1. BUSI 6326
M A N AG E M E N T C H A L L E N G E
HUMAN AND CULTURAL FACTORS AFFECTING
SUCCESS OF MERGER AND ACQUISITION
S E A N- PAT R I C K M A LO N E
2. BUSI 6326 / HINF 6310 – PROJECT REPORT
HUMAN AND CULTURAL FACTORS AFFECTING THE SUCCESS OF MERGER &
ACQUISITION: THE CHALLENGES FACED BY MANAGEMENT.
I N T RO D U C T I O N
In times of globalization and economic turbulence, mergers and acquisitions (M&A) are seen as strategic
opportunities by which organizations ensure consolidation and growth (Diefenbach 2007). A 2006 M&A research
indicated that in the year 2004 there were more than 30,000 acquisitions in the world market worth a total of 1.9
trillion dollars (Cartwright and Schoenberg 2006). Contrastingly, studies have proven that most M&A’s do not meet
the expected goals and objectives (Pautler 2003). Booz-Allen & Hamilton report (2001) pointed out that more than
53% of M&A fail to reach the desired outcome (Adolph et al. 2001). Even though past experiences evidently suggest
the high chance of failure, organizations are forced to merge and integrate in order to cut costs and stay competitive
According to the federal trade commission review (2003), the main factors that influence success of M&A are (Pautler
• maintaining focus during the union;
• size of merging organizations;
• speed of integration;
• planning and leadership during change;
• managerial incentives;
• management of organizational cultural conflicts; and
• to preserve human and technical resources.
It is interesting to note that other than early planning, efficient management of human and cultural factors are most
critical in determining the success of post-merger integration. The role of cultural change and managerial actions as an
important component in post-merger integration has been well documented (Zuveva and Ghauri 2007). During
M&A, two or more organizational cultures come together thereby presenting a tough integration process. One of the
major challenges in executing a successful value added M&A strategy is to have a clear understanding of the
management style and culture of the merging organizations. Problems could also arise when the acquirer imposes an
unsuitable organizational design on the newly formed company. The communication skills, competence and credibility
of senior and middle management have a direct impact on the success or failure of the newly formed association. The
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events that follow M&A are perceived as very “stressful” by most employees and managers (Bligh 2006). The
managing leader of the new outfit, in addition to company culture clashes, has to deal with the low morale of the
employees due to change resistance and downsizing fears. The managing leader must not only tackle his or her own
reactions to change as an employee but also be accountable for the performance of the team. Zueva & Ghauri (2007),
state that managers’ actions have a direct correlation with “acceptance or rejection of cultural change.” Lack of proper
leadership at this time could lead to “reduced trust, commitment, satisfaction, and productivity, and increased
absenteeism, turnover, and attitudinal problems.”
Keywords: Merger & Acquisition, Change Management, Change leadership, Organizational Change, Organizational Culture, Change
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C A S E S U M M A RY O F R E A L WO R K P L A C E S I T UA T I O N
MANULIFE FINANCIAL AND JOHN HANCOCK ACQUISITION 1 : A CASE AT MARITIME LIFE,
Maritime Life, Halifax based Atlantic Canadian Insurance Company, was a Canadian subsidiary of John Hancock
Financial Services, a major U.S Insurance Company. The company was formed in 1922 by group of families in Nova
Scotia. Within a decade, Maritime Life grew tremendously to become the top Insurance Company in Canada. For five
consecutive years after 2000, the company was rated by its employees and the market watchers as the one of the “top
50 best companies to work for”.
The Manufacturer’s Life Insurance Company is the largest financial institution in Canada. Also known as Manulife
Financial, the company is very strong and has major national and international presence. The company has a long
history of strategic Mergers and Acquisitions and uses this tactic to consolidate growth and innovation.
In 2003, Manulife Financial acquired John Hancock Financial Services. This was during a period of consolidation in
the financial services industry resulting in more mergers between insurance companies. The merger was completed in
2004 making the newly formed franchise the largest insurance company in Canada and the fifth largest in the world.
When the Maritime Life parent company was acquired by Manulife Financial, an average Maritime Life employee
would have had tenure of more than 10 years with the company and frequently had more than one family member
working within the company. This resulted in an “extended family” atmosphere at Maritime Life and a great cohesive
culture that was laid back and employee focused.
As was expected, the merger resulted in some downsizing at Maritime Life. Major cultural changes followed resulting
in change and integration related casualties in the recently formed association. Numerous senior and middle
management staff were moved around in the newly transformed Maritime Life. Some were given the option of
voluntary retirement. The Human resources department was entirely shut down at the Halifax headquarters of former
Maritime Life except for a few coordinators. New Managers were either transferred in or hired for the vacant
positions mostly from Toronto.
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In our specific case, the department XYZ had a new manager transferred in from Toronto whose leadership style
drastically differed from the predecessor who had opted for voluntary retirement.
Additionally, the employees had to undergo training in the new system implemented at Manulife financial.
Furthermore, the old maritime life employees were anxious and under enormous stress due to lack of appropriate
communication from both the HR department in Toronto and the local management in Halifax. The result was
major discontent and dissatisfaction among the employees leading to an unproductive work environment and
subsequently poor performance from the team.
Lesson learned: Change management and planning coupled with efficient change leadership skills are critical factors effecting successful
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S U M M A RY O F C R I T I C A L F I V E A C A D E M I C A RT I C L E S
As stated in the introduction, the last thirty years have provided researchers and behavioural scientists with literally
thousands of M&A case studies to explore. Below are five academic pieces that, in our opinion, best expose the
challenges that await merging organizations.
Mergers and Acquisitions in the Banking Industry: The Human Factor
By Arturo Rodriguez
Rodriguez’s article explores employee motivations at both the functional and managerial levels following an
acquisition. He develops a list of probable reactions that are commonly displayed after an acquisition. They are; loss of
identity, lack of information and anxiety, survival becoming an obsession, loss of talent and family repercussions. He
then goes on to examine the cultural “fit” of the two organizations, and how it can be used to forecast the aftermath
of an acquisition as well as employee reactions. Rodriguez gathered data through a series of multi-level employee
interviews within both the company being acquired, and the purchasing company. In this particular instance, the
purchasing company had prior experience with acquisitions and had developed (through trial and error) a sense of
how to handle new employees in a changing environment. The author derived the following theory from his
experience at the company(s):
During the pre-acquisition phase of an impending purchase of a Bank, the lower the levels of communication from
upper management to the rank and file, the higher the possibility of employees experiencing high levels of stress and
anxiety that may result in attrition, sabotage and alienation.
Rodriguez focused on communication and information as the two most critical issues that CEOs need to be aware of
in order for the merger to be successful.
The Impact of Leadership and Change Management Strategy on Organizational Culture and Individual
Acceptance of Change during a Merger
By: Marie H. Kavanagh and Neal M. Ashkanasy
Kavanagh and Ashkanasy’s article is based on a study that examined the mergers of three large multi-site public-sector
organizations. The purpose of the analysis was to determine to what degree leadership and change management
strategies affect the acceptance of cultural change by individuals after a merger. It was determined that the success of
a merger depends on the individual perceptions within the organization as to how the process is handled and the new
culture that forms. Kavanagh and Ashkanasy’s study involved three large universities that merged with other smaller
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colleges. These three schools were selected because of their similarities in location, number of merging partners and
the differences between the large school and the smaller merged colleges. This includes the size of the school,
orientation, the length of existence and the approach taken in the merger. The quantitative portion was conducted
across all three schools over six years through a process of surveys.
The results indicate that effective organizational change can be achieved by focusing on the following four areas of
1) “The behaviour of institutional leaders”
2) “The selection and execution of appropriate management strategies (particularly change management
3) “An understanding of the organization’s basic structure, systems and formal processes (culture)”
4) “Actions taken by leaders affecting acceptance of change by individuals who play key roles in both formal and
Making mergers and acquisitions work: What we know and don’t know
By Richard M. DiGeorgio
DiGeorgio, like Rodriguez above, explored the cultural “fit” existing between the two merging organizations. He
suggests that the best combinations do not occur when there is no culture clash, but instead when there is a fair
amount of culture clash. This medium degree of conflict creates positive dialogue in regards to what is best for the
combined organization. DiGeorgio suggests that culture change within the merged organization can take between
seven and ten years, but in the case of an M&A, the time frame can be significantly reduced. For example, by selecting
managers whose styles and beliefs are congruent with the new culture, the direction of the new culture can be
reinforced and strong messages can be sent about the new status quo. DiGeorgio points to the integral role that the
integration managers play in the amalgamation of the two cultures. This is a difficult task and requires a host of traits.
Integration manger competencies include: self-confidence, adaptability, achievement drive, optimism, political
awareness, influence, communication, conflict management, change management, and team capabilities. Top
leadership plays an important role in overseeing integration. They must bring the whole system together periodically
to ensure that individual pieces are fitting together well. DiGeorgio suggests that areas of interdependence and
conflict must be identified quickly. The first 100 days after a major change sets the tone and signals the true direction
of the new organization. The overall direction and plan to get there should be determined and the values and
performance evaluations should be established. Additionally, a 100 day plan covering diverse topics such as
infrastructure needs and key decisions to be made should be drafted and used to evaluate progress through this critical period.
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DiGeorgio makes it clear that a systematic attitude to both selection and integration can insure a successful M&A. A
good plan must be acted upon by top executives swiftly and logically. The right managers who have the right traits
and fit well with the culture should be put in leadership roles.
Uncertainty during Organizational Change: Managing Perceptions through Communication
By James Allen, Nerina L. Jimmieson, Prashant Bordia & Bernd E. Irmer
Allen, Jimmieson and Irmer’s study is an extensive exploration of factors that influence employee attitudes and
intentions towards change in an M&A environment. They specifically focused on the importance of the following: 1)
The Notion of Uncertainty, 2) Change Communication, and 3) The Role of Trust During Organizational Change.
1) The Notion of Uncertainty
• During organizational change, employees are likely to experience uncertainty in relation to a range of
different organizational issues including: the rationale behind the change, the process of
implementation, the expected outcomes of the change, the security of their position, and their future
roles and responsibilities.
• The degree to which specific informational needs are addressed through communication during
organizational change is critical.
2) Change Communication
• It is the perceived quality of the information that influences employees’ appraisal of change. Change
communication can facilitate openness and positive attitudes towards change to the extent that it
effectively addresses employee uncertainty.
3) The Role of Trust during Org Change
• Management practices that facilitate participative decision-making, organizational support and the
meeting of expectations have shown to influence employees’ perceptions of trust.
• Employees who trust management or their organization may be more willing to be vulnerable to the
actions of management (i.e. lack of trust leads to employees’ being critical of info received).
Allen, Jimmieson and Irmer’s study has several practical recommendations. First, management leadership must
recognize areas of uncertainty which employees are likely to experience. Then develop a targeted communication
strategy designed to facilitate employee acceptance of change. These open and readily available lines of
communication will act to decrease organizational friction during the change. Second, a cascading approach to
communication strategies can be beneficial in aiding the systematic transfer of information from various levels within
the organization (i.e. senior management provide more strategic information, while supervisors provide more practical
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information, etc). Finally, participative communication strategies (using supervisors as facilitators) can help establish
two-way-communication between employees and managers. This participative strategy furthers trust within the
organization and increases the chances for success in any future change intra-merger or post-merger event.
HR Issues and Activities in Mergers and Acquisitions
By Susan Jackson and Randall Schuler
Jackson and Schuler suggest that while some companies are skilled when it comes to negotiating M&A deals, the
ability to successfully integrate businesses after an M&A still requires improvement. Success in the market place
requires companies to be efficient, profitable, flexible, and future-focused, which leads many to look to M&A in order
to remain competitive. However, the likelihood of a successful M&A is low. This is not to say that success is
impossible, but in order to achieve greatness, companies must follow a systematic and people-focused approach that
addresses the key issues and activities broken out in a three-stage model.
1) Pre-Combination Stage first requires companies to identify why an M&A strategy is best for the company. A
team and leader must be selected to manage the M&A planning process and selection of M&A partner. This
ensures the company has a sufficient understanding and knowledge of the M&A, which leads to success.
2) Combination Stage occurs when the M&A companies began the integration process. First an integration
manager (often a person on loan to the business for a defined period of time) should be selected along with
an integration team. Together their main goal is to provide continuity between the integrating companies.
This is also the stage where key employees are retained and the process to establish a new culture is initiated.
Additionally, a leader is selected at this point to manage the newly merged businesses. The leadership style
should be strong to ensure appropriate communication and direction is maintained.
3) Solidification and Assessment of the New Entity is the finally stage of an M&A whereby the new company readjusts,
fine-tunes and solidifies its strategies, structures, and new culture.
Overall, Jackson and Schuler focused on clarity of the M&A process and communication throughout the M&A stages
as a prime directive for a successful integration. This communication includes incorporating an adequate
representation of teams and departments in decision making throughout the M&A stages. It is important to set
realistic expectations and goals throughout the M&A process and continuously measure whether they have been
achieved. Lastly, it is necessary for cultural differences to be tended to immediately because if left, they can lead to
miscommunication and misunderstanding.
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A number of relevant points from the critical five articles are pertinent to the case analysis at hand. Common themes
include: understanding culture, understanding uncertainty about change, communicating the change, selecting the
right managers, and seizing the M&A as an opportunity for change. These concepts will be elaborated in the following
analysis of the case.
Case Issue #1 – Out With the Old (Manager) And In With The New (Manager)
The first problem identified in the case was the early retirement of the incumbent manager and the subsequent
transfer of the manager from Toronto. The new manager had a drastically different leadership style compared to that
of his predecessor which caused problems with Maritime Life employees who were used to a more “extended family”
atmosphere. The new manager from Toronto clearly did not fit in well with the existing culture at Maritime Life.
Furthermore, the employees were no doubt feeling abandoned by their former boss who chose to take early
retirement rather than deal with changes involved in the M&A. This action sent a negative message to the employees
and started them out on the wrong foot with the new manager.
The literature emphasizes the importance of understanding culture and the uncertainty that employees undoubtedly
feel during an M&A. In an effective M&A, it is vitally important to understand the combining organization’s cultures
(Kavanagh & Ashkanasy, 2006). It is apparent that Manulife did not fully understand Maritime Life’s culture in the
form of its basic structure, systems, and formal processes.
Rodriguez (2008) reports that the probable reactions following an M&A are loss of identity, lack of information,
anxiety, survival becoming an obsession, loss of talent, and family repercussions. After the retirement of their boss
during the transition period and the transfer of the new manager from Toronto, the employees at Maritime Life felt as
if they had lost their identity and felt anxiety about the situation. They did not appreciate the new culture that was
being forced upon them and became unsatisfied in the workplace resulting in underperformance. Rodriguez (2008)
advises that in order to create a positive environment for the M&A, the focus should be on communication and
DiGeorgio (2003) suggests that the best M&As take place between two companies with a fair amount of culture clash
which encourages positive debate as to what is best for the new company. Too little or too much clash between the
company’s cultures can result in negative outcomes. In this case, the difference in culture between Maritime Life and
Manulife appears to be large. In order to overcome such a large difference in cultures the proper selection of an
integration manager is necessary (DiGeorgio, 2003; Kavanagh & Ashkanasy, 2006; Schuler & Jackson, 2001).
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An integration manager is a manager whose skill set is specifically suited for an M&A situation. The integration
manager must be supremely aware of their environment and understand the cultures of both combining organizations.
Specific competencies include: self-confidence, adaptability, achievement drive, optimism, political awareness,
influence, communication, conflict management, change management, and team capabilities (DiGeorgio, 2003). The
new manager from Toronto is not an integration manager as he did not adapt well to the situation. Instead of
cramming his style of management down his new subordinate’s throats, he should have instead analyzed his new
environment and changed his management style to suit it. The transfer of this manager to Maritime Life was a definite
error. During an M&A, there are a lot of changes and organizations must seize this opportunity to make smart
decisions that will propel the new combined companies forward. Thus, the selection of an appropriate integration
manager is paramount.
Case Issue # 1 Recommendations
• Manulife must truly understand the culture of Maritime Life in order to succeed. Without this crucial step the
M&A will not be successful. To do this, Manulife must spend time with Maritime Life employees at all levels in
their place of work. Before moving forward with any restructuring or hiring, they must understand the “extended
family” feeling that is a part of being an employee at Maritime Life.
• Communicate the change clearly and often. More communication and information sharing results in a deeper
understanding about what exactly is happening during the M&A. Multiple avenues of communication should be
used by the manager including group meetings, one-on-one discussions, and e-mails. The benefits of the M&A to
the company and its employees must be conveyed so that employees will work toward success instead of
accepting failure before even beginning.
• Manulife should hire a new manager to head the XYZ team at Maritime Life. This manager should have the
characteristics of an integration manager and can come from within one of the two companies or from outside.
The period of change and transition must be taken advantage of to bring in appropriate managers who can lead
the company to success.
Case Issue #2 – New Information System Implementation
The second problem identified in the case was the lack of acceptance of the new information system implemented by
Manulife. The employees at Maritime Life were used to their old information system and were already in a defensive
and unreceptive position after the transfer of their new boss from Toronto. This change to a new information system
affected how they carried out their day-to-day tasks and was perceived to be forced upon them.
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If employees do not know why a change is happening, they will experience high levels of stress and anxiety which may
result in attrition, sabotage, and alienation (Rodriguez, 2008). In the case, Maritime Life employees display signs of
stress and anxiety with respect to the new information system. They resisted this change because they did not
understand the reasoning behind the change. Even though the employees were given training, they resisted the change
because they did not understand, nor did they want to change. The more communication from upper management to
subordinates about changes, the higher the level of acceptance for these changes.
The M&A is a great opportunity to change. The first 100 days are very important and if a sense of urgency is created
in an organized fashion, it can be very effective (DiGeorgio, 2003). If employees are on board, the new information
system can be introduced as an integral part to the success of the newly combined organization. Creating this push to
get the information system up to date and uniform across the organization will encourage employees to embrace the
change and the new technology because there is a reason for the change and a defined timeframe.
Case Issue # 2 Recommendations
• Higher levels of communication from upper management to Maritime Life staff. As staff learn more about the
benefits of the new information system, they will be more comfortable with the change. Communications should
come in a variety of formats and should encourage feedback.
• After effective communication is achieved, a sense of urgency should be created to encourage employees to
accept the change and the new information system. To do this, the manager must communicate the key benefits
that a swift change will have to both the company and the employees.
Case Issue #3 – Downsizing With Poor Communication
The third case issue identified was the downsizing, reshuffling and retirement that occurred at Maritime Life as a
result of the merger. While these changes are quite common and necessary during an M&A in order for the newly
formed organization to be streamlined and efficient, the downsizing process must be coupled with adequate
communication to employees explaining the new corporate structure and the justification behind the changes. As
mentioned in the second case, a lack of communication about the change will result in employee stress and anxiety
In this case, employees may not feel safe in terms of their own job security and may draw back from the organization
culture. The added stress and anxiety they feel could lead to an increase in employee absenteeism and could decrease
the productivity of department XYZ. Too often, managers focus their attention during M&A on activities such as
finance, accounting, and production while they overlook the human capital issues within the company (Jackson &
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Schuler, 2001). We can assume that the employees remaining at Maritime Life add some value to the newly merged
company or else they would have been part of the downsizing that occurred. If Manulife is not careful, they might
lose the employee talent that exists at Maritime Life and these employees are a vital component of the newly merged
The uncertainty that employees in department XYZ feel due to the lack of communication about downsizing and
other role changes within the company leads to their distrust of management. Trust is an important factor within
M&A companies because there are many changes that are implemented during integration and it is necessary for the
employees to be both knowledgeable and supportive of the new company structure, system and culture (Allen, et all.,
2007). Downsizing and reshuffling is one of the first changes when two companies are integrating, therefore, this may
be management’s first opportunity to either gain the trust of the employees or start to lose their trust. While
downsizing is not pleasant for either company, it is a necessary component of the M&A process.
Case Issue # 3 Recommendations
• Before the downsizing, reshuffling and retirement of employees began at Maritime Life; management should have
held a company-wide meeting to explain the new direction of the company. The purpose of this meeting is to
communicate the changes before they happen and to gain the trust of the employees rather than simply
blindsiding them with major changes.
• After the downsizing and reshuffling has been completed, a second company-wide meeting should be held to
explain the next stages of the integration process. At this meeting, it is necessary for management to overcome
the negativity some employees may feel after seeing their friend, or in the case of Maritime Life – their family
member, let go or moved to a different department. Management should reassure the remaining employees that
they are a vital component of the newly merged company, which should help employees regain their job security.
Specific examples of how the company will move forward and the benefits employees will notice as a merged
organization are important to point out at this time. Management could replace some of the negativity with
excitement for the future of the company and the role each employee will play in the company’s success.
• Separate department meetings should be held with the newly formed team of employees to discuss department-
specific roles in the organizational change that is occurring. Again, this will give management the opportunity to
gain employee trust by approaching them in a smaller group setting. Management should also take employee
feedback at this time and listen to the concerns of the remaining employees in department XYZ. By giving
employees a means of communicating the anxiety and stress they feel early on in the integration process,
management can start to gain their trust and clarify any confusion about job security. This should lead to higher
employee satisfaction and make the employees at XYZ more willing to accept future changes made by their new
management team, while building on company morale.
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Case Issue #4 – Elimination of Local HR Department at Maritime Life
The last case issue detected during the M&A at Maritime Life was the elimination of the local HR department in
Halifax. Only a few coordinators remain and the majority of HR-related matters are fed through the Manulife head
office in Toronto. This presents a problem because the HR department is where many employees would turn if they
had work-related issues that they could not discuss with their manager. It is important for the HR employees build a
relationship with employees so they feel comfortable approaching them with uncomfortable issues.
The employees in department XYZ at Maritime Life had likely established relationships with their HR team and losing
this component of their workplace could leave them feeling abandoned with nowhere to turn for assistance. This is
likely not the case at all because employees can turn to the HR team in Toronto; however, the perception employees
have in this situation is that they are being deserted and not truly a part of the newly merged company. Without a
local HR department they may wonder whether their own future at the company is in jeopardy and interpret the
elimination of the HR department as a message that they will be eliminated next (Kavanagh & Ashkanasy, 2006).
These employee perceptions are not true, but the validity of employee perceptions does not change the fact that
employees believe it to be the case. This is caused by a lack of communication between higher level management and
all lower levels of employees within the organization. In order to eliminate false employee perceptions, management
needs to communicate the true purpose of their actions (Jackson & Schuler, 2001).
Case Issue # 4 Recommendations
• As part of the company-wide meetings mentioned in case issue three, management needs to explain the rationale
behind the elimination of the Maritime Life HR department. In doing this they must clearly explain that this
action in no way represents the future of the Halifax office. They must explain that in order to maximize
efficiencies and streamline the company’s HR system, the elimination was necessary. They should stress that this
is not a sign of what is to come in the Halifax office, but it is a sign of integration and becoming one united
company that is stronger and better because of the strengths of both.
• A proactive step that management could take is to bring several representatives from the Toronto HR department
to Halifax for a week or so to meet the employees at Maritime Life, establishing a bond and building trust
between the two groups. If the employees at Maritime Life are expected to feel comfortable approaching the
Toronto HR department with sensitive work-related issues, there must be some sort of relationship established.
During this visit, the Toronto HR department can talk one-on-one with employees, as well as meet with
departments overall. Different information can be shared during each interaction by both the HR department
and the employees at Maritime Life. The HR department can be an important component in the M&A process
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and by allowing the employees in department XYZ to meet their new HR reps face-to-face, they might be able to
eliminate the false perceptions about the future of the Halifax office.
In conclusion, the merger between Maritime Life and Manulife has not been handled appropriately. The key points
from critical five articles suggest that in order to achieve M&A success it is important to understand the existing
corporate culture at Maritime Life, understand the employee uncertainty about change, clearly communicate the
changes to all employees in the newly merged organization, select the right managers, and seizing the M&A as an
opportunity for change. If the management team is able to direct their behaviours towards these issues, the
department XYZ at Maritime Life might be able to get back on track towards a successful integration with Manulife.
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