Five Key Questions Credit Union Leaders Should Ask Themselves Before Making a Merger Decision

By Tom Glatt, Jr.

Mergers seem to be a plank in the strategic plans of almost every credit union I’ve worked with lately. Whether to merge is an important strategic decision requiring a significant amount of deliberation and debate. While much of any discussion on mergers will be unique to the credit union doing the talking, a few important considerations are common to every credit union contemplating a merger:

1: What is the real benefit I expect to gain from merging?

Defining a clear statement regarding merger benefits will help separate relevant, well- reasoned motivations from those that are irrelevant and misguided. Answering this question also helps spur the identification of acceptable merger trade-offs. For example, if a credit union’s leadership believes greater cost savings/efficiencies can be gained by partnering with another credit union, yet these same leaders find they are mentally unwilling to trim their own excess staff, then they have potentially limited the scale of savings a merger will bring and ultimately limited the expected merger benefits.

2: Who will make the financial decisions in the merged credit unions?

If credit union leaders are (truthfully) unwilling to cede final decisions to anyone else then they know what to communicate to potential merger partners in terms of the working relationship. Too often mergers happen with a vague agreement on decision- making, which is fine so long as the merged team does not have to confront any contentious issues. Once an issue pops up, however, the unstated expectations with regard to who makes the final decisions can become a bigger problem than the issue itself. While this is more often a problem confronting mergers of equals, acquisition-style merger scenarios are not immune to unstated decision driver expectations.

3: What level of process flexibility/change will I truly tolerate?

Credit unions are often proud of the way they have set up their business processes, workflows, etc. Too often, however, what credit union leaders think is the best way to do something may actually have room for improvement. When confronted with challenges to process status-quo, as often happens during a merger, leaders get defensive and change-averse – but only because of pride. Considering how process changes will be discussed and tolerated will help prepare credit union leadership for the inevitable challenge to existing processes made by a merger partner.

4: How will I assimilate different work cultures?

“Culture” is not always easily identifiable. Culture emerges from how we live, the decisions we make, our experiences, etc. In other words, we are living in it, not observing it from the outside so it is hard for us to objectively understand the elements that comprise our culture. Credit union leaders looking to merge should step outside of

their culture, as best they can, to determine what truly defines the culture of their organization. Once an objective understanding of the culture is developed, leaders can then begin identifying the elements of culture that must be preserved, as well as those elements that can (and perhaps should) change.

Once critical cultural elements have been clearly defined, credit union leaders can work to identify the means for assimilating “large volumes” of people into the credit union’s culture with minimal negative impact (I quote “large volumes” because presumably a merger would bring the biggest influx of new people at one time – even if the total number of new people are few).

5: Will I be honest with myself regarding results?

More often than not mergers fail to deliver the expected benefit, so credit union leaders began to change their expectations, in real time, both during and after a merger. This simply serves to continue diluting the benefits of the merger, in some cases leading to credit unions doing worse than if they had stayed independent. Credit union leaders who challenge themselves to truthfully evaluate the performance of a merged organization will be better positioned to identify and address merger sticking points early on – whether these points be culture, process, misunderstandings, or something else entirely.

Why is answering these questions important?

I have done a very basic study on the health of merged credit unions using the HealthScore system Glatt Consulting created. In all but a few scenarios, merged credit unions possess lower scores than the individual credit unions possessed pre-merger. This suggests to me that the unknowns related to the five questions above were never properly explored. In these situations, cultural incompatibilities, opaque decision-making responsibilities, shifting success metrics, lack of adaptability to change (or even a resistance to change) all conspire to undermine merger success.

If your credit union is contemplating a merger, whether as an acquiring credit union or an acquired, take time to really understand your motivations and expectations. Absent such clarity, your decisions to merge will be based on your best guess – hardly a proper way to represent the best interests of your membership.

Tom Glatt Jr

Tom Glatt Jr

Tom Glatt, Jr. is founder of Glatt Consulting, a credit union consulting firm specializing in strategy consulting for credit union leaders. Tom applies his 19 years’ experience in the credit ... Web: Details