1. IMPLICATIONS OF M&AS FOR BANKING INDUSTRY. FROM
CULTURAL FIT TO CULTURAL CLASHES
Iulian WARTER
“Alexandru Ioan Cuza” University
Faculty of Economics and Business Administration
Iaşi, Romania
iulian@warter.ro
Liviu WARTER
“Alexandru Ioan Cuza” University
Faculty of Economics and Business Administration
Iaşi, Romania
liviu@warter.ro
Abstract
Despite continued global uncertainty, mergers and acquisitions (M&As) in
banking industry remain essential instruments for growth initiatives in the coming
years. Traditional pre-merger planning and analysis usually focus on legal and
financial aspects. Nevertheless, numerous merging banks fail to anticipate intercultural
aspects that could affect the real value of such transactions. However, banks also need
to understand that cultural factors can critically affect the achievability of all planned
targets. Incorporating cultural due diligence into the pre-merger phase of M&As is key
to success.
The biggest challenge in cross-border banking M&As is to know how far to
pursue integration and how far to maintain cultural diversity as a synergy driver. In
some cases, clashes of cultures within the merged entity appear to have been the reason
for bank M&A failure, but few studies have analyzed these specific aspects.
Our paper analyses the intercultural issues impact on the outcomes of
international banking M&As in order to avoid the M&As disasters.
Key words: mergers and acquisitions (M&As), intercultural, cultural
differences, banking industry.
JEL Classification: F23, G34, G21, M14.
1. INTRODUCTION
Not many industries have encountered as much tactical turbulence in
the latest years as has the banking sector. In response to the change of the legal
and regulatory framework, the structure of the banking industry has been
profoundly displaced. The globalization is changing the dynamics of M&As in
the banking sector, linking borrowers and lenders, issuers and investors,
managers and consultants around the world.
Culture has become an integral part of the general discussion on
mergers, and thus a core element of the social construction of the phenomenon
(Gertsen et al., 2004).

2. Increasingly, banks are more interested in cross-border M&A deals,
looking to expand to new markets and access new customers. Whatever the
goals driving a M&A, a successful deal by no means guarantees a successful
integration in the post-merger stage. Merging two different banks in different
countries means merging two different bank cultures. The bank culture defines
its relationship and mode of communication with stakeholders and customers, a
set of behaviors, beliefs and values, how banks operate and predict the risks.
Gesteland (2012) defines business culture as a unique set of
expectations and assumptions about how to do business.
Mergers, acquisitions, joint ventures, and alliances across national
borders have become frequent, but they remain a regular source of cross cultural
clashes (Hofstede et al., 2010).
The bank culture can drive value in a transaction and help meet the
specific transaction objectives but, also, cultural mismatches can threaten the
success of any M&A. Rather than regard it as an incidental consequence of a
M&A, acquirers need to see it as a decisive issue, able to attenuate risk and
drive synergies.
For instance, the story of the rise and fall of ABN Amro Bank, one of
Netherland’s prides of the last century is about cultural mismatches. ABN Amro
was formed through the merger between past rivals ABN Bank and Amro Bank.
The substantial cultural gap between the two banks appeared to be addressed
properly during pre- and post- merger stages, but the difference between ABN
and Amro remained present until the fall of the myth.
It is generally believed that culture plays a determinant role in
investments. Zait et al. (2014) remark that in such operations, meeting among
businessmen, managers and other professionals in the field is, first of all,
meeting in specific circumstances, among more or less different cultures.
For example, when an European bank makes a cross-border acquisition
in an emerging market such as South America, we are dealing with a much
more complex situation and the cultural differences are more difficult to
reconcile against M&A objectives. The differences in norms, language, and
thinking patterns can create more uncertainty and greater potential for
misunderstanding and conflict.
An interesting view (Desai et al., n.d.) shows that research suggests that
up to 65% of failed mergers and acquisitions are due to 'people issues', i.e.
intercultural differences causing communication breakdowns that result in poor
productivity.
2. CULTURAL FIT VS. CULTURAL CLASHES
Corporate culture has definitely become one of the most actively
debated issues distinguishing successful from uninspired performers in the
banking sector. Culture is something every bank has, even if it is weaker or
stronger. It is central to the bank environment in which people have to work.

3. Berkman (2013) contends that in the context of a merger of two
businesses, one of the intangible issues directly affecting the success of the
transaction down the road is whether the business cultures mesh well.
Today’s M&A success rate hovers around 30 to 40 percent, with
clashing cultures cited as at least a contributing factor in most cases. And yet,
despite the lessons of history, many due diligence teams glance past the topic,
preferring instead to focus on items that can be easily quantified (Recardo &
Toterhi, 2014).
In a paper on the relationship between synergy potential and cultural
differences, Weber et al. (2011) reveal that only the fit between the selected
integration approach and the appropriate integration approach, taking into
account the specific level of synergy potential and problems of implementation
due to cultural differences, can minimise the problems created by culture clash
and harness the potential synergy
Shenkar (2012) reveals that the implicit assumption that differences in
cultures produce lack of “fit” and hence an obstacle to transaction is
questionable. First, not every cultural gap is critical to performance. Second,
cultural differences may be complementary and hence have a positive
synergetic effect on investment and performance.
Cultural differences are what the banks consider to be the most
prominent problems when initiating cross-border M&As. In order to have a
successful M&A, the top managers involved need to understand the objectives
of the M&A, the intercultural issues, and the management of human resources
(Warter & Warter, 2015).
The empirical evidence suggests that the culture of a bank can be
strongly influenced by one or more individuals at the top of their financial
organizations, either to push forward and improve upon a culture that already
exists or to radically change it.
Strong leadership can be particularly decisive in M&A, where easy-
going decision-making can obstruct deals and ambiguousness from the top of
the bank can impede or deflect well-defined integration strategies.
Another scholar (Fiordelisi, 2009) claims that on the whole, integration
deals often require that the banks involved in the deal change their corporate
culture: the workforce may have to change their mindset, cultures and
behaviour. In addition, M&A deals involve transformation in the organization
structure and, consequently, power redistribution among the managers of the
two banks: the conflict of interest and loyalty may deter the success of the
M&A deal.
A greater difference in management style may lead to more significant
cultural clashes and to difficulties in the integration. It is therefore important for
foreign acquiring companies to be more cautious in introducing changes in
these two management areas (He, 2009).
Culture clash in bank M&A activity is marked by negative attitudes on
the part of the acquired top managers toward the acquiring top managers. These

4. approaches reduce the engagement of the acquired top managers to successful
integration of the merging banks and impede their cooperation with the
acquiring top managers.
Moreover, when there is intense and frequent contact between the top
managers of banks involved in merger, cultural differences increase the
likelihood of conflict between the two top management teams involved in the
merger.
In a recent paper (Brogiato, 2012) is mentioned that the problems that
can arise in the post-M&A phase are linked with the clash between the two
different organizations.
Cultural clashes may severely damage the joint action and engagement
of the top management that may be significant in determining the success of the
post-merger integration and ultimately the merger itself.
On the basis of their studies, Stahl et al. (2013) showed that four main
unresolved issues were identified: linking pre- and post-merger processes, the
role of culture, the role of prior acquisition experience, and how to assess
performance.
Warter & Warter (2014) conclude that even in scientific research
culture, through the influence on behaviour, attitudes, and positions towards
action is a major factor of facilitating, blockage, success or failure.
When banks with different product offerings merge, the integration
process is less likely to give rise to the need for downsizing, which could result
in loss of human capital and demoralized employees (Kim & Finkelstein, 2008).
In his study on integration in M&As, Whitaker (2012) observes that
culture clashes also make most employees anxious and in many cases downright
miserable.
It is possible that the stereotypical information about how people in
another culture tend to behave might prove to be wrong in a particular setting
and with a particular individual from that culture (Lee et al, 2013).
Yet, the negative impact of cultural differences is thus expected to be
smaller for M&As within the same group of companies (internal acquisition)
than for external acquisitions (Arvanitis & Stucki, 2014).
Rosenbaum & Pearl (2009) believe that the financing team is tasked
with providing an objective assessment of the target’s leverage capacity. They
conduct due diligence and financial analysis separately from (but often in
parallel with) the M&A team and craft a viable financing structure that is
presented to the bank’s internal credit committee for approval.
Other scholars, such as Zander & Zander (2010), consider that it is
imperative to face the complexity of integrating international acquisitions today
while retaining sight of crucial questions such as what type of cultural
differences specifically influence knowledge transfer when opening up the grey
box.

5. Cultural differences give combining firms the opportunity to obtain
distinct routines and capabilities, which can lead to a richer bundle of
knowledge (Reus, 2012).
3. CULTURAL DIFFERENCES: AN ASSET OR A LIABILITY?
There may be distinct beginnings of a bank’s culture, which,
individually or together, can form a strong competitive advantage. Top
management and employees identify with a “proud” history and the cultural
attributes associated with it.
A cultural audit can help the firms anticipate the effect of organizational
cultural differences and adjust the integration process accordingly (Sarala et al.,
2014).
All the difficulties in the M&A stages, especially integration phase,
may be more easily overcome with a strong historical anchor embedded in the
corporate culture. In the case of bank M&A failure, the demoralization effect on
corporate culture can far exceed the direct impact of the failure itself.
Much has been written about the financial, strategic, and integration
aspects of M&A, but the findings are contradictory and the reasons for
variations in M&A performance have remained unclear, probably because of
the focus on pre-merger variables, thereby neglecting cross-cultural conflicts
between people in the post-merger period (Weber et al., 2012).
M&A is a multilevel, multidisciplinary, and multistage process which
requires a pluralist approach, as Warter & Warter (2014) argue. M&A
researchers have focused generically separately on pre-acquisition factors and
post-acquisition influential factors. Neither scholars nor practitioners have a
comprehensive understanding of the factors involved in the M&A process and
their interrelationships.
It is generally believed that strong culture differences between the two
merging banks are negatively associated with merger effectiveness.
Another interesting remark is offered by Walter (2004). He argues that
whereas many of the factors determining whether an M&A transaction in the
financial services sector is accretive to shareholders have been explored
extensively in the literature, little attention has been paid to issues surrounding
corporate culture. This is a “soft” factor that arguably explains some of the
differences observed between expected and actual shareholder value gains and
losses. In some cases, clashes of cultures within the merged entity appear to
have been the reason for M&A disasters. The author concludes that corporate
culture has certainly become one of the most actively debated issues
distinguishing successful from lackluster performers in the financial services
sector
Cultural differences can lead to distinctive effects in merger situations.
On the one hand, a cohesive and powerful culture can be an asset for an acquirer
by making clear what behavioral norms and values will prevail in the merged
bank. On the other hand, a strong culture on the side of the acquirer may make

6. integration more difficult to achieve, especially if the acquired has, also, a
strong culture.
The conclusion of the authors on these contradictory results is that in
essence, cultural differences seem to matter but it is not clear whether these can
be handled in a beneficial way, with some studies showing they can be a source
of competitive advantage and others arguing that too great a difference may
seriously impair mutual understanding and integration (Gomes et al., 2013).
Still others (Weber et al., 2012) indicate that much has been written
about the financial, strategic, and integration aspects of M&A, but the findings
are contradictory and the reasons for variations in M&A performance have
remained unclear, probably because of the focus on pre-merger variables,
thereby neglecting cross-cultural conflicts between people in the post-merger
period.
A more “optimistic” approach (Stahl & Voigt, 2005) consider that
cultural differences can be a source of value creation and learning in M&A, but
they can also create obstacles to reaping projected synergies by exacerbating
social integration problems and diminishing the firms’ capacity to absorb
capabilities from the other party.
Marks et al. (2014) conclude that cultural differences are not
necessarily harbingers of doom in M&A. The authors’ experience with more
than a hundred deals over the past twenty-five years suggests that, when
effectively managed, cultural distinctions can enrich the integration process and
lead to a stronger combination of the two companies.
Although all the mergers are in the same industry (i.e. banking sector)
and the same country, there was evidence of significant cultural differences
between different geographic regions, particularly but not exclusively between
the North and South, which influenced the M&A process (Gomes et al., 2012).
An interesting opinion (Vaara et al., 2013) reveals that special attention
should be focused on how managers may overemphasize the role of cultural
differences and even deliberately blame cultural differences for failure. At the
same time, other causes of integration problems might pass unnoticed and be
left unaddressed.
We agree with Weber et al. (2011) when they show that a chosen
integration approach, based on its specific configurational fit that is congruent
with the three characteristics of each M&A (synergy potential, cultural
differences, and cultural dimensions) can lead the acquiring company to a
superior performance.
4. CONCLUSION
Culture has emerged as one of the significant obstacles to effective
M&A integration.
Foregrounding the cultural differences allows the acquirer to plan
coherent integration strategies to manage the impact of a cultural mismatch and

7. focus resources on the main M&A objective: a stronger combination of the two
banks.
The answers to the questions regarding cultural fit vs. cultural clashes at
the beginning of the integration process will define the real value that can be
extracted from the merger or acquisition and help sustain the balance between
shareholder satisfaction, synergy delivery and customer gladness.
Given that culture will casually obstruct a proposed transaction, it
becomes the responsibility of top management to prevent culture from
undermining their targets. It is vital to avoid stereotypes due to the fact that,
often, banks top managers have a positive expectation of their ability to master
the human and managerial relationships.
It is easy to make the incorrect decisions in the pre-merger stage but
trying to fix a failed integration, in the post-merger stage, is a very difficult task.
Bank management should pay as much attention to some actions during
premerger stage such as:
 Cultural due diligence to identify and mitigate immediate cultural risks
 Use of cultural differences as a clear driver of value in the transaction
 Communication rules to avoid key staff and/or customers’ loss.
The cultural differences can lead to difficulties of communication and
misunderstandings. Hence, persistent communication throughout the integration
stage is an essential part of success in bridging the cultural gap, especially when
attempting to forge a new culture for the merged/acquired bank.
Such a complex activity as a bank M&A, often does not afford the time
for an exhaustive cultural diagnosis or a long-term culture change strategy with
unclear perspectives of achieving desired aims. A more focused approach, based
on identifying the high-risk points in the integration process and putting the
appropriate leaders in place, can help reduce the ways in which culture
amplifies these risks.
The problematic interaction between the acquiring and the acquired
bank (due to cultural differences) or low coordination and collaboration
between top managers and staff (as a result of the culture clash following the
merger) may play a pivotal role in the bank M&A success or failure.
Leaders and managers involved in banking M&As need to identify
integration strategies, in the pre-merger phase, to combine organizational and
national cultures and motivate staff in order to enhance successful M&As.
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