Retail executives embarking on corporate mergers understand that company cultures can make or break such ventures. In fact, culture clash has been cited as the chief reason that mergers and acquisitions fail. A key question for the shopping center industry, which has seen considerable consolidation, is how to meld two distinct corporate cultures into one smooth-running operation.

"If you look at all the evidence amassed in the last 20 years, it says that 55% to 70% of mergers don't work out," says William Schneider, president of Denver-based Corporate Development Group, a consulting firm specializing in mergers and acquisitions.

A prime reason such initiatives fail is that leaders typically overemphasize financial, strategic and procedural elements. Those are important, admits Schneider. "But almost none of the weight is given to culture and leadership practices."

Once companies are married, Schneider says, the effects of culture clash become evident. "Things that they didn't pay attention to on the front-end - culture and leadership - now become increasingly salient or critical. And most of the time the leaders aren't real sure what to do about it."

How is corporate culture defined? Schneider, who wrote the book, The Reengineering Alternative. A Plan For Making Your Current Culture Work, simply describes it as "how we do things around here in order to succeed." The book breaks down 19 different factors that make up a corporate culture, including management styles, organizational structure, employee compensation, performance evaluations, and decision-making strategies. Overall, he advises any organization that wants to be effective to carefully align its strategy, leadership, and culture.

Two styles, one company When Jacksonville, Fla.-based Regency Realty and Dallas-based Pacific Retail Trust merged last February, the companies seemed extremely well-suited, says Mary Lou Fiala, president and COO of Regency. Both were in the grocery-anchored neighborhood shopping center business, focusing on key markets and attracting top regional and national chains.

However, from a cultural standpoint, it became apparent that there were differences that needed to be dealt with. Regency, a family-owned business that turned public in 1996, was a traditional, disciplined organization. Pacific Retail Trust, while disciplined in its investment criteria, was much more entrepreneurial in spirit, Fiala recalls.

Staying neutral With several mergers already on her resume, Fiala felt fully prepared to take on her new role at Regency. She headed the merger and spent her first six months working to integrate the two companies. "The key was to build trust and to listen to senior managers and maximize their strengths," she explains. "Once you have the senior managers feeling that they are a part of this new team, then obviously the people who work for them feel more comfortable. That was an easy transition because the two teams - East and West - had a great deal of respect for each other."

Fiala saw herself as a neutral party, similar to an outside consultant. She came in at the onset of the merger with no set agenda. "I didn't own a particular way," Fiala says. "It would be difficult to grow up in one or the other company and not want to do things the way you've always done them. An outside consultant could really facilitate that, but because I was neutral and had been through so many mergers, we didn't need one in this case."

When Regency was formed, everything started from scratch. Five months prior to the finalized merger, Fiala organized a transition team consisting of officers at the vice president level from the East and West Coast offices to find the best way to do things. She put together a daunting list of challenges that needed to be tackled.

Fiala's team met monthly before finally adopting the new set of policies, procedures and systems that now define Regency Realty's approach. The committee continues to meet on a quarterly basis to discuss how things are working.

"People are happy with what we've done," Fiala notes. Today, Regency is made up of 360 employees in 16 offices across the United States. "Even though we're a national company and geographically diversified, we've found ways to feel more tied-in and comfortable."

So how did the merged company fare during its first year? "We had an excellent year, not only from a numbers point of view, but as a whole," Fiala says. "Once we made our initial employment cuts, we only lost one person throughout the year."

The merger also broadened Regency's holdings. The $2.5 billion company owns 216 retail properties totaling more than 21.5 million sq. ft. It now has a development pipeline of more than $400 million.

Konover Property Trust Synergy and diversification marked the merger between FAC Realty Trust, a Cary, N.C.-based REIT, and Boca Raton, Fla.-based Konover & Associates South, a privately-held development firm. In March 1998, the two companies combined operations to form Konover Property Trust. The merger added $100 million worth of shopping centers to FAC Realty's portfolio. In addition, 15 Konover employees were added to FAC Realty's 150. Simon Konover was elected chairman of the board.

C. Cammack Morton, president and CEO of Konover Property Trust, says that FAC was already beginning its diversification into the strip shopping center business prior to the merger. "For FAC, the merger was a major step because of who Simon Konover was and because of the 10 properties in Konover's portfolio," explains Morton. "For Konover, the benefits were the systems that FAC had in place and the synergy of the public company. This promised to increase Konover's capacity."

The two firms never underestimated the necessity of integrating their cultures. "We spent as much time on cultural and philosophical issues as we did on the math of the transaction, which I think was an important step," recalls Morton. "Senior management was directly involved in that. Someone who was just a consultant or facilitator would not have been able to address such issues in the same way."

Building a team In another merger last year, Konover added 7.2 million sq. ft. of shopping center space to its portfolio by acquiring RMC Realty Cos. The acquisition, which brought Konover's total number of centers to 154, also added two key executives, Suzanne Levin Rice as president, and Michael Leeds as executive vice president and COO of RMC/Konover.

A key ingredient of both mergers was to engineer an environment where all parties involved felt on the same team. "In the first example, the merger involved a small number of people, so it was easier to do. But when we did RMC/Konover, there were 45 people, so we went to great lengths to involve people in the decision-making process," Morton explains. "Although RMC/Konover is a subsidiary, we do not treat it as a subsidiary. We think of its employees as Konover employees."

In both cases the decision to merge centered on the belief that the cultures would fit together well, according to Morton. As Morton and Rice began negotiating the RMC merger, a certain synergy ensued which helped speed up the process, Morton says.

Similarly, Schneider advises leaders in merger negotiations to understand where they're heading and to identify their individual and collective strategies in advance. "A lot of work is usually done on the front-end, which is a huge factor in a successful merger." Also, he continues, a critical question retail executives should ask themselves is, "What kind of cultures do we have and how do we go about leading and managing our respective organizations."

Answering those questions first could make implementing a merger easier. For example, Konover designated a senior officer, Chris Gavrelis, to act as a full-time merger coordinator. Gavrelis was in charge of disseminating information, listening to concerns, and following through on certain aspects of merger plans.

"It's important to have a senior officer who understands the company culture," explains Morton, "someone who is good with people, and who has been through the process numerous times. Chris was here when I joined the company."

Preparing for change When mergers happen on a global scale, the complexity of an organization can increase exponentially. That's just what happened in March 1999 when Chicago-based LaSalle Partners merged with London-based Jones Lang Wootton.

Bob Welanetz is president and CEO of the Atlanta-based retail division of the new company, Jones Lang LaSalle. "The process of change when going through a merger of two entities is not to be underestimated," explains Welanetz. "The biggest mistake a lot of companies make is not readying themselves for the kind of impact that process creates."

A publicly traded company, Jones Lang LaSalle now operates in more than 100 markets in 33 countries on five continents. The size of the new organization made the technical and social aspects of the merger a complicated undertaking. "Although the technical aspects were quantifiable and apparent," Welanetz recalls, "even simple details had to be analyzed carefully, and opportunities needed to be identified to bring different systems together.

"The good news," says Welanetz, " is that from a technical standpoint, in working with the processes that companies have adopted, you actually have the benefit of looking at two and taking the best one. The challenge is to keep objective. It's difficult with people's loyalties and affiliations to keep an objective point of view when sorting through some of the logistical issues. Because people are more likely to gravitate to things that they've known versus things they haven't, they could be artificially influenced."

Schneider agrees that a corporation's culture powerfully reinforces the way it conducts business. "If a company has been around for 150 years, then the way it does things has been reinforced every day that it has been successful."

Welanetz explains that the similarities between Jones Lang Wootton and LaSalle Partners played a key role in the merger. "There was a very similar cultural feel to both organizations, which made the starting points and the integration points philosophically well in line," he says. "High priority to client service and an organization driven to serving the real estate community made it easier because the principal philosophies of the firms were much more in sync than you would expect. As a result, paying a lot of attention to those similarities has worked out quite well. What we've seen so far is that we've had an effective first year in terms of getting the groups connected."

The REIT connection The detail behind the planned merger of two shopping center REITs - CV Reit, Inc. and Kranzco Realty Trust - are currently being negotiated. The new company will be known as Kramont Realty Trust, an umbrella partnership REIT.

Louis P. Meshon, Sr., president and CEO of CV Reit, will assume the same title at Kramont Realty Trust when the deal is finalized in June 2000. Meshon explains that, "The philosophy behind the merger was to create a company that would increase our shareholder value." The combined entity will consist of 90 properties in 16 states with an $800 million asset base.

Kramont is hoping to combine Kranzco's large diversified portfolio and geographical diversity with CV Reit's in-house leasing and redevelopment capabilities, Meshon says. The two companies have been working on the details of the merger since it was announced in December 1999.

"We've brought together various departments, and we've reviewed various philosophies. In summary, it wasn't so much what we were doing or what they were doing. It's been more slanted toward what Kramont is going to be all about. Our goal has been to establish what is best for Kramont. Leasing, accounting, redevelopment, financing - all these various areas have been discussed and now we have a road map for the new entity.

"We appointed transition team leaders from each company and they've been meeting on a day-to-day basis. This has worked out very well," Meshon continues. "Tenant retention and tenant relations are paramount. They're the new paradigm as far as Kramont is concerned."

Meshon clearly understands the importance of integrating different company cultures. Leaders who fail to pay attention to the cultures they inherit do so at their own peril, warns Schneider. "Culture is even more powerful over time than leadership. Leaders come and go, but that company culture remains."