So you’ve decided to get into the sport of M&A. There’s nothing quite as exciting. First the hunt…next you find the target…then negotiations start…you make the deal…and ultimately you win the game with a successful agreement. It’s enough to get most bankers’ adrenaline pumping just thinking about it. All you have to do now is close the deal and merge your systems, right?
Not hardly. A survey of executives involved in M&A deals conducted by Mercer revealed that 75% cited “harmonizing culture and communicating with employees” as the most important factors for successful post-merger integration. This is what I refer to as the “softer” side of M&A—people, specifically employees: “yours and theirs,” “us and them.” In M&A work, this is the part that can negatively impact the long-term success of an acquisition financially, strategically and reputationally. Sometimes it is immediately obvious, but many times the consequences don’t manifest themselves until a few years later.
A survey of executives involved in M&A deals conducted by Mercer revealed that 75% cited “harmonizing culture and communicating with employees” as the most important factors for successful post-merger integration.
In working with bank clients, I have seen the aftermath of acquisitions that underestimate or don’t even consider the risks associated with inadequate attention to M&A’s softer side. Depending on the study you quote, anywhere from 50–80% of acquisitions fail to meet expectations. One important way to address this risk is with an acquisition communication plan. A carefully crafted, well-written plan can help you avoid common pitfalls and give you every chance of meeting or even exceeding expectations. Here are a few of the things every bank management team needs to know and consider when thinking about the softer side of an acquisition.
1) Communication is not the same as information. Many bankers confuse the two when it comes to communicating with employees during an acquisition. Information is about providing facts and is a one-way transaction—from you to the employees. Communication, in contrast, involves making a connection, calming fears and providing an opportunity for two-way dialogue. As everyone who has been through an acquisition knows, providing definite answers is not always easy in the early stages because there are so many unknowns. But that doesn’t mean you can’t, or shouldn’t, communicate with employees as early as possible. Questions like “Will I have a job?” or “What happens to my vacation?” weigh heavily on their minds. Acknowledging their concerns and providing them with a means by which to ask questions (even though you may not have concrete answers) will go a long way towards alleviating their fears. Let your employees know that you welcome their questions, and maintain an ongoing dialogue with them. Although information may be limited, formulating a comprehensive acquisition communication plan at the beginning will go a long way toward smoothing out any bumps on the road.
2) You can never over communicate. When visiting with clients about the importance of communication, I use the joke about the couple who had been married for 50 years and the wife complained to her husband that he never told her he loved her anymore. His response was “I told you I loved you when I married you, and if I change my mind I’ll let you know.” This is the same mentality I often hear from banks that culturally operate on a secretive or “need to know” basis regarding communication. It might work in your current bank environment (although I doubt it), but it introduces a high level of risk in the acquisition process. There are many questions and decisions that have to be made that impact the employees of both banks, and assuming employees don’t need to know until you are ready to tell them is detrimental. Obviously, there are limits as to what can be said throughout the process but once an agreement is announced, anxiety for employees sets in and can fester without timely communication. Buyers and sellers should work together to ensure there is an acquisition communication plan that addresses employee questions and concerns, and you should begin before the ink dries on the agreement.
3) If you don’t communicate and control the message, someone else will. It’s amazing what people can fabricate when left to their own imagination. That’s why it’s important to anticipate questions and prepare key messages to address those questions from the beginning. It is critical to tell your story even if it’s early in the process and you don’t have all of the answers. When you don’t control the communication, the rumor mill takes over and spins a story. This results in an increased risk of attrition of good people you may want to keep. To make matters worse, an incomplete or inaccurate story can filter out to your new customers and the community, potentially damaging your bank’s image and the franchise you are acquiring. Your acquisition communication plan should include key messages for all audiences, including personnel at both banks. You want employees to know that you are being forthright and even if they don’t like what they hear, they will understand that you will keep them informed as things progress and decisions are made.
4) Not making tough and timely decisions regarding employees and management is a decision. A BAD decision. It’s hard to tell someone they won’t have a job, but in the long run it’s the best thing you can do in an acquisition situation. In fact, the sooner the better. Your acquisition communication plan should include a strategy for timely communication with different groups of people, including:
• Employees you want and/or need to retain—like that stellar loan officer or competent branch manager. They are the ones your competitors will go after first.
• Employees you need to retain through conversion because of their knowledge of the acquired bank’s systems.
• Employees of the acquired bank that you do not need nor want to retain from the date of closing.
• Management (and board members) with perceived community influence.
An acquisition is an opportunity to reap the benefits of retaining valuable individuals who can strengthen your organization, even when you have to rearrange your own organizational chart. Failing to make the necessary adjustments to job responsibilities, job titles and lines of authority, however, for fear of hurt feelings or perceived negative consequences, is damaging to the success of the acquisition. This is fodder for distrust, territorialism and poor morale.
Be committed to making your staffing decisions and defining your new organization based on a fair and honest assessment of the staff of both banks and what is best for the new, combined entity going forward. And as soon as possible, communicate these decisions to every employee so they know and understand how the new structure will work and where they will fit (or not fit) into the organization. Although much of this communication may be confidential (conveyed by one-on-one conversations, not emails), how and when you will communicate and execute these sensitive issues should be a part of your acquisition communication plan.
5) OJT doesn’t work. Written procedures and ongoing training are essential. You cannot assume employees will know what to do or learn from word-of-mouth communication and training. Even if you tell them, old habits die hard and without written guidelines and proper training they’ll likely revert back to their old routines. This is true in your current organization and it is absolutely true in an acquisition. Poor or nonexistent procedures for everything from handling NSFs to opening new accounts to putting loans on the books will develop inconsistencies in how your bank operates. This creates the potential for an adversarial “us vs them” situation between legacy employees and acquired employees that can be hard to overcome. It might have worked before, but when you factor in new employees, working with new systems for a new bank this spells d-i-s-a-s-t-e-r.
If your bank is the acquirer, this is the perfect time to make sure you have written policies and procedures in place that are scalable to a new, larger organization, and a planned training program to go with it. Don’t assume that the way you’ve always done it will work in a larger, perhaps geographically separated organization. A best practice is to evaluate your current procedures along with those of the acquired bank and use work groups during the integration process to develop new procedures that work for the combined organization. Foster an “it’s not your way, or their way, but rather the best way” approach to integration with participation of employees from both banks. Not only will everyone be more likely to understand how things will be done, but they will also be more engaged and willing to adapt to the necessary changes.
6) Employee cultural integration is a process, not an event. Bankers often focus on the acquisition itself and once the new organization chart is completed, and technology and core systems are consolidated, they breathe a sigh of relief that the bank is “integrated.” Nothing could be further from the truth. The reality is that with every acquisition there are winners and losers, regardless of what you call it. Employees figure this out quickly, so it is important to begin the process to neutralize this mentality as soon as possible. I use the word “process” because when it comes to the employees, it takes time to combine two separate entities and belief systems into one culture. Companies that understand this and have had success in building a unified culture say it takes 2–3 years to fully integrate two cultures, and only then with significant, sustained effort.
Many banks don’t fully grasp this, to their detriment. Potential consequences include high turnover, operational inefficiencies, diminished customer service, poor morale and a damaging “us vs. them” mentality. Unfortunately, these issues do not always fully manifest themselves until a year or more after the acquisition, allowing bankers to convince themselves that all is well when it really isn’t. At some point in time, though, problems become evident and you find your bank embroiled in a mess.
So how do you combine two different cultures? It isn’t easy. It takes time and it requires specific actions to fully integrate employees. You can start by defining the differences between your bank’s culture and that of the acquired bank and taking measurable steps to address cultural dissimilarities. Working to understand and integrate components of the acquired bank’s culture is something you should consider. For example, if they have specific community events they are known for, you could continue them and even incorporate them into all of your markets. Or if they have a long-held employee tradition, it may be worth preserving and absorbing into your own company culture.
You can never tell your story too many times.
In addition, it also helps to commit to developing a culture of communication and sharing your story. You can never tell your story too many times. In fact, research has shown that people need to see or hear something at least seven times before they begin to believe it and internalize it. Make sure you have a story about who your bank was (its history) and who it is today, and what you want people to believe about the bank. We call that the Brand Promise. To make it real, employees have to believe it and live it. The way to help them do this is to make it an important part of your communication at every opportunity. Beyond that, to ensure success over the long term, include ongoing and consistent employee communications and regularly scheduled post-acquisition activities and training that reinforces your bank’s culture and provides employees with opportunities to engage with each other.
The bottom line is that paying attention to the softer side of M&A is critical to the long-term success of your acquisition. A written acquisition communication plan will help you identify and mitigate communications risks from pre-acquisition through conversion and beyond—ensuring your bank puts its best foot forward with your new employees, customers and communities.
1 2004 Mercer survey of executives involved in M&A deals as quoted in 3 Failed Mergers and What They Reveal, Axial Forum, January 23, 2014; http://www.axial.net/forum/3-failed-mergers-and-what-they-reveal/