Merger and acquisition activity is sure to hit a record in 1995, but that doesn't necessarily guarantee successful transactions.
History indicates that many of these combinations will fail to achieve their full potential unless more attention is paid to the importance of cultural fit, and that is especially true for financial institutions. As a senior employee-relations executive of an M&A-oriented financial institution, I found that fallout occurs when combinations are based solely on a complementary fit among geographic sales regions, or anticipated synergies between products or client service lines.
The truth is, mergers that don't take into account the most important asset in the balance sheet - the professionals who represent these institutions every day in the marketplace - are doomed to fail.
That should be of particular importance to those organizations that stand waiting for the repeal of the Glass-Steagall Act - the commercial banks, insurance companies, investment firms, and other financial institutions which believe that multiple services and products across service lines are preferable to concentration in a particular area or line of business.
What good can be expected to come, for example, from a forced marriage between an organization with a decentralized management structure and one that is centralized - one where staff looks toward headquarters for signals?
Or, what about a merger between a firm that relies on salary coupled with bonus plans to compensate staff and one that relies almost exclusively on incentive compensation? How are these two cultures, these two totally different styles of management, to be reconciled?
Is a blend of the "best practices" of both partners to be desired, or will one style prevail over the other? And if it does, what are the implications for the firm whose style falls by the wayside?
Strategic planners need to be contemplating these issues as they line up their next target. Failure to take these issues into consideration is to risk total failure.
Consider what happened to Shearson when it agreed to take over the beleaguered firm of E.F. Hutton, which Shearson coveted for its blue-chip network of retail brokers. The rough and tumble style of the Shearson brokers was foreign and off-putting to the Hutton brokers, and as a result, the two groups never got together.
In fact, many of the Hutton brokers ultimately departed the combined firm, thereby undermining the goal of the merger.
A similar fate befell the union of Shearson and Lehman Brothers, resulting ultimately in the dissolution of the pairing. At the time of the merger, many hailed the juxtaposition of an aggressive, retail oriented network of brokers with a white-shoe, laid-back firm of investment bankers.
The synergy that was promised never materialized, and in the course of combining the two organizations many profitable lines of business and promising careers were derailed.
Institutions considering a potential merger would be well advised to consider several factors beyond the immediate bottom line impact, such as:
*What style of management does the prospective merger partner employ to make decisions? Is it authoritarian or consensus-driven? Does every manager have one vote that counts equally, or do the votes of senior personnel count for more?
*What is the method of compensation? Does the organization place a higher value on performance or tenure? Who is more highly compensated, executives performing administrative functions or those making sales?
*How are the leaders of the organization chosen? Who, if anybody, controls the board?
*What does the organization stand for? What is its purpose? Are its values clearly stated, communicated and, most importantly, reinforced through actions?
All of these are issues that should be explored as part of the due- diligence process. They are the issues that drive an organization and shape its future.
Failure to consider the implications of these questions consigns the long-term viability of the merger to a spin of the roulette wheel.
Brendan Burnett-Stohner is a principal of Sullivan & Co., an international executive search consulting firm that specializes in the financial services and management consulting industries. She was the senior employee relations executive at the Shearson investment banking firm when it merged with E.F. Hutton and, later, Lehman Brothers.
