ACE INSTITUTE OF MANAGEMENT New Baneswor, Kathmandu, Nepal

Case Study III

"THE BANK MERGER"

Submitted to : Mr. Jayendra Rimal

Instructor, Human Resource Management

Submitted by: Ananta Mallik

EMBA, Second Semester

Date: 22nd July 2011 1. Evaluate the bank's approach to implementing the merger. Previously also Northeaster Bank & Trust Co. had gone through mergers with smaller banks, which usually didnt have any centralized operating or administrative functions. Not a single employee had lost their job. A short orientation program was organized to inform employees of the merged company about benefits, policies and procedures. In this merger, Northeastern bank (NB) in order to implement the merger first had a meeting of its CEO, Vice-president of Human Resources, Vice-president of Operations and President in order to decide what course of actions should be taken for pre and post merger of the two banks. They discussed how they should handle the situation as lot of displacement of the staff could be seen the mergers. Northeastern bank though was used to mergers the case of this particular merger with First Bank & Trust (FB) was a challenge to them as First bank was relatively larger bank with 83 branches in 38 cities and had 1,857 employees. So, the main concern of NB was regarding human resource management in this merger. The Presidents and Vice-presidents still had to convince their board and shareholders for the merger's approval. In addition to the internal meeting and discussions, the NB had a formal meeting with the members of the First Bank & Trust and formed three steering committees to look into different aspect of the merger. The first committee, The Business Planning Committee, was given the responsibility to compare bank products, made pricing decisions, and decided how to handle the transition period and how to phase in the merger. The committee developed a one-year profit plan and a three year business plan for both the banks. The second committee, The Operations Committee developed a detailed work plans to operationally merge the banks and dealt with the procedures of the conversion of loans, deposits, check processing and other operational activities. The third committee, The Human Resource Steering Committee, was given the responsibility to develop strategy for implementing human resource policies, practices, and procedures for placing employees whose jobs might be eliminated in other positions.

Ananta Mallik, EMBA 2nd Semester; Human Resource Management, Case Study III : Bank Merger

Apart from the committees formed the basic approach of NB was to consolidate as many positions as possible and try to absorb and maintain possible number of employees. Vice president of Human Resource, Jack Ramsey was convinced that the issue of managing people would be difficult in this merger and opined that in order to make this merger a success there should be a good communication between the management and the staffs so as to negate the effects of rumours that are bound to take place in such scenarios. Furthermore, the NB was keen on capitalizing geographical proximity and similar culture of First Bank & Trust to business development plan. 2. Are there human resource issues other than those listed by the Human

Resource Steering Committee that emerge when two companies merge?

Major concerns of Human Resource management during merger have been recommended by the Human Resource Steering Committee. The Committee identified following issues: 1. Staff reductions and transfers 2. Maintaining productivity during transition period. 3. Communication flow to employees to minimise unwarranted rumours 4. Socialising employees to Northeastern's culture and philosophy 5. Designing appropriate training programmes 6. Balancing affirmative action goals 7. Managing communication. 8. HRD programs to overcome deficiencies and capacity building. Analysing the organizational culture between the two companies, First Bank was a heavy personal and real state lender (45% in personal and real estate loan) where as NB is a big commercial lender (35% in corporate loan). Moreover, though the First Bank is relatively small bank as compared to NB, but its RoA (Return on Assets) and RoE (Return on Equity) is better than NB. Hence they seem to be more aggressive. In other word there

Ananta Mallik, EMBA 2nd Semester; Human Resource Management, Case Study III : Bank Merger

might be some working culture difference between the two banks. This difference in working culture may create some ambiguities during merger process. While looking at the issues pointed out by the HR Committee, the issues regarding the trainings and consultations of the NB's present employees seems to be neglected. For instance the HR Committee completely neglects training managers on the nature of change. The present mangers of NB should be qualified to handle situations which are bound to arise when mergers happens. The new set of employees with their different mentality and work culture might not be able to gel in well with the other staffs of NB. This can create polarisation among the staffs. Groupism might occur which will have adverse effect on the productivity and reputation of the bank. Apart from socialising FB employees to NB's culture and philosophy, stress reduction programs should also be introduced. Major structural and cultural changes which arise during mergers cause stress, anger, disorientation and confusion among the staffs. The uncertainty and these negative emotions drastically hamper the performance and morale of the staffs and in turn affect their commitment and productivity. Likewise introducing FB's employees to NB's cultural and philosophy alone is not sufficient, the staffs might also get "cultural shock" due to new environment. So, programs for stress reduction should be added by HR Committee. Similarly, in order to make the transition caused by the merger agreeable to all, anonymous helpline for employees can be introduced by the HR Committee. In addition, NB being larger and more successful than the FB, the employees of NB might have superiority complex. Training and consultations of the employees are required to avoid such tendency. The present employees of NB should also be taught to adjust to the changed environment brought about by the merger. Likewise the HR Committee has not developed any programme on team building exercises. The meetings between the counter parts are not mentioned. This kind of programmes will help staffs of both the banks to mingle with one other. This will creates a bond of camaraderie among them which in turn will make the working environment better.

Ananta Mallik, EMBA 2nd Semester; Human Resource Management, Case Study III : Bank Merger

HR Committee has not thought about helping people who will lose their jobs in this merger. As per the recommendation of the Business Planning Committee, 20% of the FB's employees will be losing their job i.e. 375 individuals. But no planning has been done in this regard. In mergers one of the challenges is to provide an amicable exit for the employees. In some cases the company itself might look for the alternative work for those employees while in other cases they will be suitably compensated through monetary means. But the HR Committee has failed to address this issue and in future this might cause a serious problem to the NB's management. So, to sum up much more is required to be done by the HR Committee in order to provide appropriate environment for the merger to take place. 3. Do you agree with Ramsey's comment that a successful merger is 10

percent planning and 90 percent communication? Why or why not?

Yes, I do agree with Ramsey's comment that a successful merger is 10% planning and 90% communication. Communication during merger is very important. During mergers there is an environment of uncertainty among the workers. The fear of losing job in the employees is most prominent leading to high stress level. The staffs will get restless if there is sparse communication from the top level management. The communication aspect is very important and should be handled carefully by the human resource department. The communication should be sufficient enough to answer the queries and worries of the employees. It should provide precise information to the employees, regarding company's polices, job security, job expectations etc. during mergers. If communication is not done at an apt pace then some unwarranted rumours are bound to spread. If these rumours are in lieu with lay off of the employees then they will get demotivated to work, will get agitated and will be prone to unnecessary tensions. The combined effect of these will be detrimental to the work output of the employees and this in turn will hamper the productivity and reputation of the company.

Ananta Mallik, EMBA 2nd Semester; Human Resource Management, Case Study III : Bank Merger

Likewise, in some cases there can be turnover of talented Human Resource as they want to avoid uncertainty regarding the future prospect of the company and the profitably of keeping this job. And being talented they are bound to get jobs in other reputed companies. So in order to avoid such rumours to circulate there should be a high level of communication between the company and its employees during the merger. Utmost importance should be given to avoid the effects of rumours through clear, precise, quick and transparent communication. In the case of merger of Northeastern Bank and First Bank, the rumour that high layoff was in the offering created panic among the staffs. This was evident with the number of phone calls received by the assistant of Ramsey, Ed Flanders. The staffs wanted to know what needed to be done to be able to keep their jobs. As the Bank did not communicate earlier regarding the percentage of layoff being suggested by the Business Planning Committee and was not able to handle the situation in time, panic like situation was created which is not good for the productivity as well as the reputation of the Bank. 4. Develop a plan of action for handling the projected labour surplus. What

factors need to be considered?

Various factors need to be considered in order to handle the projected 20% of the labour surplus. A detailed plan of action comprising all the necessary requirements need to developed. If the procedure of the lay-off is not properly coordinated then the bank might have to face lawsuits and would be dragged into unwarranted legal wrangling. following plan can help a smooth layoff process: i) Prepare a layoff list The

In order to deal with the lay-offs the company should first prepare a list of probable staffs that might get dismissed. The list should contain all the necessary information regarding that personnel for instance their current designation, educational qualification, skill based trainings, age, gender, experience, their performance evaluation sheets, etc. Once the entire

Ananta Mallik, EMBA 2nd Semester; Human Resource Management, Case Study III : Bank Merger

database is developed, the HR Committee can discuss whom to retain and whom to terminate as per the required job specification and job analysis. ii) Provision of law

The merger should be in accordance with the company's policies and the legal requirements. No prejudiced decisions should be taken which can drag the company into legal law-suit by the terminated staffs. Supporting documentation for all decisions need to be prepared. Furthermore the selection process should be unbiased, professional, and fast paced. The bank's selection criteria must reflect new requirements in management and leadership behavior and competencies. Though candidates from the main bank i.e. NB should be first in line for positions in the new company, in order to prevent any complications it is better to follow a selection principle which uses the concept of "best of both worlds". This will help to retain the key talents in merging entities and hence gain the commitment of the employees. This process will also motivate the staff to perform better and the formation of Groupism of the staffs of both the banks can be avoided. iii) Communication Plan

It is important to come up with a strategic communication plan that indentifies the groups who need to be informed of the layoffs. A plan should then be put into timeline which communicates to minimize personal impact. Sensitivity of the message conveyed and the timing of the communication is critical in minimizing personal impacts on all employees. iv) Transitional help for lay off employee

A transitional plan, for those being let go, needs to be developed. This should include a beneficial package which can include outplacement services and pay for and extended period of time after separation. A good severance package can ease the burden and help make a positive transition for laid off employees.

Ananta Mallik, EMBA 2nd Semester; Human Resource Management, Case Study III : Bank Merger

The bank can also look for alternative job placement for these staffs in other organisations. They should also be given first preference if new job requirement arises. v) Pay attention to those who remain

After planning for the outgoing employees, concentrate on those employees who will remain in the company. Continuous and factual communication should be made to these employees. Honestly is always the best policy. Engage the remaining employees in helping to identify ways to reduce costs in other areas of the organization. Companys vision about the future should be shared and should be encouraged to achieve it. Lastly, the company should provide various trainings and consultations to the employees who are retained to make them able to cope with the new working environment.

5. How should the Human Resource Steering Committee handle the needed staff reduction in the Trust Centre?
The staff reduction in the Trust Centre should be handled with care. In the Trust Centre as per the recommendation of the Business Planning Committee, 30 percent of the employees are to be laid-off. This is beyond the adjustment they can do through normal turnover and attrition. (First Bank's turnover is 10% while that of Northeastern is below 10%). This is a new situation for Northeastern Bank as in all of their previous mergers no employees had lost their jobs. Now Ramsey, the Vice-president of the Human resources of the Northeastern Bank has to send-off 30% of the Trust Centre employees. HR Committee in this case too should prepare the list of the personnel in this Centre with detailed information, past key performance indicators (KPI) etc. On the basis of the collected information, the HR can decide whom to retain and whom to lay-off. This also should be done as per the legal requirements and the company's existing policies. Moreover, they need to be more transparent while handling the staff reduction. The decisions made shall be biasfree, based on legal and ethical ground and the same message

Ananta Mallik, EMBA 2nd Semester; Human Resource Management, Case Study III : Bank Merger

shall be communicated to the Trust Centre staff as well. They need to create very friendly and trustful environment beside conducting stress release exercise/training/consultations, announcing special benefit packages for volunteer retirement etc. The termination process should be handled in such a way that the employee would remain friend of the company in future; otherwise there might be negative consequences as well. Exit interviews can be conducted to show some concern for future of the employee. They should be assured that if in future with suitable vacant positions they will be given more priority than taking new employees. Employees should be provided with handsome benefits and good recommendations.

If there is lack of personnel in HR department, outsourcing can also be an option so that termination process can handle in more professional and smooth manner.

Ananta Mallik, EMBA 2nd Semester; Human Resource Management, Case Study III : Bank Merger