Managing Organizational Change and Diversity in Workplace: The Case of Chohung Bank during the merger with Shinhan Bank

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Companies nowadays exist within the environment that is not particulary stable. And as such, one of the most sought after trait of any organization nowadays is ‘adaptability’. The ability to anticipate and embrace uncertainties and changes can, most of the time, becomes the key to the sustainability of the business. However, despite knowing the importance of it, many organizations, such as Chohung Bank, could not fully embrace the change, and even resisted it. Hence, it is interesting to analyze and understand what are the possible reasons to their resistance. In the textbook, Robbins & Judge (2013) posit the major forces for resistance to change, categorized by the sources to the resistance. The author proposed two key sources of resistance: Individual and organizational (Robbins & Judge, 2013). ‘Individual sources’ refers to barriers caused by human characteristics, such as perceptions, personalities and needs (Robbins & Judge, 2013). On the other hand, ‘organizational sources’ refers to barriers stem from the structural makeup of the organizations themselves (Robbins & Judge, 2013).

 

Background

Chohung Bank, one of the longest standing commercial banking institutions in South Korea with 107 years of heritage, was bought over by Shinhan Bank, the then up and rising bank in South Korea, after the financial crisis (Kanter & Raffaelli, 2008). Despite its long-standing in South Korea, the bank was, in fact, weak even before the financial crisis hits South Korea (Kanter & Raffaelli, 2008). As such, they could not handle the hit, and had no choice but to receive financial assistance from Korean government, which became its largest shareholder (Kanter & Raffaelli, 2008). During the post crisis, in 2001, H&CB and Kookmin Bank merged to form a new Kookmin Bank that almost dominated the industry with a market share in excess of 30% in loans and deposit (Kanter & Raffaelli, 2008). Shinhan did not want to remain in competing with other small and medium sized enterprise banking institution (Kanter & Raffaelli, 2008). And in order to compete directly with Kookmin bank, there is a need to form a merger bank (Kanter & Raffaelli, 2008). This propelled them to make the strategic decision of acquiring Chohung Bank when the government began to entertain offers to sell off the shares it purchased from insolvent banks (Kanter & Raffaelli, 2008). When the news of the bought over was announced, about 3,500 Chohung Bank’s employees went in front of the main building of Shinhan Bank to shave their heads as a last-ditch attempt to forestall the sale of the bailed-out bank (Kanter & Raffaelli, 2008). In attempt to appease the angered protestors and allow a smooth merger, Shinhan signed an agreement with Chohung’s union, on which they agreed to raise wages, promise no layoffs, have equal representation of both banks on key committees, and wait three years for full integration (Kanter & Raffaelli, 2008). This agreement has proven to generate a significant payoff for the Shinhan Financial Group (Kanter, 2013). Within a year, shareholder value had increased and employees from both banks were informally integrated, and the union was neutralized. Within three years, Shinhan Financial Group was outperforming not only the industry but also the entire South Korean stock market (Kanter, 2013).

 

Reasons they resisted

Using the model proposed by Robbins & Judge (2013), there can be several reasons behind the resistance of Chohung’s Employees.

 

Individual Source: Habits

Chohung

Chohung Bank was easily one of the commercial banks with the longest heritage in South Korea (Kanter, 2013). As such, most of their employees had probably spent more than half of the life with Chohung. This made it tough for them to embrace the change in their habits. Due to the differences in operation and system between Chohung and Shinhan, there might be a need for them to change their routined and familarized working habits.

 

Individual Source: Security

To the Chohung’s employees, being acquired was seen as a sign that their bank was the weaker bank between the two. This is especially so in the context of Korea, where it is deeply rooted with Confucius teaching and Chinese values. In the cases of other mergers that happened during the time, many were laid off after the mergers. Hence, many Chohung’s employees resisted the merger due to the fear of their job security.

 

Individual Source: Economic Factors

As mentioned earlier, many Chohung’s employees had the perception that by being bought over, they are the weaker party. Hence, the feared that this can very much affect their pay and also their promotion opportunities. In addition, the post crisis environment made everyone worried about his or her livelihood.

 

Organizational Source: Group Inertia

Group norms can act as a constraint. The emotional attachment to Chohung Bank is one of the main reasons that underlay the resistance of this merger. The sense of pride towards Chohung Bank was the norm for the employees, and especially so for those who have spent many years with the bank.  This merger was deemed as demeaning to the 107 years old long-standing bank by many of its loyal workers.

 

Organizational Source: Threat to established power relationships

According to Robbins & Judge (2013), one reason for the resistance can be due to the fear of the threat on the long-established power relationships within the organization. Besides being the bank that has more than a hundred years of heritage, Chohung is the only commercial bank where the CEO had been with the bank for 37 years (Irvine & DiBiasio, 2001). This can implicate that the same people may had fulfilled certain positions in Chohung for a long time, and it would be hard for them to give up the long-established power relationship within the organization.

 

Other Restraining Force: Culture

chohungbank

In my opinion, besides the suggested individual organizational sources of resistance that possibly impeded the change, there could be other restraining forces (if we look at this using Lewin’s Three Step Model) that hindered the change. One of such forces is Culture. With reference to Hofestede’s Cultural Dimensions of South Korea at Figure 1, we can see that South Korea has relatively high uncertainty avoidance. This can imply that, generally, South Koreans are unable to embrace uncertainties and can be resistant towards change. Hence, on a macro-level, we can understand that in it is in the culture of Chohung’s employees to avoid change and want to remain the status quo.

 

And when we look at this in a micro-perspective, we can see a deeply entrenched South Korea traditional conservative culture in Chohung’s organizational culture. For instance, despite suffering from several years of poor leadership (Kanter & Raffaelli, 2008), insisted on keeping its CEO for more than 37 years, can be a sign of high uncertainty avoidance. On whole there are differences in organizational culture between Chohung and Shinhan. According to Kanter & Raffaelli (2008), Chohung and Shinhan has a disparate corporate culture. For instance, the brand image of Shinhan tries to appeal to primarily middle market customers by locating branches at metropolitan areas, while Chohung, with its long heritage and prestige, appeals mainly to higher end consumers by locating at some of the most prestigious area in Seoul (Kanter & Raffaelli, 2008).

 

overcome

Besides understanding the underlying reasons behind the resistance, we can also learn a thing or two on how Shinhan Bank tried to overcome the resistance towards establishing the merger. In the textbook, Robbins & Judge (2013) proposed eight tactics that can help change agents to deal with the resistance to changes. We can use some of the tactics to undercover how Shinhan Bank managed to overcome this resistance.

 

With the aim of integrating Chohung and Shinhan business processes and disparate organizational cultures, Shinhan used an unconventional post-merger integration strategy, which spanned across two to three years, that emphasized on integrating the traditional operation and, at the same time, “emotionally’ integrates the employees too.

 

Education and Communication

According to Robbins & Judge (2013), effective communication of the change to the employees helps to reduce employees’ resistance. After the head shaving incident, Shinhan Bank did not simply ignore the incident and carried out the merger. Instead, the explained the situations and allowed the Chohung employees to voice out their concerns. Their concerns were then taken into consideration when Shinhan was drafting the integration plan. This act was unprecedented and unconventional in the other mergers in South Korea. In my opinion, this helped to reduce the negative emotions of the Chohung’s employees about the merger, as they felt that their voices were being taken into consideration.

 

Participation

Participation of members of the change can not only reduce resistance, but also increase members’ commitment to change and might increase the quality of the change (Robbins & Judge, 2013). Shinhan insisted that, instead of the perspective of Chohung being acquired by Shinhan, this merger is for the development of a new bank under the Shinhan Financial Group umbrella of service (Kanter & Raffaelli, 2008). As such, on a bigger picture, there’s an equal participation from both Shinhan and Chohung. Additionally, in attempt to achieve an equal participation from both banks to achieve the ultimate goal of establishing a new bank, Shinhan Financial Group leadership created twenty upgrade program teams that include members from both the banks (Kanter & Raffaelli, 2008). This allowed employees from the same department within each bank to work together on what the new combined model should be like (Kanter & Raffaelli, 2008). As mentioned earlier, Chohung employees saw this merger as an insult because it signified that Chohung, the long-standing prestigious brand, was weak since it was being bought over by the ‘rookie’ in the industry. Hence, by emphasizing that this merger aims to establish a new bank helped to lessen the sense of loss in pride. It also helped to foster commitment when Chohung employees felt that they are part of the team and felt the sense of importance.

 

Implementing Changes Fairly

Transparency and fairness were two things Shinhan tried to establish during the integration process. They established a ‘Joint Management Committee’ that were acting as the decision making body during the integration. To ensure fairness to both banks, the eight members of the committee were selected from both Shinhan and Chohung (Kanter & Raffaelli, 2008). They were tasked to approve all integration activities (Kanter & Raffaelli, 2008). This is to reassure employees from both the banks that neither of their welfare would be at any disadvantages. As mentioned earlier, some sources of resistance were stemmed from Chohung’s employees’ worries about their well-being, and this helped to remove that barrier.

 

Develop Positive Relationship

            A bulk of the integration activities placed emphasis on integrating the employees from both banks emotionally. This was because Shinhan understood that the disparity between both banks’ culture can be the very issue that impedes the success of establishing an efficient working environment. As such, they tasked the Strategy Team to come up with emotional integration events, with the key idea of developing and forging positive relationship between employees of both the banks. For instance, in 2003, more than 1300 executives and managers from both banks were invited to the Seorabol Summit, where they did bonding activities such as climbing the mountain together and drinking and dining together. According to Kanter & Raffaelli (2008), these programmes aimed to allow employees from both banks to begin to stand in the same direction and understand each other better.

 

Conclusion:

Besides the eight tactics suggested by Robbins & Judge (2013) in the textbook, I feel that there are other factors that helped to remove the resistance from Chohung’s employees and eased them into the integration successfully. One of these factors is ‘Time’. One key reason to the successful integration was the fact that they set aside a buffer time that allows a ‘non-pressured’ change. The same logic goes to asking a normal person to change his or her habits. Many of times, gradual change can ease employees or organization into the change.

 

Although they had successfully integrated both banks, I feel that there are other issues that should also be addressed. For instance, the subcultures that can exist even within the organization. And what about establishing a new organizational culture for the new bank? On one hand, we have Chohung that was deeply entrenched with the conservative traditional South Korean culture, on the other, we have Shinhan with the culture that focuses on performance and driven by individualism. As such, what will be the “new” organizational culture for this ‘new bank’? And would the newly established organizational culture be sustainable?

To wrap this up, I would like to share the current corporate video of the Shinhan Financial Group.

References

Kanter , R. M. (2013, February 26). Great leaders know when to forgive [Web log message]. Retrieved from http://blogs.hbr.org/2013/02/great-leaders-know-when-to/

Robbins, S. P., & Judge, T. A. (2013). Organizational behavior. (15 ed., pp. 511-525). United States of America: Pearson Education, Inc.

Kanter, R. M., & Raffaelli, R. L. (2008). Shinhan financial group (A). Harvard Business Review, 9, 305-075.

 

 

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