Mergers and the Vanguard Group

Mergers are often advocated as a way of generating powerful organizational synergies for both newly-united organizations. But merging together two dissimilar corporate cultures can often result in profound challenges. The Vanguard Group of Investment companies is a result of a merger of several organizations and the organization initially faltered in its attempts to gain a clear sense of direction. The board of directors was divided between those loyal to Philadelphia-based Jack Bogle versus those still loyal to the Boston investment firm that made up the conglomerate. According to Jim Hill, there was constant friction between the two sides and meetings often were focused more upon one faction’s attempt to dominate the other rather than advancing the true interest of the firm.

Vanguard thus showed all the signs of not being a truly merged entity but was more like a warzone of different alliances. This was not conducive to creating a functional and profitable company. Rather than dig in and attempt to oust or oppose Bogle (given such an attempt had already failed and further enflamed the conflict), Hill took Bogle to lunch and asked him a critical question, namely where he wanted Vanguard to be in the next several years. Bogle responded that he wanted Vanguard to be a low-cost provider of mutual fund services to the ordinary investor. This idea resonated and complimented Hill’s own vision and underlined the fact that despite the many differences between the two men, there was common ground as well.

Hill emphasized the vision that the different board members shared, rather than their differences. His first instinct was not to sow more dissent but rather to validate Bogle’s role, while still attempting to move the company forward with a common vision. Moreover, he also empowered Bogle by specifically telling Bogle to go forth and realize his aim. But implied in this statement was the fact that Bogle had to work with other board members to ensure that he was able to function in an optimal manner and reach critical benchmarks.

Eventually, the board of directors, unified by that simple commitment, decided to shift all operations over to the original Vanguard organization. The Boston faction grew less powerful in terms of the strategic direction of the firm but Bogle remained true to his commitment afterward to place the firm and its objectives first, not his own egotistical needs. Hill’s willingness to take an active role to smooth the interpersonal frictions on the board is an example of how a good board member must operate. Hill was well-versed in the needs of the organization, thus he did not object to Bogle’s framing of Vanguard’s essential purpose, which he likely agreed with himself). The Boston faction even did become an asset to the firm, offering valuable guidance in marketing the newly-functional entity.

Thus, while a merger certainly did create a problem for Vanguard initially, the fact that Hill was able to recognize the problem as fundamentally an interpersonal and cultural conflict saved the organization. Vanguard was able to generate valuable synergies from the merger thanks to its clarity of vision. These synergies did not come naturally, however, and Hill had the foresight to realize that they need to be worked on. Mergers are the result of effective bridge-building between the merged entities. Simply because an organization is one on paper does not mean it is one on reality. Thus Hill’s unifying question was clearly the right question at the right time.