumstances? Announce the decision. If practical, thg management group should be advised of the company's decision to actively pursue a merger course. The circumstances, facts, and reasons for the action should be explained, and the business and economic advantages to be gained by the company and its employees from a strategic corporate marriage must be stressed. Rumors and panic reaction ca~ be avoided by treating merger activity as a straightforward management consideration, normal and advantageous in today's business economy. Work out an employment policy. A realis-
51
RICHARD J. WYTMAR
tic policy relative to executive job tenure must be chosen. The management group can be told that the merger course is a planned step in the growth of the company and is calculated to maximize corporate expansion and increase executive job potential and opportunity. They should know that every attempt will be made to utilize existing management capability to the fullest extent. Direct action is recommended with key executives (those the company can least afford to lose). They ought to feel reassured of their future with the company and to be prepared to make realistic commitments to ensure their tenure with the company. Continue communications. The management group must be kept informed of the progress of merger negotiations. Their interest can be stimulated and sustained by a demonstration of the company's concern for their involvement and understanding.
roll iIII
merger movement is a natur
[[I I1 and predictable development in the continuing evolution of our highly prosperous, expanding and technologically oriented age. Presumably mergers have stimulated and increased the efficiency of a growing segment of our business and industrial community. Certainly mergers have accelerated the need for the professional manager capable of producing profit in a highly competitive economy. To be sure, the merger movement has resulted in executive dislocations, but so did automation and computer technology-yet all of these developments have significantly strengthened our country's business and industrial stature, The corporation and the executive of today must accept the challenge of change if they are to grow and prosper. The merger movement is in current trend; tomorrow will bring still another vital challenge.
52
Now Available Out-of-print and Back Issues of Business Horizons Volumes I-IX JOHNSON REPRINT SERVICE 111 F i f t h Avenue New York, N.Y. 10003 Volumes X-XI BUSINESS HORIZONS Graduate School of Business Indiana University . Bloomington, Indiana 47401
BUSINESS HORIZONS