Merger Collapse: Coopers Culture shock

Price Waterhouse and Coopers & Lybrand will shed some back-office staff as a result of their merger although they expect to do it by natural wastage rather than by declaring redundancies, PW senior partner Ian Brindle told Accountancy Age last week.

Speaking in the wake of the collapse of the planned merger between Ernst & Young and KPMG, Brindle acknowledged publicly for the first time that there would be job losses as a result of the merger, although he emphasised many new posts would also be created. Up to now both firms have insisted that no jobs would be lost.

Brindle also gave much more detail about the process of setting up the merger, disclosing that talks began in earnest between the two firms as long ago as May of last year, four months before the first public announcement.

He dismissed comparisons with the E&Y/KPMG merger which he said had been ‘cobbled together’ in a few weeks and said there were no parallels with the situation at Andersen Worldwide where the consulting and accounting arms are set to split apart.

He said the detailed work already done by PW and Coopers would enable them to answer any questions posed by regulators, including making available the information about audit margins which was cited by E&Y insiders as a stumbling block to its merger with KPMG.

On the subject of staff reductions, Brindle said: ‘We would not have gone into the merger if we had thought the costs would outweigh the advantages. The short-term costs (of the merger) are not that significant but you can start to get cost benefits out of the situation quite quickly. You must be a pretty poor businessman if you can’t. Of course it does not mean sacking staff.’

Asked if there would be job cuts in back-office staff he replied: ‘Yes, over time. I am not living in some cloud cuckoo land, saying life is wonderful and we can just double everything up.

‘But I am saying, and you can put it in print, that I am not here to fire people and to create redundancies. We try to be a good employer.

People will not go overnight.’

‘We will allow natural wastage to take care of the vast bulk of it,’ he continued. ‘We will offer people alternative employment, and not to the extent of taking someone from Aberdeen and sending them to Southampton.

It will be their choice. I have to go home to a wife and children. We have friends and neighbours who have been made redundant and lost their jobs. I am well aware of the costs involved.’

Brindle said the merged firms planned to avoid culture clashes by creating a new culture which was different from those of each combining partner. ‘The moment the regulator says okay, the number one priority is to go through the change process.

‘As far as Price Waterhouse people are concerned, we will be changing the way we do things and abandoning the attitudes of the past,’ he said.

The firm would call on its own management consultants to manage the change process.

He insisted that the two firms had spoken to chief executives and finance directors of major clients who supported the merger.

The system under which clients chose firms for the individual skills of their local partners were over. Now companies like Shell wanted to be able to call on the same firm wherever they were in the world.

‘Nobody likes a reduction in competition but people understood for the most part what we were trying to do and accepted that it had a rationale to it. Reaction at first was neutral to positive and then E&Y and KPMG came along and the thing turned on a sixpence overnight, which we could understand because there is a big difference between the mergers and people naturally tended to lump us together,’ he said.

‘That was casting a shadow over us and we got tarred with the same brush. If you take that shadow away and get us into the sunshine again I am quite happy for people to look at us in the bright light of day.’

Describing the state of the merger talks he said: ‘We have put in the foundations and we have now got the building inspector coming along to make sure it is allowed. Then we get the damp course and put on the bricks bit by bit.

Right now we are talking about the kitchen fittings.

‘If the European Commission asks why are we putting the cooker where we are, we hope we have an answer. At the moment we are asking should we have the split-level or the Aga.’

Assuming that the partners can agree where to put the cooker, they then face the much bigger challenge of living together in the same new home. Brindle believes that the partnership system, which appears to have failed so badly at Andersens, will enable them to live together in the merged firm.

At the time the merger was announced, both firms made much of the need to combine to serve an expanding world economy. In spite of the Asian economic crisis, Brindle said the underlying world economy was still strong.

‘The demand for our products and services is still strong,’ he said. ‘It is still the right time to do this.’