Bank Mergers Lead to Job Loss and Insecurity - Brief Article

HR Magazine, April, 2001 by Bill Leonard

When companies neglect to address key human resource issues during mergers or acquisitions, the transactions run a much higher risk of failure, according to a recent report by the International Labor Organization (ILO). The ILO study examined mergers and acquisitions in the global banking industry and concluded that one of the most frequent causes of merger and acquisition failure was corporate neglect and disregard for "key human element issues."

"Employees complain that their first knowledge that their employer is involved in a merger or acquisition is often from the morning news before setting off for work," the ILO report states. "Frank communication on a daily basis between management and staff helps to dispel some of the uncertainties. It is important for the staff from an acquired organization to be assured that the rights and entitlements with their previous employer are to be respected."

The wave of mergers and acquisitions in the global banking and financial services sector also has increased job insecurity and workplace stress for employees and provided few tangible benefits for employers, the ILO report also concludes. Statistics gathered for the report show that the jobs cut due to bank consolidations in Western Europe number "at least 130,000" over the past 10 years. The ILO re searchers also estimate that the number of layoffs could reach 300,000 within the next two years.

In the United States, the number of jobs in the banking and financial sector decreased 5 per cent between 1985 and 1995, the report shows, with two high-profile deals--Chemical Bank's 1995 merger with Chase Manhattan and Bank America's 1998 acquisition of NationsBank--accounting for an estimated 30,000 job losses.

The ILO report notes that supporters of mergers and acquisitions say the consolidations improve efficiency and increase competition in the financial industry. "Yet, most research confirms that two-thirds of mergers fail to achieve their objectives for various reasons. The benefit of size and economies of scale are usually nullified by increased complexity and losses related to top-heavy organizations, while the difficulties of adequately blending cultural and other human factors in the integration of the combined enterprise are often underestimated," the report concludes.

Bill Leonard is senior writer for HR Magazine.