By Rick Hall, Managing Director of the Banking and Financial Services Practice, BKM Marketing
With federal regulators becoming more receptive to large deals, bank merger approvals have sped up under the Trump administration. Although the anticipated merger activity volume has slowed relative to early 2019 projections, the fact remains that attention to detail in the execution of these combinations has never been more important. As the landscape resets to now include larger combinations, the financial rationale is dependent upon combining institutions exploring and addressing the needs of all constituents impacted by these mergers.
Anyone who has been involved in merger management realizes that successful execution is complex, time-consuming, and often tricky. The reality is that success starts with employees. While deposit bases, branch networks, loan quality, and regulatory expense management remain at the heart of combination due diligence, banks still require sufficient talent to generate deposits, make loans, and effectively manage internal processes.
The rise of artificial intelligence and software improvements offer more digital connections than ever, but banking remains a highly interactive industry. The staff of a bank is vital to its success, as customers want to know they’re working with good people. That’s why banks must keep their employees top of mind during mergers to ensure a smooth transition.
Why employees in mergers matter
As common as mergers have become, not all of them are as successful as projected. Recent studies have found that several deals have yielded less-than-favorable results in the past few years due to negative employee reactions and unanticipated turnover. When bank leaders fail to prepare their staff to manage change, negative fallout can result.
A merger of two community banks in late 2018 had the potential for problems. While both banks effectively doubled in size, their corporate cultures were dramatically different. One was inclusive and transparent, and the other was purely top-down with a need-to-know management style. We worked with the leadership teams to come together with a shared message to employees of both banks. Without that, both sets of employees and customers could have experienced unnecessary turnover before the ink was dry on the deal.
We’ve all heard the adage that it costs three to six times more to acquire a new customer than to keep an existing one. While the simplified view for an acquiring institution is improved yields, lower cost deposits, profitable loans, new markets, and competitive leverage, the customers who bring those benefits to the acquirer often identify less with a brand and more with the people.
Mergers bring massive changes, so bank leaders need to use the best change management approach to help their employees understand what’s happening and how they fit into the picture. When employees learn about upcoming mergers, their first reactions are highly personal. They wonder what will happen to their careers and families.
The way leaders address those concerns dictates how peers, customers, and other constituencies view the merger. Nothing digs a hole faster than silence or noncommittal answers from management when employees and others have questions. Assuaging staffers’ fears will help them better manage the change and reassure customers who have concerns.
Preparing for an employee-first merger
Although mergers call certain aspects of business into doubt, they also create new opportunities. Leaders need to communicate those positives truthfully and completely to ensure employees do not start looking for employment elsewhere.
- Communicate before employees develop assumptions.
Once word on a new bank merger gets out, rumors about job security are inevitable. Thus, immediate and clear communication around upcoming changes and expectations with your employees is necessary.
When regional banking giants BB&T and SunTrust Banks announced in February that they would be merging to become the sixth largest bank in the United States, the banks’ CEOs didn’t waste any time letting employees know that they were valued.
Management clearly understood the importance of assuaging employees’ fears about possibly losing their jobs. BB&T Chairman and CEO Kelly King and SunTrust Banks Chairman and CEO Bill Rogers assured job security for the high-performing associates who work directly with clients.
- Implement merger management teams.
With record numbers of mergers occurring, a panel of industry leaders at Bank of America Merrill Lynch’s 2018 Growth Summit in Dallas cautioned audiences against flying through the process without proper preparation. Panel members advised bank leaders to create management teams to act as the face of the organization and control the narrative during the merger.
These central groups should remain available to answer employee questions and provide support following a merger announcement. The goal of the merger management teams is to help staff understand the new business direction and keep things moving while remaining as transparent as possible.
- Create employee advocacy channels.
Technology conversions and customer communication remain vital to the merger process, but employee advocacy shows workers that their livelihood matters.
Keep in mind that the intent here is not limited to HR functions and training. Expand the outreach to include communication teams, regular employee forums, and outbound requests for questions from the merger management team. Mergers should be more like two-way conversations rather than top-down directives.
- Resolve inconsistencies together.
Employees should not hear one thing and experience another. I recently observed two community banks in a single market merger where branches overlapped and staff became redundant. Opportunities for new efficiencies arose, but employees remained fearful of their futures.
To address the issue, bank leaders invited select employees from both institutions to talk about the merger. The two sides discussed what the employee population wanted to know and how to best communicate that information. As a result, leaders at both banks were engaged and ready to help employees prepare for a potentially scary period of change.
- Keep employees in the loop about decisions as they are being made.
All too often, leadership fails to realize that while they might be working in real time, most personnel isn’t. Employees are doing their jobs and taking care of the company and customers. So it’s important that as decisions are made about the company and the merger, information is communicated and then recommunicated to employees as appropriate.
This isn’t about regurgitating the same email over and over — it’s about building a hierarchy of what is important for personnel to grasp and reinforce it. It’s easy for memos and emails to be missed or glossed over by busy employees, so make sure important information is making it through the clutter to the people who need to know.
Effective communication in one merger
For leaders who see mergers occur all the time, these operations feel like routine conversions. Employees see things differently. To them, mergers have everything to do with their careers. When banks fail to consider the importance of employee communications during these times, they invite the fear of the unknown even when the merger offers plenty of positives.
While recent research has predicted that the mergers uptick experienced in 2018 will continue through 2019, participants in the merger market should realize that each deal is different and a laser focus is needed for every one. The merger market in the United States is one of the most bullish in the world. As more banks seek advantageous combinations, leaders at those institutions must keep their employees in mind and address their concerns first — or risk entering a period of change with a disengaged and unhappy workforce.