The culture of mergers

10-Jul-2014

By Wouter Klijn

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Most superannuation funds will have more than one go at finding the right partner to merge with.

And when merger discussions don’t progress, their failure is often blamed on poor cultural fit.

Culture is an important factor in determining the success of a merger and its influence is increasingly understood, but culture is also a sensitive word.

Ever since Franz Boas and Bronislaw Malinowski launched the social science of cultural anthropology in the late 19th century, academics have argued about a definition of the term and they continue to do so to this day.

Besides the difficulty in pinning down what culture is, the use of the term in a professional environment can also be frowned upon by hard-nosed executives.

Yet, the underlying idea of a shared set of values, ideas, concepts and rules of behaviour that allows organisations to function and prosper is intuitively understood by almost all funds, Transform director Chris Dvoracek says.

“Funds understand the importance of it, although they might not use the word ‘culture’,” Dvoracek says in an interview with theinstoreport.

“Often it translates into [phrases such as]: ‘How we do things around here?’”

“People say: ‘Why didn’t [the merger] work? Well, we were just not on the same page’, or ‘We don’t do things the same way.’

Dvoracek has advised some of the largest super funds in Australia on how to facilitate mergers by taking culture into account and establishing detailed communication plans towards all stakeholders in a merger.

Transform worked on the recent merger between First State Super and Health Super, the merger between AustralianSuper and Westscheme in 2011 and Cbus and Connect Super in 2010, to name just a few.

Getting staff to embrace a merger is often facilitated by operating transparently and consistently throughout the process, Dvoracek says.

“The most important aspect to communicating successfully with staff is to be timely and transparent,” she says.

“For instance, you want to tell them ahead of the media, but at the same time manage the risk of a leak.

“You also want to advise early of possible scenarios, even if you don’t know exactly how the merger will play out.

“By that I mean to be prepared to answer questions from the time that a memorandum of understanding or heads of agreement is signed.”

Sometimes the final outcome of a merger process is not yet fully formulated, but she says it is better to give timely updates than to hold off on communication.

“You can always communicate timing and process steps even if you don’t know all the details until the due diligence process has been completed and the merger agreement has been signed,” she says.

“It is also better to communicate possible outcomes than nothing at all.

“It’s worse to delay communication and leave a vacuum. That is asking the rumour mill to fill the gap and you risk disruption to business continuity and staff turnover.”

Before establishing Transform in 2003, Dvoracek was with Mercer Human Resource Consulting as head of the Australian communications practice.

There, she was accountable for delivering superannuation communications solutions for the Mercer Master Trust, industry funds, corporate funds and other funds.

Industry fund mergers are different than mergers in other sectors, she says, because the member-first ethos is still quite strong.

“I think the shared value of being ‘all for members’ often smooths the way for industry fund mergers,” she says.

“Of course, industry funds that merge often have facets of the fund membership in common and that’s why they merge.

“For example, with Westscheme and AustralianSuper it was that the West Australian division of AustralianSuper and Westscheme merged to create the Westscheme division, which had a strong WA identity and was still serviced out of WA.

“With First Super it was a case of the Timber Industry Super Scheme, Pulp & Paper Workers Fund and First Super being connected by the supply chain – from timber workers to pulp and paper to furniture.

“With Connect Super and Cbus it was about members being in related industry sectors that seemed to be a natural fit – Cbus being primarily construction and building and Connect Super being the electrical contracting and communications industries.

“With First State Super and Health Super there was a natural connection with First State Super having a large segment of members in the healthcare sector plus membership drawn from other ‘caring’ professions, such as teaching, emergency services and the like, plus both funds shared a public sector history.”

She also points out sharing stakeholders often facilitates mergers.

“It can also make it easier for funds to merge when the same trustee directors or union representatives sit on both boards,” she says.

“For example, with First Super, the CFMEU (Construction, Forestry, Mining and Energy Union) was represented on all three funds boards.

“Similarly, with Cbus and Connect, the employer sponsor ETU (Electrical Trade Union) and CEPU (Communications, Electrical and Plumbing Union) came out in favour of the merger and that can help reassure members and pave the way.

“It certainly helps if you get the board composition of the merged fund sorted out early as this can be a sticky issue that has caused prospective mergers to fall over.

“This can be easier if the sponsoring organisations – union or employer bodies – already have representation across the existing boards of the funds proposing to merge.”

She says having a consistent message towards all stakeholders about the rationale of a merger is important too.

“It is important that everyone has the same messages, so whether a board member is talking to a union, or a field officer is on the phone with a major employer, they’re all saying exactly the same,” she says.

Structuring the announcement process is often a matter of military precision, she says.

“The whole sequencing of events in a process is quite important,” she says.

“I’ve worked with clients who had a rollout plan, where it is sequenced down to half an hour, 15-minute intervals, stating what happened at every moment.

“For instance, at this point there will be a phone call with such-and-such and then we will tell staff and then we do this and then we will release the media release.

“You can have a plan with 100 lines on it.”

Looking ahead, Dvoracek is careful in her forecast of future mergers in the super industry, as she is well aware some funds are adamant about their independence.

“We’ve seen a little bit of a slowing [of merger activity] to some extent, but you would think that with all the legislative drivers towards legislation there would be more,” she says.

“But we are also working for a number of smaller and medium-sized funds and they are quite committed to exist as a stand-alone fund.”

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