By, Stuart R. Levine

Our firm recently facilitated the successful merger of two credit unions.  One of the fundamental issues that we focused on was the ability of the post merger team to quickly establish and maintain productive working relationships with employees and the people they serve. From the outset, it was critical to identify people-related risk factors as well as integration challenges and their value.

A Bain and Company survey of 250 global executives involved in mergers and acquisitions concluded that only 3 out of 10 transactions created meaningful value for shareholders.  Poor integration was one of the major causes for these failed corporate unions.  Harvard Business Review points out in their article, Human Due Diligence (April 2007), that if deal making ignores and underestimates the significance of people issues, the results can be a significant loss of talent after the merger, long term attrition and lost market share (2/3 of mergers lose market share in the 1st quarter after the merger is completed).

In a post-merged company, whether for a public company or a credit union, the creation of mutual trust, a shared vision and clear roles takes time to develop.  Our goal throughout any merger process is to focus on these critical cultural issues to ensure that the proper foundation is set for future success as well as to ensure that the merger stays on track and doesn’t fall apart, based upon a lack of trust, fear of job loss, misunderstandings, poor planning or poor communication.

Additionally, identifying post-acquisition surprises is important.   Most leaders focus so hard on nailing down the terms of the deal and hashing out the broad integration plan that they don’t expect the unexpected and don’t proactively plan for contingencies. In managing two boards and two CEOs, what is required is clear, concise and frequent strategic communication.  It is critical to review how the cultures will mesh as well as how employees and customers (members) will view the merger.  This process must all be effectively managed, through data gathering, assessments, validation, integrity, trust and listening to all parties involved.  Continuous listening and acting on feedback that focuses on your customers, members and employees – while continuing to measure and monitor satisfaction levels and watching operational indicators  – will help to avoid surprises and increase chances for longer term success.

The definition of roles and elimination of ambiguity helps to avoid unnecessary friction and distractions.  Giving significant attention to the talent who will lead the enterprise, begins the process of developing people who are engaged and can begin delivering accretive results plus trusting relationships.

In facilitating this credit union merger, confidentiality was critical until the deal closed.  Crisis communications work is valuable and preparation for a leak is important.  Consistency in all messaging, which focuses on value to the members is a requirement. Don’t assume the member vote will be easy.  Plan to win the hearts and minds of employees first and they can become apostles for your members. Try to understand the cultural differences and similarities, and anticipate what these may mean going forward.

As regulators are more risk averse than ever before, confirm in advance what is needed to approve a deal and assess feasibility of proceeding upfront. Identify showstoppers and what is needed to move the deal forward. Regulatory timeframes are a wild card, so you need patience.  Due Diligence should include 2-3 years of exam results and ideally current exam results to help confirm board and credit union management alignment.  Understand the audit firm’s role in due diligence and positioning  going forward.

Retain an independent third party review of process, results, compliance, underlying philosophies that drive processes, systems and performance.  Hiring a third party accountable for program management of all moving parts maintains equilibrium with the boards.  Here’s why hiring a third party is an important part of this process.   A third party can manage the following processes:  Governance, Election, CEOs, Employees and Regulatory as well as the Five Phases, all requiring a high degree of Strategic Communication including Scoping, Due Diligence, the Deal, the Integration and Sustainability.

Using a Transitional Governance Committee is valuable to build bridges and create common ground across boards. When you are dealing with boards, remember that people in credit unions have served their credit unions and community as volunteers.  In many cases, that commitment has defined them professionally and as community leaders.  Understanding these concepts, will always drive the conversation towards a commitment to be respectful to board members and their service.