Cultural integration is one of the key parts to a successful merger between companies, but if not properly carried out it can also be the biggest root cause of its failure.

That is according to John Drzik, CEO of the Oliver Wyman Group, who was in Bermuda this week meeting with clients and attending the Insurance Day Summit held at the Fairmont Hamilton Princess Hotel.

Mr. Drzik addressed the issues of pre- and post-merger integration and the changes that arise from merger and acquisition (M&A) activity following Oliver Wyman's release of a series of guides on 'What Executives Need to Know about M&A' in response to an increase in such activity in the Bermuda insurance market and its experience with global clients.

Among the key findings in the reports were the identification of the hidden risks of M&A, including culture, communication and leadership challenges and advice for CEOs and senior executives on leading change and mitigating risk.

Mr. Drzik said there was the potential for a rise in M&A activity in the future as businesses and firms sought to achieve the right scale of operation and diversity amid the current financial crisis and utilise a growing capital base.

"I think there are some straws in the wind that would tend to pertain to more merger activity," he said.

"I think the biggest challenge we are focused on now is cultural integration as it is often a source of failure of mergers and it should be looked at both the pre and post-merger stage of the deal."

In fact, cultural due diligence was a vital component of the process alongside the strategic fit and financial terms. However Mr. Drzik warned that the cultural side should not suffer at the expense of the other two factors, an aspect which has often been overlooked in the past when the respective cultures did not mesh with each other.

"I think it comes down to putting the right priority on the cultural side and putting the same level of effort into the cultural diagnosis as one puts into the work plan that is part of the post-merger integration," he said.

Around this, he said, the leaders of the organisations needed to be aligned with each other and communicating that message down the line to their employees, as well as setting up a designated project manager or management team to oversee the integration.

If conducted successfully, Mr. Drzik said, that would be translated into real terms on the financial front, adding that in order to achieve this individuals would be required to change their business practices to fit the new entity which had been created as a result of the merger.

Drawing on his experience of the Island's insurance industry, he said that while many companies operated in similar fields, individually they had their own strong and distinctive brand of leadership which were followed by their staff, with some being better suited to merging with certain firms than others.

"On the face of it, companies may seem like a great fit together, but are their prevailing cultures similar enough to really combine well? And, even if they are, there are often bound to be issues that ned to be resolved," he said.

"In some cases the issues are greater than in others and in some cases there has been more effort put into tackling them than others."