Tax Due Diligence: Tax Audit beim Unternehmenskauf - Ablauf, Beratung, Muster (German Edition)

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Therefore immediate documentation of gathered data is recommendable [18].

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Examples for the main sources of data for an analysis of Human Resources are given in Table 1. According to a survey of following sources of the above mentioned list are of major importance [19] : 1. The simplest and most common way for HR Due Diligence today are the use of detailed checklists that mainly consider aspects like quantitative questions on management and staff [20] , qualitative aspects on motivation and identification of management, salary, social contribution and incentives.

They usually neglect e. Examples for content of an HR-checklist are given on table 2. However, exclusive use of HR-checklists that primarily analyse hard facts might also allow the conclusion that HR is still considered rather risk than potential. Today, there are several models for determination of the value of Human Capital. So far none has prevailed.

It calculates the future achievement potential and the replacement costs of an employee in regard of his position. For evaluation of a company one distinguishes between earning-capacity value method net asset value method. The first is rather common in Germany while the latter is dominating in Anglo-American countries. They take into account investment alternatives of the buyer who could either purchase this specific company or invest somewhere on the capital market.

They assume that future success determine the present value of a firm. Previous annual profit is taken as future profit surplus nachhaltiger Zukunftsertrag. For evaluation of a company according to the earning-capacity value the present value of all future cash inflows is determined. For the DCF-method the cash flow instead of the profit is discounted. For determination of the net asset value replacement costs of all operating assets as well as intangible assets as well as sales prices of non-operating assets minus debts for the existing company are summed up.

Due to the difficulty of determination of immaterial values, these are in practice usually neglected. Due to present balance techniques HR can only be found in the earning-capacity value method. The Earning-capacity value method estimates future profit respectively cash flow and discounts it. Earning value minus net asset value is goodwill. In order to find out the share of HR in the goodwill, one has to analyse different sources of cash inflows which sum up to the future profit or cash flow. Value of Human Resources can be defined according to Flamholtz as the discount of value of future use to the present.

For its determination monetary and non-monetary evaluation can be used. While non-monetary evaluation is based on characteristics of the employee and the company, the results of monetary evaluation are quantified in terms of money. Positional replacement costs are the costs that arise if the same position in a company had to be filled.

It assumes that all people are completely replaceable. It measures the costs for acquisitions, development and separation for filling the same position only. These costs are calculated by the Human replacement cost model. Controlled income streams are the costs that occur if an employee leaves the company or in other words the income that a firm would loose if a staff member left the company.

It assumes that the employee is not replaceable by simply filling the position. These costs are calculated by the stochastic rewards evaluation model. Personal replacement costs therefore are the sum of positional replacement costs and controlled income streams and this way recognizes that some aspects of a person are irreplaceable. They consist of acquisition costs, development costs and separation costs.

Separation costs include costs that occur because of inefficiency or lost business related to a person leaving the company.

Table of Contents

For the Stochastic Rewards Evaluation Model [31] Flamholtz distinguishes between two kinds of values:. The expected conditional value represents the potential value of an employee, if he stayed in the company during his whole working life. The expected realizable value of the single person takes into consideration that a staff member could leave the company any time.

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      Detailed Cultural Assessment of Target Company A full and detailed cultural assessment of the selected target company and comparison with that of the acquiring company is essential for building the Cultural Integration Plan. The developers of these models have been able to demonstrate statistically that the variables attributes , or at least some of the variables that they profess to measure, can be measured reliably. These attributional models provide no color or granularity of local cultural variations and so require subsequent qualitative research for effective cultural integration.

      Further, they introduce the confusion of a new non-business vocabulary coined to describe certain behaviors to the organization. It does not. Each model contains some of the assumed cultural variables, but there is no reliable commonality among these various instruments. Each model was developed from intense study of a few companies, but to arbitrarily choose any one of them for use in any given company is to commit a classic type II research error— to assume that the attributes of one group apply to a different group when it has already been established that these are different groups representing different variables—to fail to reject a null hypothesis when it is false.

      Another issue is that the current attributional models measure at a very high level of abstraction. Even if a model with the right variables is chosen for the company in question, it is still necessary to interpret how the variables relate to daily work behaviors. The only way to get accurate data is to engage in qualitative data— detailed interviews, focus groups, and observations. Also, none of the current models distinguishes between value-based differences and non-value-based differences.

      A brief example of the problem: two companies are merging. One has a culture that involves extensive use of e-mail and the other does not use e-mail. In this instance it is simply an issue of availability of 56 Achieving Post-Merger Success technology, and there is no inherent value system underlying the difference. In this case the integration of the two cultures around this difference could well be limited to providing e-mail technology and a simple training program.

      But now consider two other companies with the same difference in e-mail usage who are about to merge. One company has made a conscious value-based decision to severely limit e-mail usage, as it is believed that professionals should talk directly rather than send e-mails to a person down the corridor, as this is considered to be impersonal and rude. Thus, courtesy requires sending an e-mail that the recipient can access when desired, as dropping in is perceived to be rude and non-professional.

      Now you have a value-based difference and a potential culture clash. The merging of these two cultures is not simply a matter of providing e-mail technology and training. Indeed, this probably would exacerbate the problem rather than resolve it. This would require careful integration planning and change management, with particular attention paid to values, feelings, emotions, and pre-conceived ideas.

      We know no attributional model that will uncover this distinction. Distinguishing between value-based and non-value-based differences requires in-depth qualitative research consisting of interviews, focus groups, and observation to ascertain the nature and depth of the values and feelings—and often requires intensive, focused, and customized quantitative research as well.

      Then there is the issue of granularity—breadth and depth of the cultural assessment. Is it detailed enough to distinguish between units and divisions and geography in the organizational cultures being studied? This level of granularity is critical to a responsive and prescriptive integration plan. Therefore, additional qualitative research is almost always required.

      Such a functional model does not pretend to describe or assume all of the cultural attributes of the organization. Using such a functional model also enables the cultural researcher to subsequently design a focused and customized quantitative survey if desired. An example: recently a client was considering the use of an off-the-shelf qualitative culture survey.

      This particular survey measures twelve assumed cultural attributes with survey items. It also provides up to an additional thirty-nine supplemental survey items for selection by the client. No qualitative data is collected or reported. In our opinion, it was highly doubtful that something this generic was going to provide the detail necessary to uncover the subtleties and nuances of culturally driven differences in daily behavior across a global organization of over , employees in more than twenty countries, with at least four separate and distinct company subcultures—all alive and well.

      The client agreed. An in-depth qualitative research design, however, does not have these limitations. A well-designed series of interviews and focus groups and observations 58 Achieving Post-Merger Success coupled with a customized and focused quantitative survey unique to the organization will yield a wealth of qualitative and quantitative data that is rich and robust, and of great utility and value. CDD Cultural Domains 1. Intended direction and results 2. Key measures 3. Key business drivers 4. Infrastructure 5.

      Organizational practices 6. Supervisory practices 8. Work practices 9. Technology use Physical environment Perceptions and expectations Given this information and these management tools, key decisions can be made early in the merger process that will minimize culture clash problems, facilitate the optimum integration of the two cultures, and greatly increase the probability of success of the merger. However, there are some very real issues of legality and practicality that must be worked out before proceeding.

      While thorough qualitative research methodologies, including observation, interviews, and focus groups, are necessary, these activities cannot actually happen in most instances until after the decision has been made to make a particular acquisition and the letter of intent or acceptance has been issued. While this may seem to be a serious constraint, it actually parallels other aspects of the due diligence process. The same situation exists in terms of Cultural Due Diligence. A high-level assessment of the broad cultural variables of the target organization can be done early in the process and can be one of the inputs into the decision as to which of a number of possible companies is going to be the target for merger or acquisition.

      But it will be an informed guess at best. Obviously, without this data there is no baseline to compare with the characteristics of the target companies. But in our experience, very few companies have this information current and available at the level of detail necessary. Knowing this in advance enables the acquirer to engage in any necessary premerger work internally.

      Time spent uncovering and resolving issues is time saved in the crucial and time-sensitive integration period. Additional sources of cultural information usually include any documented policies and procedures, organizational charts and job descriptions, and things like training and orientation materials, if any. Other items of interest are any HRrelated information that may be available, such as employee retention data, employee relations data on grievances, recruitment standards, and any general demographic data on the employee population.

      Executive Team Compatibility Determining the probable compatibility of the executives and senior managers of the acquiring and target companies is next. This is usually accomplished informally over a series of visits, meetings, and social events in the Pre Letter period. Executives of both companies will get to know one another, size each other up, and form impressions. Opinions will be formed on both sides as to how compatible they will be and the degree to which they will be able to work together.

      Obviously, not all executives will remain in place within the new organization, due to functional redundancy. Who stays and who goes should be a careful and objective decision, based on the business needs of the new organization. In this Pre Letter phase, general compatibility and ability of the executive teams of both organizations can be assessed, and as a rule the more compatible the executives the better.

      Retention of Key People Early on, it is possible to identify and interview key people in the target company who should be the focus of retention strategies that will see them stay with and continue to contribute to the new organization. Key people are often individual contributors, such as scientists, technical experts, or subject-matter experts—often world-class experts—who make very valuable and continuing contributions to the organization.

      The basic purpose of the interview is to get to know the key person and to determine what he or she values about the current organization that, if lost, might make him or her look elsewhere. A sample key person interview is shown in Exhibit 4. Information obtained about key executives and individual contributors can be used to begin planning retention strategies so that they will remain with, and contribute to, the new organization.

      The track record of these approaches is spotty at best, even in terms of retaining the people just for the required period of time. They are almost always the characteristics of the job and working environment, coupled with Overview of Cultural Due Diligence 63 Exhibit 4. Schooling, employment history, family, and hobbies? Career progression since joining this company? Personal values family, profession, community, and so on? International experience employment, schools, and travel? How do you manage the balance between company needs and individual needs?

      What are the particular skills and abilities you bring to this job? Two greatest successes with the company. Why and how accomplished? Two greatest failures or disappointments. Why and what was learned? Who was the best boss you ever had? What made it so good? What was the greatest job you ever had?

      What is your functional responsibility? What are your key priorities? What do you value most in your peers, subordinates, boss, customers? If applicable, how would your subordinates describe your management style? Your peers? Your boss? How does your function relate to the overall company strategy? How does this management team work in relation to decision making? As this merger or acquisition proceeds, what are the key things from this company that you want to be sure to bring forward? What are the key things you would just as soon leave behind? What are the key things the companies need to keep in mind to assure success as this acquisition proceeds?

      Who are some of the heroes of this company? What are some of the legends and lore of the company? How would you describe the current morale in the company? In your function? What do you value most about the company? About your job? Key person interviews, done in the manner described, can provide the best information for how to retain the talent. Additionally, these key person interviews will add considerable detail to the high-level estimate of the target company culture. Cultural characteristics, such as the comparative degree of formality, balance of control versus support, internal versus external focus, decision-making processes, cross-functional styles and patterns, team versus individual accountability, and so forth, should also come out of this preliminary analysis.

      Further, the information can serve to inform the design of the eventual full Cultural Due Diligence to be performed later, thus greatly accelerating the integration process. When he lost in a close shareholder vote, he accused HP of buying the votes of large institutional shareholders and sued the company. The suit was dismissed by the Overview of Cultural Due Diligence 65 Delaware Chancery Court in , removing the last of many obstacles to the merger. She also revamped the performance measures and emphasized developing managers with cross-functional expertise.

      While many other factors are responsible for the apparent success of the merger, Cultural Due Diligence and integration planning played a major role. In summary, it certainly appears that Fiorina and HP got it right. That reality alone makes it one of the most successful mergers in the industry, regardless of what the market may or may not do in the future to this combination.

      THE CDD PROCESS Qualitative methodology utilizes interviews, focus groups, workplace observations, and documentation review, with the researchers capturing the voice of the culture and the people through collecting verbatim responses and organizing the data either according to predetermined cultural attributes or according to the areas in which the cultural behaviors are exhibited.

      The survey data is then used to plan and conduct a subsequent round of interviews and focus groups with a weighted sample of managers across the business units and geography of both organizations. A subsequent web-based CDD survey is developed based on this and the initial survey data, and the survey is administered to everyone in the combined organizations if desired. Ultimately, in addition to the CDD surveys, we interview key managers, starting with the CEOs, executive teams, and all essential senior managers, moving on to a targeted sample of middle managers and supervisors.

      We supplement this by selected focus groups, workplace observations, and documentation review. Typically, the data is organized and presented within the following cultural domains, previously presented in Chapter 4. Intended Direction and Results Ascertain, from the top of the organization on down, what the company intends to accomplish. What is the business plan about, what is the strategic intent and purpose of the organization, what results are expected from the business activity of the organization, and, most importantly, how are these things talked about, described, and communicated level by level?

      At the boardroom level, and generally at the senior executive level, this is clearly understood as an issue of competitive position and repeat business. One focuses on equipment and the other on attitude as the key components in customer satisfaction—both valid, but very different. A convincing case can be made for either approach, but imagine the differing views and arguments that could ensue down through the ranks if these two carriers merged, even though both clearly value customer satisfaction and service as key elements of their business plans.

      Key Measures Find out what the company measures, why, and what happens as a result. The key measures say a lot about the manner in which the company and its executives and staff are driven, particularly when the consequences for each measure are considered. When a large company investigated why its initiative to enhance customer service and employee retention was not providing any results, a big part of the answer was in the key measures domain.

      These areas were not only measured, but had consequences to both parties for success or failure. The focus will always be on what they perceive as truly important. They will try to avoid the perceived consequences of failure, so key measures and their consequences must be examined. Key Business Drivers Check out the primary issues driving the business strategy. This tells you how the company views its industry and its subsequent efforts within the industry. Infrastructure How is the company organized?

      What is the nature of the reporting relationships? How do the staff systems interface with the line systems? What is the nature of the relationships among groups and units in the organization? Organizational Practices Find out the formal and informal systems in place and what part they play in daily life while doing the work. What is the relationship between political reality and business reality? For example, how are budgets developed and managed? These disagreements resulted in dramatic upheaval. Besides formal systems such as budgeting, this area includes how staff groups such as Legal, Human Resources, Public Relations, Purchasing, General Services, and such are accessed and utilized by line units and by one another.

      In common parlance, these areas or people are generally referred to as political bases of power, which are separate from or above the overall corporate structure. What basic value systems about employees are in place? How are people treated and why? How is the business plan implemented through the management system? How are decisions made? Who is involved in what, and when? There are clear behavioral differences between management and leadership functions, and clearly both are important in running a successful business.

      This domain relates primarily to the middle management group, but has obvious impact on the next domain. Supervisory Practices Investigate the dynamics involved in overseeing the performance of work. The nature of the interaction between the employee and the immediate supervisor is one of the primary climate-setters for the culture of the company. For example, at one company, supervisors were expected to be curt and aggressive with important issues; speaking softly meant the topic could safely be ignored.

      The same abrupt behaviors in another company could conceivably be considered rude and abusive. Work Practices Observe how the actual work is performed. Is the emphasis on individual responsibility or group responsibility? A classic example to illustrate this is in manufacturing, where two companies are making the same products but one allows any worker to stop the production line at any time he or she deems it necessary.

      This latter company views the individual worker as in the best position to recognize a defective product. The other company does not allow unauthorized line stoppages. Instead, only the manager, who has the knowledge of overall production needs, can assess whether a stoppage is worth the lost production. Obviously, these are two very different, yet potentially appropriate, ways of viewing the same issue. Performing Cultural Due Diligence 73 9. This must be considered in relation to both internal systems and equipment, as well as the services and products provided to customers.

      How current is the technology being utilized? Physical Environment See how the workplace settings differ. Changes in these areas, particularly if they are perceived as arbitrary, can result in bad feelings for years. Imagine, for example, two clients with contradictory approaches, both based on valuing people and increasing productivity. Perceptions and Expectations Ask how people expect things to happen. What do they believe is important? What do they think should be important, versus what they perceive the company feels is important?

      Both beliefs were untrue, yet both parties were so sure of their perceptions that they never discussed them with the other party. These strongly held beliefs perceptions were at the core of their inability to work together. Cultural Indicators and Artifacts Observe how people dress and address one another.

      What is the match between formal work hours and actual hours spent working? What company-sponsored activities exist and what are they like? These twelve domains cover the major components of corporate culture. However, at least two areas commonly mentioned in discussions of corporate culture should not be overlooked—values and beliefs and myths, legends, and heroes. In actuality, these are imbedded in the twelve domains.

      By digging into each domain, underlying values and beliefs can be uncovered. The same is true of myths, legends, and heroes. Myths, legends, and heroes will present themselves as the twelve domains are examined, especially through use of qualitative data-gathering techniques. In accumulating corporate cultural data, the most useful information comes from qualitative processes—primarily interviews, focus groups, and observation. Information gathered in this manner is rich in anecdotes and examples of how the culture is acted out and talked about.

      Stories give personal meaning to the culture and provide examples and demonstrations that are easy for people in the target culture to relate with. A rich trove of stories and Performing Cultural Due Diligence 75 examples, derived directly from the target cultures, makes these discussions much easier and makes their relevance to the business needs and individual behavior much more obvious. In our discussion of the twelve domains, we provided examples of very different approaches to each. Most of the data and information will come from the CDD performed on each of the companies, organized for comparison into the twelve cultural domains or in some other consistent and logical way.

      For example, the people doing legal due diligence may have picked up a pattern of employee lawsuits against the company or problems with customers or suppliers. These may well be cultural indicators meriting further investigation. As a partial example of a side-by-side comparison of two organizational cultures, a Focus Group Summary Report is presented in Exhibit 5.

      The people attending these groups were randomly selected and invited to participate. Organizational Change—with both companies struggling with large-scale change activities that have not been successfully assimilated and, in the case of Company A, that are being resisted.

      Leadership—with both companies facing severe internal and external problems that have surfaced within the last two years, the spotlight has been on the leadership of both companies as it has responded to these problems and challenges. They report that people feel the merger is an opportunity to regain the lead in the industry.

      Tax Due Diligence: Tax Audit beim Unternehmenskauf - Ablauf, Beratung, Muster (German Edition)

      Continued Achieving Post-Merger Success. Sample Focus Group Summary Continued When examining the generally reported reactions of staff to the intended mergers, it is a curious to note that Company B employees are acting and sounding more like the acquiring company—bold, positive, and energetic—while Company A employees are acting more like the acquired company—reticent, negative, and lethargic.

      Both groups lack clarity on the vision of the new company and on the timeframe of the merger and any planned integration activities. CULTURE From what was reported in the focus groups, Company B has a strong tactical task orientation but lacks clearly stated direction or a long-term strategy—other than to beat the competition. The focus group participants said that Company B is very entrepreneurial and focused on making things happen, but has reportedly become so caught up in internal change, reorganization, and redirection that its people are unsure of just what it is they are supposed to be doing.

      The focus group participants appeared to be an energized group, champing at the bit to get moving, but appear to have no plan. Customer focus is a strong element of the Company B culture, and the customer and the competition were clearly on the 78 Achieving Post-Merger Success Exhibit 5. The Company A focus group participants said that Company A has a strong identity and sense of purpose that they perceive as being under attack from within. They term themselves as lacking openness and candor in their interactions and as being fed up with the current glacial pace of decision making.

      They hope that a merger with Company B, whom they perceive to be quick and decisive, will speed up the their pace of getting things done. The Company A focus group participants said they are no longer sure of what they are supposed to be doing and just what the future is supposed to be. In their view, a vision, purpose, and a clear strategic plan must precede effective action.

      As reported, it would appear that this is a company that has not allowed the analysis and resulting clarity that the culture demands to occur and percolate down through the organization as it used to do. But the nature of the unresolved changes and their solution are remarkably different in the two companies.

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      Throughout Company B, people freely stated in the focus groups that there are several as-yet unassimilated acquisitions—which continue to create tensions and undermine cross-functional effectiveness. Loyalty seems to be more to a unit or area than to the company as a whole. From the abundant comments in the focus groups, it appears that Company A has unresolved angst from the sale of a major unit of the company and a redirected strategy and infrastructure that is neither understood nor accepted. Loyalty is reportedly deep and strong toward the company, but the employees in the focus groups were not sure just what and who the company is anymore.

      Sample Focus Group Summary Continued that they are no longer the old Company A, but lack agreement or even common understanding of what they are supposed to be now. In terms of the changes already instituted and those anticipated to result from the merger, Company A people are focused on what they have lost or think they will lose as a result of the merger, and Company B people are focused on salvation and a successful future as a result of the merger.

      In our view there is an important subtlety here—Company A is adrift and looking backward with longing, while Company B is adrift but could care less about the past, only wanting to survive, prosper, and be on top again with a new and better business plan. In Company B the focus group data show that there is a loss of faith in senior management, which generally refers to the people reporting to the CEO but, as reported, does not include the CEO himself.

      There is a fair amount of positive feeling in the middle management ranks about the next immediate management level and possibly the next level up, coupled with extreme dissatisfaction for the business unit head level and above as a group. Any overt dissatisfaction with the CEO appears to be focused on the perception that he has not been decisive enough with his team, forcing them to make decisions and stick with them rather than intervene. The CEO is perceived by those participating in the focus groups to have come in and reportedly changed things with no organizational collaboration—and apparently with no negotiated internal support from his own management team.

      It could be said that he has attempted to be decisive, but there is no perceived evidence of internal management 80 Achieving Post-Merger Success Exhibit 5. Continued realignment behind the new directions. It is unclear whether he has taken any of the senior management with him in the reorganization. When it comes to solutions or interventions, while both companies have severe leadership problems, they are fundamentally different and would seem to require different actions and approaches to resolve.

      As they now stand, both will clearly have a negative impact on making the merger work and on building a strong new company culture, unless resolved. It is important to keep the issue of integrating post-merger operations in mind, as that integration is a transformational change. This means that the methodologies utilized for linear change and continuous improvement do not generally apply.

      The chapters in this section build on the well-researched technology of organizational change management—be it incremental or transformational, participative or declarative—required.

      Procedures for successfully managing organizational change are presented in Exhibit I. As in any transformational change, managers will require time and support to disengage from old patterns and plan and implement new ways of working. These are important and complex, but relatively straightforward areas of the integration to achieve. General Considerations for Change Management When considering change management in organizations, a number of issues need to be considered prior to selecting any particular method or approach.

      To begin with, it is inappropriate to consider the change topic simply as a project to be managed.

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      The reality of the global business climate today and into the foreseeable future is that change is endemic. For years, the basic models of change always included an underlying three-step foundation of change management that was described by Kurt Lewin as: 1. Institute the change.

      Let us deal with these by beginning with the third principle. When taken literally, it goes beyond the simple issue of making sure the change is fully implemented and maintained. How practical is this assumption in the fast-evolving technical and competitive environments of today? They are now a critical element of most retail and service sector businesses as well. Modern conventional business wisdom is that stability or stasis lack of change in business equals decay and eventual death. Customer expectations are changing constantly; standards are constantly rising. Technology is constantly evolving, and competition is ever more omnipresent and global.

      How can one marry any implication of stability with the current environment? This will provide resilience in the face of future change. Today change is considered to fall into two major categories: incremental or continuous and transformational or major. While transformational change does still have, at least on the surface, many of the elements of program management that look and feel like the old traditional models, there is still the major shift of ending in a position of going forward—not being re-frozen.

      Incremental or continuous change is dramatically different. This must become part and parcel of ongoing management. At this level, change management is a fundamental management skill much like planning, budgeting, and supervising. It is a daily requirement of routine management at all levels. This was always around, but has increased exponentially, increasing the focus on participation in change versus change directed from above.

      Not all change is or is even capable of being participative in nature. While participative change is considered ideal, problems with it are two-fold: 1. They are simply decreed and are binding. Often these required changes include penalties for delay or failure to implement within given time frames. Further, many of these changes dictate the operational detail of the changes as well as the end result. To properly involve all those impacted by any change carries an implication of time spent in the planning stage, which obviously goes up with the numbers of people involved.

      Also, participation in the design and planning of the change assumes that all parties know or have access to the information and knowledge necessary to enable intelligent discussion and decision making. Again, this requires time, especially when a change impacts large numbers of people.