What HR needs to know when overseeing a corporate spin-off

The band is breaking up. Oh, wait, apologies for the typo. The brands are breaking up.

Kraft Heinz recently announced it’s splitting up nearly 10 years after it was created by a merger. Comcast’s NBCUniversal is going through a similar transition, spinning off brands including CNBC and MSNBC to form a new company named Versant.

Companies call it splits for a variety of reasons, said Karan Ferrell-Rhodes, CEO and founder of consulting firm Shockingly Different Leadership. “It can be because things are going well, and it can be because things aren’t going so well,” she told HR Brew. “The driving factor, especially for publicly-traded companies, is that they want to make sure they maintain or increase their total shareholder returns.”

Ferrell-Rhodes added she’s never seen a “totally smooth divestiture or carve out where no major issues happen,” and HR teams are oftentimes not brought into the planning early enough.

HR’s role in a spin-off. A spin-off can take a long time to execute, said Frank Breitling, senior partner and managing director in the people and organization practice at Boston Consulting Group.

“Companies, and boards, and executive teams are mulling over it, sometimes even for years,” Breitling told HR Brew. “But what you want to have on the other side of the deal is a fully functioning standalone company, so it needs a [new] board. It needs an executive team. It needs talent decisions. It needs full functional support for HR, finance, IT, etc.”

Spin-offs can present CHROs with an opportunity “to gain a seat at the table, or reinforce the seat at the table,” Breitling said. “They need to approach a deal like this with the mindset of, ‘My role is to make the CEO of the new entity, and their leadership team successful and, in turn, the overall spun-out company successful.’”

Follow the HR leader. Whether a company’s internal HR team or an external HR consultant leads the spin-off, Ferrell-Rhodes said they will have to do their due diligence, strategize, and develop an implementation plan, because “the devil is in the details.”

She said this could include “assessing all talent, deciding who would stay with the parent company” as well as asking if or who would go “with the carve out” or if retention bonuses would need to be implemented. “An executive communications plan needs to be created. If there are going to be jobs impacted, [are there] outplacement services?”

HR is also responsible for the “mundane” or “transactional” tasks that can get overlooked, Breitling said, like figuring out how employees will continue getting paid, what internal platforms will continue to be used, how job titles or responsibilities will change, and how company policies will be altered.

“[It’s an] opportunity for CHROs and their teams to be really like the co-pilot and thought partner at every step of the journey for the CEO and the forming leadership team,” he said. “The need for flawless execution of lots of more tactical, but really, really important stuff that creates lots of hiccups.”

How to prepare employees. Employees will likely feel “angst and anxiety,” Ferrell-Rhodes said. HR could help mitigate these sentiments by encouraging employees to share anonymous feedback.

“You need to know where the angst is in the organization to be able to be proactive and address it,” she said. “A lot of carve outs don’t do that. They’re so bent on getting it done, and you can still do it fairly quickly, but you need to build in interventions to help make sure the process is as smooth as possible.”

HR should also share with employees the reasoning behind and value of the spin-off, Breitling said.

“This is another really important element where the CHROs and HR have a role to [be] in very close conjunction with the CEO,” he said. “Ultimately, purpose, and culture, and change should be a CEO message…It should come down from the overall strategic direction.”