Cohesive corporate culture is key

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'Banks place a strong emphasis on serving customers, but the most important thing is attracting and retaining staff,' says DeLong. 'Corporate culture has become increasingly important. Bringing numbers to the bottom line is no longer the only thing that counts.'

The record of investment bank mergers in this respect has been mixed. 'Some investment banks are just an amalgam of cultures crudely pulled together,' says Julian Powe at consultants Towers Perrin. 'We see quite a few where integration hasn't been achieved. Two years on, people will come up to you and introduce themselves as so-and- so from whatever existed before the merger.'

By comparison, the most successful investment banks, such as Goldman Sachs and Morgan Stanley Dean Witter have very strong cultures. 'Morgan Stanley Dean Witter is a human place, where there are a lot of interesting characters plus a lot of team spirit,' says a former employee. 'The strength of Morgan Stanley's culture enabled the bank to approach the merger with Dean Witter with confidence.'

Ten years ago, however, the picture was very different. Following a period of rapid expansion, by the early 1990s it was comprised of 'fiefdoms that were undermining [its] ability to succeed', according to a recent article in the Harvard Management Review. Rivalry between the chairman Richard Fisher and president Robert Greenhill was challenging the firm's ability to react quickly and in a co-ordinated fashion. Managers were profit rather than people-focused, and the people were in it for themselves.

During the decade that followed, things changed considerably. Recently formed amalgams such as JP Morgan Chase and Dresdner Kleinwort Wasserstein may be interested to know precisely how.

DeLong worked closely with Morgan Stanley to achieve the metamorphosis. The cohesive but creative culture that he helped to engender was known as the 'one firm firm'. It spread the tenets of teamwork, firm-wide contributions, cross-selling and cross-divisional change, and transformed the organisation.

DeLong is in little doubt of the difficulties of altering culture in investment banks. 'An explicit conscious day-to-day effort must be made to effect change. The type of person attracted to professional service firms is very analytical, very smart, very entrepreneurial and very technically competent. It's a challenge to get individuals of this type to move in the same direction.'

At Morgan Stanley, the challenge was met by the firm's president, John Mack. After his promotion in 1992, Mack worked with chairman Richard Fisher to make the 'one firm firm' a reality. DeLong credits Mack with the energy behind the change: 'I know of no-one that has focused as much on leadership, management and nurturing a culture of respect. Processes such as performance-related pay and evaluation will have an impact, but at the end of the day the chief executive's influence over people attracted, hired and promoted is fundamental,' says DeLong.

John Mack's influence was far-reaching. Contrary to Wall Street tradition he told managing directors that they had to co-operate across divisions. Numerous initiatives promoted firm-wide collaboration. Divisional plans were discussed throughout the firm. Divisional leaders made presentations explaining their daily work to others. Worldwide training meetings and managing directors' conferences were organised. Mack himself hosted numerous dinners encouraging junior staff to mingle and follow his example. By demonstrating his commitment he helped enthuse others to change the way that they did business.

For all its infectiousness, enthusiasm alone was not enough. But it was backed up by substantive changes to operating systems. The proportion of reward based on firm-wide revenues was boosted. A new performance appraisal system was developed that encouraged teamwork, cross-divisional collaboration and firm-focused behaviour.

Ten years on, Morgan Stanley's metamorphosis has been largely successful. In common with Goldman Sachs it has a cohesive and global culture. And positive effects on staff are tangible.

'It's like moving from night to day. Here's a firm that's operating globally,' reflects a new employee.

Global culture is a fundamental source of competitive advantage, and banks seeking to integrate acquisitions can do well to learn from Morgan Stanley's example. However, there is a caveat: change takes time. DeLong reflects: 'Too many firms believe that they can transform their culture in months rather than years.' For newly merged firms, challenging the top two could be a long process.