Mutual benefit

John Wrighthouse loves a good takeover

When the call comes from the chief executive, the HR director of Nationwide swings into action, adrenalin pumping, to head up an elite team that will map the target organisation, crunch the people numbers and pronounce on the viability of the deal.

It has happened four times in the past three years alone. Since 2007, Nationwide, the UK’s largest building society by miles (it is six times the size of Britannia, number two), has swallowed up the Portman, Derbyshire, Cheshire and Dunfermline building societies.

Of these, only the Portman deal was a fully planned affair, agreed a year in advance for wider strategic reasons. The other three were hasty rescues of societies that fell victim to poor lending decisions or the collapse of the property market. The Dunfermline merger, Wrighthouse recounts, was agreed in only one weekend. “On Friday we got the call inviting us to bid. By 4am on Monday morning the deal was agreed.” Mergers, he adds, becoming animated at the very thought, are incredibly exciting to work on – and the best business training you can have.

His formal title may be divisional director, human resources, but his other hat as head of Nationwide’s M&A team is enthusiastically worn. It’s understandable that Wrighthouse craves the sugar rush of the odd takeover or merger. The day-to-day business of a building society is not obviously exciting, and Nationwide, which has steadfastly stuck to its mutual roots makes a virtue of its dullness. “Solid. Stable. Dependable. Exciting, aren’t we?” runs the strapline of its recent advertising campaign.

Moreover, Wrighthouse has been there a long time. He joined what was then Nationwide Anglia in 1989 at an interesting time in the organisation’s history. Not only was it moving into new activities such as current account banking, following the so-called Big Bang of financial services deregulation in the late 1980s, but the merger between Nationwide and Anglia in 1987 was still painfully new.

According to Wrighthouse, it took about 10 years for the cultures of the two organisations to meld. “For years there were two power bases and people would ask, ‘Are you Nationwide or Anglia?’ That’s not acceptable. Difficult decisions about which model to follow and about losing key people were not made and that permeated everything.”

His task was to bring the three separately located functions – personnel, management development and training – under one HR roof in Swindon. Luckily for him, having joined post-merger made it easier to stay above the fray, but the fallout from those early days went on to inform his career.

Wrighthouse now has a carefully honed system for evaluating mergers and setting them up for the best possible start. The first stage is relatively easy, going through a checklist of basic items such as terms and conditions, pensions and looking for “people showstoppers”. Nationwide had previously considered a merger with Dunfermline, for example, but walked away because of the smaller society’s huge pension deficit. “There was £25-35 million that needed correction at the point of merger. Why would our members agree to that?” he says. (When it eventually agreed to buy Dunfermline in the weekend bidding process, part of the deal was that the government’s Pension Protection Fund would deal with the deficit.)

The next stage is to look at the infrastructure of the target business and where the knowledge base sits: “You want to see where the uniqueness of the organisation lies. With some small organisations the knowledge can rest in a small number of hands. Maybe there’s an old IT system and the only experience of it is in-house. However, you can’t buy in the expertise, so you need to know how you will cover the risk of these people leaving. You need to know if they want to stay and whether you want them to. And you need to make the call before the deal is signed,” he says.

You are also often likely to be dealing with imperfect information. During the Dunfermline merger, for example, there was some initial confusion as to whether Tupe or the newly passed Banking Act should apply (in the end, they went with Tupe). “A merger tests all your professional skills,” he says. “The contractual issues are only a part of it. There are so many other people and operational elements to think about as well. What are you going to do with the business, who is going to talk to the teams, how are you going to get the payroll started?” When mergers fail, he says, “it’s usually because people weren’t paying attention”.

To keep focused, there should be frank and open conversations with the CEO and executive team of the target organisation. “With the Cheshire, I remember going to Macclesfield and thinking, ‘Right, we’re not leaving until we’ve worked through every structure chart and talked to all the key people.’” On the whole, he says, executives themselves often know quite quickly whether they want to stay or go: “The interviewee starts to lead you, [for example] by saying they don’t want to work for a large organisation.”

What’s important, above all else, is arriving at a conclusion, says Wrighthouse. “You will always have your doubts about whether you made the right call, but you have to make a decision.” A predisposition to sit on the fence is a weakness he sees in some HR people. “The best HR people are skilled at listening but also at arriving at a conclusion,” he says. “We use real case studies in our assessment centres to see how people cope with having to make decisions under pressure. Sometimes they say, ‘We didn’t have enough time or facts.’ But in reality you don’t always have that luxury and you have to take a view.”

Of course, life isn’t always quite so fast paced. When Wrighthouse is not distracted by a merger, he is immersed in more conventional HR pursuits. His big issue is employee engagement – an area he describes as “the Cinderella of HR”.

An executive training programme at Southwest Airlines in 2002 made a big impression. He was struck by the fact that every wall in the back offices of the company’s vast HQ in Dallas was covered with photos of employees past and present – people with their families, with the dog, on holiday. “They said: ‘We spend so much time at work that we want to leave a piece of ourselves with our colleagues. We want you to bring you to work’,” recalls Wrighthouse.

At Nationwide, he says, engagement is about, “getting our people into the space where customers will buy and come back to buy”. Financial services products, he muses, are not unique: O2 and Tesco have credit cards. “So what are we?” he asks. “Do we sell merely on price or on something else – on the experience you get from Nationwide?”

Wrighthouse has strong metrics at his fingertips in this quest. Every year, Nationwide surveys its 19,000 employees with a detailed and anonymous questionnaire. An unusual “HR insight team” comprising two dedicated data modellers then analyse the results against customer and sales research. Wrighthouse describes the team as Nationwide’s genome project, mapping the DNA of the organisation.

“They search for correlation. Can we correlate employee behaviour with customer satisfaction and propensity to buy?” he asks. The answer is a definite yes. “If employees are 2 per cent more satisfied, that translates into customers being more satisfied and buying more. And the reverse.”

This way of measuring employee engagement is based on the Sears Roebuck Employee-Customer Profit Chain model, developed by the US retailer in the 1990s. But Nationwide has gone one step further by correlating the propensity to buy more, adds Wrighthouse. He can dig deep into the data to find out all sorts of interesting statistics – and to work out where to focus his time.

“Customers say they like dealing with staff with longevity. Our staff in branches have to engage with complex IT systems at the same time as engaging with customers. Maybe those with long service are more familiar with the technology and find it easier to do both,” he speculates. “I can’t will my people to stay longer. But I can look into the data about what people with long service say about why they stay or leave,” he explains. It shows, he says, that they stay when they share the society’s values. “They want to be proud to work for Nationwide and one thing they care about is fairness,” he says. The annual survey asked, “Are you paid fairly?” and found that Nationwide had a rather more left brain approach to pay than staff wanted. “We were talking about how we pay people and what market rates are, when what people really want to know is, ‘Am I paid the same as my colleague?’ – fairness is key.”

As a result, Nationwide has changed its pay structures to make salary bands narrower and has moved the pay of 3,500 employees up.

It was not always like this on the data front. When Wrighthouse first saw the employee satisfaction information the building society produced, he was not impressed. All that existed was an annual presentation of what was up and what was down. “I said that surely there was more we could say. My first question was, ‘what are the trends over five years? Can we explore that?’” And it went on from there. “I quite like data,” he concedes.

Right now, Wrighthouse reckons Nationwide has a window of opportunity that will last two or three years. “People are turned off by high street banks. They see building societies differently, as organisations that don’t make mega profits or pay ridiculous bonuses. I have to make sure our people believe that too. It’s not something you can train into them and it won’t work without engagement. Otherwise our unique credibility in the sector will be smashed.”

The world’s biggest building society

Nationwide is a giant among building societies, with around £200 billion in assets and 19,000 employees. It is in the top three UK mortgage lenders (having recently ceded the number two spot to Abbey owner Santander).

Unlike banks, which are owned by shareholders, building societies are “mutual” – meaning that they are owned by and run for the benefit of their members, who are their mortgage holders and savers. Members have the right to vote for directors and for resolutions at the AGM.

In the late 1980s and 1990s most of the UK’s largest building societies, including Halifax, Abbey National and Woolwich, voted to demutualise, leaving Nationwide as the biggest in the country. Rather than take a windfall profit from demutualisation, Nationwide’s members have stuck with the long-term benefit of stability offered by mutual ownership.

According to HR director John Wrighthouse, the last challenge on demutualisation, in 1994-5, was “the best team-building event you can imagine. People rally round when there’s a challenger. Everyone was going round asking, ‘Have you voted yet?’”

Mutuality makes a big difference to culture, says Wrighthouse, conferring a strong ethic about doing the right thing. From the cultural point of view, he says, Nationwide has more in common with employee-owned John Lewis (whose managing director Andy Street is a friend) than with other high street banks.

Despite the temptations of the boom years – and the approach of some of the smaller building societies that it ended up rescuing – Nationwide has not strayed far from its core expertise in residential mortgages. These account for around 85 per cent of its income. Commercial property lending accounts for most of the rest, with credit cards and personal loans making up less than 2 per cent of income.

Nonetheless, Nationwide has been significantly affected by the downturn. 2009 profits were down to £393 million from a bumper £781 million the year before. It has also made about 1,000 redundancies, including those from its recent mergers.

Next Generation HR

John Wrighthouse’s obvious love of data and results-based HR has always been about looking at organisational performance from a much broader business perspective than traditional personnel management. As such, he has been a trailblazer for what the CIPD terms “Next Generation HR” – the title of its major new research project.