Question

A publicly owned company has acquired a small privately owned company. The small company had grown too big for the former owners to manage. Prior to the acquisition, the owners were both heavily involved in the day-to-day decision making of the company, but they are not adept in effective management practices. Both former owners have signed contracts to remain with the company for two years post-acquisition to be a resource as the integration is completed.

Policies and controls in the small company were nonexistent. The treatment of employees was not consistent, and employee morale is low, primarily due to the uncertainty in the acquisition and the fear of favoritism.
The HR manager assigned to perform due diligence on merging the small company has found additional issues. There is a substantiated allegation that one of the owners of the small company was involved in a romantic affair with a female subordinate, and the HR/finance clerk was demoted for inappropriately allocating funds from the company to his personal bank account. Both of these issues were addressed and the matters closed without any further disciplinary action being taken with either of the individuals.
The CEO of the acquiring company asks the HR manager to make the needed changes to ensure compliance with laws and policies, as soon as possible, without upsetting the former owners.
The HR manager believes that the new company needs an HR manager on site. The former owners disagree and believe that the finance/HR clerk is sufficient. What is the first step the HR manager should take to resolve the difference of opinion?

A. Disregard the former owners' opinion and recommend hiring an HR manager to address compliance in this part of the organization.
B. Inform the organization's legal counsel of the lack of compliance and advise them to prepare for defending against any future claims.
C. Conduct an audit of the HR department to determine effectiveness, capability, and historic compliance with organizational policies, laws, and regulations.
D. To build a solid relationship with the former owners, hold off on making any recommendations or changes for at least three months.

Answer 1

The HR manager should conduct an audit of the HR department to gauge effectiveness, compliance, and identify gaps. This is the ideal first step to provide an objective foundation for making recommendations and ensuring the integration aligns with the acquiring company's standards without directly dismissing the former owners' opinions.

Step-by-step explanation:

When a publicly owned company has acquired a small privately owned company, the transition often requires careful consideration of governance structures and integration of operational policies. Given the circumstance that existing management practices were insufficient, and there were prior ethical and financial concerns within the privately owned company, it is imperative to ensure compliance and standardization.

The HR manager should begin by conducting an audit of the HR department (Option C). This audit will assess the effectiveness, capability, and historical compliance with organizational policies, laws, and regulations. Such an audit is a fact-based approach that respects the input of the former owners but also addresses the concerns of the acquiring company CEO. This step is essential for transparently identifying gaps and creating a roadmap towards building a robust HR framework that can support the newly merged entity.Addressing compliance issues promptly can mitigate risks and reassure all parties involved that proper steps are being taken to align the acquired company with the acquiring company’s standards. Moreover, the results of the audit will provide concrete evidence which can be used to demonstrate the need for a dedicated onsite HR manager if such a need is identified.