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CEO
Headaches
after aMerger or

Acquisition
Written by Aruosa Osemwegie, GPHR, SPHR
aruosa@gettingajobisajob.com

We have less than a hundred days to the close of the banking sector
consolidation programme. Someone may say, “What really is the fuss
over this particular exercise.”? Let's get it over with and talk of other
things”. I submit that next to the governance of our dear country, this
is the other thing we have to do and do right. There are real
challenges ahead and CEO's may have lost sleep. It may not be a good
prayer to wish to be a bank CEO at this time. Obviously the banks
seeking to kidnap wealthy acquirers have migraine already;
considering that the sword of Damocles is less than hundred days to
falling. Making M&A work, so that it delivers on its promise, is the
ache of the executive teams of banks that have already signed
partnership MOUs. What is the severity of this pain? And what are the
best practice ideas that we can glean from successful/unsuccessful
M&A integration around the world?

We are so different? It is amazing that organisations can serve in the


same industry and yet be so different from each other. And this
difference remains one of the major challenges to successful
integration of organisations. Too many studies on mergers and
acquisitions have highlighted incompatibility of cultures as a major
roadblock to M&A success. In the final analysis, organisations are a
composite of upheld values and beliefs. These values/beliefs direct
behaviour and these behaviours are seen in interactions with
customers and stakeholders. They are even evident in the way
employees talk and dress.
It shows up in supposedly mundane things such as arrangement of
tables, use of first names, etc. It is the combination of all these that is
referred to as organizational culture. This culture problem is largely
solved or created at the planning table. It is at that point that we
should have conducted a preliminary culture analysis to even
determine if the targeted company is worth the acquisition or merger.
Where it is observed that the culture is incompatible; the degree of
incompatibility is determined; the cost and length of acculturation
(culture fusion) is identified and finally a Culture Integration Plan (CIP)
is drawn up. “But we didn't do all of this in our own case”, so says
someone. Is there a remedial path? Even though an MOU has been
signed and we are now 'in formation', go ahead and conduct a Culture
Due Diligence. Be clear on the constituents of the culture of each of
the consolidating partners. Identify differences; fundamental and
superficial differences. Then as part of the transition and integration
plans, develop a CIP. A CIP is only useful to the extent that it contains
the mechanism(s) for culture integration; the time frame; external
and internal facilitators; success parameters; key indicators of
success and attendant cost.

Who are these people? Determining who will be part of the core
integration team represents another present day challenge that CEOs
will have to grapple with. It is wrong for staff to consider this team an
elitist group and thereby lobby to be part of it. Of course we are firmly
on the path to failure when the executive team begins to select
persons on partisan grounds. Not everybody is well placed to be an
integration manager. An integration team should be comprised of
external consultants and carefully chosen staff from the merging
entities.
Because of the humongous work associated with M&A integration, it is
almost compulsory to use consultants. Also because of the skill-set
required and the amount of objectivity and soul-searching needed,
using a consultant is critical. Another headache for CEOs is this, “What
kinds of consultants do we need”? Over the years there has been
agreement that we need business/financial consultants. But the world
having gone full circle, through a series of M&A failures, have now
realised the critical role of specialist Human Resources consultants. Is
this requirement a nice to have or a need to have? Most of the reasons
generally adduced for M&A mismarriages are people issues. Eg.
Incompatible cultures, loss of key talent, clash of management styles,
absence of HR at planning phase, etc. Having a specialist HR
consulting firm as part of the integration team is therefore critical.

Will they go or will they stay? Retaining top talent is a major challenge
for most businesses under any circumstance. Retaining key talent
while coping with the organizational upheaval wrought by a merger or
acquisition increases that challenge exponentially. Why this is a major
headache is twofold. Your people are your business. An organisation's
ability to deliver premium results is dependent on them having 'magic
people'. Secondly since business is largely relational, when people
leave, customers and other employees go with them. The key to
resolving this lies largely in preparing for it at the planning table.
People tend to leave more from the company being acquired, so steps
must be taken to identify and retain them. You will do well to conduct
a Talent Audit. The gains of this kind of audit is phenomenal if it is
planned and executed before or during due diligence stage. In the
wake of any merger or acquisition, specific retention strategies must
be employed.
And for these strategies to succeed, they must be based on
extensive organizational research conducted well in advance of the
transaction's close. Planning focused on identifying and retaining
the critical human assets being acquired begins in the earliest
phases of the acquisition planning.

How do we tell them? Because most M&As aim to maximize


corporate resources, it is sometimes inevitable that some people
have to be told to leave. The issue of separation is one of the
unpleasant responsibilities of the integration team. How do we
manage it? How should it be communicated and implemented such
that it doesn't become a bad publicity? Then what will it cost
financially, emotionally, loss of lead time, etc? Again we need a good
plan. Let the integration team do us a PowerPoint presentation of the
separation mechanism to be employed including cost implications;
specifically highlighting the 'moments of truth'; communication
strategy and strategic efforts aimed at helping the affected
employees mitigate the impact of the separation. This is easier said
than done.

Who will look after the honeycomb? To achieve the objectives of the
merger/acquisition, a new business model is usually a requirement.
Sometimes whole new business units are carved out so as to cash in
on the gains expected. The throbbing question, “Who will man the
specific strategic business groups”? Who are the magic people that
we require at the helms of certain special business units? And don't
worry the relative importance of a business unit is dependent on
company strategy and company's understanding of the industry and
the evolving trends.
Making this choice can be arduous; tasking the ability of
executive/integration teams to distance themselves from partisan
tendencies. It is important to always remember that the effect of poor
recruiting or placement is far reaching. It stifles creativity and
innovation; it sponsors mediocrity and puts a bar on the potentials of
the team. The rule is let the best man do it even if that person is from
the acquired organisation. And remember the best man is the one who
not only has the skill-set but also possesses the leadership ability to
carry more along; he should thus be the one who has the potential of
bringing maximum gain to the merged organisation's objectives for
the merger.

This troublesome process. Information Technology has some how over


the years taken up a central role in the business world. IT has now
become the hub of business. Therefore the integration of banks will be
the integration of IT. This is a headache of migraine proportions. It
even is enough reason not to acquire a company. There again needs to
be a well thought out plan for this. Identify differences in technologies.
Be clear on the customer-focused adaptabilities required. Be
courageous enough to discard obsolete but expensive existing
platforms. Considering the investment that has already been made
into IT and the focal point that it represents, a proper due diligence is a
minimum requirement.
Who will become Executive Director? Apart from the need to place
people in strategic positions there's a twin challenge that also has the
potential to ruin the best integration efforts. I call it 'Who will become
Executive Director' because that phrase helps capture the nature and
dimension of the challenge. M&As naturally result in bigger
organisations and this automatically brings a need for executive and
senior management restructuring. Coming with the restructuring is
the issue of executive compensation. I mean how are we to handle the
person who was the MD in a small concern who now becomes the ED in
a merged entity? How will his remuneration now be computed? This is
not to mention the new management nominees from new power blocs.

What will this thing cost? There are costs to every merger/acquisition;
even the marriage of individuals gulps money. How much will our own
integration cost? What are the cost elements? How do we achieve cost
savings? What is the nature of these cost are they one-off? Possible
cash elements are severance payouts to exiting staff, share price
related payouts, cost of IT integration, consultants fees that wont be
borne by CBN, whole re-branding efforts, etc. Other non-cash payouts
are emotional loss of staff, stress of the whole process, customer
relationship strain, etc
Whither goes the Mother Hen? Customers, for a myriad of reasons,
aren't comfortable with the turbulence associated with M&As.
Customers are asking questions. What will happen to my money? What
will happen to my investments? What would be the fate of the
personalised facilities that regularly come my way? It is important that
we also have a Branding and Communication plan. Communication
with customers must be clear, consistent and regular. Added to that is
a plan for managing customers accounts and request during the
integration. The loop will be closed successfully if we also have a plan
for cashing in on the emerging markets and possibilities eg. pension
funds, unified telecoms license, power sector reforms, private public
participation, etc. All these plans will be geared towards achieving
certain business results within the first 100 days.

Certainly this list isn't exhaustive. I mean no one should assume that
there aren't surgery-level problems as merging entities pry
unhinderedly into their colleagues financial books, finding out what
we have always known that the declared assets/liabilities may not
match up to reality. Though the integration of two entities will be
arduous, it is to be expected, and the success will depend on the
willingness of the power blocs to see it through.

Compiled: Oct 2005


aruosa@gettingajobisajob.com

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