Employees often feel stressed when their firms are bought by other companies, fearing they could face layoffs, demotions, or lousy working conditions.
While it’s true that organizations tend to restructure their workforce following mergers and acquisitions, these changes can actually benefit some workers. Specifically, M&A deals can help women and people of color who are stuck in lower-level positions move up the ladder, according to research by Harvard Business School Assistant Professor Letian Zhang.
In analyzing more than 37,000 mergers and acquisitions over 44 years in the United States, Zhang found that purchased companies added nearly 15 percent more minority managers and 4 percent more female managers to their ranks than unacquired companies during the same period.
When the old ways are not working, we need to shake things up, and these disruptive events do just that.
“The assumption many people may have is that in a crisis, like an acquisition, adversity undermines diversity,” Zhang says. “But disruption creates possibility for a positive change. When the old ways are not working, we need to shake things up, and these disruptive events do just that.”
Zhang’s findings come as analysts predict a coming wave of M&A deals that were long pushed back by the COVID-19 pandemic. As COVID restrictions fade, American companies are expected to move forward with delayed acquisitions in the months ahead, Zhang says. These acquisitions under the right conditions can create an opportunity for executives to reshape their management ranks by advancing women and people of color, allowing companies to address racial inequities and build more diverse workforces, Zhang says.
Zhang’s study, Shaking Things Up: Disruptive Events and Inequality, will be published in a forthcoming issue of American Journal of Sociology.
Why M&A prompts promotions
Zhang analyzed 37,343 mergers and acquisitions that occurred between 1971 and 2015, using data from the federal Equal Employment Opportunity Commission. The data included 168,293 firms with 100 or more employees, which equates to roughly 60 percent of the total US workforce.
Zhang tracked acquired firms for 10 years, from five years before they were purchased through the five years afterward. He found that companies whose acquirers operated in the same industry, such as biotech or media, saw the highest numbers of newly promoted women and people of color. The diversifying effect was not as pronounced in mergers that involved companies from different industries.
The disruption allows these patterns to be changed for the better.
As part of his study, Zhang interviewed 38 executives and managers involved in acquisitions, along with M&A consultants. He said their observations provided him with “a direct sense of what happens during an acquisition and restructuring.”
Based on his research findings and insights gleaned from the interviews, Zhang found that companies diversified their management ranks in the aftermath of a deal in one of two ways: as a side effect of what some executives called “getting rid of the deadwood,” or as an intentional drive by the larger firm to create a more defined diversity policy.
“Both forces are at play,” he says. “Executives know they need to reach and maintain diversity.”
For some post-M&A executives, however, the main motivation for promoting women and people of color is to avoid discrimination lawsuits. As one executive told Zhang: “We do not want to be on the front page of the Wall Street Journal.”
M&A deals: opportunity or threat?
Mergers and acquisitions affect an estimated 5 million workers per year. While mergers typically lead to staff reductions, the new owners of an acquired company often promote talented women and people of color to oversee newly consolidated units and teams, the research shows. Mergers can also prompt other internal changes, allowing the new owners to standardize human resources functions, such as hiring, and introduce stronger diversity programs.
For the company that’s been acquired, Zhang says, the purchase can shake the inertia of “the way it’s been done,” in every aspect of the organization, from the leadership structure to payroll systems. “The disruption allows these patterns to be changed for the better,” he says.
How firms approach diversity issues during these critical moments could affect their inequality for many future years.
Zhang notes that just a decade ago, members of historically marginalized racial and ethnic groups were 54 percent less likely to be promoted than whites, and women were 36 percent less likely to be promoted than men, despite diversity efforts by advocates and government regulators. Bias-driven workplace practices didn’t just keep the so-called glass ceiling in place—they made it harder for minorities and women to gain mentors, referrals, and career-climbing information.
As merger and acquisition activity accelerates in the aftermath of the pandemic, Zhang says, companies can choose whether to view the disruption caused by these deals and the resulting staff restructuring as a threat or an opportunity.
“This is the moment when you can hit the reset button,” he says. “How firms approach diversity issues during these critical moments could affect their inequality for many future years.”
[Image: iStockphoto/PeopleImages]
