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 andmembers. From the outset, it was critical to identifypeople-related risk factors as well as integration challenges andtheir value.

A Bain & Co. 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.

In a post-merged company, whether for a public company or acredit union, the creation of mutual trust, a shared vision andclear roles take 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 basedupon a lack of trust, fear of job losses, misunderstandings, poorplanning 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. Consistency in all messaging, whichfocuses on value to the members is a requirement. Don't assume themember vote will be easy. Plan to win the hearts and minds ofemployees first, and they can become apostles for your members. Tryto understand the cultural differences and similarities, andanticipate what these may mean.

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 management alignment. Understand the audit firm's role indue 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 category are outlined below.

Governance. Plan, facilitate and coordinate thedelivery of due diligence draft and final package from theaccounting firm on time and on budget. Conceive and implement atransitional governance committee to facilitate board engagementand communication. Identify and facilitate closure of key humanresources decisions. Position CEOs to exceed board expectations andachieve higher levels of board confidence. Plan, facilitate anddevelop materials for go/no go meeting of both boards. Developcollaborative way to create the foundation for the new board. Buildprocesses and criteria that position board to be a strategic assetto the CEO. Develop and manage an enterprise risk managementframework for the transaction.

Election. Establish and facilitate informationsharing that ensures successful member engagement. Establish andfacilitate campaign to win member elections. Provide strategicguidance on crisis planning, messaging, member communications,employee communications and associated delivery plans.

CEOs. Provide strategic counsel to both CEOs onall aspects of the transaction to ensure success. Provideleadership to teams and board members in support of both CEOs'visions.

Employees. Serve as a strategic resource forthe leadership teams. Build teamwork and confidence across the twoleadership teams to address implementation challenges. Work toanticipate future needs and be ready when the CEOs are ready tobegin next phase of transaction.

Regulatory. Plan, facilitate and coordinateinitial regulatory filings. Coordinate responses to all follow-upquestions from regulators. Contingency planning for 30-, 45- and60-day intervals for regulatory approval.

Our work included five phases as outlined below, all requiring ahigh degree of strategic communication. 

Scoping. Significant planning with both boardsand their respective leadership teams to identify the role that themerger/acquisition would play in each institution's financialgrowth as well as the cultural integration of both entities.

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. Culture and human interactions play a significant role inthe dynamics of the final negotiations and can affectpost-integration success. Agreements between both boards andleadership teams required structured and expert facilitation andcommunication. Focus was on identifying organizational values andcultural norms that need to be considered in the integration phase.Throughout this process, it is critical to ensure that nothing ismissed and everyone is heard. High level requirements are scopedand various board merger teams are formed for the integration phaseto develop detailed plans and timelines to ensure the merger'ssuccess.

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/acquisitionstays intact and fosters the desired financial growth and culturaloutcomes. This requires a high degree of trust and ongoingstrategic communication between both boards and leadershipteams.

Critical to success is using a transitional governancecommittee, which is valuable in building bridges and creating acommon ground across boards. When you are dealing with boards,remember that people in credit unions have served their creditunions and community as volunteers. In many cases, that commitmenthas defined them professionally and as community leaders.Understanding these concepts will always drive the conversationtoward a commitment to be respectful to board members and theirservice.

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/CEO of Stuart Levine &Associates Contact 516-465-0800 or stuartlevine.com