Just as law firms mergers change the landscape of the practice of law, mergers among the corporations these firms serve play an important role in the evolution of corporate law departments. When it comes to the merger and acquisition of mega corporations, it can result in a dynamic market force that changes the face of the global marketplace as companies acquire rivals, purchase companies with complementary missions, or use acquisitions to gain access to overseas markets. At the same time, the new corporation that results is able to draw upon myriad programs and best practices in order to further diversity goals. Two recent examples illustrate that while, like law firms, corporate mergers are not driven by diversity concerns, it remains a top priority.
New York-based JPMorgan Chase merged with Bank One Corporation, effective July 1, 2004. The combined company—known as JPMorgan Chase & Co.—instantly became a premier global financial services firm with assets of $1.1 trillion and operations in more than 50 countries, and maintained its status as one of the world's leading retail and investment banking firms. Similarly, internet service provider America Online joined forces with Time Warner on January 11, 2001, to become a media supergiant now known as Time Warner, with a huge internet presence, television networks, movie production capabilities, publishing arms, and cable systems.
While there is no exact blueprint for a successful merger, there are key elements that must be in place. Externally, the companies must have realistic goals about their shared role in the marketplace. Their products must be compatible, not conflicting. And their individual client bases have to come together as greater than the sum of their parts.
Internally, these companies benefit when their philosophies and cultures are similar. The legal issues associated with a merger are significant, and present a real challenge for corporate legal teams. Often, however, the most challenging merger-related issues are the "people" issues; when teams are culturally dissimilar, the challenge is greater still. When it comes to diversity, both sides have to have a commitment to encourage diverse leadership not only within corporate ranks, but also among key vendors, including law firms, advertising partners, and consulting agencies.
The merger process usually commences when CEOs size up their marketplace and "start talking to each other to see if there is overall strategic compatibility" between the two courting companies, says William H. McDavid, who serves as co-general counsel at JPMorgan Chase with Joan Guggenheimer who, prior to the merger, had been the executive vice president and general counsel of Bank One Corporation.
McDavid, a Yale University Law School graduate who, like Guggenheimer, has been at the helm of several merging companies throughout his career, says what follows are delicate discussions about factors like business synergies, potential cost efficiencies, management compatibility and possible management lineups, in addition to share price and stockholder reaction in the short and medium terms. When those talks become sufficiently concrete, the legal teams, composed of both companies' in-house counsel as well as their outside firms, become very active in assisting in negotiations, drafting the necessary agreements and performing due diligence to ensure that prior to finalizing the deal, each company understands the material risk of the other business as well as assuring that the merger will pass regulatory scrutiny with the Securities and Exchange Commission, the Federal Reserve Bank, or whatever agency has jurisdiction. In addition, either the Department of Justice or the Federal Trade Commission monitors merger activity between major corporations.
McDavid and Guggenheimer agree that a large part of the rationale for this particular merger of two financial titans like JPMorgan Chase and Bank One was diversification. "The two separate banks are very complementary because they don't have a lot of overlap. Bank One was a great retail bank on the deposit and branch side, as well as on the corporate and commercial side, and JPMorgan Chase was very strong in mortgage and auto lending, in addition to its investment banking aspects," says McDavid.
Not surprisingly, at the same time JPMorgan Chase and Bank One were addressing myriad personnel issues related to merger integration, they recognized that they shared a common vision including a strong commitment to diversity. On reflection, Joan Guggenheimer states that this can be an outstanding time to create, revamp, or refocus strategies for diversifying both corporate leadership and employees. "It is a very intense time period, but one benefit of that intensity is that you have the teams from the two companies involved working very closely together," says Guggenheimer, "so there is a real opportunity to get to know each other at a time when you are pursuing a common goal—which is to try to get this deal to closing." Indeed, from the outset, the firm leveraged its prior practice of leadership training in order to ensure the culture of the new firm was aligned—articulating 14 operating principles under the firm's mission and principle: "One firm. One team. Be a Leader," one of which was "value and promote diversity."
"By the time the deal actually closes, you have a significant number of people who have already worked together in the trenches getting things done," she says. "In the midst of this period of internal activity, it is critical to keep sight of the people issues, including diversity, to develop a shared vision, and to convey that shared vision and commitment from the outset. For example, a message from Bill Harrison and Jamie Dimon articulating a commitment to diversity for the new firm was one of the first merger communications to our employees. Bill McDavid and I put the diversity initiatives on the agenda of our very first global staff meeting and enlisted the support of attorneys in furthering our supplier diversity goals, and of all staff in becoming active on our merged Diversity Council and in advancing our corporate diversity agenda." McDavid and Guggenheimer also communicated the importance they placed on diversity to outside law firms.
A Diversity Plan That Resonates
What happens when the two companies that are merging face serious philosophical and managerial differences? That was the challenge that Time Warner's executive vice president of administration, Patricia Fili-Krushel, confronted when she came to work the day after the merger was finally approved, nearly a year after the two companies announced their intentions.
"The overwhelming advice I would give anyone who is driving diversity initiatives is sustained focus and patience because it is not something that turns around overnight, especially at big companies," says Fili-Krushel, a former president of ABC Television Network. "When you want to turn an oil tanker, you have to start fifteen miles back. These are big companies with loads of people, and when you have an initiative that is as important as this, it needs a sustained focus."
While everyone in the newly merged company had diversity as a goal from the onset, management still needed to learn to work within the parameters of its organizational structure. Fili-Krushel says she was working with America Online, which had an internet culture with a centralized management structure, and Time Warner, which was a fairly typical media culture that embraced a creative environment with a strong decentralized management structure. Time Warner's many divisions, including book publishing, the cable news channel CNN, Time magazine and the Warner Bros. film empire, all came with different traditions toward diversity.
"Some [of the divisions] did have diversity plans and some did not. It always was a priority but it never really had sustained focus, except at HBO, which had gone about it in a sustained way for 15 years and had made a lot of progress," says Fili-Krushel.
At the newly formed JPMorgan Chase, Guggenheimer and McDavid found that each company had an operating diversity program with similar goals and complementary, but different, approaches. "It was made very clear from the onset that diversity would not get lost in the shuffle as a priority in the new company," Guggenheimer emphasizes.
One of the distinct benefits of the corporate restructure that naturally follows a merger or acquisition is that a company can start fresh with ideas like new diversity initiatives. "You now have the opportunity to say, 'Let's all get together and figure out how to do this,'" says Fili-Krushel.
While it is essential to follow up those ideas with action, it is equally necessary to include all participants, management, employees, and even outside vendors in the process.
For Time Warner, the object was not only to garner new ideas from each division, but also to incorporate companywide practices that were proven to work. To that end, the company charged a group of senior corporate managers, who worked on the strategy for about six months. Outside executives shared their diversity best practices, and the company also worked with a diversity consultant. They also created a diversity council to formalize and advance diversity and an action plan with metrics that were unique to that division. Still, there were some absolute mandates. For instance, says Fili-Krushel, "Everyone has to interview diverse slates of candidates. Everyone must have performance reviews. That sounds basic, but a lot of companies don't have these things."
Diversity also becomes a bottom line issue for top executives. "Each of our CEOs is held accountable for diversity in their annual goals, and a portion of their bonus is tied to that success," says Fili- Krushel. "We look to attack diversity on a comprehensive strategy: supplier, work force, target markets, content, philanthropy, and targeted investments," she adds.
As an example of implementation, Fili-Krushel points to supplier diversity, which ensures that a percentage of vendors are women and minority-owned enterprises. "We have a program where we measure the amount of money we spend with our vendors," she says.
But tracking dollars and compensating people for keeping diversity goals on the front burner can only go so far. Corporate leaders have to understand, and believe in, the benefits.
"How do you make that come alive for people?" asks Fili-Krushel, who shared an anecdote from the merger as a response.
"We had a meeting with our diversity steering committee and I was trying to figure out, how does this come alive for people? We brought in a group of people who do business with our company, and we had senior managers around the table. And one of the executives asked one of the suppliers why they hadn't brought a certain product to the company: 'Why didn't you pitch that program to us?'
"This attorney, who represented a client, said, 'You don't have anyone on your staff who gets it.'"
"And this person asked, 'What do you mean?'"
"'Well, I took it across the street because they had a diverse executive there who will take my product and will hand-hold it through their system. You don't have anyone.'"
"A light bulb went on over the head of this executive, who said, 'Oh my god, do you mean I am disadvantaged in the creative community because I don't have a person of color on my development staff?'" And even though they may have known they needed to have people that reflected their audience, they really didn't get how it would benefit or disadvantage them. Within a month, this person had a Hispanic and an African-American development executive on their staff."
The key, says Fili-Krushel, is finding ways to encourage those seemingly simple breakthroughs so company executives can take the initiative on their own.
"It is trying to figure out, how do you make this come alive to make them understand the business imperative and why as a company, we will be strategically advantaged if we do this well."
At a company where public figures are in front of cameras, on the big screen, or on the back of book jackets, Fili-Krushel says it is not hard for most people to make the links.
"Because we are in the consumer products business— all of our products are consumed by the wide demographic that makes up this country—we are always focused on what our users, subscribers, readers, and viewers want. So it is quite easy to make a business case for why your organization needs to be diverse," says Fili-Krushel. In addition, she says, "Nobody needed to be convinced of the business case, it was more 'How do you get there?' and, 'Why aren't we doing a better job?' We don't need to convince anyone that this is important; it's just, 'Why aren't we doing better?'"
As an example of the JPMorgan Chase's complementary but different approaches to diversity matters, Guggenheimer and McDavid highlighted their respective firms' work on supplier diversity and on tackling diversity issues within the legal department. They evaluated supplier diversity practices and they saw that both firms had deep-rooted and evolved supplier diversity programs. This meant that in the case of law firms the supplier diversity agenda would have to not only identify minority and women-owned law firms, but also recognize the fact that representation and partnership in majority-owned firms is an important way to advance the presence of minorities and women in the legal profession. They found that JPMorgan Chase's and Bank One's Legal and Compliance Departments had complementary approaches to supplier diversity which, together, accelerated the work they were doing.
According to Guggenheimer, JPMorgan Chase—which became a signatory to the New York Association of the Bar's Statement of Commitment to Diversity—had for years tracked and considered law firm demographics and manifest commitment to diversity, and had processes in progress for communicating and considering this information when selecting outside counsel. Bank One had focused on creating forums and dialogues in order to articulate its overarching message, which was to encourage law firms to identify and follow best practices while at the same time starting to collect demographic data about the firms. Both, however, made it clear that diversity and a commitment to diversity would be among the criteria in selecting counsel.
Accordingly, the first steps included using JPMorgan Chase's approach and wealth of information as a baseline, communicating the ongoing diversity commitment to law firms and reaching out to those firms with partnership offers and ideas and assistance to help meet the challenge. When the JPMorgan Chase/Bank One deal closed on July 1, Guggenheimer and McDavid sent a letter to all significant law firm suppliers that diversity was a "day one" issue, and that "we would be working together to accelerate and reenergize that effort," says Guggenheimer. "I wouldn't say we started fresh because we had both done so much at that point, but it added a renewed vigor," says Guggenheimer. She sees that renewed vigor, for example, "in thinking through supplier diversity, and how we interact with law firms." Guggenheimer takes lessons from the past and is very optimistic about the future. "Each of us embarked down that road, but in a somewhat different way, and bringing it together we think that we will be able to do better than each of us had done so far alone," she says.
The challenge of diversity is as acute in the financial sector as it is anywhere else, including the legal profession. "There is a general sense in the population here that diversity is a high priority in the firm and that the firm is constantly working to do more and to do better," says McDavid.
McDavid believes that, over the years, the old J.P. Morgan Chase & Co. indeed accomplished much, especially in the areas of better training, more development opportunities, mentoring, and better feedback on performance for women and minority attorneys. Notably, their Houston, Texas-based division's law department was recognized in 2001 as an MCCA® Employer of Choice for their diversity leadership.
Many of these programs and initiatives were identified in response to focus groups and polls, which were undertaken in order to solicit suggestions regarding specific employees needs. "In a way, the diversity effort has pressed us to become better managers, because to do the right things from a diversity standpoint turned out to be exactly the same things we needed to do for general good management," says McDavid.
While McDavid also cautions that one negative side to mergers is that, if not handled properly, diversity can be neglected, and progress from a diversity perspective can be at risk, he is quick to emphasize the fact that the creative process he, Guggenheimer, and others committed to at the beginning of the merger then comes into play. As they re-evaluate their post-merger team, the goal remains to have people with diverse views engaged and able to contribute toward the company's success.
Guggenheimer reflects on the recent merger. "Bill and I have been through many mergers before this, but in my experience, this one has been extremely smooth from a people and culture standpoint. I think a large measure of that is that the CEOs of the companies, who are now CEO and president, though very different in styles, presentation, and demeanor, have mutual respect and are working together in the kind of partnership that sends a message from the very top throughout the organization that this is the type of cooperation and team playing that is required from everybody," concluded Guggenheimer. Elisabeth Frater, Esq. is a civil litigator and freelance writer based in Napa, California.
From the September/October 2004 issue of Diversity & The Bar®