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Corporate and private equity (PE) acquirers’ value creation plans for their target companies typically rely on the stability, development and motivation of an acquisition’s workforce. But when human capital management doesn’t meet worker expectations, an M&A event can instead trigger value-destroying disengagement and attrition. That can be true for employees from underrepresented minority groups.
Establishing trust in leadership and organizational systems is an effective way to help reduce workforce inequities. An M&A transaction represents an opportunity to lay the foundations of trust that can engage, focus and motivate your entire workforce — creating the conditions needed for everyone involved to execute the value creation plan.
What employees in an M&A transaction are thinking
To understand specific drivers of employee experience and performance motivation, we surveyed 10,000 workers in our PwC Employee Voice Panel Study, including about 2,800 that had been part of an M&A transaction in the prior 12-month period. We discovered a troubling pattern in the responses of the latter group: M&A transactions risk exacerbating inequities, with women and racial minorities having a very different experience compared to men and white employees.
- Women perceive their experience at work 12 percentage points less favorably than men.
- Racial minorities rate their sense of belonging at work 16 percentage points less favorably than their white majority counterparts.
As we view this data through an intersectional lens and compare the experiences of women of color with those of their colleagues who are white men, the gaps widen further.
- When asked if they trust their senior leaders, only 71% of women agreed, compared to 85% of men. This is similar in size to the difference between racial minorities (71%) and non-minorities (82%).
- When asked if the company did a good job at integrating culture, systems, processes and people, only 59% of women of color agreed compared to 87% of white men. This difference of 28 percentage points is greater than the gap between men and women (20%) and racial minority groups and non-minority groups (24%).
The message for dealmakers after the merger and during integration is clear: It’s critical to establish trust in leadership and the integration plan upfront, then work to create organizational systems and processes that are recognized as transparent, fair and equitable. Building trust in leadership isn’t easy, but we’ve heard from employees that certain leadership actions can make a difference.
For the purposes of the PwC Employee Voice Panel Study, we define racial minorities as Black, Indigenous and People of Color (BIPOC).
Who is at risk of leaving — or feeling left behind — after a deal?
With or without a deal, workplace inequity is a persistent reality. The good news is that in the first 100 days following a deal, leaders have the opportunity to address Diversity, Equity and Inclusion (DEI) gaps that surface during due diligence — and put in place the building blocks of a high-performance workforce.
Dealmakers typically focus on four components as they incorporate talent strategies into their value creation plans. In each of those areas we found divergences between the experiences of employees who are women and/or from racially/ethnically diverse backgrounds compared to the experiences of others.
Workforce stability
Retention can be a bigger challenge than usual following a deal. Leaders should focus their attention on segments of the workforce that feel more vulnerable during periods of uncertainty and may be most likely to “opt out” in the wake of a transaction. When asked who is likely to stay at the company for another year, we found that women and people of color are more likely to consider leaving than men and white employees.
Workforce scalability
Attracting, onboarding and integrating the acquired workforce and new hires is critical to confirming that talent can scale at pace with the business plan. Following a transaction, we found that women are less likely than men — and people of color are less likely than white employees — to say that they fully understand the expectations and metrics on which performance is evaluated. Similarly, these groups also feel less confident that they have received the training they need to do good quality work.
Workforce motivation
Employees who use their skills and receive recognition for their contributions are far more likely to go the extra mile, create positive word of mouth for the business and demonstrate resilience in the face of change. Women feel far less recognized for their contributions in a way that’s motivating to them, and women of color report lower recognition than their white counterparts. Overall, women are less likely than men and people of color are less likely than white employees to say that their skills and abilities are being utilized by the company. Even more importantly, they are also less likely to say that they feel motivated to “go above and beyond” at work.
Worker development
Opportunities to upskill and advance into new roles represents an increasingly critical component of what employees look for in their career experience. Women are 14 percentage points less likely than men to say that promotion opportunities and career paths are clear to them following a merger.
How trust can build value
Against this backdrop of troubling inequity of experience, two levers — trustworthy leaders and organizational systems — are keys to bridging experiential gaps and improving the performance capacity of all employees. Feedback from women who come from racially/ethnically diverse backgrounds illustrates the power of building trust.
Trustworthy leaders
- Overall, employees who trust their senior leadership (those who describe senior leaders as inspirational, communicating a motivating vision and demonstrating ability to deal with challenges) report a six times more favorable work experience than those who do not trust their leadership.
- When trust in leadership is high, women from racially/ethnically diverse backgrounds report a four times more favorable work experience than those who work in low trust environments.
- Following an M&A event, women from racially/ethnically diverse backgrounds who trust their leaders report twice as high intention to stay and a five times greater sense of belonging at their company.
Trustworthy organizational systems
- Employees who report high trust in organizational systems (sound policies and procedures, continuous improvement, quick response when an individual or team is not performing) are twice as likely to state they are willing to “go above and beyond” in their work.
- When trust in organizational systems is high, women from racially/ethnically diverse backgrounds report a five times more favorable worker experience than those who report low trust in their organizational systems.
- Notably, following an M&A event, women from racially/ethnically diverse backgrounds who trust their company’s organizational systems have two times lower stress levels and possess twice as much motivation to go “above and beyond” at work.
More than any other single factor, employee responses to these two aspects of trust emerged as key to addressing the deficits often experienced by employees who are women and/or from racially/ethnically diverse backgrounds post-deal. Dealmakers who prioritize trust as a critical asset that must be assessed, cultivated and maintained have a distinct advantage.
DEI is directly connected to trust. When compared to individuals who report experiencing low trust, those who report high trust also have a five times more positive perception of DEI initiatives and practices in their workplace.
What you can do to help build trust
Diligence, day-1 readiness and 100-day planning present natural opportunities to assess the trustworthiness of leadership and organizational systems. Our data and experience point to a set of highly actionable steps dealmakers can build into their approach to enable DEI strategy and considerations remain central to value creation planning and execution.
The first step is assessing whether an acquisition target’s leadership team demonstrates the capabilities and attunement required to lead a diverse workforce into the next era. Leadership’s DEI competency becomes a critical diligence item. With the right leaders in place, a well-crafted communications plan can articulate a vision for the future that builds trust and inspiration across demographic groups. But words are not enough. Leadership’s actions have to follow through. Trust is built not just during big moments, such as major announcements and events, but in the daily interactions with teams.
Leadership actions
- Focus on CEO and management team DEI capabilities: In diligence and/or post-sign, probe management’s DEI strategy, progress and personal commitment. Recognize that gaps may create risk and impede value creation.
- Be transparent and clarify the path forward: From Day 1, encourage leadership to provide transparent, forthright messaging about deal rationale, the value creation plan and implications for the workforce. Recognize that employees who are women and/or from racially/ethnically diverse backgrounds may be particularly interested to understand how they fit into this plan.
- Learn from your workers: Whether or not the company previously ran surveys or gathered employee feedback, it’s critical post-close to establish a baseline on workforce sentiment and performance readiness. Analyze — and respond to — worker needs, with attention to differences across levels, teams, and demographic groups.
- Prepare frontline managers for the challenge: As messages and strategic direction gets filtered down from executives to the front line, middle management can be a critical enabler or barrier to establishing trust. Equip these leaders with the clarity, information resources and coaching they need.
- Do not neglect the informal side of leadership: Support leaders to build authentic connections with their peers and team members. Encourage and empower leaders at all levels to help create safe spaces for employees to voice concerns and build the trust they’ll need in order to stay engaged and perform.
Deal diligence spotlights organizational systems, policies and programs, and a transaction represents a critical opportunity to make sure these work for everyone. Where they fall short, make visible changes to signal to employees who are women and/or from racially/ethnically diverse backgrounds that organizational practices and processes will be fair, inclusive and trustworthy as the company moves forward.
Operational actions
- Start by understanding the policy and cultural framework: Review the company’s formal policies (anti-discrimination, anti-retaliation, scheduling and punctuality, dress codes, etc.) to help make sure that they reflect a commitment to honoring and upholding diversity, equity and inclusion. In diligence, seek to understand how these policies have been enforced in practice and to verify that there are mechanisms in place (a helpline and/or complaints in-box not linked to HR or management) for employees to speak up when they see violations or bad behavior.
- Examine systems that may be vulnerable to bias: Examine how talent has flowed through the system in recent years with particular attention on hiring, performance management, rewards and promotion. Identify and address barriers to retention and advancement that may disproportionately affect employees who are women and/or from racially/ethnically diverse backgrounds.
- Engage employees in improving organizational systems: Use surveys, focus groups or other employee feedback forums to identify the extent and location of “workarounds” to formal policies and processes. Ask employees how efficiency can be improved. Trust increases, particularly for employees who are women and/or from racially/ethnically diverse backgrounds, as these formal systems are improved (and workarounds are eliminated).
- Empower and hold leaders accountable: Position inclusive leadership as a core competency for which all leaders are held accountable. Confirm executives and key team leaders see talent management and employee sentiment data cut by demographic groups so they can identify and become accountable for addressing gaps.
- Recognize the importance of signaling: View the transaction as a critical time for reaffirming what the company stands for, and what and whom it values. Incorporate a DEI lens in talent selection, planning, and any change and communications efforts.
About the survey
PwC’s inaugural PwC Employee Voice Panel Study examined the specific drivers of employee experience and performance motivation. The survey was fielded by PwC in August 2021 and surveyed more than 10,000 US employees, including about 2,800 that had been part of an M&A transaction in the prior 12-month period.
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