Board members most at risk post-M&A of all employees – Research shows over 40% of board positions are shed within a year of merger

July 19, 2016

• Executive Directors worst hit as almost half leave posts after M&A
• CFO and CTO roles often most under threat


Board directors are the employees most at risk of quickly losing their jobs after a merger – far more than any other category – with 43% of all board level positions shed within a year of the merger, according to new research from global executive search firm DHR International.

DHR International’s research shows that executive directors are the most at-risk individuals in the short term, with 47% leaving roles within a year of the deal. By comparison, 41% of non-executive directors lose their position on the board within a year of the merger being completed (see table below).

“It would be very surprising and possibly unknown to see a similar percentage fall in the combined total workforce or in any other function within a year of a merger,” says Simon Mansfield, Managing Partner of DHR International’s London office.

DHR International notes that although many directors may be apprehensive about their future ahead of a merger, the number of roles that are actually under threat may come as a surprise.

Simon Mansfield says: “Our research confirms that mergers and acquisitions are a ruthless process and demonstrates how high the loss of talent can be.”

“It’s surprising to see just how at-risk executive directors are, even within the first year. These individuals are amongst the most knowledgeable within the organisation and may therefore think that their positions are more likely to be secure, particularly as companies often present the transaction as a ‘merger of all the talents.’ ”

“However, these results suggest that these often high-profile directors are most in the firing line.”

Simon Mansfield adds that the speed of completion of an M&A deal does have an impact on how many board-level roles are under threat. “If a merger is completed quickly,” he says, “the acquiring company may look to retain a larger proportion of the original staff ensuring any disruption to the business is kept to a minimum and allowing for a “bedding-in” period for new directors. This is particularly common in high growth sectors.”

However, DHR International says that occasionally companies do choose to keep hold of key talent,  usually if they are viewed as being of strategic interest. In many of these cases, companies will “buy an option” on these individuals to ensure they do not lose out on directors who are key to the future of the business.

Simon Mansfield explains: “Some companies will decide to keep hold of directors if they may have a high strategic impact, and may even go as far as to create a new and specific role for them. The company may then deploy these individuals in the areas they think they’ll be most effective.”

“Companies can often look to extend this option on an individual for around 12-18 months, as the company settles down post-merger. This approach is particularly common in the pharmaceutical sector where in-house expertise may be especially valuable as an inherent part of the company IP.”

DHR International points out too that recently merged organisations can prove fertile ground for other companies seeking new talent.

“The fall-out rate at senior levels in these merged organisations can be high so it makes sense for competitors to see if they can entice their successful directors and senior executives into joining them,” comments Simon Mansfield. “It also makes sense for senior executives who may be uncertain about their future post-merger to explore the market early on for new roles elsewhere.”

Executive directors are most at risk of losing positions as a result of M&A activity

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CFO and CTO roles are particularly under threat during M&A activity

The research shows that the roles most at risk after an M&A deal are often those of the Chief Technology Officer or Chief Financial Officer.

DHR International comments that the factors behind one company acquiring another can determine which roles may be the most vulnerable in the new board composition.

Simon Mansfield says: “If one of the drivers behind the merger is a technological advantage over competitors that is seen not to be fully utilised, then the CTO can often find their position under threat in the aftermath of M&A activity, particularly as it relates to banks.”

“CTOs can be particularly vulnerable in retail challenger banks, for example, as the technological offering plays such a key role in shaping the market, attracting customers and raising revenue.”

“Similarly, it is quite often the case that the post-merger composition of the company exceeds the experience of both CFOs. It is then likely that both executives will lose their positions in favour of an external director possessing this expertise.”

“Common sense also suggests that there would be inefficiencies and confusion in having two heads of the same function, but it is rare that once an individual has held a top post that they are happy staying on as number two.”

DHR International adds that there is often the misconception that in the event of an overseas takeover of a UK company, there is a lower risk of board-level job losses. However, the research shows that this is not necessarily the case, with board-level roles under a similar level of threat regardless of whether the acquiring company is based in the UK or overseas (see table below).  

Table 1: What proportion of board directors lose their positions on board after M&A activity?

 

Total directors

Executive directors

Non-executive directors

All M&A

43%

47%

41%

UK takeover by overseas companies

43%

49%

41%

Overseas takeover by overseas companies

44%

39%

48%

Overseas takeover by UK companies

42%

33%

45%

* Analysis of board composition before and after 50 M&A deals since 2006.