I wrote last year about the potential pitfalls that might await those banks that were hoping to pick up bargains on the cheap after their competitors had crashed. Most of the value of these acquisitions comes from the skills and connections of the people that come with them. Culture clashes, that occur to a degree after most mergers, can therefore pose huge problems for the acquiring firm as it tries to integrate its new employees and prevent them from leaving and draining the new acquisition of its value.
Nomura, it seems, is already experiencing such problems after it acquired some of Lehman’s business last autumn. The FT’s Lina Saigol describes:
… tensions, culture clashes and misunderstandings as Nomura, the Japanese bank, tries to integrate the Asian and London operations of Lehman that it bought when the US investment bank failed.
The takeover cost Nomura a small fortune, including guaranteed bonus payments to ensure that the senior Lehman bankers stayed, which contributed to its biggest ever loss, announced last week.
As Lina Saigol says:
The clash of styles between Lehman’s self-motivated, fee-generating bankers and their conservative counterparts at Nomura can at times resemble a badly-dubbed film, with lip movements out of sync with the words.
Integration pains are nothing new in banking mergers – just look at the tensions between Bank of America and Merrill Lynch. However, when culture clashes start to translate into lost revenue and higher costs, they become a big problem.
As it happens, I was out drinking with a friend of mine from Nomura last week. He was a bit more blunt.
The arrogance of the Lehman’s people is unbelievable. They don’t believe they did anything wrong or that they are in any way responsible for their bank failing. They’d all be out of work if it wasn’t for us, yet they swagger about as if they have taken over Nomura rather than the other way round.
After hubris comes nemesis. At least, that’s what’s supposed to happen, only the Lehman’s people haven’t noticed.
Culture clashes like this don’t just erode the value of the acquisition. They can have a disastrous impact on the staff at the acquiring company too. If people feel that they are being demeaned by arrogant incomers and that the cost of bringing them in has put their own jobs under threat, the fall in morale can seriously damage the productivity of previously well functioning teams.
If the Lehman bankers walk away after qualifying for their guaranteed bonuses, Nomura could find its plans to build a global investment bank in ruins and its own staff thoroughly pissed off into the bargain.
As Merck’s CEO Dick Clark once said, “Culture eats strategy for lunch.” Nomura’s bosses might be about to find out what he meant.