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Hundreds of divisions and operating units are divested or spun off by their corporate parents each year. Some are integrated into the operations of their corporate acquirers. Many others become independent business entities that must stand on their own. This report draws on the experience of Mercer consultants and HR executives who have dealt directly with the challenges of “standing up” former corporate units into independent companies with their own leaders and business functions, including HR.
The collective experience of these direct participants points to four areas where the attention of HR executives is critically important: leadership and talent management; organization culture; legacy programs and costs; and building the HR infrastructure.
What had promised to be an ordinary day for Adam Jenkins, vice president of human resources for EnergyCo, a subsidiary of ParentCo, changed abruptly. ParentCo’s CEO had asked him to participate in an early morning meeting, but provided no clue as to its agenda. Upon entering the conference room, Jenkins was surprised to see that the meeting included three top executives of his subsidiary.
“Adam,” said the CEO, “we have some important information to share with you today – information that you must keep confidential for the time being.” He went on to explain that a private equity (PE) firm had expressed an interest in acquiring EnergyCo and operating it as a private company – at least until it could be taken public or sold to another corporation. “I’m optimistic that we can work out a deal sometime in the next several months.
“I don’t have to tell you what such a deal would mean for you and the EnergyCo executive team,” he continued. “Adam, we’ll need your help in preparing EnergyCo to stand up as an independent company, without the corporate legal, financial, HR and operational support it now enjoys from ParentCo – and you’ll have very little time in which to get the job done.”
As he was returning to his office, Jenkins mulled over the consequences of his company’s divestiture. Hundreds of HR activities would have to be planned in advance of the buyout – everything from the setting up of a new payroll system to designing and implementing new benefit plans to devising a program for retaining key people. He could no longer look to corporate headquarters for those systems and services. “This will either be a nightmare,” he told himself, “or one of the best career opportunities to come my way.” He wondered which it would be.
Adam Jenkins is a fictitious character, but there is nothing contrived about the situation he faced. In 2007, several hundred operating units and subsidiaries worldwide were spun off by their parent companies. Some were integrated into the operations of corporate buyers. Others were cobbled into joint venture companies. More than a few have become independent enterprises owned by private equity firms, and many of these will go public in three to five years.
To succeed without the benefit of their former corporate infrastructure support, these newly independent enterprises have had to do what every great company does well: adopt and implement a solid business strategy, engage the talents of employees, stabilize operations and satisfy customers. There is no mystery about the importance of these activities. The challenge comes in managing the transition quickly and successfully.
Could your unit’s HR function stand up to this challenge – and in six to nine months? How would you lead the effort on the people side of the business? This article will help you answer those questions by:
The material presented here is based on the collective insights of Mercer consultants who have observed and participated as advisers in stand-up campaigns. It also draws on the experiences of HR executives who have struggled directly with the stand-up challenge. To give a sense of the magnitude of that challenge, we begin with an illustrative case, disguised here to protect the confidentiality of our sources. The elements of the case are drawn from the experiences of several companies.
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