A LOT has been written about merging cultures when mergingcompanies. Most of what has been written has fallen on deaf ears.Merging cultures is difficult. Just think about your most recentholiday spent with a house full of relatives!

Historians attribute the success of the Roman Empire in part tothe successful merging of conquered cultures into Roman culture.Those aspects of conquered cultures that the Romans did not findobjectionable, they maintained for centuries. Those they objectedto, they largely obliterated.

In a corporate merger, of course, no party is officially“conquered.” Without a conqueror, who decides which cultureprevails? People cling tightly to their own culture. For a mergerto succeed, however, one culture must develop or prevail overothers. Unilever, the food and consumer-products giant, still hastwo of almost everything after merging 74 years ago and is nowfeeling the pain of its sprawling structure (“Despite Revamp,Unwieldy Unilever Falls Behind Rivals,” by Deborah Ball, The WallStreet Journal, Jan. 3, 2005, p. A1).

Insurance agencies have no room for multiple company managementstrategies, employment policies, compensation scales, investmentphilosophies and so forth. That hasn't kept some agencies fromtrying to succeed with multiple cultures, but try is the key word.When merging agencies, carefully consider the following areas oftension:

Staying in trust

Many agencies merge to create economies of scale. Indeed,economies are usually necessary so loans required for the mergercan be repaid. Most often, agencies repay merger-related loans bytaking money from the owners' compensation. Some owners find thisunacceptable and instead raid the agency's trust account. Such anagency might be paying its companies on time, but if it's spendingits clients' money, the agency is out of trust (which is defined ashaving a “cash + accounts receivable/accounts payable” ratio ofless than 1.0).

Some agency owners have no problem with being out of trust,while others are adamantly against it. From a cultural perspective,an agency can have only one philosophy on this. (My strongrecommendation is to always stay in trust, no matter what.)

Investments and spending

Money is often a contentious topic in mergers. For example, itis not unusual to see an agency that spends heavily onentertainment merge with a more frugal agency. Even when anentertainment expense is legitimate, a frugal person may havedifficulty believing it is necessary. Unless the results of theexpense are outstanding, this is likely to lead to considerableproblems. One partner may declare, “My share of the profits willnot be diminished by your extravagance!” Such differences must beaddressed early. For different spending strategies to coexist, acompromise must be worked out in advance. For instance,compensation, travel, auto and entertainment expense money can beconsolidated so that everyone receives a certain percentage and canspend it however they desire.

Investment strategies should also be worked out in advance. Willprofits remain in the agency to support future growth, newproducers, education, etc., or will they be distributed ascompensation or bonuses? A difference in philosophy here not onlyaffects how agency profits are used but has tax implications aswell.

Sales culture

Trouble is sure to brew when an agency with a poor sales culturemerges with one that has a good sales culture. Compensation is aparticularly contentious area. Should reactive producers, whomostly just service business or have business handed to them, makethe same as proactive producers? An agency is likely to lose goodproducers if this question is not fairly and intelligently answeredbefore the merger. A good sales culture is difficult to develop; ifone agency has it, that culture should probably dominate the mergedorganization. This sounds logical, but the other agency may find ita hard pill to swallow.

A good way to ruin a sales culture, a merger or even just apartnership is for an owner to take credit for sales that arereally “house” accounts. In smaller agencies this does not reallymatter, because the owner gets paid the same either way (as long asno one else gets credit for these accounts either). But the mathchanges in a merger. If one owner is credited with “house”accounts, everyone recognizes that the owner is being paid onaccounts for which he or she has done no work-and this means lessmoney for everyone else. This issue must be resolved fairly andequitably upfront, before it festers and ruins an agency'sfuture.

Procedures culture

Whose procedures will a merged agency follow? A common cause ofE&O claims is lack of uniform procedures after a merger. I haveseen agencies follow inconsistent procedures for years after amerger because they didn't want to hurt anyone's feelings. Just asthe conquered in ancient Rome had to play by Rome's rules, mergedagencies must have just one set of procedures. Merging proceduresis key to successfully merging cultures, because procedures are atthe heart of an agency. When an agency follows a certain processfor many years, the process becomes part of the agency culture.

A merger actually provides an opportunity for the merged agencyto improve its procedures by taking the best from each of thepredecessor agencies. The best way to merge procedures is toevaluate the separate procedures one at a time, involving the staffin the process, and deciding what goes and what stays. When thekept procedures are incorporated into a new manual, the mergedentity will no longer have an ABC Agency way and an XYZ Agencyway.

The merger of agencies is very much like the joining together ofdifferent families to celebrate the holidays. Each family has itsown traditions, and those traditions must be merged carefully andthoughtfully to ensure future harmony.

Chris Burand is president of Burand & Associates LLC, an agencyconsulting firm. Readers may contact Chris at (719) 485-3868 or bye-mail at [email protected].