12 minutes
Understanding goals and strategy leads to a smoother transition for staff and members.
When British Columbia’s Prospera Credit Union and Westminster Savings merged at the beginning of 2020, the new organization’s executives looked for a secret ingredient to make the merger work—love.
“We had our credit union’s culture team develop workshops that we called The L.O.V.E Workshops, which stands for Living Our Values Everyday. Just the name was really popular with employees,” says Terence J. (TJ) Schmaltz, chief people and legal officer of $6.9 billion Prospera CU, which serves 116,600 members and is based in Surrey, British Columbia.
“The content was simple. Present our values, talk about how we can live these values within each work team or department every day and how can we incorporate them into our work more and more,” he says. “The workshops were facilitated by peers from within our organization, instead of having some outside human resources expert talking about ‘our own’ values.”
Calling the sessions The L.O.V.E Workshops helped get employees’ attention. “We wanted people to be interested, curious and engaged. We wanted them to say to each other, ‘Have you done your Love Workshop yet?’” Schmaltz says.
What’s love got to do with it? Actually, it’s a good shorthand term for describing the need for credit unions that merge to build trust within their organizations and to communicate clearly with both employees and members.
Merging credit unions is never easy and nearly always brings challenges. Some of these challenges are similar to the issues that arise when any organizations of different sizes, histories, cultures and ways of working and service join forces. Sometimes, though, the issues that arise can be particular to the credit union movement.
The Urge to Merge
The urge to merge is huge and unrelenting. Partly because of their small, grassroots origins, many credit unions seek to merge or acquire others to increase their scale so they can better serve their members.
“Something we recognized many years ago is that scale is important. We ourselves are a product of a merger that occurred in 2005,” says CUES member José Gallant, SVP/chief administrative officer at $7.1 billion Alterna Savings and Credit Union, with 193,600 members in Ottawa.
“Having the scale to serve your members is not the only thing that drives a merger, but scale is important for any financial institution, including credit unions. There’s just so much more to your future if you have the capacity to do more things,” Gallant says.
“You can invest more in technology, you can have a broader distribution panel for your members, you can provide more services,” Gallant adds. “There are real advantages to being part of a larger organization. In addition to the benefits for members, there are also economies of scale for the organization.”
The frequency of mergers, in Canada and elsewhere, points to how the credit union industry is evolving to become more streamlined and ultimately more efficient for its members. In a report called “21st Century Cooperative: Rewrite the Rules of Collaboration,” Deloitte Canada noted that “the Canadian credit union system is entering a period of fundamental realignment that will redefine how credit unions function.”
As Deloitte reports, in 1966 there were more than 3,200 credit unions in Canada. By 2012 that number had shrunk to fewer than 370 and now there are 209 serving about six million members.
Mergers and acquisitions are brought on by external factors ranging “from [member] preferences, regulatory requirements, increased competition from the Big Five banks, and internal factors such as the quest for scale,” Deloitte says.
Of course, it’s inevitable that things can and will go wrong when two organizations with different histories and procedures agree to join. Sometimes it’s a simple matter of having different ways of doing things; sometimes issues can arise when an open bond credit union whose mandate is to serve members from the general public merges with a closed bond credit union set up originally to serve a particular sector or cultural or ethnic group. In such cases, the merger usually involves the closed bond union becoming open bond, but it can still continue to serve its original members.
Mergers also lead to culture clashes, affecting the organizations, their employees and the credit unions’ members. As Deloitte notes, “credit unions will need to resolve conflicts that will arise between large organizations that have the scale and desire to act independently and niche players that will need to cooperate to survive.”
Encouraging Smooth Sailing During Mergers
Even with L.O.V.E. Workshops, it wasn’t necessarily entirely smooth sailing for Prospera and Westminster’s merger. The Jan. 1, 2020, merger was the two credit unions’ second attempt at joining forces after a failed try in 2015. It took 18 months of negotiations, a vote by the members of both individual credit unions and approval by the B.C. Financial Institution Commission—and even then, there were public complaints from some of the 100 employees who were dismissed when the two organizations joined.
To ease the transition, Prospera CU also tried other methods, Schmaltz says. “We hired a company to do professional podcasts and we did episodes on each of our values.”
The podcasts have simple, straightforward messages. In one example, from February 2022, Prospera’s VP/Internal Audit Bukkie Adewuyi explains how the credit union’s culture team came together to identify the organization’s values, why it’s important for the organization to empower people coming from all sides of the merger and to be curious about and trust their instincts.
“We had tremendous uptake with our employees across the organization, and we still use those podcasts for onboarding our new employees. Listening to one podcast takes 20 minutes when you’re out jogging or walking or driving, and they are incredibly impactful,” Schmaltz says.
Why Credit Unions Merge
“Credit union mergers happen primarily because the complexity of how the business of running a credit union changes over time,” says Lloyd Smith, CCE, CEO of $5.6 billion FirstOntario Credit Union, with 123,600 members.
“They can happen because of the need to bring in advanced or changed technology, or because of increased costs or changes in regulations. Sometimes it just becomes harder for smaller credit unions to have the time, people and money to continue to be successful in their mandates to serve their members. Size and scale really do matter,” Smith says.
FirstOntario CU, based in Hamilton, recently completed a merger with $50 million Heritage Savings & Credit Union of Chatham-Kent. “Heritage wasn’t in our catch-basin geographically. They’re in a good community, but they needed more of the right products and services to properly serve their members—larger mortgages [in today’s housing market], for example,” Smith explains.
“We could bring our products and services toolkit to them with the merger—wealth management, insurances, mortgages—the products and services for credit union members that customers would get from a bank.”
Managing the cultural differences among merging credit unions can be different depending on the sizes or types of organizations, Smith adds. “It’s less of an issue if a larger credit union is buying a smaller one, because the larger one will generally have controls, processes and the ability to bring about the transition. It can be more of an ‘us and them’ when it’s a merger of credit unions of equal size. There can be a ‘we have a better way than you do’ situation,” he says.
Credit Union Culture: A Two-Way Street
While these culture clashes can create tension between merging credit unions, it’s also a two-way street that can bring benefits, Alterna’s Gallant says. “Especially when we’re looking at a smaller credit union joining us, we look at the benefits and the unique culture they bring, and we try to respect this as much as possible.”
“Alterna’s corporate offices are located in major centres [Ottawa and Toronto]. But when we partner with a credit union in a smaller community, we know their focus is going to be different and their members are going to have different priorities. For example, people in these smaller communities might not be looking for a mortgage on a big house; they might instead be financing an RV or a pickup truck,” she explains.
It's important to anticipate potential culture clashes arising and to put management and communications plans in place before they arise, Smith says. He recommends that the merging credit unions set up “integration” or “operational closing” committees to manage the details of the merger.
Managing the Merger
“There are three or four components to mergers. First, there’s the legal agreement—one credit union is going to buy the other, or they’re going to merge. Next comes the legal closing—you have membership meetings, communication,” Smith says.
“After that comes the operational close. The merging credit unions have to figure out how they’re going integrate the banking systems, teach everyone about all the products and services. We’re actually doing this with FirstOntario and Heritage in June of this year.”
The fourth stage is to have the integration committee hammer out which of the joining credit unions’ policies and procedures will prevail in the merged organization.
“It’s especially important for the integration committee to do this when it’s a merger of equals,” Smith says. “One group shouldn’t necessarily say it’s their policy that prevails; often it means coming up with a new one.”
“When it comes to culture, the process of merging can be a roller coaster,” says CUES member Glenn Stang, CCE, CEO of $1.7 billion Synergy Credit Union, with 25,100 members in Lloydminster, Saskatchewan. Synergy merged with $175 million New Community Credit Union, Saskatoon, on January 1.
“Initially everybody’s excited; they see the potential benefits for their members and their communities. Then, as they work through the process and start to identify all of the changes and how all their members and the team will be impacted, anxiety moves in. You need to manage this well or it causes friction,” he says.
Identifying Core Values
One of the early steps Synergy CU has taken was to identify some core values and policies that the newly merged credit unions will share now that they are one. “When we onboard staff we quickly get into things that we call non-negotiable,” Stang says.
“These are things like, ‘I will always wear my name tag at work; I am proud of where I work; I’m an ambassador for Synergy, I want people to know me by name and I will dress appropriately for our work,’” he says.
While these may be relatively easy areas for employees to reach a consensus, others can be more difficult, Stang adds. “For example, Synergy prides itself on asking our teammates to volunteer a week’s worth of time serving their communities. That’s a challenge for some people; they say it’s not for them and decide not to join our organization. We want to make sure that the people we hire share our values, because that means less friction and less conflict. It's a matter of maintaining the solid foundation of the culture you want for your credit union,” Stang says.
Decentralized Decision Making
A key distinction that credit unions have—and often an advantage they hold over other corporate mergers—is the credit union movement’s ability for decentralized decision-making, says Marc-Andre Pigeon, professor of public policy at the University of Saskatchewan.
In a webinar on credit union mergers organized by Deloitte, Pigeon, who has done research on these transactions, said there’s evidence that decentralization works.
“Often where mergers break down is when there’s an attempt by one party or another to force control. When you have a strong culture [within the credit union], you can get the efficiency you need. You can look at the distribution of employees involved in the merger and determine how to leave some of the decision-making to the local and regional level,” Pigeon says.
It often comes down to empowerment, he explains. Unlike credit unions, “corporations don’t necessarily have a democratic governance structure where the user owns and controls the decision making.”
Yet research shows that organizations that let their staff develop their own ways of getting the small things done tend to manage the big issues more efficiently, Pigeon adds.
“There’s a good example at the policy school where I teach,” he says. “When I started, I noticed a sign in the lunchroom saying that we either wash our own dishes or they will be donated away. I learned pretty quickly that the policy was to do your own dishes.”
Reaching the Members
One of the most important aspects of managing a credit union merger smoothly is making sure that members are aware of the changes and what they mean.
“Early on, around the time you’re going through the merger vote, you want to engage with the members and explain the benefits,” Stang says.
“The big worry among members is whether the staff is still going to be around” says Gallant. “They want to know if their branch is even going to be there. For us, the goal is always to help their credit union and communities grow; it has never been about reducing the number of branches or employees, but members will have questions about the transition. It’s all about communication.”
It’s important to communicate extensively—and with honesty, agrees Stang: “Let’s face it, almost all financial institutions offer similar basic services—a savings account, a checking account, mortgages and so on.
“What makes us different is our service, and I think our members get that. Early in the merger process, people want to know what’s going to happen to the staff. Are the members going to deal with the same people? Will the staff be taken care of? We need to be really honest about what we can deliver—and what we can’t—about what’s going to change and what will stay the same. We want members to be sure that we’ll follow through with our commitments,” Stang says.
Ultimately, the whole point of a credit union merger is to enable the merged organization to achieve strategic outcomes, Schmaltz notes. “It’s not just ‘bigger is better.’ There are outcomes such as growing into a new market, adding complementary skills or new products and services, gaining a technological advantage from the partner you’re merging with,” he says.
Unlike in the corporate world, the goal of a merger is not to have a bigger credit union compete against other credit unions, he adds. The objectives are to attract more members from the general public—and to serve current members better.
“The broader goal for any credit union is: How will you continue to add value for your members? And how will you do this with a sustainable business model. These go hand in hand, and your strategy has to come from them,” Schmaltz says.
“That’s why sometimes a merger will make sense and sometimes it won’t.” cues icon
David Israelson is a non-practising lawyer who writes about Canadian business topics.
