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Making a Community Investment Can Save a Merger

Making a Community Investment Can Save a Merger

Pre-Planning Can Benefit the Post-Merger Company

BY PETER JAMES MacCRACKEN and PERI LYNN TURNBULL

Special to the Business Journal

Hewlett-Packard merged with Compaq in May and three months later announced an increased commitment to the Houston community, where Compaq was headquartered. Counterintuitive or smart business?

FleetBoston Financial Corp. merged with BankBoston in 1999. It won a Ron Brown award for corporate leadership after adopting many of its best community initiatives from BankBoston. Its customer loyalty is no coincidence.

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An increasing body of evidence shows that a company’s community involvement can affect its success or failure. Because “community investment” , community involvement designed to provide a business return , affects stakeholder relationships, it can materially contribute to a merger’s success or failure.

– Converging Trends

The growing importance of corporate citizenship to customers, employees, regulators, government and even shareholders is a key trend. If business learned one lesson from Enron and similar meltdowns, it is that reprehensible behavior is not justified by financial gain.

The second trend is the perception that mergers, while generally regarded as good for business, are not good for people. A Wirthlin Worldwide survey of 1,000 Americans in 1998 found that 42 percent thought mergers were good, and 37 percent thought they were bad. However, 76 percent said they are good for shareholders, while only 31 percent said they are good for employees (53 percent said they are bad for employees). This is particularly important since 70 percent thought the number of mergers would increase.

Other studies have also found that mergers are seen as detrimental to communities.

The third trend is new and subtle. Some companies link (or closely follow) merger announcements with commitments of equal or even enhanced CI activities. Those, like HP, are making CI work for them to gain support for a merger or the post-merger company.

– Community Donation Vs. Community Investment

Donations are heart-driven. CI is business-strategy-driven. And it is CI that can help a merger succeed. Four components make the difference:

– Being strategic in what you do and with whom;

– Being proactive in reaching out to appropriate issues and partners;

– Linking CI to business goals and objectives; and

– Handling it like any other business function, which includes measuring success.

The strategy for success is relating initiatives to stakeholders and their interests.

Obvious stakeholders are customers and employees. However, there are more stakeholder groups that want to have a say (and impact) than ever before.

Part of this is due to transparency, part to increased activism and part to increased access. CI’s value is that it can sway stakeholders whose opposition or support can make the difference.

– Case Study: From Failure to Success

An example of how to do it right is the creation of Sempra Energy. Enova Corp., the parent of San Diego Gas & Electric, sought to merge with Pacific Enterprises, the parent of Southern California Gas Co. The proposal came a decade after an attempted acquisition of SDG & E; by Southern California Edison failed miserably.

The difference? The acquisition attempt was foiled by San Diego community leaders (led by what then was known as the Greater San Diego Chamber of Commerce), which didn’t want to lose a local company and its community support.

The merger, on the other hand, was positioned to benefit the San Diego community with the post-merger company to be headquartered in San Diego.

A commitment to increasing charitable contributions was even contained in the corporate statement of principles that guided future business policies. The merger was broadly supported and completed in June 1998. The result is Sempra Energy, a Fortune 500 company whose CI activities have indeed increased significantly.

– How To Manage CI During A Merger

The more pre-merger CI planning, the more benefit to the post-merger company. Ideally, companies would include CI representatives in the early planning sessions.

Chase Manhattan, after announcing its merger with Chemical Bank, surveyed 350 not-for-profits and community leaders to solicit input for use in post-merger planning.

Communicate early and often. Begin with employees, then ripple out to other stakeholders. Communicate with the not-for-profits that may be affected so they can plan for their future. Hiding the ball will engender very bad feelings for the post-merger company.

Ideally, form a CI transition team. This would include representatives from both companies to identify synergies, conduct a strategic review, reduce overlap, and even come up with fresh insights and approaches.

Consider maintaining existing commitments, even if the new headquarters is in another community. When Honeywell International, based in Minnesota, merged with AlliedSignal, based in New Jersey, the CEO immediately pledged to fund not-for-profits in Minneapolis for the rest of the year. This continued after the headquarters moved to New Jersey, Honeywell still has a presence there.

Mergers are difficult and any chance to maximize success is critical. Miss a beat and the result can be failure.

Focusing on CI can be a big success factor and doing it right can give a post-merger company a much better chance of succeeding. What is that worth?

MacCracken is principal of Strategic Communications, a public relations consultancy. Turnbull works for the San Diego City Schools and previously was with the Conference Board of Canada.

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