When it comes to most mergers in any industry, but especially in credit unions, making the numbers work is the easy part. Perhaps it's too easy.
In nearly all CU mergers, everything hinges on the financial due-diligence given by auditors, examiners and the supervisory committee to the general ledger of the credit union that is going the way of Montgomery Ward. If the debits equal the credits, the merger occurs.
But few give any thought to what one person refers to as the "cultural due-diligence." At least two people who have some keen insights into mergers have recently shared with The Credit Union Journal that it's off-balance-sheet issues that are often overlooked in mergers, yet they almost always come back to haunt later. Just ask the folks at Time/Warner for their real thoughts about the gang at AOL.
As you're likely aware, in the 1970s it seems there was a credit union for every disco, with some 24,000 operating across the country. Today, even as assets and total members soar, credit unions number less than 9,800. Unlike Mom & Pop's Hardware, all those credit unions weren't Home Depot'd or WalMart'd out of business. A fair number were liquidated (enough so that former NCUA Chairman Ed Callahan had to convene emergency meetings on the state of the NCUSIF), but most disappeared in mergers. Many, founded to serve steel mills or furniture plants or railroads, faded into yellowed newspaper archives along with the sponsor companies that had brought them to life. As Bruce Springsteen observed, "Them jobs are goin' boys, and they ain't comin' back."
Those who found new jobs usually also found themselves members of a new credit union, and other than the new name on the checks, the merger was transparent to them. For many managers and employees, however, the change is frequently not so easy. How they'd "always done it" isn't how it's "done here." It can be especially challenging and messy when two credit unions of approximately the same size merge.
One person who said he's seen what can happen when mergers go poorly is Tim Tuff, chairman of Harland, which has a relationship with thousands of credit unions. Harland has grown significantly during the past decade, with some $787 million in revenues last year. Much of the company's growth has been fueled by acquisitions; yet Harland has also rejected acquisitions for reasons Tuff believes are often mistakenly discounted by others.
"Before any acquisition, we do cultural due-diligence," he explained. "The reason most acquisitions fail is a lack of cultural compatibility. We have backed away from some acquisitions as a result. It doesn't mean there was something wrong or bad about the company, we just felt we were not compatible. The problems occur when you have a multiple of organizations (within the same parent company) servicing the same company. I've seen this fail time and time again."
What Tuff said he's seen is organizations that have common ownership at odds with one another and contradicting each other's message, even undercutting one another.
"I really believe that in our company you can take people from a number of different units across the country and have them work together in a number of minutes," Tuff continued. "We invest a lot in training and in depth of training. We prescreen all applications top to bottom. We conduct a psychological screen. It takes time. You often have to do this for five years before you see this. But it has allowed us to achieve a cultural integration faster than other companies."
Not having to spend his time putting out fires within his own company has afforded Tuff the ability to focus some of his time outside of it. "My competitive advantage is to go out and listen to the customer," he said. "It is dangerous when people in a company think they know what is right for the customer. I'm in a different city each quarter I try to meet with a customer and find what works-and just as importantly, what's not going well. I also try to meet with a non-customer. Now that is really valuable."
Much of Tuff's philosophy sounds mighty credit union-like, or at least what credit unions would like to believe they are like.
"People know we are a values-based organization that is customer-focused," Tuff observed. "We have 5,000 employees, and I know 2,000 by name. The reality is you have to allow yourself to be pulled by the customer to be successful. There are two key things to measure: customer satisfaction and employee satisfaction. If both of those are growing, it's very likely you are successful."
While not consulting with Tuff, at least two credit unions seemed to manifest his philosophy when they called off their planned merger. Portland (Ore.) Teachers Credit Union and Oregon Community Credit Union recently nixed what would have been one of the largest mergers between two CUs. "We were two different types of operations. We've both been in business a number of years and do things differently," noted OCCU CEO Gordon Hoerauf in comments on page 5. "For example, we are risk-based lending, they are not. That is an operational issue, and it is a philosophical issue, also."
Funny how the one thing that doesn't show up on the balance sheet counts more than any other.
Frank J. Diekmann is editor of The Credit Union Journal.
