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September 7, 2016

The Melding of Cultures During and After a Merger (article)

Regardless of industry, all mergers are complex initiatives and the banking sector is no exception. Understandably, all parties are laser-focused on financial and operational matters. Teams are deployed to address issues related to clients, systems, service line congruencies (or lack thereof), litigation matters, market overlaps, synergistic opportunities, vendor relationships, tax issues and the like. These are all critical management issues and yet the opportunities presented by acquisition can be squandered if leaders lose sight of the human part of the equation. 

Horror stories abound describing botched mergers from a human perspective. For both sides of the transaction, it is wise to initiate both a human capital and a cultural-environmental audit before proceeding too far down the acquisition trail. The human capital audit is usually routine as a subset of due diligence – checking non-compete contracts, assessing employee litigation challenges, evaluating duplicative staff roles, analyzing benefit plans, etc. However, a cultural-environmental audit, while paramount to the success of any merger, is often overlooked.

What Is a Cultural Audit?

What should be a part of a cultural review? It is more art than science. One suggestion is to select a senior and hopefully long-tenured executive within the ranks of the acquirer to research and submit a report about the cultural pros and cons of the potential combination of the two entities. Although subjective in many respects, such a document should assess business philosophies (e.g., entrepreneurial versus corporate or traditional), decision-making styles, employee engagement similarities or differences, and philanthropic/community mindedness – even something as seemingly minor as dress codes. Employee attitudes regarding compensation and benefits, training, and performance recognition should be surveyed and considered. Assumptions derived from this cultural assessment will assist in formulating areas of emphasis from a people perspective after the merger is agreed to, recognizing that the assumptions might change once the two organizations are exposed to one another. 

Communication Is Critical on Several Levels

Banks involved in mergers and acquisitions must carefully consider the impact of the deal on the workforce as they announce transactions and integrate companies. The importance of communication is vital to success and should be executed through and after a post-merger announcement. Merging organizations are advised to outline a human capital strategy early in the process, subject to typical contractual limitations. At a minimum, the top HR professionals should get acquainted to develop common ground and open lines of communication. Although it is rare that there is truly a "merger of equals,” let’s assume that such an audit is a two-way street whereby both parties conduct senior executive exchanges in a nonthreatening and constructive manner.

A more important aspect of such a discussion would be to agree about an employee communication plan supported by senior leadership of both organizations. The goals: to combat the natural rumor mill and to be as open and honest with the employees as possible.

Human Capital Matters

As we all know, the merged banking enterprise and respective shareholder groups want to solidify the retention of the best and brightest from both entities. Crafting and articulating what happens to people who might lose their jobs is the most awkward topic, but it is better to not leave this to chance; have a plan in place.

Unfortunately and realistically, there are winners and losers in every merger. The reason acquisitions make sense is the elimination of duplicative costs. But, there are right ways, humane ways and wrong ways to do these things. The use of retention bonuses, career transition services and similar tools can ease the burden on employees’ minds. People remember how they were treated on the way out. Public relations fallout may have more long-term, detrimental effects than any short-term, expedient ways to address human capital matters under a merger.

Implications Beyond the Obvious

Cultural influences have the potential to be broad and far reaching. Business culture affects decision-making and leadership style, as well as how people work together. It is a key factor influencing management decisions and business functions. While a transaction is not likely to be stopped for reasons of business culture, those managing the deal are advised to recognize and direct the impact of culture to support rather than undermine their desired goals.

Many progressive acquisitions and mergers are starting to employ the use of outside third parties to assist with such deliberations and communication. This may be a wise investment under certain merger scenarios.

The bottom line: Recognize that business culture is a key component of both due diligence and change management in the acquisition merger process. Do everything possible to become aware of and harness culture to promote a successful integration.

For discussion or additional information, contact Jay Meschke, President, EFL Associates & CBIZ Human Capital Services (816-945-5401) or your local CBIZ advisor.

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