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Ethics and Legal Issues in Mergers

In: Business and Management

Submitted By sdpolk1
Words 1264
Pages 6
Ethical and Legal Issues
Merger of Company A & Company B
Human Resources Management
&
Talent Development
07-04-13

Abstract
In any merger, there are always legal and ethical issues involved. These issues have to be resolved in order to ensure a successful merger. It is the role of Human Resource personnel to ensure the code of ethics is used in legal and moral implications. The role of the Human resource manager is to create an ethical environment in which all employees are able to enjoy there inalienable rights. These rights will include the accessibility of information about the job, company, and there career and the right not to be coerced into situations. Maintaining these rights will help in reducing stress, establishing trust, increasing productivity and efficiency. This report will document the legal and ethical issues associated with a merger. It will also consist of a detailed implementation plan in resolving these potential ethical and legal issues. A plan for establishing an ethical work environment and resolving ethical and legal issues will be discussed as well.
Identify Specific Legal and Ethical Issues involved in Mergers Recently the mergers and acquisitions of firms has become a major trend in business. In the process of mergers and acquisitions, the role of ethics and compliance has become a major step in ensuring success. A breakout session was held just recently on ethics and compliance in mergers and acquisitions. The panel, which featured Seth Bruckner, compliance officer with United Parcel Service, and Martin de Grijp, group vice president and group integrity processes and training officer, ABB Group, discussed how companies need to expand their culture of ethics to the acquisition company, maintain ethical continuity during mergers, implementing your compliance and ethics following integration within a timely manner and more (McCoy, 2013). There are many ethical and legal issues involved in the process of mergers and acquisitions. Some issues that have been discussed recently are the ethical propriety, tactics, anti-trust issues, rights of bondholders of both merging companies, and the rights of individual stockholders neglected in an institutional shareholder power. However, two important issues have not surfaced as questionable practices deriving from mergers and takeovers, one having to do with the rights of employees in mergers and the second concerning the responsibilities of shareholders during these activities (Werhane, 1998). The rights of employees in mergers is the primary ethical issue that is violated during mergers. Employees are supposed to continue to their day-to-day job operations before, during and after the merger as if no changes are taking place. It is here where many ethical issues begin to develop. Management expects employees to continue to work and produce as if nothing is happening. This becomes a difficult task when rumors swirl around about the threats of their job and management decisions. Although employees are drastically affected by a merger or an acquisition because in almost every case a number of jobs are shifted or even eliminated after a merger, in fact except for top management, employees at all levels are usually the last to find out about a merger transaction (Werhane, 1998). This non-communication is unethical and prevents employees from knowing about their jobs and careers. Second, mergers of two firms are said to be beneficial to the shareholders of these respected companies. This indeed is the primary function of a merger, however; the roles of shareholders has gone unrecognized. It seems the role, responsibilities are undefined, and it leaves shareholders clueless as how to act under mergers. The role of stakeholders can be critical due to the merger being a friendly transaction or hostile takeover. In a hostile takeover environment, disputes between roles and responsibilities of stakeholders can generate proxy fights. Another is that HR has to deal with is the culture of two companies. The ethical practices of these two firms are different causing HR to create an ethical environment that is universal. There are ethical issues that can affect a merger. There will be legal matters to be addressed related to structuring the transaction and the transaction documents, establishing the terms of the transaction, negotiating arrangements ancillary to the transaction such as employment, licensing and other ongoing relationships, conducting the due diligence, and negotiating post-closing obligations such as indemnification, confidentiality, non-compete and non-solicitation obligations (“Legal”, 2009). Other legal issues include dissolving of assets, consolidations, and tax-reporting issues are all legal issues that must be taken into account. From a tax-purpose perspective, the structure of a merger is important in order to ensure tax consequences that are most beneficial for a firm. The fair value of assets and liabilities of the business acquired must be determined for financial accounting records. These issues and factors have to be considered before, during, and after a merger.
Implementation Plan for Managing Issues, establishing an ethical environment, and resolution
The first step is to develop a HR plan that will document and support the entire merging process of the two firms. This plan will define the task to be accomplished and will prioritize the importance of each step. This HR project plan will cover all topics such as planning, financial, legal, ethics and compliance issues. This project plan will consist of focus teams for each one of the aforementioned topics. They will gather information on all aspects affecting employees, management, upper management, and the public. These focus groups will come together to determine the best practices to ensure the success of the merger. The second step is a review known as the HR due diligence that will be used to help ensure that merging companies identify any missing liabilities. This review would help firms to review all decisions and ensure the feasibility of the merger. This review could be used to help in identifying areas of weakness that will require immediate attention. This due diligence review process would consist of teams from different departments such as finance, HR, legal, ethics and compliance department. The benefits of using the due diligence review will help in organizational structure, industrial relations, employee compensation and pending employee litigations. The incorporation of this project plan and due diligence review is to establish procedures, goals, and a positive culture based on the ethics and morality of the new firm’s culture. This plan would help create an ethical work environment by its ability to incorporate the diverse departments into one unified plan and goal. The plan is created to integrate all phases and departments to interact together to establish unity in the decision-making process. This plan will be the foundation for managers to use to implement an ethical work environment. This plan will help in resolving ethical and legal issues by identifying the issues before the merger begins. Once identified, the committee will set forth to establish methods in resolving these issues before the merger. Preventative maintenance is the best practice in resolving issues, however; some issues cannot be resolved until it occurs. The plan would create steps for dealing with these future issues. By creating this plan, we hope to eliminate as much risk in ethics and legal as possible.

References
Legal and Financial Issues in Mergers and Acquisitions. (2009). Retrieved from http://floridaphotonicscluster.blogspot.com/2009/10/legal-financial-issues-in-mergers-and.html.
McCoy, Jeff. (2013). Ethics and Compliance in Mergers and Acquisitions. Retrieved from http://www.legalcurrent.com/ethics-and-compliance-in-mergers-and-acquisitions/.
Werhane, Patricia. (1988). Two Ethical Issues in Mergers and Acquisitions. Journal of Business Ethics. Retrieved from http://www.jstor.org/discover/10.2307/25071723?uid=3739616&uid=21.

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