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People Issues And Consolidation In The Banking Industry By Dalhatu M. Sani
(DEPT. OF HUMAN CAPITAL MGT, AFRIBANK NIGERIA PLC)
Introduction
The CBN’s directive to all banks in the country to raise their capital base from N1b to a minimum of N25b by 31st December 2005 brought a lot of pressure on the management and staff of banks. The resultant effect has been to bring to the front burner the enormous challenges facing human resources management during, and even after, the consolidation. Some of the challenges were anticipated, while others were never envisaged; both in terms of the magnitude and their effects on human resources of the consolidated banks and the industry in general.
What are people issues? By people issues here we refer to employee- related matters such as recruitment, training, welfare, productivity, compensation, motivation etc.
The Perspective
In discussing the consolidation and the types of people issues it has generated, we need to briefly highlight developments within the industry prior to the consolidation. The developments range from the liberalization of the industry since 1986, under the Structural Adjustment Policy (SAP), which gave rise to additional banks and recruitment of staff to man the newly licensed banks; to demands for training of the existing employees. In addition the period witnessed the poaching of staff from the older banks to what came to be known then as the ‘new generation’ banks. The latter came to be identified with new and aggressive demands on staff, such as setting targets for deposit mobilization, in an unprecedented way. These banks also ‘revolutionized’ service delivery, by giving efficient customer service.
The Rationale
In order to understand the basis of the upward review of the capital base of banks in proper context, we need to state the rationale behind it as articulated by the Governor of the CBN, Professor Charles Soludo, in his maiden address to the Bankers Committee on Tuesday, July 6, 2004. The Governor predicated the decision based on his analysis of “the major problems (facing) many Nigerian banks”. He highlighted the following problems:
Indeed the Governor went further to stress the fact that the industry was gradually being bedeviled by persistent distress signals, which, he added, no regulatory authorities could or should overlook. He buttressed the point by giving the statistics that: out of a total no. of 89 banks in Nigeria (as at March, 2004), 14 were marginal; while 11 were “unsound” (read here distressed), and two could as well be said to be with the undertakers! From this not-so-good picture, Professor Soludo concluded that only 62 banks could be said to be “sound/satisfactory”.
Furthermore, having diagnosed the various malaises afflicting the Nigerian banking industry and the (negative) impacts they have had on the economy, the Governor then zero- in on the weak capital base to launch the banking reform. He stated that from a comparative study of the level of capitalization of banks in selected countries such as South Korea, South Africa, Malaysia, Singapore, banks in Nigeria have a very low capital base. He explained hence the need to beef up the capital requirement of Nigerian banks, in tandem with global trend.
People Issues
With the CBN Governor’s pronouncement on the raising of the capital base of banks to N25b, certain major issues relating to system integration, processes and employee matters immediately came to the fore. Indeed much as the integration of the IT/system and processes became central in the planning and implementation of the consolidation of banks, a far more strategic concern has been how to integrate employees from different banks with different corporate cultures and vision. Again it was felt that the employees, being the drivers of the change, should not only be highly skillful but sufficiently motivated such that quality service delivery is not only guaranteed and enhanced, but becomes the norm. We intend to highlight these, and other related, issues and see to what extent are they being addressed after the consolidation. It is pertinent to note here that this is a preliminary analysis, because the issues are enduring and most of the consolidated banks are still at the ‘teething phase’. This has to be understood from a situation of 86 banks, now emerged 25 solid banks that have met the prescribed minimum of N25b. Significantly these consolidated banks have come through acquisition and mergers of one or two or even more banks. Indeed for the latter category it ranged from four to even nine banks. Therefore, for the HR practitioners in these banks, an added enormous responsibility has now fallen on them. This is because they have got new challenges of advising management on how best to find solutions to the emergent people issues. In essence the challenges call for a paradigm shift on the part of the HR professionals from performing purely ‘traditional’, routine personnel functions to that of aligning HR strategy and practices with the business strategy of the bank. This is important in making sure that value is added to the bottom line of the new entity, in line with one of the aims of consolidation.
The major people issues which we need to focus on in the course of our discussion of consolidation in the industry are as follows:
· Organisational culture · Staff turn-over · Recruitment & selection · Motivation · Service delivery · Capacity building · Corporate governance · Role of regulatory authorities
We shall now elaborate on each of the eight people issues enumerated above. (The list is not exhaustive).
1. Organisational/corporate culture: here we mean: “the combined beliefs, values, ethics, procedures and atmosphere of an organization.” (Business , 2002). In essence the way things are done in the organization-unspoken values and norms and behaviours. Instances have been seen whereby the merging banks, with different cultures, have experienced problems of misunderstanding or even conflicts in harmonizing the two or more cultures during the integration process.
This is where the HR professionals come to play a vital role in ensuring cultural compatibility, because a merger is like marriage: it may result in clashes of personality, or communication problems. Thus the HR department should be given far greater latitude/involvement during the integration period in order to proactively handle such problems. Another solution to cultural incompatibility is for the merging banks to have undertaken a cultural audit prior to the merger (and its attendant changes). This would facilitate bringing about a cultural fit among the merging banks. Indeed it is vital at the implementation stage to have an open line of communication among the members of the group, and ensure more employee participation at all levels (or through the unions) during the integration process.
The resultant effect of having a seamless integration of the two (or more) cultures is that a consolidated bank with strong corporate culture would more likely have a strong excellent business performance!
2. Staff Turnover: This could be in the form of lay-off as a result of restructuring /redundancy. During the course of the consolidation exercise, it brought with it fear, and actual, loss of jobs by employees of consolidating banks. As earlier mentioned this was one of the anticipated outcomes of the integration process. How it is handled would later impact on the sustainability of the merger.
In most cases the number of job losses may not be the same within the group. This is not surprising, because mergers are rarely a marriage of equals. The dominant partner (the one with larger capital base) may ‘overload’ it on the smaller/ weaker partner(s).
Indeed in an analysis of the projected number of jobs that would be lost as a result of the consolidation, it was estimated that at least 31,980 may be affected i.e. · 78 bank CEOs; · 156 executive directors; · 546 management staff; · 31,200 other categories of staff (Messrs Adedipe Associates Ltd)
In handling job losses during the integration, the HR practitioner would have to not only balance his/her role of partnering with the demands of the new business strategy, but also with that of employee champion at the same time. Indeed the HR person has to be able to effectively counsel employees on the uncertainty and the job losses. This can be achieved through, among others, ensuring a package that includes a golden handshake given to affected employees.
3. Recruitment and Selection: For a bank that has crossed the hurdle of N25b minimum capital base to remain relevant in the new highly competitive environment, its employees should have the right skills and experience. Hence having a well articulated policy on recruitment and selection and deployment of the human capital of the enlarged consolidated group becomes imperative.
Indeed the available employees should not just have the right skills, but also internalize the bank’s new mission statement and objectives, so as to conform to the demands of the banking reform. Subsequently, recruiting, retaining and motivating good employees become key strategies for success for banks in the post-consolidation period.
4. Motivation: Having achieved the merger, banks should keep the morale of the staff in high spirits for them to give their best to the new, large, group. Motivation undoubtedly serves as a stimulus for better performance, both at the individual employee and corporate levels.
It is pertinent to realize that one of the rationales behind mergers is often to achieve synergy: what is often referred to as 2+2=5. Hence during, and even after, the integration HR departments have to ensure that the motivation of employees goes beyond talk-the- talk; to encompass ‘walk-the-walk’ (That is, employees’ motivation and satisfaction are sustained).
Here motivation after the merger should extend to non- pecuniary benefits such as promotion and ethical conduct. In fact it has been found that there is a strong correlation between motivation of employees and their attitude to customers/service delivery.
5. Service Delivery: A well motivated employee is a pride of the employers, because he/she will not only give his/her optimal in productivity, but also provide quality service. Nowhere is this true than in the banking industry.
A successful integration of the systems, processes and cultures of the affected banks, now becomes a major challenge to banks. In the sense that in the post-consolidation era, the quality of service delivery would invariably be not just important edge in the competition, but a must! Of course we have been reminded that to offer good service would entail removing ‘the civil service toga’, often associated with some banks. In this respect the efficient deployment of technology would supplement towards achieving a low or zero defect in products and service. But more significantly is the need for a thorough re-orientation of the employees’ perception and dealing with customers. The customer is not only king, but as the management guru, Peter Drucker, noted, “We are in business because of the customer”
6. Capacity Building: The issue of training and development of employees is a sine qua non for meeting the human capital needs of the banks that have achieved consolidation. This can be done by embarking on massive re-training of employees after the merger so as to inculcate new values and ethos, reflecting the new corporate culture.
In this respect the training needs analysis should be revamped to align it with the new vision of respective consolidated banks; with a focus on global banking, as envisaged by e-banking.
7. Corporate Governance: It would be recalled that this was one of the major problems facing banks in the country, as analyzed by the CBN Governor while addressing a Special meeting of the Bankers Committee on July 6th 2004. He decried poor corporate governance in the banking industry prior to the reform. In this respect corporate governance in banks would entail articulating and promoting ethical standards and purposeful leadership through : · Accountability; · Information · Transparency; and · Rule of law
(World Bank, 1992) It is important to have good corporate governance in order to realize the objectives of having an effective policy on people management in the post-consolidation era.
For as a recent seminar in 2002 on the issue noted, “ corporate governance in Nigeria from three sectoral perspectives—the public sector, the financial services, and the real sector—reveals the absence of strong commitment to the tenets of good corporate governance.” Therefore, there is no gainsaying the fact that banks must endeavour to promote good corporate governance not only at the board level, but also at management and staff levels. This is because such a policy would go along way in avoiding a repeat of corporate failures witnessed in the banking industry in the 1980s and early 1990s.
Finally, it is often emphasized that there is a strong linkage between corporate governance and company performance, in that investors are far more willing to invest in companies with good corporate governance than those with poor one. This has been validated through a research conducted in 2000 by Mckinsey. (“Global Investor Opinion Survey “ ).
Indeed Nigerian banks have no choice but to adopt, practice and comply with the globally- acceptable corporate governance codes and ethics, if they have to avoid the fate of the dinosaur!
8. Role of Regulatory Authorities: In this respect it is the CBN and NDIC that can effectively enforce relevant laws and ensure good corporate governance in the industry.
To quote once again the CBN Governor, he stated that: “The regulatory authorities…would further streamline the regulatory framework and strengthen the supervisory capacity to ensure a sound and efficient (banking) system.” Towards this end, the governor informed banks that the CBN has now adopted a “zero tolerance…in the area of data/information rendition/reporting.”
Therefore, this calls for more vigilance and greater commitment on the part of all staff, so as to live well above board in this area. More scruples should be on internal control management and proper personnel screening before recruitment, and even after.
Conclusion
There is no doubt that the current mergers witnessed in the banking industry have re-drawn the topography of banking in Nigeria. As a result of that development the paper has highlighted the major people issues, in the post-merger period, whose resolution would, to a great extent, determine the success or otherwise of the banking reforms embarked upon by the CBN. This is because a study undertaken by BIM has amply demonstrated that unsuccessful mergers and acquisitions are often associated with people issues such as: · Underestimating the difficulties of merging two or more corporate cultures; · Underestimating the problem of skills transfer; · Demotivating of employees · Post-merger conflicts arising from unclearly defined responsibilities; and · Exit of key management staff
Therefore, it is vital for HR professionals in the consolidated banks to partner with their management in seeing that HR strategy and practices are aligned with the business strategy (the consolidation), at the critical implementation of the integration process. Thus HR departments should not only facilitate the process by evaluating the absorption costs during mergers of the human capital needed, but also become change agents at the integration stage and well after the merger.
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