Department Focus: Human Resources--Tricky Mergers

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When two healthcare organizations become one, combining management teams used to doing things their own way can be a delicate process.

When Community Health Systems decided to acquire Triad Hospitals in 2007, one of the first things Wayne Smith, CHS' chairman of the board, president, and CEO, did was travel to Triad's corporate offices in Texas to try to convince that company's executive leaders to join Franklin, TN-based CHS. Most of them said no thanks.

"Initially we were disappointed they decided not to join us," Smith says. "But in the end, the executives deciding not to come over to CHS may have worked out better because we already have a very clear strategy for running our business and a very strong management team in place. We've been together for years, and because of how long we've worked together, we have a firm understanding of our goals and objectives."

Whether it's a billion-dollar deal—like that of CHS and Triad—or the merger of two small rural hospitals, combining management teams can be a tricky situation. Senior executives have risen in the ranks because they are leaders by nature, and having to take a back seat to a former peer after a merger doesn't always sit well with type-A personalities.

Do your homework
Organizations typically spend significant time and money researching the financials and market position of a potential merger partner, but advanced research is also essential to understanding the dynamics of how a senior management team works, says Peter Maddox, senior vice president for business, strategy, and corporate development at Irving, TX-based Christus Health. Both Smith and Maddox say hiring an independent facilitator can help keep the executive team merging process running smoothly—but ultimately, they say, it's up to the executive teams to do their homework to ensure all of the key players are in agreement about the systems' operating philosophies.

"In general, I'd say you should know before the merger is ever finalized whether there are going to be differing opinions about operating philosophies. Now, if we were talking about merging two of our subsidiary operations, each with its own CEO, and those CEOs disagree about how to run the systems, both CEOs may need to sign separation agreements," says Maddox.

Get friendly
Beyond the process of research, the best way to avoid a contentious situation, say Smith and Maddox, is to actually get to know the executive team of the company you are about to do business with before the deal is finalized.

"Combining at the corporate level is more complex than at the hospital operating level because people have common goals and concerns in the hospital. They are there to give quality care to patients. At the corporate level, there may be different agendas in terms of what people are trying to accomplish," says Smith.

Before you even state your intent to acquire or merge, you should have already established a mutuality of interest, says Maddox. "If you don't start there, it's a waste of time. A merger will not work without motivated people with a common understanding of the mutuality of interest. If you skip that step as a leader, you have wasted time, money, and resources."

Who decides who goes?
Even if both sides do plenty of pre-merger research, clashes are sometimes inevitable, of course.

"You hope not to get in a situation where the executive level disagrees about operations, but let's say the CEOs at each company disagree about how that company should be run—that is going to be a very dysfunctional situation. At that point the decision is probably going to be about who is going to leave the company," says Smith.

In a scenario of dueling CEOs, the board of directors typically would decide who best fits with the merged company's objectives and operating philosophy. But if the disagreement is between the operators, presidents, vice presidents, or other leaders, says Smith, then the CEO must step in.

"The CEO has to look at the company's philosophy and the operator's experience and determine whether the executive staff sees the world in the same way," he says. "There is nothing wrong with seeing things differently, but ultimately you have to have the same operating strategy."

—Kathryn Mackenzie

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