Many communities have plans in place to help address natural disasters like tornados, hurricanes, or floods. These plans are dusted off periodically and updated so they can be used when the need arises. These plans are important because lives are at stake and everybody appreciates that being prepared is the best chance of minimizing property damage and human suffering.
Most communities do not have a disaster plan in place to help mitigate the impact associated with the loss of a major employer. And yet both the human suffering and economic impact associated with unanticipated layoffs can often be dramatic. Different cause, but for many people a similar effect on a personal level. In addition there is often a resultant impact on required community services and/or on the housing market (depending on the community size).
A recent CNBC.com article suggests more Mayors may be saying – “My major employer is leaving town, what are we going to do now?”.
The article reports that in today’s economy, mergers and acquisitions (M&A) has become an important business growth strategy for companies. Organic growth is not delivering the numbers CEOs need to satisfy shareholders, and bigger companies are flush in cash. Growing through acquisition and integration aimed at lowering operating costs is seen as an increasingly smart approach.
The Bloomberg 2011 M&A Outlook Report indicates consolidations in the Energy and Finance industries set the pace, and that cross-border M&A represented nearly 50% of the M&A activity in 2010. And the general consensus it that percentage is likely to grow in 2011.
Intralinks reports there was a +30% increase in global deal activity in 2010 when compared to 2009. The quarterly M&A data they presented would suggest the trend is accelerating.
Quantitative studies suggest if a company undergoes a merger or is part of an acquisition, it is not a given that there will be massive layoffs to generate operational efficiencies. But, downsizing is generally the outcome in many sectors. And more importantly, plant consolidations that result in a community losing a facility and having the employees transferred can have a devastating effect on the local economy even though the net employment for the company remains unchanged.
I am going to hypothesize that for most communities in the U.S., the odds of a major employer undergoing an operational rationalization, merger or being part of an acquisition are at least as high as experiencing a major natural disaster. I think it is a reasonable hypothesis given the lifetime odds of a person being killed from a natural disaster are estimated to be 1 in 3,357. I know a lot more communities that have lost major employers than I know have had to deal with the impact of a natural disaster.
Why then do so few communities have a preparedness plan in place to help prevent and/or deal with the potential loss of a major employer?
It would seem like this is a probable event and every community should minimally have a plan in place to get an early warning (if at all possible) and to proactively manage any fallout so the risk of negative impact on the community is somewhat mitigated.
What Can You Do?
This is certainly not a comprehensive or exhaustive list. Consider it food for thought.
Be a good partner and help your local Companies succeed. When it comes time for operational consolidation, typically the lower performing plants/offices are on the list for “rationalization”. To avoid having the facility located in your community be at risk of “rationalization”, do everything you can to help ensure local Management has the best chance of creating a top performing operation. Far better to have the Company move other operations to your community for consolidation than to move your facility to another location.
Create a list of your top 10 employers and continuously assess the risk. This certainly involves talking and listening to the local company CEOs. But, often, they may not be aware or are obligated to keep the information highly confidential. Periodically review the financial health of the top 10, proactively scan the news for clues, meet with corporate management and build a rapport, contract with a professional resource to assess the probability. Bankers that specialize in M&A are a good source of intelligence.
Contingency Plan. Create “what if” scenarios and work through the implications. There won’t be a perfect solution, but at least you will have a good handle on the magnitude of the challenge. You can make it a generic exercise – What if a major employer in the community was to relocate and 2,000 people were laid off? That way you can invite company HR managers to help you develop a feasible response plan.
Benchmark communities that have had the experience. Don’t reinvent the wheel. There is a lot to learn from others that have had to deal with the loss of a major employer. Gain an understanding of what they had to deal with and what worked or didn’t work. Create a set of key learnings you can refer to when needed. Update the key learnings often since times change.
What Are Your Thoughts?
What would you add to the Action list to be prepared for the potential downside of M&A? If you have the experience of living through a challenge like this, share what you learned.
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