From Restriction to Retention: Adapting to the FTC's Non-Compete Ban in M&A
Robin Benoit
June 12, 2024
Mergers and acquisitions (M&As) are pivotal events that can redefine a company's future. However, beyond the financial and strategic alignments, the real challenge often lies in harmonizing the human elements of distinctive businesses. With the recent Federal Trade Commission (FTC) ruling eliminating non-compete clauses, the stakes for managing human capital effectively during these transactions have gotten even higher.
Data suggests that up to 90% of M&As fall short of their strategic goals, with poor management of culture and talent needs often to blame. One specific issue is a failure to retain key personnel who are crucial not only for maintaining smooth operations during the transition, but also for driving the post-merger integration forward. This loss of talent and institutional knowledge can lead to disruptions in services and erosion of value precisely when stability is needed most.
The FTC’s recent ban on non-compete clauses adds another layer to the talent retention challenge. Previously, non-compete agreements could sometimes prevent key employees from moving to competitors, providing a safety net that maintained continuity and preserved customer relationships during the M&A process. Assuming the FTC’s ban goes into effect as written, employees will now have fewer contractual reasons to stay if they feel unvalued or insecure about their future.
Some may view voluntary departures during M&A as beneficial to the organization, as such departures reduce the overall headcount and decrease possible severance expenses for the new entity. However, this view is short-sighted as it fails to consider that the departing employees — particularly those previously bound by non-competes — are likely the ones with unique skills, close customer relationships, or a wealth of strategic knowledge about the company’s operations.
In short: these may be the exact people that you really need to keep.
The elimination of non-competes heightens the need for strategic HR interventions during the M&A deal process. HR must be engaged as early as possible to identify key talent and create a more compelling offer for the employees they wish to retain. Areas to consider include:
Image via Elnur/Adobe Stock
Retention Bonuses and Incentives: Offering financial incentives for key employees to stay through the transition period and beyond can better ensure continuity and stability. Sometimes this will provide the new entity with sufficient time to better articulate to key staff why they should choose to stay for the long-term.
Career Development Opportunities: Providing clear paths for career growth and development within the new organization can help retain ambitious employees. Ensuring that employees have access to programs that are equal to (or better!) than those previously available may motivate employees who are looking for long-term professional growth.
Inclusive Culture Building: Cultivating a new, inclusive company culture that values input from both legacy organizations can foster loyalty and commitment. Relying on a “you must do it our way” mentality will likely disengage new members of the team and increase their insecurities about their place in the future organization.
Communication is Key: Transparent and frequent communications about the merger or acquisition process helps reduce uncertainty. Employees should be informed about how the changes will affect them and the organization as early as possible – otherwise they may just create their own narrative.
In the end, it’s the people, their skills, their relationships, and their loyalty that determines whether the new entity will thrive or falter. By understanding the critical role of employee retention and its financial implications, companies can better navigate the complex M&A landscape to achieve successful outcomes.
Robin Benoit is the Co-Founder and CEO of Benoit Global, a human resource consulting firm specializing in mergers & acquisitions.