Advice is always easier to give than take.
That has certainly been the case for William M. Mercer Inc. and A. Foster Higgins & Co. Inc., two consulting firms that specialize in guiding clients through mergers.
The Los Angeles offices of the two firms which collectively have 200 professionals and 250 clients are learning first-hand how difficult merging can be.
Their respective parent companies, Marsh & McLennan Co. Inc. and Johnson & Higgins, are merging, and that has led to widespread disruptions and adjustments.
“As consultants, we are certainly well equipped to understand the acquisition process, but concerns naturally remain as it becomes a reality for us,” said Glenn Meister, a Foster Higgins principle who now heads the health and welfare division at Mercer. “Most of the employees have the attitude to wait and see what happens next.”
The “what happens next” pitfall is usually the first to arise in a merger or acquisition, and it was the first that Mercer and Foster Higgins fell into.
Senior executives at both L.A. offices commented on the slow decision-making process at the New York corporate offices.
Joe Salzillo, former Western regional manager for Foster Higgins and now a principle at Mercer, said the merger deal (announced March 12) closed quickly (March 27), but no decisions regarding the logistics of the merger were made until June.
“I understand that our parent corporations had to work through the decisions at their own pace,” said Roy Gonella, head of Mercer’s Los Angeles office. “But as we tell our clients, you need to answer employees’ and clients’ questions as fast as possible to control the concern that a merger causes.”
Immediate questions, of course, arise about the number of office closures and layoffs. Mercer usually advises its clients to merge office facilities quickly in order to start physically building a merged corporate identity.
But in its own case, the process has been gradual. The consolidation at Mercer’s downtown location began in June and will continue until December, when Foster Higgins’ Century City office will close.
While Meister agreed that a swift consolidation of offices is usually crucial to a smooth merger, he said that in this case, the slow pace may have been advantageous for Foster Higgins.
“Perhaps to some degree, the fact that the move from Century City has not been overnight has been good,” Meister said. “The slow pace has let Foster Higgins people adjust and phase in.”
But employees were not the only group the merging companies had to deal with.
Their clients, understandably, questioned how the merger would affect them.
And one immediate complication was that several clients of the two human resource firms posed conflict-of-interest concerns. For example, one company was advising a union group and the other was advising management. In another case, one company was working with an HMO and the other was advising a company using that HMO.
“Our first action in dealing with a conflict of interest has been immediate full disclosure to our clients about our new alliance,” said Meister. “We tell them what is going on and give them the opportunity to change consultants. No one has acted on it.”
To avoid an internal conflict of interest, senior management imposes gag orders on consulting teams in certain cases.
“What we determined is that if we create ‘Chinese fire walls,’ we ensure that there is no communication between consultants that would compromise the case,” Gonella said. “These walls have been effective so far.”
While Gonella sees the differing corporate philosophies as blending relatively smoothly, Meister has a different viewpoint.
“We as the acquiree had to plug into the Mercer culture, since there was no way for Mercer to fit in with Foster Higgins’ operation,” he said. “While Mercer would like to think that some of the attributes of our smaller company will be preserved in the new organization such as quick decision making it’s not realistic.”
However, most of the Foster Higgins professionals entered the newly merged company on a parallel senior level, meaning their influence will be felt in the merged company.
“The merger has been eased by having several Foster Higgins employees in key roles none of whom were cut off at the knees, so to speak,” Meister said.
Mercer executives are pleased that they retained almost all of the L.A. Foster Higgins people, a good indication that the merger will proceed smoothly. Only two consultants from Foster Higgins and one from Mercer left, citing the merger as a main but not sole reason for leaving.
“Mergers fail when key people from the firm you acquire leave, since you’re acquiring the people more than anything else,” Gonella said. “But we made key people in Foster Higgins integral to the group and the planning process, and have been able to keep them.”
While no consultants were laid off, eight administrative positions were cut due to redundancy a modest layoff in a merger of this size. Only a few more administrative workers will be let go in December when the Century City office closes.