How the NBAD and FGB merger can reach its full potential

In my last article I talked about the two main paths that the merger of FGB and National Bank of Abu Dhabi could take. The first is simply extending the current business of each by using the path of acquisition rather than organic growth. The second is to trigger a radical redesign of the business model. I concluded that it made strategic sense for FGB and NBAD to take the second path. In this article I touch on how that can happen.

FGB and NBAD are banks and banks, in the end, are predominantly about service. The product part is simple. Money: you can deposit it with them and you can borrow it from them.

The price part, interest rates, is also simple. It has nothing to do with the cost of manufacture as banks don’t manufacture money and besides it is mostly electronic. No, price is driven by the human resources running the banks as well as market supply and demand of money. Since this is driven by people, we can conclude that banks are in the services business.

Service companies can benefit from technology, processes, procedures and a host of other tools. But the main asset by far in a services company, such as a bank, is the people. So how do we optimise the output of people? Humans, by their very nature, are driven by their emotions. Their emotions at work are driven primarily by their interactions with their colleagues at work.

Therefore the greatest effect on the effectiveness of the human assets of a bank is culture. The trap that many companies that merge fall into is in developing integration plans for their technology, their branding and signage, their accounting procedures, client acquisition processes and so on but rarely, if ever, is any thought given to culture. This can be lethal.

How does one integrate culture? Again, there is usually the misconception that one would have to choose either FGB’s culture or NBAD’s culture and enforce that on the other company. The winning culture is usually chosen by defaulting to whichever chief executive remains. This approach has the immediate result of alienating not only the employees of the bank whose culture is being discarded but also by the clients of that bank.

Why is this so? People don’t like change. They especially don’t like change when they feel that the way that they have been doing things is being discarded because it has been judged inferior. The loss of clients who might feel that they will be second-class citizens to the “winning” bank’s clients is even more painful.

This phenomenon is recognised by most merging companies. Their usual solution of mixing and matching from both cultures rarely ends up with a culture that employees, clients and other stakeholders like. Instead, you end up with a Frankenstein’s monster of a culture that everybody hates.

The solution then is clear: a completely new culture should be created. A new culture should not only to appease employees but inspire them towards the new strategy: in this case, a supra-regional strategy. The selection of Abdulhamid Saeed, the managing director of FGB, to be the chief executive of the merged banks over their current chief executives allows for the introduction of a new culture.

So what does it mean to introduce a new culture? Culture is the behaviour of the employees and the beliefs and values that drive them. Sure, certain behaviour is detailed in an authorities matrix as well as in processes and procedures. But employee behaviour, mostly, is not and cannot be written down and dictated. It is driven by senior executives modelling it for their direct reports and so on downwards.

A successful integration of FGB and NBAD therefore requires, first, that a new culture is developed in the merged company. Technology integration, for example, cannot happen if there are two teams each using a different culture in terms of communicating, in decision making, in escalating issues, etc. The result would be a mess.

Often there is a rush to finish the integration of two merged companies. This can be a mistake. Consider how long it would take either of FGB or NBAD to grow organically to the size of the newly proposed merged entity. It would take years, as it requires the effective doubling of the asset books. Why then would one expect that a merger could so easily and quickly short-circuit the organic process?

If FGB/NBAD can get the culture right, a culture consistent with that of a supra-regional group, then the integration of actual operations will be almost automatic, albeit still challenging.

If your team doesn’t know the unwritten rules on how to behave they will then waste time evolving a mutually acceptable culture – rather than having one introduced, thus allowing them to get on with their jobs.

Sabah Al Binali was formerly head of the treasury and investments division of Union National Bank, a senior executive at Credit Suisse Saudi Arabia and Shuaa Capital, a board member at Credit Suisse Saudi Arabia, vice-chairman of Shuaa Capital Saudi Arabia, vice chairman of the UAE SME lender Gulf Finance, and chairman of the Saudi SME lender Gulf Installments

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