Case Studies
Mergers

Case Study: Economic Growth Connection of Westmoreland

An Interview with Mario Ferretti, Board Chair

In Spring 2001, Strategic Solutions interviewed Mario Ferretti regarding the merger of three small economic development organizations located in Westmoreland County, Pennsylvania: Central Westmoreland Development Corporation (CWDC), Eastern Westmoreland Development Corporation (EWDC), and Westmoreland Economic Development Corporation (WEDC). As a result of this merger, Economic Growth Connection of Westmoreland (EGCW) was formed in January 2000. Mario Ferretti was the Board Chair of WEDC when the merger negotiations were initiated, and became the first Chair of the resulting merged entity

The merger process for these organizations was smooth and relatively uneventful. The lack of any significant problems might cause us to overlook the importance of those factors that contributed to its success. Similarly, we might not give much thought to the factors that could have threatened the merger, had they not been addressed before they became significant. However, as we reflected on our interview with Mario, it became clear that this merger underscores success factors relevant to almost all merger situations. In our interview, Mario described the merger integration, highlighting the many positive features of the process, as well as the challenges that arose.

Background

The three pre-merger partners all had budgets under $300,000. WEDC was the largest with an annual budget of $250,000 and a three-person staff: an executive director, an executive secretary, and a loan officer. EWDC was fairly close in size with an annual budget of $220,000 and two staff: an executive director and her assistant. CWDC was significantly smaller, with an annual budget of $110,000. It had no employees, but instead used the services of staff of the Central Westmoreland Chamber of Commerce on a fee basis.

The entity resulting from the merger was smaller than the sum of its parts, with an annual budget of $400,000 and a staff of four: an executive director who was a new hire, the loan officer and executive secretary/assistant from the WEDC, and the administrative assistant from the EWDC.

Success Factors and Challenges

Despite some challenges, the integration of these three entities was relatively smooth. Below, we highlight the success factors that contributed to the merger’s success, as well as the challenges that arose during integration.

• Success factor: Decision to hire a new executive director

  During the negotiation process, a decision was made to hire a new ED. This alleviated to a certain extent one of the major challenges that arises in most mergers: dealing with the issues that arise in selecting an ED for the merged organizations from among the EDs of the merging entities. This was made easier because EWDC’s ED was retiring and the CWDC did not have a dedicated ED. Only one ED (from WEDC) had to step down into a lower-level position in the new organization.

• Success factor: Selection process and criteria

  The hiring committee was made up of representatives from the boards of all three organizations. In selecting the new ED, they picked an individual who had a proven track record in economic development, who knew the local community, and who had good relationships with many key people. As a result, Mario said, “He came and hit full stride because he was involved with so many of Pennsylvania’s economic development groups. He was on state boards and he was familiar with our area . . . he knew a lot of people and organizations.”

• Challenge: Changed roles and responsibilities

  It’s a rare situation, though, when such a transition is entirely smooth. It was difficult for the former ED of WEDC to accept his new role. During the initial integration period, his discontent caused disruption among the remaining staff and threatened the new ED’s ability to take charge. The situation was resolved when, for a variety of reasons, the former WEDC ED left the new organization. Mario commented that, if there were anything he would have changed about the integration process, it would have been to eliminate the former ED’s position sooner, rather than trying to maintain a role for him under the new ED — a situation that became complicated and sticky.

• Success factor: Strong interpersonal and management skills

  Some of the most challenging aspects of merger integration are the many “people” issues that arise. Contributing to the ease of the transition were the new ED’s ability to get along with people and his skills as a manager. “He’s very experienced, and he’s also a tactful individual. He’s good at working with people. He’s very energetic and dedicated to his job. He gave the employees not only a job description, but more than this, he helped them to gain pride in their work. He built their self-esteem, and they began to see themselves positively.”

• Success factor: The board’s leadership and shared vision

  The board of the new entity consisted of five members from each of the original three organizations. These board members had gotten to know each other during the negotiation process and had a shared vision for the new organization. Mario explained, “We always talked about the higher goals that we wanted to achieve. We were not working for the individual organizations. We wanted to make this county a more attractive place.”

• Success factor: The board’s day-to-day involvement

  While the negotiation process places heavy demands on the board, the integration process often requires even more time and energy. Board members must be prepared to devote significant resources to assure the success of the integration.

  In this merger, the board leadership provided necessary support to the new ED and gained the confidence of local funders. The executive board met regularly and, as Board Chair, Mario worked very closely with the new ED. As a result of this strong working relationship and the ED’s skills in fundraising and management, the new entity quickly raised $500,000 and secured other sizeable commitments of funds. This served to build the community’s confidence and allegiance to the new organization, as well as that of the board and staff.

• Success factor: Outside consultants kept the process focused and on track

  Helping to solidify the new board was the use of outside consultants, including David La Piana of La Piana Associates. According to Mario, it is important to have “outside leadership — somebody to keep the process coordinated; someone to set up the meetings, get the information out, and make sure the agenda is followed. That played a big role in keeping us moving. The consultants and the board leadership would not let the small issues deter our major goal, and kept our focus on where we wanted to go.”

• Challenge: Creating an efficient and manageable board

  Just as mergers present the challenge of reducing existing ED positions to one, they also present the challenge of reducing the number of board members. Mergers offer an opportunity to eliminate inactive or under-performing board members, although this is a sensitive situation. It is often necessary to effect change more slowly than one might like.

  In this case, the merged board for the new entity drew five members from each of the former boards. This core of fifteen members was supplemented by several new members who were added to make up for shortcomings in the skill sets of the old members. The resulting size of the board, twenty members, was a bit unwieldy. As Mario stated, “not all are hard workers or they may not have the contacts or the involvement in the community to make things happen. We’re in the process of tightening the caliber of our board. We want people who don’t have an agenda, people who are objective and who can look at the bigger picture of what we can do for the area.” He acknowledged that this “weeding out” process takes time and tact. It is important is to clarify the organization’s goals, and to continually make progress towards them.

• Challenge: Merging the financials

  Because the “people” issues are typically a major focus of the integration process, other operational issues can be overlooked. One area that is often given short shrift is the merging of information systems, particularly the financial systems. “That was one of the most difficult things to do,” Mario said, “because there were a lot of different styles of accounting.” The board solved this dilemma by hiring an outside firm to assist with this process. Also, while there wasn’t a formal team responsible for the integration as a whole, the board appointed a finance committee that served this function specific to integrating finances. Mario also stressed the importance of a thorough revenue review to help predict the availability of funding for the merged entity.

• Success factor: Creation of a strategic plan with an evaluation component

  Additionally, a strategic plan was developed by the new organization soon after the merger was complete. The plan includes an evaluation component and is considered a “living” document; it has been modified over time based on the ongoing monitoring of the process and outcomes of the integration. Not only is the organization evaluated, but also the goals and performance of the board and individual staff members are tied to the goals outlined in the plan.

Conclusion

In sum, this relatively uneventful merger holds important lessons. The factors that made the integration process successful are the same factors that we observe in most successful mergers:

• Strong board leadership
• Positive relationship between the board and the ED
• A clear vision of the mission, goals, and objectives of the merged entity, and consistent communication of these (e.g., through the strategic plan and by tying individual performance goals and assessment to the goals outlined in the plan)
• Champions of the process — both among the board leadership (in this case, the Chair) and the ED
• An outside consultant to keep the process focused and on track
• A strategic plan to keep the focus on the vision and goals, and including an evaluation component to assure that the goals are achieved

In large part because of these success factors, this merger was characterized by few challenges. Those that arose are common to most merger situations. One was the need to reduce the size of the merged board. Mergers offer the opportunity to get rid of “dead wood” on the board, but the pace of this must be balanced against the need to avoid offending key constituents. Additionally, the integration process might have moved more quickly were it not for the presence of the one former ED who remained post-merger, as he served to disrupt the integration and undermine the authority of the new ED. However, as it was, the integration moved quite quickly; the organization was operating smoothly within 6-8 months.