Change Management
Many business owners will one day face the prospect of selling up, and they will have to tell their staff.
In an environment where a significant number of owner/managers are nearing retirement and intend to sell their businesses, the problem of how and when to inform the employees about an impending sale of the business can be stressful.
Many owners are concerned about the impact on morale when employees fear losing their jobs or are concerned about changes that might occur under a new owner. The owners fear that, if they handle the situation poorly, they will lose the very people who contribute to the value of the business.
So how should this situation be best tackled?
It is not unreasonable for an employee to be fearful of the changes that take place when a business is sold. Their worst fear is that the new owners may relocate the business and they will lose their job. Even if they manage to keep their job, their responsibilities may change, they may end up with a new boss they don’t like and their terms of employment might alter.
On a personal level, they will be worried about their vacation entitlements, health benefits, car park space and which way their desk faces. People fear change and few employees will have positive feelings about the sale of the business.
Naturally the owners of the business do not want to lose employees before they sell it as many of them will be essential for the on-going operations. They appreciate that the uncertainties surrounding an impending sale can be very disruptive and so will not want to announce the sale of the business and then have the situation drag out too long. At the same time, most feel that it would be disloyal to their employees not to inform them that a sale of the business is probable.
Sometimes I think we fail to give adequate credit to the people who work for us. A seventy year old owner with failing health can be expected to be thinking of selling the business. Employees within an industry which is going through consolidation or where smaller firms are being acquired for high multiples are going to expect the owners to think seriously of taking advantage of the situation to sell out.
The owner might be giving off signals that a sale is likely. Where the owner is involved in a divorce, has increasing commitments to ailing parents interstate, is increasingly spending time in another business or has become bored with the business, then it would be likely that they would sell. Saying nothing may be worse than declaring an intention to sell.
Dr. Jonathan Levie of the Hunter Centre for Entrepreneurship at Strathclyde University in Glasgow has recently conducted a series of interviews with serial entrepreneurs who have sold several businesses. His findings show that entrepreneurs are polarized on this issue.
Some believe firmly that the sale negotiations should be conducted in secret and that the less notice employees have about the impending sale the better. Others strongly recommend taking employees into their confidence well before the event so that they can prepare themselves for the anticipated changes.
Dr. Levie was surprised at how strongly his subjects felt about this issue “This is one topic that brings out very strong opinions, mostly based on prior good or bad experiences. In those situations where considerable preparation was required to maximise the value on sale, we found it was very important to have the support of employees right up to the date of sale. It is very hard to do that if you keep them in the dark.”
Employees who are told at the last minute that the business is being sold can often feel resentful and betrayed. They feel that they have given their best efforts to the owner who did not trust them enough to share the most important change that will happen to the business and therefore to them.
In such a situation, they might resign if they think that they have been treated unfairly, could intentionally undermine the due diligence efforts of the potential buyer or simply cease to work diligently believing that their efforts are not longer valued.
On the other hand, employees can be encouraged to help prepare the business for sale if they share in the proceeds through share ownership, options or a bonus on a successful sale. The business can prepare employees for the transition by having employment agreements that compensate employees who are made redundant with a significant termination payment and rewarding those who need to stay with a generous retention bonus paid after, say, 12 months with the new owner.
Employees who are well trained and qualified with good employment prospects are also far less concerned about such a change. If they are made redundant they know they can readily find another job. On balance, I would recommend actively involving employees in the process.
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Tom McKaskill, Richard Pratt Chair in Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia. Global serial entrepreneur, consultant, educator and author, Tom provides practical insights into how entrepreneurs start, develop and harvest their ventures. Acknowledged as the world’s leading authority on exit strategies for high growth enterprises, Tom combines real world experience with a professional educator’s talent for explaining complex management problems. www.tommckaskill.com
First published: 18 June 2007.
Last updated: 18 June 2007.