Our firm recently facilitated the successful merger of twocredit unions. One of the fundamental issues that we focused on wasthe ability of the post-merger team to quickly establish andmaintain productive working relationships with employees and themembers they serve. From the outset, it was critical to identifypeople-related risk factors as well as integration challenges andtheir value.

A Bain & Company survey of 250 global executives involved inmergers and acquisitions concluded that only three out of 10transactions created meaningful value for shareholders. Poorintegration was one of the major causes for these failed corporateunions. Harvard Business Review points out in its article “HumanDue Diligence” (April 2007), that if deal making ignores andunderestimates the significance of people issues, the results canbe a significant loss of talent after the merger, long-termattrition and lost market share (two-thirds of mergers lose marketshare in the first quarter after the merger is completed).

In a post-merged company, whether for a public company or acredit union, the creation of mutual trust, a shared vision andclear roles takes time to develop. Our goal throughout any mergerprocess is to focus on these critical cultural issues to ensurethat the proper foundation is set for future success as well as toensure that the merger stays on track and doesn't fall apart –based upon a lack of trust, fear of job losses, misunderstandings,poor planning or poor communication.

Additionally, identifying post-acquisition surprises isimportant. Most leaders focus so hard on nailing down the terms ofthe deal and hashing out the broad integration plan that they don'texpect the unexpected and don't proactively plan for contingencies.In managing two boards and two CEOs, what is required is clear,concise and frequent strategic communication. It is critical toreview how the cultures will mesh as well as how employees andmembers will view the merger. All these processes must beeffectively managed, through data gathering, assessments,validation, integrity, trust and listening to all parties involved.Continuous listening and acting on feedback that focuses on yourmembers and employees – while continuing to measure and monitorsatisfaction levels and watching operational indicators will helpto avoid surprises and increase chances for longer termsuccess.

The definition of roles and elimination of ambiguity helps toavoid unnecessary friction and distractions. Giving significantattention to the talent who will lead the enterprise begins theprocess of developing people who are engaged and can begindelivering accretive results plus trusting relationships.

In facilitating this credit union merger, confidentiality wascritical until the deal closed. Crisis communications work isvaluable and preparation for a leak is important. Consistency inall messaging, which focuses on value to the members is arequirement. Don't assume the member vote will be easy. Plan to winthe hearts and minds of employees first and they can becomeapostles for your members. Try to understand the culturaldifferences and similarities, and anticipate what these may meangoing forward.

As regulators are more risk-averse than ever before, confirm inadvance what is needed to approve a deal and assess feasibility ofproceeding upfront. Identify showstoppers and what is needed tomove the deal forward. Regulatory timeframes are a wild card, soyou need patience. Due diligence should include two to three yearsof exam results and ideally current exam results to help confirmboard and credit union management alignment. Understand the auditfirm's role in due diligence and positioning going forward.

Retain an independent third-party review of process, results,compliance, underlying philosophies that drive processes, systemsand performance. Hiring a third party accountable for programmanagement of all moving parts maintains equilibrium with theboards. Here's why hiring a third party is an important part ofthis process. A third party can manage the following processes:governance, election, CEOs, employees and regulatory as well as theFive Phases, all requiring a high degree of strategic communicationincluding Scoping, Due Diligence, the Deal, the Integration andSustainability.

Key deliverables in each of these categories are as follows:

Governance

Plan, facilitate and coordinate the delivery of due diligencedraft and final package from the accounting firm on time and onbudget. Conceive and implement a Transitional Governance Committeeto facilitate board engagement and communication. Identify andfacilitate closure of key human resources decisions. Position CEOsto exceed board expectations and achieve higher levels of Boardconfidence. Plan, facilitate and develop materials for Go/No Gomeeting of both boards. Develop collaborative way to create thefoundation for the new board. Build processes and criteria thatposition board to be a strategic asset to the CEO. Develop andmanage an enterprise risk management framework for thetransaction.

Election

Establish and facilitate information sharing that ensuressuccessful member engagement. Establish and facilitate campaign towin member elections. Provide strategic guidance on crisisplanning, messaging, member communications, employee communicationsand associated delivery plans.

CEOs

Provide strategic counsel to both CEOs on all aspects of thetransaction to ensure success. Provide leadership to teams andboard members in support of both CEOs' visions.

Employees

Serve as a strategic resource for the leadership teams. Buildteamwork and confidence across the two leadership teams to addressimplementation challenges. Work to anticipate future needs and beready when the CEOs are ready to begin next phase oftransaction.

Regulatory

Plan, facilitate and coordinate initial regulatory filings.Coordinate responses to all follow-up questions from regulators.Contingency planning for 30-, 45- and 60-day intervals forregulatory approval.

Our work included Five Phases as outlinedbelow, all requiring a high degree of strategic communication:

Scoping Phase – Significant planning with bothboards and their respective leadership teams to identify the rolethat the merger/acquisition would play in each institution'sfinancial growth as well as the cultural integration of bothentities.

Due Diligence – After signing a letter ofintent, an intense focus on due diligence occurs, involving thecollection and validation of critical data, which needs to bedeveloped carefully and strategically communicated to respectiveboards and leadership team with the highest degree of integrity byusing a reputable third-party auditing firm.

Deal Phase – Culture and human interactionsplay a significant role in the dynamics of the final negotiationsand can affect post-integration success. Agreements between bothboards and leadership teams required structured and expertfacilitation and communication. Focus was on identifyingorganizational values and cultural norms that need to be consideredin the Integration Phase. Throughout this process, it is criticalto ensure that nothing is missed and everyone is heard. High levelrequirements are scoped and various board merger teams are formedfor the Integration Phase to develop detailed plans and timelinesto ensure the merger's success.

Integration – Board merger teams are givenhigh-level guidelines for Integration and begin to work together ina facilitated process creating detailed timelines, formulatingformal strategic communication plans, highlighting requirements,defining roles and responsibilities for internal and externalimplementation, identifying merger documents for both state andfederal filings, identifying voting requirements for both boards.All of the following is strategically communicated. A specialmeeting of the shareowners/members is strategically framed andscripted to ensure a high level of clear communication and success.The leadership teams formulate a detailed operational plan thatincorporates systems integration, a change management planincluding roles and responsibilities in the new entity as well as astrategic communication plan that lays out the who, what, when,where and why of the merger.

Sustainability - Lastly, the integration isevaluated and adjustments are made to ensure the merger/acquisition stays intact and fosters the desired financial growthand cultural outcomes. This requires a high degree of trust andongoing strategic communication between both boards and leadershipteams.

Critical to success is using a Transitional Governance Committeewhich is valuable in building bridges and creating a common groundacross boards. When you are dealing with boards, remember thatpeople in credit unions have served their credit unions andcommunity as volunteers. In many cases, that commitment has definedthem professionally and as community leaders. Understanding theseconcepts will always drive the conversation towards a commitment tobe respectful to board members and their service.

Many merger discussions don't materialize. They are challengingand complex. But, we know that by focusing on all of the aboveissues, they can be accomplished quite effectively, for the greatergood of the membership.

Stuart R. Levine is chairman and CEO of Stuart Levine & AssociatesLLC, a strategy, leadership and governance consultingfirm.