In 1986, Keystone Financial Inc. of Harrisburg, Pa., was created through the merger of three companies, each with about $1 billion 'in assets. Management then struggled with the building of a new "super community" culture.

Initially, the company elected not to drastically depart from the past. The three banks continued to run their businesses the way they used to and, even at the board level, a sense of competition was commonplace.

The holding company management was reluctant to propose a "Keystone way" of banking. Instead, a coordinating position was appointed for all key, management areas.

Keystone's management quickly found that although it successfully avoided open conflict among the three entities, the lines of demarcation among the banks remained very much in evidence. At the same time, the management coordinators were given responsibility but no authority to execute their decisions.

In short, the friendly approach to creating a new company out of three old ones was not working. A departure was necessary to create an effective company, whose whole would be greater than the sum of the parts.

Leadership Solution

The structural solution was to put three executive vice presidents in charge of the major activities: the banks; finance and operations; and administration, acquisitions. and human resources.

Management also invested time and resources in developing clear mission and vision statements that described what kind of a company Keystone was committed to becoming.

The statements highlighted the important role each of the banks had to play in the overall success of the company, while acknowledging the need for some measure of standardization across the system.

Leadership came from the top. Carl Campbell, the chief executive officer, set the tone with the definition of some "non-negotiable," corporatewide values that had to be accepted by all levels of management. The list began with asset quality, followed by an "obsession" with customer service.

Further, Mr. Campbell presented the super community banking concept and strategic position to all of the officers of Keystone in a state-of-the-company address, and established programs to remind all employees of the importance of quality at all levels. Last, a quality improvement program was initiated to "get things right the first time."

These initiatives created a new company out of the three original Keystone banks (smaller acquisitions followed). Consistent values, policies, and credit culture permeate the organization, without regard to historical bank boundaries.

Still, in keeping with the super community style, each bank has a unique approach to its own marketplace, and local decision-making on credit and other issues is closely guarded.

Lesson for Mergers

Keystone offers a lesson in the importance of creating a new culture and identity in a merger-of-equals situation.

It would have been ineffective to try to force the lead bank's culture on others that were given equal status. At the same time, letting each bank continue along its historical path would have been inefficient.

A super community bank needs a clear culture and identity. These are essential to mobilizing employees to achieve the bank's objectives: community orientation, cost efficiencies that are evident to the customer, and a broad product line distributed throughout the network.

A well-defined mission, vision, and corporate-value statement are critical to the success of any company, but especially so for super community banks.

Keystone recognized this principle early in its life as a multibank holding company. The results speak for themselves.

The company, now with 94 offices in 23 Pennsylvania counties, earned 1.26% on assets and 14.33% on equity in 1992. Its stock is trading at better than 1.75 times book value.

Ms. Bird is national director of financial institutions consulting at BDO Seidman, New York.

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