What Acquiring Banks Can Learn from the Mongols

As most students of history would attest, the Mongols were perhaps the most successful conquerors of all time. At one point they controlled the landmass that ran from Poland to Korea and from northern Russia to Damascus. In some areas, their rule spanned over 700 years.

There’s no doubt that one of the main reasons for their success with their military prowess. They were the equivalent of today’s armored cavalry. Their primary fighting mode was as horse-mounted archers and by the age of four Mongol boys and girls could not only ride bareback but also stand. Their basic sustenance was what they could hunt and even their “booze”, Kumis, was fermented mare’s milk, produced as their armies moved. Unlike their enemies, they didn’t have to worry about a supply line and because their sustenance was primarily protein-based, they weren’t as sluggish as many of their enemies whose primary food was carbohydrate-based.

So what does all this have to do with acquiring banks? Perhaps the single most important reason for their success, was not the fact that they conquered so many peoples and empires but rather how they conquered others. The single most important aspect of their conquering style was that they honored and embraced the ways, customs, food, language and other aspects of those they conquered. While they might have killed off the king, most of the leaders of those they conquered were kept in positions of power and authority. By doing so, not only did they create great loyalty among the leadership, but also among the masses.

My firm has been working with banks and bankers for a quarter-century. We have had clients acquire other banks as well as be acquired by other banks, and occasionally we are on both sides of the equation. Based on our very consistent experience and observations, acquiring banks could learn a lot from the Mongols.

When the initial announcement is made the message to the customers and the employees is virtually always the same: “Nothing will change and, if it does, it will only be for the better”. While these lofty words are always designed to allay the fears of both groups, when the dust settles, and reality actually sets in, it’s usually a very different picture.

We have observed a very consistent pattern in these transactions. While the senior management of the acquiring bank articulates a welcoming and embracing message, when the “rubber meets the road” the picture is quite different. Often middle-management seems to go out of their way to ignore and denigrate their counterparts at the acquired bank. Some of this behavior may be subconscious self-preservation. While the pecking order at the top is well-established when it transaction is announced, those in power at the acquiring bank may be consciously or unconsciously worried about their new counterparts. As a result, their counterparts at the acquired bank can be ignored and made to feel like stepchildren, with the implicit message being “We acquired your bank, so nothing that you do can be as valuable or smart as what we do”. While senior management might recoil in repugnance if they were aware of this attitude, often they are insulated from the reality of the dynamics of the acquisition.

So, what can the acquiring bank due to mitigate the demoralizing and destructive behavior that often sets in after the announcement? Here are some specific tactical suggestions.

In a nutshell, the three key fundamental actions are: Plan, Communicate and Communicate. The repetition is not by accident.

Plan

Every bank acquisition includes the formation of an implementation team that is charged with the planning and execution of all of the issues attendant to combining banks. Most of the planning process seems to focus on the issues of systems integration, financial and regulatory issues, and identifying redundant systems as well as personnel. While the foregoing issues are all critically important, little attention is paid to measuring the impact on the employees and customers of the acquired bank.

Ideally, the transition team should focus on and perhaps have a subcommittee dedicated to this issue. If not dealt with effectively, the combined bank will lose people that it wants to keep, and, in many cases, accounts follow.

Communicate

This first iteration of communication is the communication to both the employees as well as the customers of the acquired bank. We have talked to countless employees of the “conquered” bank who feel that they are completely in the dark. They generally feel that they are completely “out of the loop”, that they get most of their information from the rumor mill and, in many respects, they are just waiting for the ax to fall. The great irony here is that the cost to actually communicate with these associates is zero, yet the cost of noncommunication can be immeasurable.

One situation that can exacerbate this lack of communication is the insecurity on the part of middle-management to which I referred above. In most bureaucracies, and banks are no exceptions, insecurity tends to be the mother’s milk of bad decisions and reasonably good decisions poorly implemented. The hallmark of a good manager is when he or she identifies, cultivates, and develops direct reports who have the talent and drive to replace them in a heartbeat. When managers are insecure, this really happens. Senior management should go out of its way to encourage the next level of management to always be developing their potential replacements.

Communicate

This second iteration of communication involves proactively seeking feedback from employees as well as customers of the acquired bank, and truly listening to what they hear. Banks, like all bureaucracies, tend to have the “ivory tower syndrome” that insulates senior management from reality. The larger the bank, the bigger this insularity becomes. The transition team should have a very formalized process of seeking and memorializing feedback from a cross-section of employees from the acquired bank. Not only will very important issues be brought to light, but the message that is given to those employees is invaluable. This message of “We care, we listen and we take what you tell us seriously”, is an example of where actions speak so much louder than words.

A corollary and just as important solicitation of feedback should be from the customers who always leave as a result of the transition. Even when the transition is executed with perfection, some customers will eventually leave. For this issue, I’m less concerned about the retail customers who come and go all the time versus the commercial customers, primarily business banking and middle-market, who represent the backbone of the bank’s deposit and loan base. We also know that the cost, real or perceived, in time and aggravation, for a business to change banks is so great that many businesses will put up with considerable pain before pulling the plug.

While many banks would consider this a best practice under any circumstances, it would be especially important to talk to business customers who choose to leave after an acquisition. Gaining insight from those businesses that leave the bank soon after the acquisition can help the bank fine-tune its post-acquisition behavior to help prevent future attrition.

The Proof

At this point, I will stipulate that there are banks who have acquired others with very few problems and whose execution has been almost problem-free. We have seen bankers who have anticipated and prevented many of the problems described above, but generally, acquisitions become very problematic creating erosion of morale as well as customer base.

How do we know this? My firm develops commercial opportunities for banks by reaching out to business owners and CFOs who are open to exploring an alternative banking relationship, often out of frustration and disappointment with their current bank. We prosecute campaigns for banks of all asset ranges in all parts of the country and, by far, the most fertile circumstances for creating quality appointments is targeting, through UCCs, the customers of banks being acquired. There is an initial spike of interest created by anxiety about the future, followed by actual frustration and disappointment when reality sets in.

One might suggest that the tactical advice offered above is just common sense, not rocket science. While very true, there are far more banks that stumble through acquisitions than sail through them. If your bank is going through an acquisition, or plans to do it in the future, hopefully, the foregoing may help prevent losing key employees and the customers and often follow. Sometimes the best advice is the simplest and most obvious.