Nomura Lehman Acquisition Essay Sample

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By acquiring Lehman Brothers, Nomura would be bringing onboard some of the brightest bankers in the industry, along with the administrative and technological setup supporting them. But the acquisition also meant that Nomura would be potentially increasing its headcount by almost 8000 employees over Europe and Asia. And these employees would be coming from an organization with a culture very different from Nomura’s existing culture. There was a formidable set of challenges, and Nomura ran into trouble from the onset. Nomura set up transition teams across the overseas offices to integrate the new employees into Nomura’s culture. However, episodes of culture shock were quickly reported by the media: Teams of Nomura traders singing company songs each morning to kick off the day; the unilateral decision by the Nomura HR department to change former Lehman female employees’ e-mail addresses to their married names without asking which they used professionally; the new employees training session where the women were taught how to wear their hair and serve tea, just to name a few.

While, most of these clashes could be attributed to the East-West culture divide, the more fundamental issues stemmed from differences in corporate culture. To a large extent, the culture at Lehman was an embodiment of the personality of its former CEO, Richard Fuld. The employees at Lehman were trained to be bold and aggressive. They were used to a culture of high risk tolerance, frequent use of leverage, and swift decision making. Nomura’s corporate personality, on the other hand, was more hierarchical, conservative, and favored more stable revenues based on moderate levels or risk taking. Differences were also common when it came to client prioritization. While the Lehman bankers based their priorities on fee generation capability of the client, Nomura tended to place more weight on factors such as loyalty and length of relationship. Considering these issues, the challenge before Nomura was how it would retain its new employees. To tackle this problem, Nomura used a two pronged approach.

The first step Nomura took in this direction was to offer the Lehman employees the same compensation, which they were getting at Lehman before the collapse, including high performance driven bonuses. This was an important change from Nomura’s existing compensation structure, which typically included a greater proportion of fixed income and relatively lower performance driven bonuses. The compensation structure was again a reflection of the risk averse mindset of the bank, in contrast to Lehman’s culture of high risk-high reward. The second step Nomura took was to offer key posts like heads of overseas business units, to many Lehman bankers. Though this step could be easily justified by the fact that the Lehman bankers had a good track record of solid performance, the primary motive behind the move was to integrate the new employees and assure them of career growth so as to minimize the attrition rate. However, both these steps were accompanied by their own set of problems. By offering the new compensation structure, Nomura created a pay differential between its current employees and the new employees.

To account for this, Nomura gave its existing employees the choice between the two compensation structures. Surprisingly, around 45% of the employees switched over to the new pay structure. In addition, the method of career development changed from Nomura’s old generalist system, where employees rotated across different departments, to a Lehman style specialist system, where employees remained in one department to build up expertise. This was perhaps the first signs of the Nomura’s Lehmanization. Additionally, the placement of ex-Lehman employees in top roles did not go down well with some of the existing set of employees who had their own career ambitions. According to media accounts, the move gave rise to considerable tension over leadership of Nomura’s overall overseas business. However, Nomura did not want to accede complete control of the overseas business to the Lehman bankers, and hence some of the business heads who resided in Japan were relocated to overseas location to take up the position of global business unit chiefs.

Thus, despite the high titles and responsibilities given, the former Lehman bankers were not given commensurate independence and decision making powers, which they were accustomed to at Lehman. As a result, frustrations began to mount regarding the slow and conservative pace of decision making at the higher levels. To contain the crisis, ex-Lehman bankers were offered top roles in the organization, which again did not fare well with some of the existing bankers at Nomura and led to their departure from the bank.

This gradual shift of the power balance in favor of the ex-Lehman bankers can be seen as a measure of the degree of Nomura’s Lehmanization. Keeping these issues in mind, one could argue that Nomura was perhaps a little too quick in making its decision to acquire Lehman’s assets. However one must consider that the decisions to acquire Lehman made a lot of business sense, and a lot of other banks including Barclays, were very eager to acquire these assets. Thus, it was imperative that Nomura act fast and close the deal ahead of the other banks. According to Shibata, Nomura’s Chief Operating Officer, the post-merger integration process is about “50% complete” at this point. The merger of Nomura and Lehman is still a work in progress and it is too early to impart a final verdict on its success or failure.

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