The hidden cost of ignoring hybrid work in M&A transactions

Different approaches to blended working could be a barrier to successfully bringing two companies together, writes Lucy Delaney, Managing Director at FTI Consulting.

Hybrid working: The great enabler and equaliser of our times. It has transformed the office and how we collaborate, increased cost efficiencies, attracted global talent and, with its offer of flexibility, has quickly become the new currency of business.

But when it comes to the merger and acquisition integration process, organisational approaches to blended working can be a major obstacle when bringing two workforces together.

When the policies don’t match

A 2023 study by Greenhouse found 77% of employees would actively look for a new job or be willing to consider one if their company’s flexible work policies were reversed. Forcing a rigid work structure onto a company with a flexible hybrid policy is not just messy and painful; it risks alienating top talent and unintentionally driving out key individuals who made the acquisition attractive.

Conventional wisdom has always recognised that cultural differences between acquiring and target companies is critical to workforce integration. That said, many companies do not consider the impact hybrid working has on communication styles, collaboration methods and decision-making processes – since these practices are not often documented.

If these practices are not aligned during integration, each side is more likely to become entrenched in its own way of doing things, leading to cracks and cultural divides that will eventually cause integration fails.

When there are two approaches to hybrid, what’s the solution? Consultation, consultation, consultation. It’s the most underrated tactic businesses fail to adopt because it requires time and effort to understand why the workforce prefers hybrid (or not), rather than acting on assumptions.

Insight into the popularity of hybrid working is critical to determining if it is an accelerator or a diminisher of deal value. This includes knowing why each company adopted its model, who uses it, and whether they might leave if the business were to adopt an alternative work arrangement. Be mindful if you are in an industry where there are targets around diversity, or the combined company aims to tap into a diverse talent pool, as hybrid working may be a key strategy pillar.

Managers: The first line of defence

When it comes to the integration of organisations with different remote working policies, managers are the first line of defence. It is important to recognise the additional pressures and challenges placed on those accustomed to overseeing employees in an office environment.

Communication channels and performance monitoring measures will need to be established, and team leaders may struggle to build and maintain team cohesion and morale. In addition, the physical absence of team members makes it harder to foster relationships, gauge employee engagement and ensure alignment with new organisational goals during the delicate post-merger integration period.

Similarly, managers who have previously managed in a hybrid environment successfully and need to adapt to office-based working may find their performance and reporting responsibilities change.

• Have frequent check-ins with managers. Understand their views on new working practices and its impact on delivery and team working.
• Give their voice a visible platform through interactive listening sessions. This will enable the business to address any tensions that may lead to a fall in productivity or departures from disengaged or unhappy employees.
• Help managers manage. Investing in comprehensive and engaging training and coaching to hone their skills for success.
• (Re)establish a team charter and expectations. This can help to align both remote and office-based employees and establish a culture of transparency, consistency and fairness.

Hidden realities

In addition to the cultural considerations of hybrid working practices during a merger, it is crucial to ensure that new operational structures can support differing working policies. Implementing policies for fully remote employees living abroad; individuals taking advantage of ‘work from anywhere’ policies; or flexible working around holidays involves hidden tax and social security obligations that can become a minefield if handled incorrectly.

This can materialise in various forms: paying taxes in multiple countries for individuals, employers registering for social security purposes abroad, potentially operating payrolls in multiple countries for one individual, and even forcing an employer to create a taxable presence overseas.

Having employees who work abroad may also lead to increased data safety and protection responsibilities and risks, particularly when those countries have different compliance regulations. This burden may multiply exponentially for organisations if several employees work remotely for extended periods.

It is vital to know the location of all employees by having a central point of control, to avoid decentralising policies and processes, which creates confusion and leaves the organisation vulnerable.

Turning a potential liability into an asset

Successful M&A integrations hinge on proactive planning, effective communication and strategic investment in managerial training. Embracing flexible work policies can unlock vast potential, but without careful alignment and robust support structures, the risks of value destruction and talent loss loom large. By recognising cultural differences, consulting thoroughly (and ensuring compliance with local laws), companies can transform potential pitfalls into opportunities for innovation and growth, ultimately ensuring a smoother, more cohesive integration process.

About the author: Lucy Delaney is a Managing Director in the People and Transformation practice at FTI Consulting.