Francisco A. Casanova of Ponte Andrade & Casanova participated in The Art of Deal Making: Using External Expertise Effectively

Foreword by Andrew Chilvers

For ambitious companies eager to expand into overseas markets, often the conventional route of organic business development is simply not fast enough. The other option to invest in or buy a business outright is far quicker but often fraught with unforeseen dangers. And even the biggest, most experienced players can get it badly wrong if they go into an M&A with their eyes wide shut.

If you search for good and bad M&As online the Daimler-Benz merger/acquisition with Chrysler back in 1998 is generally at the top of most search engines on how NOT to undertake a big international merger. Despite carrying out all the necessary financial and legal measures to ensure a relatively smooth deal, the merger quickly unravelled because of cultural and organisational differences. Something that neither side had foreseen when both parties had first sat down at the negotiating table.

These days the failed merger of the two car manufacturers is held up as a classic example of the failure of two distinctly different corporate cultures. Daimler-Benz was typically German; reliably conservative, efficient, and safe, while Chrysler was typically American; known to be daring, diverse and creative. Daimler-Benz was hierarchical and authoritarian with a distinct chain of command, while Chrysler was egalitarian and advocated a dynamic team approach. One company put its value in tradition and quality, while the other with innovative designs and competitive pricing.

Francisco A. Casanova discussed The Art of Deal Making: Using External Expertise Effectively as part of the Employment chapter.

What advice can you offer international clients on harmonising employment practices and culture following a merger or acquisition in your jurisdiction?

Mergers and Acquisitions (M&As) are delicate and usually prone to conflicts between the merged/acquired workforce and union. However, these processes could also provide the perfect opportunity for companies to evaluate their current practices and change them to improve their business.

In Venezuela, M&As are a type of “employer substitutions”. In general terms, employer substitutions cannot affect individual relationships and collective bargains. Moreover, these processes cannot negatively affect the worker, and must be notified to the employees, the unions, and the labour authorities. If the employee considers the employer substitution to be inconvenient, he/she may request the termination of the relationship and the payment of the benefits and indemnities.

To take full advantage of M&As from an employment standpoint in Venezuela, companies should:

• Have adequate employment relations/human resources counselling. These are key to implement proper measures to harmonise previous and future work conditions and integrate employee benefits. This is especially important when the merged company takes the previous company’s employment programmes, practices and liabilities that could affect its budget. For this reason, careful planning is required to mitigate risks and post-merger conflicts.

• Create integration strategies that balance administrative burdens and employment benefits. These strategies must consider a wide variety of aspects such as, but not limited to, salary, pay scale, initial budget, previous employment programmes intended to cover employee needs. Full knowledge of the new business is pivotal to understanding what is required to cover these expenses and cost-effectively.

• Clearly communicate their strategies and measures to prevent tension among the employees. For example, individual approaches or personal guidance with each employee might be useful to make them fully aware of what their new work conditions and benefits are post-merger.

Do you have a best practice for incorporating collective bargaining agreements, employee benefits and pension scheme provision into the deal making process?

Venezuela’s legislation changes rapidly, unpredictably, and generally favours the workers, possibly making contractual benefit unlawful or unavailable, or a new benefit could be required by law. In any case, M&As cannot negatively affect employees or unions. Currently, collective bargains (CB) remain in effect for three years, which could be modified by the parties. Thus, the employment lawyer must advise employers to remain competitive in the labour market while not negatively affecting their cost structure.

Because of this, the ideal bargaining solution is to implement a clause that grants the right to the employer to change benefits, being able to add, modify, replace, or discontinue plans during the term of the CB. If unions do not approve this, employers could propose measures that affect particular benefits (e.g., health insurance). Finally, always seek to incorporate wording that allows employers to address routine administrative matters.

Another alternative is implementing a reopener clause, which comes into play when certain conditions are met. Another option is a reopener clause under which employers and unions negotiate benefits cost annually. Employers should ensure that the new benefit schemes, such as multi-employer health and welfare of pension plans, comply with applicable laws and regulations, and not affect the workers and employers.

Incentivisation and retention of senior management is important to ensure stability and continuity post-deal. Any examples in which you have achieved this effectively?

A huge exodus of talent from Venezuela is a problem that significantly affects the survival of companies. According to a 2018 survey, 45% of Venezuelans left the country due to the economic crisis, 25% due to the low chances of change in Venezuela, and 15% due to personal insecurity. About 2.3 million Venezuelans left the country in 2017-2019 seeking better conditions elsewhere.

Due to the departure of Venezuelans, companies have had to seek financial, human and technological solutions for an organization’s operational sustainability. Specialists in employment relations/human resources are essential to create strategies to keep employees in particularly critical roles such as senior management. In the current circumstances, priority is given to short-term compensation, especially non-monetary compensation. Likewise, a competitive salary is offered, preferably with a portion in foreign currency. Flexible training plans and policies are also part of the offer with variable remuneration schemes such as retention bonuses or extended health coverage in critical and susceptible positions such as technology, finance, key operations managers.

Companies should implement strategies to:

• Improve business emotional intelligence and human awareness, both for the employer and the employee.

• Understand, simplify, and automate the processes ensuring quality, service and profitability of the company or organization.

• Strengthen the recruitment and selection departments and flexibility in working hours as a retention strategy and the promotion of innovation as a constant motivation strategy.

Top Tips – To Keep Your People Happy During The M&A Process

• Provide individual and personal guidance to each employee – this will be useful to make them fully aware of what their new work conditions and benefits are post-merger.
• Clearly communicate the company’s workforce and benefit integration measures to prevent tension among the employees.
• Improve business emotional intelligence and human awareness, both for the employer and the employee.
• Understand, simplify and automate the processes ensuring quality, service and profitability of the company or organization.
• Strengthen the recruitment and selection departments and flexibility in working hours as a retention strategy and the promotion of innovation as a constant motivation strategy.

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Contributing Advisors