A Merger of Equals

Perhaps the most challenging merger involves two CUs of similar size.

August 1, 2012

The $1.5 billion asset Lake Trust Credit Union, Lansing, Mich., opened its doors on April 1, 2010.

It was the result of a merger between $850 million asset NuUnion Credit Union of Lansing and $750 million asset Detroit Edison Credit Union.

Steve Winninger assumed the CEO duties of Lake Trust, and Bill Thiess served as president. Winninger had been CEO of NuUnion and Thiess was CEO of Detroit Edison.

They both retired nearly two years after the merger, turning over the reins to David Snodgrass.

Mergers of credit unions, especially those of relatively equal size, can be difficult because the partners often struggle with leadership, governance, and cultural issues. What follows is Winninger’s description of how he and Thiess, along with their boards and staff, grappled with these issues during their merger.

Focus

♦ Expect doubts, conflict, and personal biases to surface as the merger process unfolds.

♦ Plan for operational efficiencies in the newly merged CU. They won’t happen automatically. 

♦ Board focus: Communicate early and often to guide members, board, management, and staff through a merger.

Credit unions larger than $1 billion in assets tend to be more efficient than smaller ones, according to industry research and the principle of economies of scale.

Achieving greater operational efficiency certainly was an impetus as my credit union—NuUnion Credit Union—considered merger partners. When Detroit Edison Credit Union, of near-equal size, emerged as a candidate, I thought about the terrific opportunity to improve value to our members and—with three years before my retirement—the legacy I could leave.

Bill Thiess, Detroit Edison’s CEO, thought it could be a good fit and was willing to talk. Before discussing the merger possibility, Bill and I had researched the same industry data about economies of scale. We knew there was merit to exploring this further, and discussed this research at our first face-to-face meeting.

Bill and I knew of each other, but we didn’t know each other well. Early on, we decided that if we were going to do this, we might consider retiring at the same time because we’re about the same age. We could oversee the integration of our two credit unions and then provide for an orderly transition of leadership.

After a couple of conversations, we resolved three tough questions:

1. Who will be the new CEO?
2. Who will make up the new board?
3. What will be the new corporate name?

The plan we presented to our boards included:

► Splitting the president and CEO duties between us;

► Joining our nine-member boards so they could decide the correct board size of the merged credit union;

► Selecting the name “Lake Trust,” which Detroit Edison already had chosen before any merger conversation took place. Bill offered to postpone the announcement of this new name for his credit union in case we decided to use it for the merged credit union.

Instead of blending the best practices from both organizations, we would design a new organization from the ground up—one built on current and not historical needs.

Our formula became A + B = C; we didn’t want to create a bigger A or a bigger B. This strategy reinforced our decision to retire at the same time, which would preclude the new credit union from slipping back to one culture or the other.

NEXT: Moving forward



Moving forward

The board approved the plan, and we formed a transition group committee to move forward. The committee included the board chairman, vice chairman, and one other board member from both credit unions along with the two CEOs.

The committee agreed to keep its proceedings confidential and met off-site to discuss whether or not a merger really made sense and, if so, what the new organization might look like.

Knowing that efficiencies could result wasn’t enough—we had to have a plan for actuallyrealizing these efficiences. The committee quickly developed mutual trust and synergy. We started our discussions around a mutually agreed upon vision and set of values.

From there, we built a foundation that would support us as we addressed more sensitive issues. And we did have more sensitive issues—board structure, a governance model, and a process for evaluating staff talent and competencies.

  What is Policy Governance?

Policy Governance® is a model of governance designed to empower boards of directors to fulfill their obligation of accountability for the organizations they govern. The model, developed by Dr. John Carver, helps the board:

♦ Focus on the larger issues;

♦ Delegate with clarity;

♦ Control management’s job without meddling;

♦ Evaluate the accomplishment of the organization; and

♦ Truly lead its organization.

Policy Governance separates issues of organizational purpose (ends) from all other organizational issues (means), placing primary importance on those ends. Boards follow 10 integrated principles that enable accountable board leadership, according to the International Policy Governance Association.

For more information, visit policygovernance.com or policygovernanceassociation.org.

Directors who weren’t on the transition group committee had to trust their committee colleagues to communicate progress and keep everyone informed.

We developed detailed plans for the accounting analysis that helped us decide which charter to collapse. As the merger process unfolded, we brought other managers into the analysis to plan for due diligence.

During almost 20 years of leading our respective organizations, Bill and I had developed different management styles, so we expected major adjustments for our staff and for us.

Our challenge was to manage ensuing conflict while keeping momentum moving forward.

Not surprising, we experienced moments of doubt, which our staff reflected as well. We learned that the merger process required not only mutual trust but the ability to be flexible and agile.

Basically, Bill and I had to renegotiate nearly everything. We continually asked ourselves: Were the disruptions and compromises worth the benefits to members? In retrospect, we believe they were.

The expertise of our combined management teams helped us understand what we had and what we needed for the new organization. The transition group committee went through every board policy and determined what to keep.

We adopted the Policy Governance® model based on the needs of a larger organization, the clarity and efficiency that comes with it, and the fact that NuUnion had 10 years of experience working with it. We reviewed and scaled each policy to fit the needs of Lake Trust Credit Union. 

During the process, we realized the need for an impartial third party to mediate some important issues. So we hired Susan Mitchell, CEO of Mitchell, Stankovic, and Associates—experts in organizational development and coaching for performance.

Susan helped us resolve our personal biases, because Bill and I weren’t that familiar with each other’s organization. She had no former connection to either credit union. We also retained Laura Huggler, Ph.D., an external consultant who had advised NuUnion for many years.

  NEXT: Focus on the future



Focus on the future

Bill and I were determined to build an organization based on tomorrow’s needs instead of trying to combine the best of both former organizations.

We ruled out operating as distinct organizations as some credit unions do. Instead, we developed a precise process to define expectations of each management position focusing on functions, not people.

We interviewed all members of the management team, and selected the new team based on the best choices for leading the newly restructured organization with a true member focus. We looked at ways to develop employees’ careers. We gave all employees equal chances, and we gave them the tools they needed to succeed.

We wanted to position Lake Trust with a long-term, strategic, organizational structure within two years that would lead to a smooth leadership transition when we retired. We made the tough decisions together and we believe we met that goal with the help of external consultants, internal champions, and a supportive board.

As planning progressed, I began to question the value of the trade-off. A group of NuUnion members who were opposed to the merger formed a campaign to stop it, and they were nearly successful.

At a special membership meeting, the final vote was very close, but the merger initiative prevailed. We knew we would experience some staffing changes, so we wanted to move as quickly as possible through the transition. 

It was challenging to implement a decision that affected so many members, staff, and the future of our credit unions. Of course, it was a board decision to move forward, but I knew I’d be on the front line.

Our accountant said something early in the process that really stuck with me: “If you don’t see the efficiencies you expected after two years, you’ve missed the big decisions.”

Bill and I were determined not to let that happen as we experienced painful staffing changes and difficult conversions. We couldn’t deal with every former vendor, and some stressful conversations and hard decisions followed.

Laura, our consultant, coached employees throughout the merger.

“Mergers can be difficult,” she reminded us. “Employees at all levels have to relinquish professional life as they knew it under their former organization. This massive change stirs up powerful feelings in a lot of people. Excitement and hope for a bright future are part of this, but there’s also resistance to change, disappointment, and anxiety about what the future might look like. All of these feelings are perfectly normal and can be anticipated.”

The door opens

On the first effective day of the merger, two important elements were in place:

1. Our combined board approved a full set of policies for the credit union. Those policies provided targets and boundaries. They clarified the roles of management and our board so we could move through the integration phase more efficiently. The policies also set the stage for future growth.

2. A complete, restructured management team. 

As part of the application process, we had to submit a five-year financial plan to our regulators. Only two years after the merger, we determined we were running a couple of years ahead of the plan. This confirmed we were finding the efficiencies we knew were there but were difficult to implement.

In a recent email, Bill wrote how “keeping the eye on the prize,” along with the confidence and trust we had developed in each other, made success possible. 

“Looking back, the decision to merge was absolutely correct,” he wrote, “and though I knew it would be difficult, the implementation was far more difficult than expected. But the rewards have been far greater than imagined.”

Resource

♦ CUNA’s Guide to Mergers: cuna.org, select “education & training”

Laura described the merger as “our finest hour.” Susan told me the project was her most successful organizational development plan she’s ever been involved with. But it all would have been impossible without the support of our respective boards, executive teams, and staff.

Now, several months into our retirements, Bill and I are proud of the successful launch of Lake Trust Credit Union.

We met our goal of creating more value for our members. We left Lake Trust in good shape and ready for the new leadership team to take it to higher levels.

 STEVE WINNINGER retired as CEO of Lake Trust Credit Union and now provides consulting services to boards and CEOs through the Michigan Credit Union League.