The marriage between the London Boroughs of Camden and Islington is off. Announced in September as a cure for both boroughs’ budget headaches, it has now been firmly filed in the ‘too difficult’ box. The decision to cancel the merger has been blamed on personality clashes at senior level but the Guardian’s Jane Dudman reckons it has more to do with the deep cultural differences between the organisations. This, she says, is not just a problem for Camden and Islington; any consolidation in local government will run up against the same barrier.
People who have never worked in a local authority often assume that they are pretty much the same as each other. On the surface they are. They all do similar things and have similar terms and conditions. Culturally, though, they can be as different from each other as private sector organisations and those attempting council mergers ignore this at their peril.
I have noted before that mergers in the private sector usually take place in a spirit of gung-ho enthusiasm as the advocates stress the similarities and ‘synergies’ between the two companies. But when the mergers go pear-shaped, it is almost always culture that gets the blame.
M&A consultants will tell you that an enormously high percentage of mergers fail (well they would, wouldn’t they?) but the academic evidence actually bears this out. Even the most conservative estimates reckon that 50 percent of mergers fail to create any additional value. That is because integrating organisations is a hell of a lot more difficult than it looks. It often defeats even the best business brains.
But at least private sector organisations become single legal entities when they merge. As if integrating organisations were not a big enough problem, councils would have the additional complication of still having to maintain two (or more) legal entities, together with their structures and elected representatives. Only an act of parliament can legally merge councils so any merger would always have a temporary feel, no matter how good the integration of operating structures and corporate cultures.
Fortunately for the people of Camden and Islington, the managers at the respective boroughs realised this before ploughing ahead with their merger. All too often in the corporate world, the potential pitfalls of mergers are ignored as senior executives go all out for the power, glory and interviews in the Financial Times. Luckily that didn’t happen in north London’s local authorities.
It doesn’t mean it won’t happen anywhere else though. Westminster, Kensington & Chelsea and Hammersmith & Fulham are still planning to go ahead with their merger. Integrating these three huge operations under a single chief executive and management team will be a colossal task. There is a massive cost to all mergers. Reorganisations usually take longer and require more resources than people think and there is always a post-merger performance dip until the new organisation settles down. Then of course, there are the redundancy costs on top of that.
None of this is to say that council mergers are destined to fail. There is a chance that some might work. But the corporate world is strewn with the wreckage of failed mergers and the potential pitfalls are even greater for local authorities than for private corporations. Councils see mergers as a way of saving a lot of money quickly. The evidence from the commercial world, though, suggests that they have, at most, a 50-50 chance of success. Add to that the complications specific to local authorities and the lack of merger experience among their managers and they begin to look like very high-risk bets. The councillors and local authority executives pushing for mergers might be held up as courageous iconoclasts now but, in a few years time, they might end up looking simply naive.