Clearly, company mergers are entered into for commercial advantage. But each company often has its own established community programmes. What becomes of them in the new enterprise? Do they fall victim to the choices that mergers often imply? Do those of the dominant heritage company take preference? And how are such programmes operated by the new company? Whose administrative model prevails or does a composite ‘best of both’ emerge? Alliance discussed these and other questions with four companies which have undergone relatively recent mergers.
Perhaps the first thing to say is that, in each case, careful consideration had been given to the corporate citizenship aspect of the merger. As Gary Hattem of Deutsche Bank (which merged with Bankers Trust of New York in June 1999) put it, both companies wanted to ‘make sure they did it right’. In January 2001, just after the merger of Glaxo Wellcome and SmithKline Beecham (SB) was formally approved, GlaxoSmithKline (GSK) wrote to its partners reassuring them of its intention to honour its existing commitments. Hewlett Packard (HP) made a similar undertaking on its 2002 merger with Compaq. According to Skip Rhodes at ChevronTexaco, the heritage companies, Chevron and Texaco, reviewed all their grants to consider whether they were ‘aligned with our newly merged company, and also would continue to meet the needs of the community’. The scale of this task can be judged by the fact that the two companies combined operated in 180 countries.
Continuity rather than change
His remark shows not only the thoroughness of the review, but also two of the main criteria against which such reviews take place: effectiveness for the grantee and conformity with both the work and the ethos of the company. However, in the case of the four companies we spoke to, though changes inevitably occurred, the emphasis of the merged company policy was on continuity. Glaxo Wellcome supported the United Way Campaign through matched giving, but SmithKline Beecham did not. GSK now does. Deutsche Bank has continued to support Bankers Trust programmes though they were often neither complementary to, nor congruent with, those of the original Deutsche Bank.
There are two main reasons for this. First, as with other aspects of merger, an obvious motive is to benefit from the expertise and existing ‘goodwill’ of each partner. As Skip Rhodes said, ‘what we tried to do was pick the best of what each company had to offer. We also had to be extremely mindful of the reputation, image and community presence that each of the companies had.’
Secondly, and again quite evidently, companies usually merge with others involved in the same kind of business and they often have as the focus of community activity something that reflects that business. The emphasis of HP’s community programmes is on e-inclusion and bridging the digital divide because, as Bess Stephens of HP observed, ‘we feel we can contribute most in the space where we have most expertise’. (In this case, the programmes of the two merging companies were generally reasonably well aligned. Where this wasn’t the case, HP was unable to maintain all of Compaq’s activities – see below.) Similarly, the main thrust of both Glaxo Wellcome’s and SB’s community efforts was in healthcare and health education and this is unchanged following their merging as GSK.
A third reason is suggested by Skip Rhodes’ remark, quoted above. Being ‘mindful of the reputation and image’ of a company means being aware not only of the goodwill and prestige the company has built up, but also of the potential for bad press following an ill-considered or insensitive shedding of a community programme.
However, there can be more compelling, positive reasons for the merged company to embrace the programme of a heritage company. GSK is involved in the Global Alliance to Eliminate Lymphatic Filariasis (LF), an involvement it assumed prior to the merger, as SB manufactures one of the two products necessary to break the transmission cycle of the disease. It commits GSK to an extensive 20-year donation programme and is clearly more than a high-prestige, cheque-writing exercise.
An odd couple proves compatible
In the case of Deutsche Bank and Bankers Trust, both companies had quite different forms of community involvement. Bankers Trust had always had a social investment role, while Deutsche Bank had traditionally been a supporter of arts, cultural and scientific projects. However, the fact that it had little existing corporate citizenship presence in the US meant that there were no real conflicting activities.
Furthermore, the separate spheres of interest have not only managed to co-exist, they have even benefited from a degree of cross-fertilization. Deutsche Bank’s commitment to environmental sustainability was integrated into Bankers Trust’s social housing initiatives, with a team of German architects visiting the US to advise on green building, while Bankers Trust was influential in making Deutsche Bank’s art collection more available to the public. More striking is the case of Initiative Plus, the signature global volunteer programme of the merged Deutsche Bank. Bankers Trust had volunteer programmes prior to the merger, but Deutsche Bank had none in Europe. The new programme is evidence of a commitment on the Bank’s part which it has ‘learned’ from its partner.
Bess Stephens of HP also drew attention to the occasionally symbiotic nature of mergers for the companies’ community involvement. Both Compaq and HP had cash-matched giving programmes, but while Compaq staff could give to the non-profit of their choice, HP employees were limited to those set by the company. After the merger, HP incorporated the best of both programmes so that employees now enjoy greater latitude in the cash-matching programme. On the other side, HP had a product giving scheme whereby employees could donate equipment to a cause, with the company bearing three-quarters of the cost and the employee a quarter. Following the merger, former Compaq employees have access to this scheme too.
In their own backyard?
However, the restructuring attendant on mergers has inevitably meant some community casualties. In the case of Deutsche Bank and Bankers Trust, said Gary Hattem, both companies typically only ‘support programmes where we have people’, and the level of community involvement is governed by the level of business activity in a place. When part of Deutsche Bank’s operations in Nashville was sold, reducing the number of staff in the region, this led, in turn, to a significant reduction in philanthropic giving.
Skip Rhodes said that the thinking at the Texaco-Chevron merger was that ‘our grants are provided in those communities where the company has a specific operating presence, and … where our employees live and work’. Again, this has meant that some have fallen by the wayside. New York, for example: Texaco’s headquarters were there but ‘the new company has no representation in New York City’, while a facility in Harrison, NY has been sold.
So companies tend to concentrate their community efforts where their business is. This truism, however, needs some qualification. Even Gary Hattem’s unequivocal assertion above is tempered by an exception – Deutsche Bank has a microcredit programme that operates globally. In the case of HP, the assessment of grants will, to a certain extent, depend on the size of a budget allocated to a particular region and this in turn will depend on how big an operation the company has there. However, where it has no local presence, HP will work in partnership with an NGO or with a local university. As Bess Stephens affirmed, ‘we have a global reach and we give globally’. The biggest concentration of GSK’s community activity is in the UK and USA where many of its employees are (and, as Justine Frain observed, many of its shareholders are in the UK and programmes are supported with shareholder money), but its flagship public health programmes – to combat LF, malaria and HIV/AIDS – are all ‘focused on the developing world’. She also made the point that judging the level of activity by expenditure is in any case misleading. It is possible to do more with less in developing countries, and the amount of funding needed to run a project in Africa will be considerably lower than is needed to run a project in London.
Why some programmes lose out
The most common reason for companies ceasing to support initiatives was the kind of geographical reshuffle mentioned above. But there were also occasions when the activities of one of the companies did not fit with the philanthropic stance of the merged company. Prior to the merger with HP, Compaq had worked mainly with four organizations in the US. HP decided that one of these, the National Center for Missing and Exploited Children, was not aligned with its focus on technology e-inclusion so, while they honoured the commitment that Compaq had made for that year, they gave the Center notice that they would discontinue the grant thereafter.
In the case of the four companies we spoke to, though, this was rare. There were other examples where previous commitments were not being renewed, but this was to do with the lifespan that companies allot to the grants they make, not a result of the merger. Deutsche Bank, for instance, has a three-year funding cycle which is seldom exceeded, while Justine Frain said that both Glaxo Wellcome and SB had multi-year funding programmes which had come to a natural conclusion.
As one might expect, flagship programmes generally survived but even this was not universal. Texaco’s sponsorship of the Metropolitan Opera in New York, for instance, was phased out after the merger with Chevron.
So what happened when programmes had to be discontinued? Again, companies appreciated the need for sensitive handling. HP met the leaders of each project it was ceasing to fund and explained the process and the decision to them. At ChevronTexaco, ‘what we did was, first off, give them as much advance notice as possible’, said Skip Rhodes. ChevronTexaco also made exit grants in some places. In others, where there had been larger programmes, what he called a ‘stair step’ approach was taken. The subsequent grant to a project was reduced and the one after, the final one, was reduced again, so that withdrawal was carried out gradually over several years.
Under new management
What effects did the mergers have on the management of community programmes? No short answer to this, though there was a general theme of trying to strike a balance between centralization and a degree of local autonomy. In the case of HP, where Compaq’s philanthropic programme was, as Bess Stephens put it ‘evolving’ and confined mainly to the US, there were obvious reasons why the model of the much larger HP was chosen. While she has overall responsibility, there is a person she described as ‘an extension of me in each region around the world’, responsible to their own board of directors, who handle giving and implement the centrally determined strategy regionally. There are also community affairs people in other areas where HP operates, such as the Bay Area and Houston, who have their own budget for local implementation and a certain amount of latitude in its spending.
GSK took elements of the systems of both heritage companies. SB had three regional committees that funded most of its community activities. Glaxo Wellcome had a central committee which chose programmes and allocated funds. Local companies ‘made additional, often substantial’ contributions. GSK has created a central function, Global Community Partnerships, to develop and manage its community programmes worldwide. It also has four regional committees with representation from different elements of the businesses in those regions so that appropriate programmes are supported there. Local companies can still support local causes from their own businesses, but now report them to Global Community Partnerships. What the system does, explained Justine Frain, is to give better oversight, especially since a lot of what previously happened locally was not visible at the centre.
A similar compromise between central and regional was also reached by ChevronTexaco – what Skip Rhodes described as ‘decentralized but centralized’. At Texaco, although international business units had their own budgets, they could also make a proposal to headquarters for funds that would be paid out through a foundation, the Texaco Global Fund. At Chevron, by contrast, regions had ‘focus areas’ to choose from, but were able ‘to make the decisions themselves as to where they put their money’. This is generally the philosophy which has prevailed in ChevronTexaco, although there will be a central theme to company giving and headquarters staff will work with local staff to ensure that more grants go into that area. This is perhaps the thing that emerges most clearly from the ChevronTexaco example – the need for central staff to work closely with regions. As Skip Rhodes remarks, ‘a vital factor is to work with the local people in the company who administer the grants in those communities … because that’s where the impact is going to be felt and they best know their communities.’
At times, mergers are not only affected by corporate cultures, but by national ones. As Gary Hattem remarks, there are times when he and his European colleagues from Deutsche Bank ‘read a situation differently’. The Bank had little tradition of working in disadvantaged communities in Germany, a fact which he attributes to a cultural difference between the US and Europe, where welfare matters are much more likely to be considered the province of the state rather than of the philanthropic individual or organization. However, this has not been a source of conflict because both were aware and respectful of each other’s differences. As with ChevronTexaco, both appreciated that local sensitivities need to be managed by local staff, so philanthropic activity in each major location is overseen by a local executive. To that extent, though the Frankfurt office acts as a secretariat, the operation is not overly centralized.
Human and financial resources
‘Head count reductions are a reality in mergers,’ remarks Justine Frain. Indeed, one of the commercial benefits of merger is the streamlining of the operation of the two companies. We might expect, therefore, that the human and financial resources allocated to community commitments in the merged company would be less than the sum of that invested by the heritage companies. However, this was by no means always true in the case of the companies we spoke to.
There were staff losses at GSK and Skip Rhodes said that he was ‘doing more with less’ at ChevronTexaco, but this was not true of Deutsche Bank or HP. Bess Stephens said that, while there had been some reorganization, there had been no redundancies. More positively, the merger had increased the geographic scope of her staff. Former Compaq employees had been gained in New England and Houston and this was important ‘because we still have 9,000 employees in Houston’.
As far as financial resources are concerned, only ChevronTexaco reported any diminution in the overall amount invested after the merger. The other three said that the investment of the merged company was at least equal to the sum invested by the heritage companies. In the case of GSK it was greater. In fact, as Justine Frain remarked, ‘it looks as if the amount has gone up tenfold’, though, as she pointed out, the improved oversight of company giving since the merger (see above) meant that this was not a true reflection. Certainly, though, expenditure had increased because some programmes like the LF programme were growing and would continue to do so until at least 2010.
Made-to-measure, not off-the-shelf
The mergers we have looked have been characterized by a considerable degree of forethought and the fewest possible changes in regard to corporate citizenship. Overall, merged companies have been keen to preserve what they can of the community programmes and practices of the heritage companies, even where these were quite dissimilar.
However, what this account shows above all is the impossibility of laying down a pattern of how companies approach their community commitments at a merger – every generalization tends to be accompanied by an exception, even in the small number of cases considered here. But what it also suggests is that, with careful planning, merged companies can benefit from the heritage companies in the sphere of community, as well as commercial, activity.
Alliance would like to thank the following for taking part in the interview on which this article is based:
Bess Stephens Vice President and Global Director, Philanthropy and Education, Hewlett Packard
Gary Hattem Managing Director, Deutsche Bank, New York
Justine Frain Vice President, Global Community Partnerships, GlaxoSmithKline
Skip Rhodes Manager, Corporate Community Involvement, ChevronTexaco
Andrew Milner is Alliance Associate Editor. He can be contacted at firstname.lastname@example.org