IS THERE A CULTURE AFTER A MERGER?

By Michael Goldstein

[Editor's note: CPA Journal editor Michael Goldstein believes CPA firms have unique cultures that very often are the basis for success in the marketplace. He is writing a series of articles on the subject.]

An accounting firm merger is the union of two or more independent accounting firms. Combining two or more firms does not preclude having a single firm culture going forward; it tests the mettle of the participants. There is, of course, the question of whose culture will survive. Every firm and every successor firm has a culture, whether planned or just allowed to evolve. The surviving culture can be beneficial or self-destructive, depending on whether it unites and enhances what already exists, or sets the stage for continuing diversity.

Some part of a firm's culture may reveal itself by understanding why it views a particular merger as beneficial. To cite only a few reasons, a merging firm may--

* believe that bigger is better,

* be ready for perceived economies of size,

* want to achieve critical mass,

* have a burned-out partner or two who want to retire without being missed,

* need talent, technical or management, that's otherwise not readily available,

* want a new or increased existing specialty practice, or

* just be plain afraid of competition--what the future holds--and take this route for an ultimate buyout.

After understanding the why steps for a merger, the major considerations associated with a firm's culture are the chemistry or compatibility of the individuals and do they share a common philosophy of how to do business. Stating the common goals for two or more diverse groups is a lot easier than achieving those goals. Cultural goals such as quality client service and teamwork are generally common to most firms, but how they achieve those goals may differ dramatically. What are some of the operational and administrative aspects of the respective practices that have to be audited to determine if potential mergers complement one another and if a common "how to" (the operating culture) for doing business exists?

* How do partners show their commitment to quality client service?

* Are there major differences in the compensation systems of the respective firms, as to partners' earnings and staff salaries?

* What are the work ethics prevailing in each of the firms?

* What are the competencies of personnel? Are they comparable?

* Do the available technical resources in each firm complement one another?

* What is the turnover rate for staff and administrative personnel?

* Have there been partner departures, voluntary or involuntary?

* Are there any client specialties or special services?

* How comparable are the average total hours worked, as well as chargeable and billable for like personnel categories?

* How does the investment in computers, office equipment, and other office facilities compare?

* What direction is the marketing effort taking, how much is being spent, and are there any benchmarks?

* Does a "not invented here mentality" exist that would make change
difficult?

Having said all of the above, is a merger still a merger when the respective sizes of the firms are 90%:10%? Is it just an acquisition, where the 10% will or should quietly accept the culture of the 90%? Whether you call it a merger or an acquisition, each firm has its own culture, and the smaller entity, if substantially different from the one around it, will continue to survive as a discordant subculture, unless a concerted effort is made to integrate all the players. Which leads me to my last thought--frequent mergers leave little opportunity for establishing a value-added firm culture. The surviving firm's culture is absorption, which sooner or later--like overeating--will probably be self-destructive. *