“Happily ever after” takes people management

Everyone breathes a sigh of relief when the Definitive Agreement gets signed and two banks finalize their pact to merge. It’s natural, the agreement is the end of a long process.

During the months leading up to this point, the company CEOs have been duking it out on valuation, board seats, headquarters, and the like.

The buyer is ecstatic about the prospect of a bigger and mightier institution. The seller is cautiously optimistic that promises will be kept and that everyone will understand why this was in their best interest.

While this moment is a big milestone, it's only the beginning of a long journey.

Trust me—after 30 years in banking and eight acquisitions—I can assure you that the signing of the Definitive Agreement is one of the least onerous tasks that will need to be accomplished before the merger can be deemed "successful."

Trudging the road to M&A success

Success is typically defined by the obvious—changing the signs out front, getting costs out, converting systems, and doing all of this in a timely fashion. To me, however, real success should be measured more broadly. Real success is combining best practices from each bank to form a "new" and stronger culture that can better position the unified company for future growth.

This necessarily puts the focus on the people—the "who" responsible for getting all of the work done.

After all, for a company to survive the merger process and subsequently thrive as a single corporate entity, it is essential that the employees believe in the company, share in its core values … and commit 100% to making sure 1 + 1 = 3.

For community banks, this can present some distinct challenges:

• By definition, these banks are born and bred in their local communities.

• Employees are well known.

• Customers are their neighbors.

• The president and the board of directors are viewed as community pillars.

For these reasons, news of the bank’s sale is not typically met with welcome relief or optimistic enthusiasm.

Employees of the acquired bank have an adjustment period, and not just for the reasons you’d expect. Community banks have traditionally worked with leaner operating structures than their larger counterparts, resulting in a limited number of employees all being tasked with multiple things to do. Acquirees’ employees face pressure of doing their day jobs—which may have been revised—and merging two banks.

Stressful by definition, and much can fall through the cracks.

There’s another people issue too: Your top performers can become easy recruitment targets for your competition. The appeal of greener pastures can become even more alluring with news of the sale, make them easy flight risks. These are the individuals most vital for generating new business, driving revenues, and running day-to-day operations, so this risk must be mitigated.

Steps you can take

So what steps can community banks take to encourage their employees to stay engaged and committed to making the new company successful?

The recommendations that follow are well tested and maximize the probability that value will have been created following the merger:

1. Focus on communication with all of your key audiences.

From Day 1, the CEO of the unified entity needs to foster an internal sense of teamwork, collaboration, and collective excitement for the future. Employees from both companies will be nervous and anxious to know what the acquisition means for them. Managing expectations is critical.

This is a time when both teams are getting to know one another and gaining an appreciation for their respective cultures. Many assume that most community bank cultures are essentially the same. Yet there will always be subtle, yet significant, differences that could impede your consolidated strategies going forward.

The attitude of the buyer must be one of receptivity to new ideas, combining best practices, and avoiding a tone of "my way or the highway." This will require good listening skills, patience, and a measure of modesty. The resulting dialogue is necessary for the combined company to be built on a solid foundation.

• Talk to them, write to them. Finding routine opportunities to meet with the employees in a town hall meeting and/or social setting goes a long way. This should be supplemented with periodic written communications providing status updates and milestones achieved to date.

One caution: Written communications mysteriously find themselves into the hands of the competition, so beware. Rivals love to find out when you’re converting your systems—so they can pounce on you.

• Remember the outside world. External communications are equally as important and also need to be managed carefully. Clients of both banks, local charitable organizations and, let's not forget the press, are all important constituencies.

Your employees are your strongest brand ambassadors. If they are optimistic and excited about the future, that's the message that will be fostered in the community.

• Direct client outreach is imperative. If you don't engage with them, the competition will! Representatives from both banks should call all of your top retail and commercial clients. Supplementing this with a joint cocktail party will help solidify these relationships. Make sure that the new board and management attend, so folks can get to know everyone.

They will want to kick the tires.

• Charitable giving is typically an important component of the community bank's brand promise. So community organizations need to be shown some love as well. Including them in your social events goes a long way to symbolize that you view them as being as important as your other stakeholders.

• Pay attention to PR. Lastly, you need to make sure you have a well-oiled public relations plan. The spokespersons and CEOs at both banks need to be well scripted with 100% consistency in the messaging.

The top two questions will be: How many job losses will there be? What’s happening to the leadership team of the bank being acquired?

2. Provide some structure.

Given all that needs to be accomplished in a finite period, it is essential that roles and responsibilities are well defined and that all the moving parts come together in a timely and coordinated fashion.

To this end, a Merger Integration Infrastructure needs to be formed, with representatives from both institutions, led by the CEOs. At the highest level, create an Executive Committee, which should include the respective CEOs and designated members from the management teams. The committee members will be charged with ensuring the process stays on track as well as identifying and resolving any problems in a timely basis.

At the next level is the Merger Integration Support Team, which will ideally have between 10 and 15 members. These individuals are typically the managers of functional areas and possess decision-making authority. They, in turn, will form sub-teams that include the subject matter experts within that area. The sub-teams should have approved mission statements and goals so that outcomes can be measured against the goals.

A Project Office should be formed to track milestones against goals. There are several user-friendly software packages out there to perform this tracking function. This weekly report should be distributed to all of the team members so that unexpected issues can be identified and risks mitigated. Minutes of all meetings should be taken and outstanding items isolated and tracked.

While this seems like a lot of infrastructure dedicated to the integration process, it will be invaluable to keeping the employees engaged and the operation on track. The regulators will also view this level of detail in a favorable manner.

3. Put yourself in the employees' shoes.

A merger is a very stressful time for many reasons, but it is primarily due to the fact that—unless you are at the very top—the process is rife with uncertainty.

People don't like ambiguity.

The more the CEO and the HR department can manage expectations and demonstrate that the people selection process is being conducted in a thoughtful and fair manner, the happier and more productive the employees will be.

Here are some "must do's":

• Perform a thorough comparison of the respective salary, benefit, and bonus plans. Against the backdrop of cost considerations, the new plans must be competitive and easily communicated to your internal audience.

• Keep the best of both worlds. When deciding which positions will remain following the merger, make sure to retain your best performers at both institutions.

You want to cross-pollinate people from both companies, from the executive team on down, to promote best practices and avoid the appearance of favoritism.

It's also imperative that a disparate impact analysis be conducted to ensure job eliminations aren’t disproportionally represented by a single gender, race, or age demographic. To the extent you can, minimizing the impact to one geographic area is helpful also.

Again, managing employee expectations needs to be a top priority, so be as clear as possible regarding the expected timeframe of the job elimination process in relation to the broader merger and integration horizon.

• Put a hiring freeze in place at both companies, giving displaced employees the first opportunity to apply for any new positions. An internal database and application platform should be created for employees to become aware of and post for these jobs.

• “Stay bonuses” are a powerful tool for retaining critical employees, particularly through the systems conversion process. Once the merger is complete, stock grants can be awarded to encourage employee retention and motivate strong performance.

• Train, train, train! The biggest risk to a successful merger integration is when the employees joining from the acquired bank don't understand the products, the operational processes, or the new system in place.

Mitigating this doesn't happen overnight!

First and foremost, key members of the executive team and functional leaders should collaborate with the Human Resources department to prepare and distribute comprehensive training manuals. Then, to complement the training manuals, prepare a training “center” where new employees can go for in-person answers to their questions as well as hands-on systems and operational training.

Similarly, each of the acquired bank’s branches should have a “buddy branch” where they can direct their questions.

• Consider “trading places,” in a sense. To truly encourage integration, I advocate that the buyer bank’s branch managers be temporarily housed in the new branches once the conversion takes place so that best practices can be shared and issues can be resolved quickly.

Remember, customers have short attention spans, and they will have little patience for disruptions attributed to the merger.

The key to a successful bank merger rests with the employees that are charged with making it happen. These recommendations go a long way to fostering a spirit of trust, a commitment to the combined company and its success over the long term.

About the author

Former banker Peyton Patterson, subject of a “7 Questions” interview in late 2015—"Don't give away your bottom line"—heads Peyton R. Patterson Consulting. She has been in banking for over three decades, most recently at the top of two community banks—Bankwell Financial Group and NewAlliance Bancshares, both of Connecticut. Her career also includes posts with much larger institutions.