THE EFFECTS OF MERGERS AND ACQUISITION ON EMPLOYEES MORALE (A CASE STUDY ON NIC BANK

AND CBA BANK)

BY

ODERO VOCPSTER OCHIENG’

BBU/110/15

A RESEARCH PROPOSAL SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE

AWARD OF THE BACHELORS DEGREE IN BUSINESS MANAGEMENT,

UNIVERSITY OF ELDORET

SCHOOL OF BUSINESS AND MANAGEMENT SCIENCES

DEPARTMENT OF BUSINESS MANAGEMENT

June 3, 2019
CHAPTER ONE

INTRODUCTION:

1.1: BACKGROUNDOF THE STUDY.

The Banking industry in Kenya witnessed tremendous changes and expansion since after the
independence in 1963.Unfortunately the growth and expansion in the sector are not the manifestation
of a sound or vibrant banking system known anywhere in the world. Most banks in Kenya are
characterized by inadequate capital base ,poor services, huge rate of bankruptcy ,and lack of
management expertise ,bad debt syndrome and greater exposure to fraud.

The Central Bank of Kenya in line with the international standards, increased the minimum capital
requirement, aimed at strengthening institutional structures and improving resilience of the banking
industry. According to the Finance Act, new and existing banks had to comply with a minimum capital
requirement of KES 1 billion, up from KES 250 million in order to operate as a commercial bank in Kenya.
The main reason for the hastened build-up of capital was the perception that stronger banks are likely
to withstand financial turbulences and therefore increase banking sector stability. Banks were also
expected to benefit from economies of scale and lower their transaction costs, reduce banks’ lending
rates and consequently increase bank competition and promote financial inclusion.

Managing and maintaining employee morale is one of the most important functions of effective Human
Resource. The cliché that a happy worker is a productive worker is a cliché for a reason. While making it
more accurate to say that an unhappy worker is an unproductive worker, every human resource
professional knows the value in good staff morale. The effects of mergers and acquisitions in the
banking industry of Kenya on employee morale can be important if the organization of the business is
handled effectively. During the merger or acquisition effort, there are at least two groups of employees
involved, often coming from organizations with distinctly different cultures and styles. Learning a new
culture can be challenging ,but is especially so when employees are faced with uncertainty about what
the future may hold and whose job is on the chopping block.

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1.2: STATEMENT OF THE PROBLEM

Change is often difficult for employees, especially if they were not directly involved in decisions that
impact their jobs. During mergers and acquisition, change can be really difficult and can lead to stress
which can have a negative impact on morale if not handled effectively (Iloh,2012). Communication is
critical during these times, to the extent possible organizations should strive to share as much
information about what is happening and most importantly, how the changes will affect individual
employees as they possibly can.

When two organizations come together, culture clash is inevitable. Rarely do two organizations have
the same culture. As these groups get to know each other, there will inevitably be conflict and perceived
or real losses on both sides. Employees may fear losing their jobs or losing opportunities that they
formerly had. The fear can negatively impact productivity and may even result in employees leaving the
company to seek jobs elsewhere. It is important for organizations and there managers, human resource
staff to recognize this and to provide opportunities for employees to get to know each other, to openly
address concerns, and to work together toward the creation of a new culture that will merge the best of
both banks. (Leigh, 2012).

When employees are concerned about their own job security they are more likely to become
competitive with others and this competitiveness can result in conflict, sometimes even violence. During
mergers and acquisitions it is important for managers and human resource professionals to be alert to
signs of negative competition and to ensure that employees are being kept informed about impacts on
their jobs and their futures with the company. While some competition is good, competition is not good
when it creates tension and negative conflict in the organization (Leigh, 2012).

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1.3: OBJECTIVES OF THE STUDY

The main objective of this study is to examine the effects of mergers and acquisition on employee
morale, case study of NIC bank and CBA bank. Specific objectives of the study are;

1. To examine the effect of merger and acquisition on employees’ confidence on a given task in NIC
bank and CBA bank.

2. To appraise the effect of merger and acquisition on employees’ will to remain with current
employer.

3. To examine the effect of merger and acquisition on employees’ zeal to take a newer task.

4. To examine the effect of merger and acquisition on employee job satisfaction with respect to
new company policies, reviewed employees’ benefits and working condition.

1.4: RESEARCH QUESTIONS

In order to guide the study and achieve the objectives stated above, the following research questions
apply to the study;

1. What effect do merger and acquisition have on employees’ confidence on a given task in NIC bank
and CBA bank?

2. What effect do merger and acquisition have on employees’ will to remain with current employer?

3. What effect do merger and acquisition have on employees’ zeal to take on newer task?

4. What effect do merger and acquisition have on employee job satisfaction with respect to new
company policies, reviewed employees’ benefits and working condition?

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1.6: SIGNIFICANCE OF THE STUDY

The study will aid organizations currently undertaking strategic changes through merger and acquisition
to design and implement corporate governance policies that will benefit both employees in the acquired
firm and that of the parent company. Various insights into how confidence,zeal,commitment and overall
productivity of employees can be affected by merger and acquisition will be clearly highlighted in the
study to further enlighten managers of various organizations on proper ways to go about merging and
acquiring other firms without risking productivity of employees.Futhermore, the study will serve as a
guide to student researchers who may wish to explore more into the effects of mergers and acquisition
on overall performance of an organization.

1.7: SCOPE OF THE STUDY

The study is limited to NIC and CBA banks. All findings and recommendations from the study are based
on interviews and issued questionnaires to employees of the bank. A wider scope could not be covered
due to time and financial constraints.