Out With the Old and In With the New

Brokerage purchasers have an ethical duty to treat the staff at the acquired firm with fairness and honesty

Mergers and acquisitions among brokerage firms are not something new nor are they likely to decline in frequency anytime soon, given such contributing factors as succession planning and the demographics of brokerage owners. In this column, we’ll look at a number of scenarios that could take place when two brokerage owners, longtime friendly competitors, merge their separate operations.

In scenario number 1, the selling broker’s motivation is to be bought out so she can retire with sufficient funds and recognition of her many years of service to the industry and community. She is also committed to ensuring that her employees and clients will be well managed in the process. The purchasing broker’s motivation is expansion by acquiring a new book of business. In this situation, he would appreciate and acknowledge the inherent value in the high quality of the staff. Therefore, we might anticipate that the merger is handled with a good deal of communications and careful planning of operations.

For example, the two brokers could decide to jointly advise the staff in both firms about the plan. The staff would each be advised that:

  •  The buyout will be concluded in short order
  •  All positions will be safe and no one’s job is in jeopardy
  •  Processes will remain the same
  •  The brokerages will be run as two separate operations.

When the deal is concluded and the plan is implemented, if all goes according to the proposed plan, then the staff at both brokerages would hopefully feel that the communications around the transition have been handled as transparently, authentically, fairly and professionally as possible.

What if, despite the same level of communications as above, we have scenario number 2, wherein the staff at the acquired firm start to notice many changes happening, some of which are subtle and some rather obvious, most of which they do not appreciate? How are they to adjust if, for example, the biggest switch involves changing the culture of the brokerage from a family-oriented, unstructured organization to that of a more hierarchical, autocratic and bureaucratic type? Rather than relying upon one another to get the job done, they are now being given formal job descriptions, lines of authority, etc.

Making changes without consultation, without staff input, is counterproductive, detrimental, and not in keeping with creating a professional and ethical company.

Naturally the new owner can, and will, decide what is in the best interest of the brokerage he has just purchased. He has the right to make any changes as he sees fit. Ideally, he has been running his brokerage, and will run the newly acquired brokerage, as an ethical company. That means:

  •  Treating all stakeholders fairly
  •  Consistently making fairness the first priority
  •  Expecting individual, rather than vaguely collective, accountability
  •  Defining objectives and goals that all members value
  •  Portraying a clear vision of integrity, exemplified by management
  •  Demanding and rewarding integrity at all times and in all situations
  •  Having a set of corporate values in place and actively working to have it understood, used, taught, monitored and regularly evaluated and revised by the employees.

A critical part of assessing the longterm benefits of an acquisition is the cultural fit. In doing his due diligence, the purchasing broker should conduct a thorough review of operations, but, very importantly, include the staff in that process. Making changes without consultation, without staff input, is counterproductive, detrimental, and not in keeping with creating a professional and ethical company.

The purchasing broker should engage the new staff in discussions about their office, what is good about their setup and in what areas they would like to see some changes or improvements. He should listen to them carefully. He will not only gain valuable insight about that office, he will also get to know them better, and they will get to know him. During these discussions, he will be able to explain his business style, his vision, his management style and organizational structure. The staff will get a better understanding of the new owner, his plans and how he intends to manage or oversee the new office. The benefits of this transparency will lay the foundation for a good and healthy long-term relationship.

From the perspective of the previous owner, it is unlikely that she would have insisted that the new owner maintain her current organizational structure and reporting lines. The commitments made to the staff were meant to assure them that the office was not closing, all jobs were safe and that the broker management system was going to stay the same. Thus, virtually no disruption. But this commitment should not be interpreted to mean that work teams would not get reorganized or that there would not be any changes to job descriptions. It is up to the new owner to make those decisions. However, he should consult and discuss these changes, if any, with staff and explain his reasons. More often than not, staff will understand.

In the case of a third scenario where staff are being let go, it would become apparent that the purchasing broker was not true to his word, and there are ethical implications in how the staff are treated. It should surprise no one then that the staff would question the new owner’s integrity and why they were told one thing and then an alternate action is taken. They may start to question why the purchasing broker would acquire this brokerage because of the quality of the staff and then change and undermine the firm and jeopardize the book of business by laying off staff.

Merging two brokerage firms and any change in ownership/leadership precipitate changes on many levels that some staff will do well with and others perhaps not. It’s all about implementation and by necessity includes a good deal of communication and careful planning of operations. It is also best done in a context of shared values, fairness, integrity, with transparency and authenticity, and with a deliberate regard for the best interests of all parties–owner, staff, clients, stakeholders, and the industry.

The CIP SOCIETY represents more than 15,000 graduates of the Insurance Institute of Canada’s Fellow Chartered Insurance Professional (FCIP) and Chartered Insurance Professional (CIP) Programs. As the professionals’ division of the Institute, the Society offers continuing professional development, information services, networking opportunities, and recognition and promotion of the designations. This article is developed from commentary solicited from senior members of the CIP Society and is intended to generate a dialogue about ethics among professionals. We welcome comments and scenarios to the discussion at cips@insuranceinstitute.ca. This series of articles is archived on The CIP Society’s Web site at: www.insuranceinstitute.ca/cipsociety.

© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the October 2010 edition of Canadian Insurance Top Broker magazine.

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