Still seeking quality

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Merger Ability

It is an accepted business paradigm that mergers can be instrumental in corporate growth, especially as positions in the top three companies are in many sectors associated with taking the lion’s share in total profits realized in the sector. However, the overall global picture shows that the majority of mergers are unsuccessful because they either fail outright or the financial savings of consolidation, mostly capital and expense synergies, are in the end not larger than the costs incurred through the merger. A crucial factor in the ability to acquire and integrate another company is determined by information technology and systems. Paul McCrossan, an international expert and consultant in merger negotiations among financial firms, told a Beirut seminar last month that in his experience, “a company with an excellent computer based administrative system can absorb another company one third its size with a similar product mix with almost no additional administrative staff – if it has a decent administration system.”

Banks in the alpha group have established good IT systems and automation levels, which would meet the requirement for technical administrative capacities that increase the ability to integrate a smaller bank.

Transparency of operations and openness of corporate culture are further factors seen as supportive of integrative abilities in a business organization, whereas the fixation of the entity on a single dominant individual as top decision maker is regarded as a potential obstacle.

For the record, a full nine of the 12 banks in the lead of the industry have accomplished acquisitions of smaller banks. Byblos Bank, SGBL, Bank of Beirut and Fransabank have the strongest track records for completed mergers and acquisitions in the last five years. Before shouldering the responsibility for building the Audi-Saradar group, both parties to the rapprochement had succeeded in absorbing smaller banks. Banque de la Méditerranée, although it does not prioritize presenting the public with a transparent view of its balance sheet figures and processes to the extent practiced by its peers, also has the systems and proved its ability to integrate a smaller bank into its group by buying Allied Business Bank in November 2001. Credit Libanais, which had undertaken two acquisitions in 1994 and one back in 1977, picked up the business of the American Express Bank in Lebanon in June 2000. These often-quoted merger waves and their sector-purging effect not withstanding, experts contend that the institutionalization process of Lebanese banks has been uneven and describe personality-centric management cultures in at least two big banks as obstacles standing against maximization of benefits from mergers, both potential and actual. From negotiations over assimilation of numerous small banks into larger ones in the past 10 years, it is also evident that the acquisition candidates –specifically because of lacking financial transparency but also owing to vanity issues on part of owners – have presented difficult negotiation partners.

Corporate governance

A critical qualitative category, and major buzzword in management seminars, is corporate governance. Although the level of corporate governance has improved over the past decade in all leading banks and human resources strategies have been implemented, experts view the level of institutionalization and corporate governance achievements in Lebanese banks as still lagging behind international standards. Good internal communications are crucial for achieving a high-quality corporate governance and strong identification between employees and bank. Proactive Lebanese banks have moved towards open door policies and open communications structures. In several major banks, however, employees admonish that communication fails in terms of reciprocity. Especially performance reviews are strictly one-way processes, top-down, and evaluations of their superiors by employees are missing from the corporate culture. Talking to Executive in confidence, banking insiders with many years of experience in operations and middle management raised further serious questions on the progress of corporate governance (see box).

The positive outlier in terms of achieving a corporate governance quality that is comparable to good, although not the top internationally achieved levels is Banque Audi, with Bank of Beirut and SGBL also mentioned by analysts and consultants as advanced on the path to fulfilling institutionalization.

Business Community Relations

The business community interactions between a bank and society are of two main categories, relations with customers, peers and business partners, and fulfillment of corporate social responsibility. Customers, who are the life of the bank, are treated generally with more courtesy and professionalism than in the mid nineties, when retail banking was traipsing precariously onto new grounds of customer relations. However, banks still get less flattering remarks when it comes to taking proactive roles in understanding and responding to customer needs. As ample anecdotal evidence from business and retail banking clients shows, customers still feel that banks are difficult to deal with, often bureaucratic, and less accommodating in practice than in their advertising projections.

The term corporate social responsibility (CSR) attaches a strategic quality to the contributions an enterprise makes to the community. CSR has been a concept on steady global advance for some 10 years. From large multinationals to niche entrepreneurs, corporations are emphasizing CSR as a core aspect of their identity and adopting the practice of publishing dedicated CSR reports. Lebanese banks by and large do not yet carry an emblematic CSR identity. However, banks are among the most socially active enterprises in Lebanon. Albeit showing a larger gap between local performance and international standards than for other qualitative elements, about half of the banks in the alpha group are perceived as more active than most in terms of contributing to their communities. What Lebanese banks generally have been lacking in, was adoption of specific areas of concentration and development of track records in pursuing a relevant CSR agenda and consistent activities, whether in ecological, social, educational, cultural or inter-communal dialogue. As an epitome in every assessment of quality achievements in the non-balance sheet dimension of Lebanese banks, one guiding thought should accompany the reflection on the status quo and continued strife after excellence: banking is a serious business but it is up to all stakeholders to put money matters daily into the context of the living qualities and inalienable truths that endow the entire play of funds and finances with value. A drop of humor, perhaps even self-irony, goes a long way in keeping the serious from falling dead serious.

Fair Game?

Unfair payscales and a glass ceiling are holding back the advancement of employees

Salary fairness, evaluation procedures and equal opportunities are still tender spots in the corporate culture of Lebanese banks. Although bank employees have, by national standards, an exceptional average income, the high total salaries over costs ratios at banks camouflage huge income gaps. Three to 4% of the workforce benefits from, by Lebanese standards, very large salaries, said an insider. A division head in a big bank can take home $150,000 in annual compensation but another executive in the same division, who holds near identical qualifications and responsibilities, but with a slightly lower position, would be paid no more than $30,000 or $40,000.

When no performance bonuses and incentives are paid, as was the case in several banks in recent years, motivation to provide outstanding service diminishes. Talking among themselves and to friends, increasing numbers of employees also express high frustration levels because they are aware of the exact financial gains that their work contributes to the bank but see their salary increases as disproportionately small in comparison to their productivity. This job dissatisfaction on the branch level can be exacerbated if local managers are perceived as under qualified. According to banking analysts, some branch heads are paid not because of their managerial skills but hold their positions solely on the basis of their pull as ranking members in the local township, which the bank regards as essential for attracting customers from the community. Banks accomplished opening the career ladder to women up to the middle and some upper management positions. The echelons above those levels, however, have thus far remained closed. “Are Lebanese banks ready to appoint a woman to the post of chairman or general manager? Certainly not today and not tomorrow,” said a senior female corporate loan manager in the upper ranks of a major bank, who deals with companies above $5 million in turnover. If a woman is both highly qualified and outspoken, her stand in the acquiescence driven and male-dominated Lebanese business environment is decidedly tough. “I am not a ‘yes person;’ that is why I have a lot of problems in my professional life,” she said, “but sex discrimination is not as obvious as some other forms of discrimination. If someone says that there is no religious discrimination in the banking workplace, they are lying.”

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.