Introduction
Mergers and acquisitions are one of the ways through which a specific business expands in the market. Acquisitions are usually advantageous to the companies that merge concerning increasing the demand, production, and edging the competitors in the same industry. However, mergers and acquisitions may involve some roughness to the companies involved. For example, some ethics may be breached by either or both of the firms engaged in the purchase. The ethical problems arising from the acquisition may have adverse effects on the organizations involved. The results may affect performance. The following are the ethical problems in assets and their implications for the involved agencies.
Revelation of specific information by the target company
One of the primary reasons why a group may want to be acquired by another is the need to improve performance. The target company, in the case of an acquisition, is mostly performing poorly in its market, which is primary to propulsion into mergers and acquisitions. The target company has to disclose some information to the acquiring company for the latter to make adequate prior arrangements for the effectiveness of the purchase. Some of the data required could target the financial documents of the target company in a period, the level of competitive advantage, and its position in the market about the other companies in the same sector (McNichols & Stubben, 2014).
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The ethical dilemma comes in when the management of the target company has to release the information to the acquirer. Apparently, the former would like to ostentate their best qualities to attract the attention of the latter. Therefore, the leadership of the target company may tend to cover up the negativity of their organization to avoid the acquisition at a lower price. The negative qualities, for instance, are like the weak competitive advantage, the staggering bankruptcy, and the low position of the firm in the market (McNichols & Stubben, 2014).
As an ethical issue, disclosure by the target company has some effects on the organization. The most obvious implication is that in the case of the target company having a high level of accounting information, as an example of a desirable characteristic, the target company's worth rises and it benefits financially during the acquisition. The best qualities of the target company also enable it to adjust to a better position in the market and handle the competitors. Additionally, the existing staff may be retained after the acquisition of their elegance in improving the operational performance of the business (McNichols & Stubben, 2014).
On the other hand, the exposure of the undesirable qualities of the target company could be detrimental to the organizational performance. First and foremost, the acquiring company tends to offer a lower price than the expected one in the acquisition. The lower price results from the devaluation of the venture by its revelation of negativities. Secondly, the acquiring company, after realizing the negative traits of the target company, may make a decision that involves total non-involvement of the company in the merger. The quittance from the merger would be disastrous to the target company mainly if it were its only hope of avoidance of the collapse of the business (McNichols & Stubben, 2014).
Chaotic takeovers
As aforementioned, mergers and acquisitions are meant to be advantageous to the companies involved. An order is expected to be preserved as the process is sequential and clear to the parties involved. More often than not, the acquiring company may be unfriendly in the takeover and effect it in a manner that suggests excessive use of force. For example, it would be inappropriate and unethical for the management of the acquiring company to come to the target company and demand quicker process of acquisition. The target company's management would feel burdened with the fact that they have to work out the takeover as soon as possible to appease the acquiring company (Cain, McKeon, & Solomon, 2017).
Chaotic takeovers have the following effects. First and foremost, a company may acquire a target company that is not on sale. The wrongful acquisition is against the ethics designed to guide mergers and acquisitions. Such a purchase may lead to fighting between the acquirer a target company. The fight would result from the management of the target company's hostile reaction to the acquirer's offer. The hostile response is due to the fear of loss of a business, especially to a former rival. Therefore, the forceful takeover of a target company that is not on sale poses a challenge to the efficiency of mergers and acquisitions (Cain, McKeon, & Solomon, 2017).
Secondly, chaotic acquisitions lead to loss of employment mostly in the target company. Unfriendly mergers are fueled by the acquirers' hastiness in acquiring a company that may lead to their expansion and subsequently a better position in the market. The leadership of the target company, in the event of a hostile takeover, loses the management power to the acquirer and may eventually lead to loss of their jobs. The loss of employment in the target company is detrimental to its performance as it becomes unpopular due to the layoff of large numbers of staff at the same time. The loss of management power raises ethical issues against the acquiring firm (Cain, McKeon, & Solomon, 2017).
Thirdly, hostile takeovers may lead to the deflection of investors and shareholders away from both companies. The deviation is an ethical issue in that the situation in a chaotic acquisition contradicts the stakeholders need for a peaceful environment to work on the companies efficiently. The impacts brought about by the discontinuation of investment are instability of the businesses. Devoid of the shareholders input in the running and operations of the companies, there arises a state of confusion among the management as the leaders work overboard to revert the firms to their excellent performance (Cain, McKeon, & Solomon, 2017).
Employee termination
Apparently, mergers and acquisitions have long-term and short-term effects on both organizations involved. One of the impacts is the layoff of the existing employees, especially on the target company's side. The firing of the people is led to by the need to cut costs and the reduced number of job positions in the newly owned merger. The termination becomes an ethical issue where loyal and competent employees who might have contributed to the positive performance of the companies lose their jobs. Managers are faced with a dilemmatic situation on whether firing is the most appropriate thing to do. The firing of workers may have double-sided effects on the subsequent performance of the companies.
The first effect of employee termination is saving on costs. The saving is a positive effect of acquisition. With the reduction in the number of employees, the merged companies can cut on costs used salaries to inappropriate or duplicated job positions. Additionally, the termination of the employees enables the joint firms to be left with the competent employees. The competency of the remaining employees is instrumental to the organizational performance. Business functions are also consolidated to improve the efficiency of mergers and acquisitions further. To that end, employees' termination may be advantageous to the emergent joint companies.
On the other hand, employee termination may be a deterrent to the positive trend of the companies. Primarily, both groups may lose valued employees who have contributed significantly to the success of the business. The loss of the loyal employees has a holistic implication on the performance of the joint companies to the negative. Customers may shift to the competitors of the merged companies. The change in customer preference relies on the retention of particular employees. The loss of customers leads to economic plummeting and a lower position in the modern competitive market (Dessaint, Golubov, & Volpin, 2017).
Labor restructuring in the form of employees' termination leads to disruption of a company's culture that has taken longer to come up. Company culture is essential to a company's wholesomeness. The culture impacts leadership, financial performance, social interactions and motivation to the employees. In the case of a takeover, many employees are laid off and replaced with others who have a different company culture. More often than not, the customs may contradict in one way or another and bring about disorder. For instance, an individual company Z may have a culture of working up to 5 pm while company Y works until 4 pm. There will be a conflict on when to stop working, and it takes a lot of time to adjust to the new time (Dessaint, Golubov, & Volpin, 2017).
Responsibilities of shareholders
The shareholders in a company may involve the investors, the company's management, the employees and the customers. Each shareholders input is fundamentally crucial to the efficiency of the company's performance. Employees are quintessential in their role of communicating the company's policies to the customers. The employees link the customers to the company. The ethical issue in mergers and acquisitions is that the shareholders have no information regarding an upcoming takeover. In most cases, for example, the employees are the last to know about a merger that is bound to take place. The ethical dilemma comes in where the managers cannot decide on whether to inform the shareholders of a planned takeover and be faced with criticism or not to say anything at all.
The information of the employees concerning a planned merger may have adverse effects on their job performance. Normally, the employees would view it as pointless to work for a company that is soon going to relocate them or lay them off altogether. The attitude developed derails the performance of the firms that are to be involved in a takeover. The derailing of the performance may be brought about by the decreased willingness of the staff to efficiently carry out their activities in their workplaces. Additionally, the information to the employees concerning a planned merger may lead to confidentiality problems in case the employees leak out the info to unwanted parties. A good example is when the employees of an acquiring company leak the terms of the merger to a target company, and the latter reacts by instituting poison pills to make it hard for the former to effect the takeover(Kinsella, 2016).
The concealment of the information regarding a planned merger and takeover from the employees and other shareholders is morally wrong. Of all the stakeholders of a particular organization, the staff is the most affected by an acquisition. Several people may be relocated or lose their jobs, and others may be promoted to better positions, while others may be forced to undergo the difficulties of trying to adjust to another company's dominant organizational culture. A good merger needs the opinion of the different stakeholders on its importance, best ways of effecting the acquisition, and the impending fear of losses such as economic, customers and employees. Devoid of the employees' views on a planned merger, conflicts may come up later between the companies and their employee bases. The solution to the conflicts may involve the involvement of the law which stipulates the rights of employees during a takeover, and the companies may incur more losses in the compensation of the affected workers (Kinsella, 2016).
Rights of employees in mergers and acquisitions
As aforementioned, the employees of a company have a primary role in ensuring the relationship between a customer and the company is enhanced. Across the globe, some laws provide for the rights of employees in case of a merger. One of the rights entails prior notification of a possibility of relocation or loss of the job. Additionally, employees are not supposed to be retrenched without adequate evaluation of their performance by both companies involved in mergers and acquisitions. The leaders of both organizations involved may breach the rights of their employees in a takeover. The breach leads to the emergence of the ethical issue. The managers are faced with the dilemma of whether to protect the rights of their workers and terminate the merger or infringe their rights and effect the merger.
One of the effects of the ethical issue brought about by the infringement of the rights of employees in mergers and acquisitions is the loss of confidence in the employer by the employee. The loss of confidence leads to mistrust between the employees and their employer. The loss of trust is, of course, after the merger has been effected oblivious of the negative impact on the rights of the existing employee base. The mistrust and lost confidence may lead to the resignation of employees. The departure may affect business operations. For instance, the resignation of the chief executive officer of a specific company owing to the rest of management going ahead with the merger despite being contradictory to the rights of employees may lead to a standstill in the leadership aspect of the company. The stalemate would lead to the unpopularity of the firm and the quittance of more employees (John, Knyazeva, & Knyazeva, 2015).
Also, the infringement of the rights of employees in an acquisition may lead to the institution of a lawsuit by a court of law against the company involved in a merger. The employees whose rights may have been ignored during the consolidation may sue the company seeking compensation for their lost jobs, for instance. The involvement of the court means that the company will incur costs in the settlement to the injustices made against the employees. The compensation may lead to the company's loss of money. Additionally, the workers' unions may demand fair treatment of the workers by the company which has effected a merger oblivious of its employees' rights. The labor unions demands may lead to the termination of the merger which again implies financial losses for the companies involved such as the target company (John, Knyazeva, & Knyazeva, 2015).
Institution of defensive tactics by the target company
Quite often, circumstances beyond a company's control such as poor performance in the market and high competition may push a group into a merger to maintain its position and brand name. Therefore, not all target companies are willing to be taken over by other companies. The unwillingness leads to the institution of defensive tactics to complicate the merger and hopefully push the acquirer away. One of the defensive tactic used is the institution of poison pills by the target company. A poison pill is a strategy that makes the shares of a company to be unfavorable for an acquirer. On the definite edge, poison pills reduce the possibilities of a hostile takeover of a business. On the other end of the spectrum, poison pills may reduce the opportunities for a company to be taken over by a performing firm owing to the act of pushing it away. The ethical dilemma arises where the company's management has a hard time to choose between instituting poison pills to reduce hostile acquisitions or drive away potential business.
Poison pills have the following effects. On the positive end, a target company is usually on the cutting edge of reducing the cases and dispute caused by a hostile takeover. The reduction of conflict probabilities is advantageous both companies. The acquirer can adequately strategize on the best acquisition methods of another group. The target company can analyze the financial performance, and other organizational aspects of a business to be involved in its acquisition. To that end, the organizations intending to institute a poison pill should be careful not to disadvantage itself using the poison pill (Ordower, 2015).
On the contrary, a poison pill may push away a potential investor due to the target company's unfavorable conditions such as unstable shares. The pushing away of an acquirer reduces the chances of the target company to have a successful merger that is matched correctly to the worth of the business (Ordower, 2015). The pushing away of potential companies in a merger raises ethical questions regarding whether it is right to push away investors whom the target company has been looking.
Conclusion
Conclusively, mergers and acquisitions are faced with ethical issues. The ethical issues affect the stakeholders involved. The stakeholders may be employees, the investors, the company management, and the customers. The ethical issues that may affect the employees have been outlined as the abuse of their rights in case of a merger, their loss of jobs and their right to stay updated on the intentions of a company, including the takeovers. To the company's management, the leadership may be lost in the case of acquisition where the other group takes up the leadership positions. The corporations may lose companies to their competitors in the case of a hostile takeover.
References
Cain, M. D., McKeon, S. B., & Solomon, S. D. (2017). Do takeover laws matter? Evidence from five decades of hostile takeovers. Journal of Financial Economics , 124 (3), 464-485.
Dessaint, O., Golubov, A., & Volpin, P. (2017). Employment protection and takeovers. Journal of Financial Economics , 125 (2), 369-388.
John, K., Knyazeva, A., & Knyazeva, D. (2015). Employee rights and acquisitions. Journal of Financial Economics , 118 (1), 49-69.
Kinsella, M. (2016). Hostile Takeovers—An Analysis Through Just War Theory. Journal of Business Ethics , 146 (4), 771-786.
McNichols, M. F., & Stubben, S. R. (2014). The effect of target-firm accounting quality on valuation in acquisitions. Review of Accounting Studies , 20 (1), 110-140.
Ordower, H. (2015). Global Regulatory and Ethical Framework. Private Equity , 377-394.
