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IAI Actuarial Core Principles · Business Management · Communicating strategy; culture and structure in decision making; strategy case studies

Narmada Finance Ltd plans to merge two business units, which will probably lead to job losses. Management intends to tell employees only after the deal is public so that rumours do not spread. Which is the strongest criticism of this plan from a stakeholder communication viewpoint?

The main criticism is that delaying news to employees risks loss of trust, their hearing it from outside sources, and falling morale and productivity. Confidentiality may be valid during negotiations, but excluding a key internal stakeholder from timely communication harms the strategy's execution.

  1. AEmployees have no legitimate interest in strategic decisions of the company
  2. BLate communication to a key internal stakeholder group risks loss of trust, learning of the news from outside, and reduced morale and productivityCorrect
  3. CMerger plans must always be disclosed to every stakeholder at the first planning meeting
  4. DInforming employees later always increases the share price
  5. Communicating at all with employees breaches directors' duties

Explanation

Employees are an important stakeholder group, and hearing major news second-hand damages trust and morale. Option three overstates the case, as confidentiality during negotiation can be legitimate; the issue is the delay beyond that point.

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