An industry white paper asked why there is so much gloom anddoom about credit union mergers.

“So what if less than 10% of credit unions will have less than$100 million in assets 20 years from now?” the white paper'sauthors wrote. “The industry is experiencing the biggest boom inits history in terms of assets and members, but to hear someindividuals within the industry talk about it, you would think thatwe were two decades from suffering the same fate as the savings andloan industry.”

The authors argue the industry can shed the merger negativityonce and for all by finding the right merger partners, doing thingsdifferently, getting employee buy in and communicating withmembers.

The 67-page white paper, “An Old Foundation Anchors a RenovatedStructure: Perceptions and Realities Surround Credit UnionMergers,” was released earlier this year by a team of third-yearstudents at the Southeast CUNA Management School program. They areNathan Clough of the $248 million WinSouth Credit Union in Gadsden,Ala., Kim Gunter of the $146 million Bowater Employees Credit Unionin Calhoun, Tenn., Ryan Hawk of the $311 million Peach StateFederal Credit Union in Lawrenceville, Ga., and Billy Joiner of the$146 million Centric Federal Credit Union in West Monroe, La.

Though the rhetoric about the industry's consolidation isnegative, the quantitative data among members is quite theopposite.

For example, the white paper contained groundbreaking researchconducted by CUNA, which found members had positive views of theircredit union merger.

For example, 89% of members said they were very satisfied orsomewhat satisfied with their credit union since a merger.Fifty-six percent of members also agreed or somewhat agreed thattheir access to products and services increased post-merger and 65%agreed or somewhat agreed that their access to modern features suchas mobile banking, remote deposit capture, online banking andshared branching also increased after the merger.

After reviewing reams of industry research, media articles andconducting interviews with CEOs and other credit unionprofessionals, the white paper authors offered four recommendationsthey think could help the industry change its perceptions ofmergers from negative to a positive.

The Right Merger Partner Matters

While this may seem to be an obvious recommendation, finding theright merger partner is particularly important for consolidationsthat involve both credit unions with assets of more than $100million.

“There are times when an institution merges a credit union thatis so small that the potential impact of any unforeseen challengesis negligible,” the authors wrote. “In these cases, it obviouslydoesn't make sense to invest vast amounts of money into rigidanalysis. However, any merger that involves one or moreinstitutions that collectively account for more than approximately10% of an institution's current assets should be given anappropriate level of consideration.”

For example, when two credit unions are exploring a merger theyshouldn't share the same weaknesses.

“Finding an institution that possesses a dissimilar set ofstrengths and weakness is important, but this is not always easy toidentify as both institutions may have weaknesses that don't showup on a balance,” the authors wrote. “This is another reason thatacquiring institutions should procure the aid of an unbiased groupto conduct third-party organizational evaluations of all involvedparties. There are no mulligans when it comes to consolidations.They either get done effectively or they don't and the implicationsare momentous either way.”

Glenn Christensen, owner of the CEO Advisory Group in Kent,Wash., said too often credit unions assume it's acceptable to mergewith the credit union down the street or because the two CEOs aregolfing buddies and assume a consolidation would naturallywork.

“Often times you want to look for similarities in some of thesofter parts of the organization such as the values, the cultureand the strategy to make sure they're aligned,” Christensen said.“Then on the hard stuff, the financials, the products, theservices, the technologies, the branching and other operations youwould want to look for the differences that can lead toimprovements as a result of the consolidation. It's critical thatyou look to shore up in those areas that you're not strong in.”

In Christensen's experience, however, many mergers fall throughbecause credit unions are simply not prepared to merge whenapproached or miss an opportunity to execute a strategicmerger.

He thinks a critical piece that is missing for many creditunions is a merger readiness plan, which requires the managementteam and the board to have honest talks in their strategic planningsessions about what kind of credit unions they would like to mergeinto when approached.

While it may be somewhat easier to develop a merger readinessplan for credit unions that aims to grow through consolidations,the discussions about being the acquired credit union can be morechallenging.

“To think about and discuss what happens to us in the event yourcredit union is acquired, what happens to the board, the managers,other leaders and employees in the organization – that's not a fundiscussion to have,” he explained.Nevertheless, Christensen saidit's a very important discussion to have because more credit unionsare looking at mergers as a strategic way to grow.

Doing Things Differently

To counter the negative perceptions of mergers, credit unionsmust be willing to try things that haven't been done on a largescale previously.

For example, in some cases, credit unions should considermaintaining the name and brand of the credit union that is beingmerged, the white paper authors suggested.

When the $55 million White House Federal Credit Union mergedinto the $408 million Department of Commerce Federal Credit Unionlast year, Evan Clark, president/CEO of the DOCFCU, said he wouldessentially keep the White House Federal Credit Union name with aslight name change, and its brand.

“We're going to change the name from White House Federal CreditUnion to White House Credit Union, but we're going to keep thebrand because it is a very sexy brand,” he said. “People who workat the White House like to use the White House Credit Union creditcard and checking account.”

Though this model would not make sense when a large credit unionabsorbs a very small cooperative, keeping the name and brand couldwork when the credit union being merged accounts for 10% or more ofthe surviving credit union or when the merged credit union has avery strong name and brand recognition within the communities itserves.

“Changes to the merged credit union's branding could be assubtle as adding 'a division of AB Credit Union to its logo andmarketing efforts,'” the white paper's authors wrote. “Anynecessary changes to the merged credit union's core or peripheralsystems could be framed as an internal change rather than a productof the takeover.”

Getting Employee Buy In

Research showed employees who were updated early and oftenduring the merger process were 9% less stressed, 6% more likely toremain with the company, 14% more satisfied and 22% less uncertainabout the future, according to the white paper.

What Christensen has seen work at some credit unions is that inaddition to top executives, board members from both credit unionsshould be involved when the announcement of the merger is announcedto employees.

Employee response from the acquired credit union is typicallyfavorable because they feel it's more of a partnership than atakeover.

“This is certainly one of the things that I've seen work very,very well in just setting the stage for communications,” he said.“Employees are very appreciative for it.”

What's more, employees innately want to feel like they are partof something bigger than themselves, and they want to feel as ifthey had a hand in achieving a corporate goal.

In relation to mergers, the credit unions should form a mergerteam that includes an employee from every level of the credit unionthat is involved in the merger process.

In addition to being a touchpoint for other employees, teammembers can also communicate updates on the merger progress. Teamemployees can also inform executives of merger-related issues thatmay have been overlooked.

Communicating With Members

Members are why credit unions exist. Research also showsregularly communicating with members through all channels (letters,emails, social media, text blasts, mobile alerts, branch flyers,etc.) about a merger is essential to maximize member retention,according to the white paper's authors.

At a minimum, merger communication should include informationabout any potential changes that will take place to memberaccounts. Mergers often involve core processing changes for themerged credit union that usually involve at least some variationsin account processing in addition to changes to platforms such asonline, mobile and audio banking.

“These changes must be communicated effectively in order to saveoff frustrations stemming from members' confusion,” the white paperauthors wrote. “Providing members with informative material allowsthem to pre-plan for the coming changes and serves to make themodifications less impactful. These changes should be as often aspossible framed as upgrades and enhancements in order to gain thebuy in of the merged members.”