M&A

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M&A

  1. 1. HR’s Role in Successful Mergers and Acquisitions
  2. 2. Copies and Copyright As always, members are welcome to an unlimited number of copies of the materials contained within this handout. Furthermore, members may copy any graphic herein for their own internal purpose. The Corporate Executive Board requests only that members retain the copyright mark on all pages produced. Please call the Library at +1-202-777-5921 for any help we may provide. The pages herein are the property of the Corporate Executive Board. Beyond the membership, no copyrighted materials of the Corporate Executive Board may be reproduced without prior approval. Legal Caveat The HR Executive Forum has worked to ensure the accuracy of the information it provides to its members. This report relies upon data obtained from many sources, however, and the HR Executive Forum cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, the HR Executive Forum is not engaged in rendering legal, accounting, or other professional services. Its reports should not be construed as professional advice on any particular set of facts or circumstances. Members requiring such services are advised to consult an appropriate professional. Neither the Corporate Executive Board nor its programs are responsible for any claims or losses that may arise from a) any errors or omissions in their reports, whether caused by the HR Executive Forum or its sources, or b) reliance upon any recommendation made by the HR Executive Forum. 2
  3. 3. HRFR19XP3MB 4© 2008 Corporate Executive Board.  All Rights Reserved. 2000 Quaker Oats acquired by PepsiCo 1997 Snapple sold for $300 million, or 18% of initial purchase price 1996 Quaker denies CEO’s annual bonus due to poor company performance 1996 Quaker fails to recapture lost market share December 1995 Quaker posts $75 million annual loss January 1995 • Snapple distributors resist selling Gatorade • Gatorade margins not comparable to Snapple margins December 1994 • Quaker Oats purchases Snapple for $1.7 billion • Quaker Beverages comprises 33% of total revenue 1983 Quaker Oats successful purchase of Gatorade Fall From Grace For Quaker Oats, mismanaged M&A integration carries severe financial and human capital ramifications Source: Winer, Barry, Quaker Oats and Snapple, Tuck School of Business, 1996; HR Executive Forum research. PAY TO THE ORDER OF 23-023/666 MEMO DOLLARS O.K. RAVENHURST 23 DISCORDIA WAY FNORD, CA 90210 HAIL ERIS POEE BANK BERKELEY, CALIFORNIA 0523 , 19 $ |:052366623|:825428523||•0523 Malaclypse the Younger June 23 23.00 95 Twenty-Three and 00/100— Eschaton O.K. Ravenhurst 1995 Quaker Oats spends $30 million to streamline Snapple operations 1995 • Approxiamtely 50% of Snapple’s field sales division is laid off • Many headquarters executives dismissed 1 2 3 4 10 9 8 7 5 6 Financial Impact “From market leader to subsidiary” • Former leader in beverage market share • Losses exceed $1 billion • Quaker Oats ultimately acquired by PepsiCo Human Capital Impact “From loyalty to lay-offs” • Snapple once seen as leader in employee loyalty programs • Acquisition leads to dismissal of many employees 3
  4. 4. HRFR19XP3MB 5© 2008 Corporate Executive Board.  All Rights Reserved. Exerting HR’s Influence M&A failure is mostly attributed to poor integration management… Sources of Deal Failure Corporate Strategy Board Integration–Performance Survey, 2006 …over which HR has significant impact Percentage of Senior Executives Rating Element Most Critical to Successful Integration Percentage of Respondents Citing Reason as Number One Source of Failure 0% 25% 50% 0% 25% 50% 44% 28% 28% Integration Value was available, but errors were made in executing deal objectives. Strategy In hindsight, the strategy was wrong. Valuation You assumed greater value than was actually available and paid too much. Source: Accenture/Economist Intelligence Unit 2006 Global M&A Study; Corporate Strategy Board, Increasing the Certainty of M&A Value Capture, Washington, D.C.: Corporate Executive Board, 2006; HR Executive Forum research. 0% 20% 40% ClearO rganizational Structure AddressingCultural Integration Issues Leadership from Top M anagem ent G ood Com m unicationPlan ClearStrategicRationale forD eal Com prehensive Integration M asterPlan StrongRiskM anagem ent Processes D edicatingResources W ithoutConflicts ConveyingaSense ofU rgency U singaClean Room Process O ther 32% 32% 30% 24% 20% 18% 12% 8% 6% 4% 2% Percentage of Respondents Human Capital Elements, Mean = 30% Corporate Strategy and Business Development Elements, Mean = 11% n = 420. 4
  5. 5. HRFR19XP3MB 6© 2008 Corporate Executive Board.  All Rights Reserved. Source: Schmidt, Jeffrey A., “The Correct Spelling of M&A Begins with HR,” Society for Human Resource Management, 2006; HR Executive Forum research. Easier Said Than Done HR executives cite target evaluation and integration as critical… Core HR Capabilities Required for M&A Success …and yet underperform in these key areas HR Competency Gaps Gap Between Performance and Improvement 89% 87% 86% 83% 82% Ability to evaluate the target quickly M&A literacy and integration know-how (32%) Percent Difference Ability to Evaluate Quickly Importance Performance (31%) Percent Difference Importance Performance Integration “Know-How” Providing advice on employee sensitivities and attitudes Motivating and retaining critically needed talent Planning and leading complex integration projects n = 450. n = 450. 5
  6. 6. HRFR19XP3MB 7© 2008 Corporate Executive Board.  All Rights Reserved. Shifting Focus HR at midsized companies can overcome barriers to expose risk and to avoid integration derailment Source: HR Executive Forum member poll; HR Executive Forum research. Holistic Review Risk Exposure Integration Stewardship Use a series of techniques to capture target information quickly Leverage analysis frameworks that pinpoint risks and not just differences Employ monitoring mechanisms that indicate potential derailment before it occurs ! STOPStartHR’s New Mandate HR M&A Challenges Lagging Indicators “We lack the ability to predict integration problems so we’re forced to fight fires.” HR Director, Biotechnology   Company Unstructured Analysis “It is hard to do M&A analysis thoroughly.” HR Director, Business Services   Company Insufficient Time “We have insufficient time to get a pulse of the organization being acquired.” Vice President, HR Telecommunications   Company 6
  7. 7. HRFR19XP3MB 8© 2008 Corporate Executive Board.  All Rights Reserved. Source: HR Executive Forum research. HR’s Role in Successful M&A I. Engineering Comprehensive Information Capture II. Leveraged Targeted Analysis Frameworks III. Preempting Integration Derailment Opening Day Integration Risk Survey M&A Progress TrackerDue Diligence Interview Guide Due Diligence Dashboard Cultural Alignment Survey 7
  8. 8. HRFR19XP3MB 9© 2008 Corporate Executive Board.  All Rights Reserved. Imperfect Understanding Source: HR Executive Forum member poll; HR Executive Forum research. …instead, HR must conduct a thorough, directive assessment Knowledge Gathering Obstacles and Solutions n = 27. 18% 67% 7% 4% 4% Pre-D eal Assessm ent Betw een Integration Planningand Integration M anagem ent D ue D iligence Betw een D ue D iligence and Integration Planning Integration Planning Percentage of Respondents Complete Due Diligence IT Finance HR M&A Debriefing Synthesize responses to determine additional needs Establish rapport with target peers Prepare a rigorous questionnaire Leverage third-party information While most Forum members participate in the due diligence phase… Stage of HR Entrance in M&A Deal Forum Member Poll …many fail to conduct full target assessments because of myriad information capture constraints… Due Diligence Challenges General Target Information Benefits Contracts Legal Issues Pending Employee Relations Records • Information unavailable • Wrong questions • Information withheld by target • Incomplete responses 8
  9. 9. HRFR19XP3MB 10© 2008 Corporate Executive Board.  All Rights Reserved. Getting It Right Open, in-person communication between Trimble and the target facilitates efficient and comprehensive knowledge capture Opening Day Activities Source: Trimble Navigation Ltd.; HR Executive Forum research. Memorandum To: Trimble Senior Leadership Team From: M&A Team RE: Opening Day Agenda Agenda 9:00 a.m. Introduction of Target Company • CEO Overview • Function-Level Presentations 10:00 a.m. Introduction of Trimble (Optional) • Deal Objectives • Function-Level Presentations 11:00 a.m. Open Q&A Session 12:00 p.m. Functional Group Lunch 1:00 p.m. Functional One-on-One Discussions 5:00 p.m. Close of Opening Day 6:00 p.m. Group Dinner Due Diligence Customization Insight into the target company efficiently directs HR customization of due diligence efforts. Employees Please provide a spreadsheet listing the following information for all individuals: • Name • Title • Department Employment Agreements Please furnish a copy of any and all of the following: • Collective bargaining agreements • Union contracts • Change in control or other management agreements Compensation Agreements Please provide all compensation agreements and details governing your organization’s non-salary compensation philosophy Employee Relations Please furnish a copy of the following: • Employee handbooks • Policies • Indemnification agreements Open Information Sharing Structured opportunities for target interaction paired with interim analysis and mid-course correction help Trimble establish rapport and facilitate information capture. 9
  10. 10. HRFR19XP3MB 11© 2008 Corporate Executive Board.  All Rights Reserved. Revealing the Target In-the-moment analysis of target helps HR devise a strategy for facilitating access to due diligence information Acquirer-Target Interactions Across Opening Day Target Presentation Lunch Discussion Peer-to-Peer Functional Discussion Interim Step Analysis Tools Illustrative 321 Target HR Acquirer HR Target Finance Acquirer Finance Target CEO Target Assessment Indicators • Leadership team’s enthusiasm and preparedness for deal • Organizational culture and fundamental values • Target leaders’ clarity on deal objectives • Instances in which target is not forthcoming with information • Potential barriers to needed information • Understanding of how, why, and where the two organizations may clash Target Company Position Implications for Due Diligence Strategy for Managing Relationship Resistant to Deal • Individuals are more likely to withhold sensitive information • Rationalize benefit of deal to target company • Reinforce message through one-on- one discussions • Pay strong attention to relationship building Uncertain of Deal • Target leaders may not fully understand what information is needed • Communicate deal objectives to help clarify needed information • Ensure that all are comfortable with the deal Favorable and Clear View of Deal • Target is more likely to share needed information when available • Communication likely to be open and honest • Discuss acquiring organization’s operations and culture to provide context for integration planning Information Synthesis and Discussion Redirection Information Synthesis and Discussion Redirection Source: Trimble Navigation Ltd.; HR Executive Forum research. 10
  11. 11. HRFR19XP3MB 12© 2008 Corporate Executive Board.  All Rights Reserved. NO CONFLICT Open Communication HR shapes its due diligence framework using information surfaced from target peers to elicit accurate and timely information Trimble’s HR Due Diligence Checklist (Abridged) Standard Questions Customized Due Diligence Checklist (Illustrative) Adapted to Target Typical Info Requests Illustrative Customized Info Capture Illustrative Customized Due Diligence Checklist Employees Please provide a spreadsheet listing the following information for all individuals: • Name      Title      Department      EXPECT DELAY Employment Agreements Please furnish a copy of any and all of the following: • Collective bargaining agreements • Union contracts • Change in control or other management agreements Compensation Agreements Please provide all compensation agreements and details governing your organization’s non-salary compensation philosophy Employee Relations Please furnish a copy of the following: • Employee handbooks • Policies • Indemnification agreements Due Diligence Checklist Employees Please provide a spreadsheet listing the following information for all individuals: • Name • Title • Department Employment Agreements Please furnish a copy of any and all of the following: • Collective bargaining agreements • Union contracts • Change in control or other management agreements Compensation Agreements Please furnish a copy of all of the following documents: • Incentive plan (or variable compensation) such as a sales plan • Employee stock ownership plan • Any other pay arrangements such as “on call” or “lead” pay Employee Relations Please furnish a copy of the following: • Employee handbooks • Policies • Indemnification agreements Customization #1 Description: Expect delay—Target has not institutionalized information Source: Target presentation Customization #2 Description: Questions Irrelevant—Target does not use these agreement types Source: Lunch discussion Customization #3 Description: Rephrase—Target does not use same taxonomy for information Source: One-on-one discussion Benefits Brochure Offer Letter Template Target Report Employees Agreements CompensationEmployee Relations ! ! ! Employment Contract Benefits Contract Target Report Employees Agreements CompensationEmployee Relations …whereas customized due diligence leads to desired results in a single request. Information obtained through standard due diligence is often inaccurate or incomplete… Source: Trimble Navigation Ltd.; HR Executive Forum research. 11
  12. 12. HRFR19XP3MB 13© 2008 Corporate Executive Board.  All Rights Reserved. HR DUE DILIGENCE Target Company:               Target Contact:               Conversation Number:    of          Date:               A. BUSINESS        Federal & State ID#s (please include ID numbers for each state in which you have employees working): Fed #                State #                Remote EEs: work from home or in business owned facility? Is there an SUI for each state? B. ORGANIZATIONAL STRUCTURE        # employees                (     full-time      part-time) Any temporary employees? any seasonal? Are independent contractors included in numbers?   Satellite offices                (if applicable) full addresses needed, how many employees in each office.   Human Resources Contact: Name                Title:                Tel:               E-mail:                 C. PAY POLICIES (WORK HOURS/ PAID TIME OFF)      Standard work week:         hours (pay week begins on what day of the week? Date last pay period began? Ended? Pay                       check date?)   Pay schedule:               (Bi-weekly, Semi-monthly, Weekly?)   Pay period: begins on (day of week)        , ending on        , paid on          Overtime is paid after)         hours/week is comp time offered? To what groups?   Payroll Vendor:                  Paid holidays:         per year (please list) No Stone Left Unturned First Advantage’s Interview Guide increases efficiency and comprehensiveness of information capture First Advantage Due Diligence Interview Guide Source: First Advantage Corporation; HR Executive Forum research. v Detailed “Follow-Up” Questions • Target responds to the requests in black in advance to build a foundation for discussion. • HR then uses the “red,” follow-up questions to validate and capture more detailed information. • The type and scope of follow-up questions vary by target Features of the Guide • Four-page, “living” guide updated with each deal • Captures business and HR context (e.g., organizational structure, compensation, EEO, etc.) • Includes a detailed target document capture checklist • Designed to send to target counterpart and use in subsequent conversations 12
  13. 13. HRFR19XP3MB 14© 2008 Corporate Executive Board.  All Rights Reserved. Third Party Perspective HR can surface and validate target information via third-party sources Third-Party Information Sources Third-Party Interviews Interviews with key third parties are undertaken to cross-check talent assessments and surface additional talent insights. Interviewees • Customers • Recruiters • Consultants • Competitors Source: HR Executive Forum research. Supporting Tool M&A Research Journals • Provide overview of M&A market trends • Glean insight into successes and failures in past deals Industry Literature Consortia • Provide access to industry journals and periodical literature concerning target • Offer diverse third-party perspectives Secondary Company Resources • Report on target strategy, operations, and performance data Fair Disclosure Third-Party Information HR reviews third-party information to inform talent assessment and identify critical target talent leads. Sources • Internet Search • News Articles • Industry Research • Online Blogs 13
  14. 14. HRFR19XP3MB 15© 2008 Corporate Executive Board.  All Rights Reserved. HR’s Role in Successful M&A I. Engineering Comprehensive Information Capture II. Leveraged Targeted Analysis Frameworks III. Preempting Integration Derailment Opening Day Integration Risk Survey M&A Progress TrackerDue Diligence Interview Guide Due Diligence Dashboard Cultural Alignment Survey Source: HR Executive Forum research. 14
  15. 15. HRFR19XP3MB 16© 2008 Corporate Executive Board.  All Rights Reserved. Post-Deal Outcomes Consistent policies devised HIPO talent engaged through mentoring and development programs Equitable compensation for acquirer and target staff Post-Deal Outcomes Consistent policies devised Attrition of high-potential talent Equitable compensation for acquirer and target staff Focus on Impact Rather than focus on merely surfacing differences, HR must understand the impact that these differences will have on deal success Source: HR Executive Forum research. Due Diligence Outcomes Transactional Analysis Impact Analysis Implications of Differences Surfaced • Integration should centered on institutionalizing and streamlining policies • Compensation must remain consistent across each job level Lenses Applied 1. Financial Impact 2. Cultural Impact Implications of Differences Analyzed • Organization must bridge contradictory performance philosophies and promotion criteria • Incongruous long-term pay trajectories must be aligned Category Acqiurer Target Workplace Policies • Clearly defined policies for work hours, workplace behavior expectations, and corrective action • No written policies Performance Management • Reviews conducted annually • Extensive training and mentoring programs available • Reviews conducted semi-annually • Extensive training and mentoring programs available Compensation • Entry-level engineer positions average $60,000 in base salary, with 30% bonus potential • Entry-level engineer positions average $57,000 in base salary, with 20% bonus potential Lenses Applied 1. Transactional differences 2. Process misalignment 15
  16. 16. HRFR19XP3MB 17© 2008 Corporate Executive Board.  All Rights Reserved. Exposing Risks Seagate collects due diligence data and surfaces human capital risks to prepare for integration planning Seagate’s HR Due Diligence Process Component #1: Due Diligence Information Collection Seagate’s HR Due Diligence Requests Type of Request Compensation Plans and Costs Equity Plans and Obligations Benefits Plans and Costs Voluntary Turnover, Overall and by Key Employee Employee Headcount, Management Layers/Spans Employment Agreements Severance Policies/Costs Succession Plans/Executive Risks of Departure Compliance Risks Source: Seagate Technology; Corporate Leadership Council; HR Executive Forum research. Component #2: Risk Analysis Template Areas of Review Specific Information Requested by Seagate Received? Low Risk/ High Risk Issues/Exposures/Areas of Risk (Illustrative) Base Salary Program Base Pay Plans Yellow Red Base pay is market competitive. ABC Month merit increase proposed by target at cost of $xxm/quarter. Seagate recommends not to implement. Variable Pay Plans Red Red No visibility into target’s incentive plan proposal. Sales Pay Plans Green Green No issues. Executive Pay Plans/Deferred Compensation Red Red Have not received deferred compensation plans, so do not know if target is in compliance with new legislation. Equity Plans and Obligations Stock plans, omnibus plan document details, ESPP Green Green No issues, continue implementation of ongoing plan. Benefits Plans and Costs Turnover by major site Green Red Target’s overall turnover is much higher than Seagate’s. Listing of any key executive departures, groups/levels of employees with major turnover. Yellow Red 20 new executives (VP and above) hired within past 24 months. No information provided on groups/ levels of employees with major turnover. Employee Headcount, Management Layers, and Spans Headcount by major site, level of employee, and function, organization charts Yellow Green No issues with headcount below executive level. Seagate’s Evaluation for Target’s HR Information Pre-Announcement: Highly Confidential Green: All Info Received/Low Risk Yellow: Partial Info Received Red: No Info Received/High Risk Component #3: Due Diligence Risk Assessment Reporting Deal Contact Proposed Value of Target 16
  17. 17. HRFR19XP3MB 18© 2008 Corporate Executive Board.  All Rights Reserved. Areas of Review Specific Information Requested by Seagate Received? Low Risk/ High Risk Issues/Exposures/Areas of Risk (Illustrative) Voluntary Turnover Overall and by Key Employee Turnover by major site and level of employee for current calendar and prior 1–2 years. Green Red Target’s overall turnover is much higher than Seagate’s. Listing of any key executive (VP and above) departures in previous years as well as any groups/levels of employees who have had major turnover. Yellow Red XX new executives (VP and above) hired within past XX months. No information provided on groups/ levels of employees with major turnover. Succession Plans/ Executive Risks of Departure Reports of current successor pools for VP and above positions as well as profiles/resumes for all VPs. Yellow Green Partial information received. No issues anticipated. Identify which execs are greatest risks of departure. Red Red No information received and no insight into executive departure risks. Open Personnel Requisitions Number and level of open personnel requisitions by country and site. Green Green XXX open requisitions. However, no major issues. Employee Survey and 360-Degree Results Provide reports on any recent employee surveys/360-feedback results that can provide us with an insight into the culture, morale, and opinions of employees. Red Red No information received. Seagate’s Evaluation for Target’s HR Information Pre-Announcement: Highly Confidential Green: All Info Received/Low Risk Yellow: Partial Info Received Red: No Info Received/High Risk Data Hypothetical Assessing the Target Due diligence dashboard uses three screens to evaluate and prioritize target information Seagate’s Due Diligence Dashboard Illustrative Areas of Review Specific Information Requested by Seagate Received? Low Risk/ High Risk Issues/Exposures/Areas of Risk (Illustrative) Base Salary Program Base Pay Plans Yellow Red Base pay is market competitive. ABC merit increase proposed by target at cost of $XXX M/quarter. Seagate recommends not to implement. Variable Pay Plans Red Red No visibility into target’s incentive plan proposal. Sales Pay Plans Green Green No issues. Executive Pay Plans/Deferred Compensation Red Red Have not received deferred compensation plans, so do not know if target is in compliance with new legislation. Equity Plans and Obligations Stock plans, omnibus plan document details, ESPP Green Green No issues, continue implementation of ongoing plan. Benefits Plans and Costs Plan documents/contracts for health and welfare, and any pensions/ retirement/defined benefits plans Yellow Green Have not received complete retirement plan documents. However, no issues anticipated. Costs of benefits plans Green Red Costs are high for U.S. health care plans due to low deductible. Employee Headcount, Management Layers, and Spans Headcount by major site, level of employee, function, organization charts Yellow Green No issues with headcount below executive level. Seagate’s Evaluation for Target’s HR Information Pre-Announcement: Highly Confidential Green: All Info Received/Low Risk Yellow: Partial Info Received Red: No Info Received/High Risk Data Hypothetical Dashboard Coding System Red: No visibility into target situation; High financial impact or poor organizational fit Yellow: Partial visibility into target situation Green: Visibility into target situation; Low financial impact or good organizational fit Areas with minimal visibility and potentially significant financial impact are considered high risk. While Seagate only received partial information, this area is considered low risk due to minimal financial impact and organizational fit issues. Source: Seagate Technology; Corporate Leadership Council; HR Executive Forum research. 17
  18. 18. HRFR19XP3MB 19© 2008 Corporate Executive Board.  All Rights Reserved. HR Risk Assessment Summary Areas of Review Risk Assessment Base Salary Programs ABC Month merit increase proposed by target at cost of $XXX/quarter. Benefits Plans Costs are very high for U.S. health care plans due to low deductible. Employee Headcount/ Management/Span of Control XX management layers for manufacturing and nonmanufacturing organizations, compared to Seagate’s. Employee Survey and 360 Results We have no information on employee perceptions or performance. Executive Pay Plans/ Deferred Compensation We have not received deferred compensation plans, so do not know if target is in compliance with new legislation. Information at Work Assessment results direct deal valuation and integration planning Seagate’s HR Risk Assessment Summary Illustrative Informing Deal Valuation Informing Integration Planning Risk Assessment Presentation to Senior Leadership Team Key Human Capital Risks to Deal Valuation • Pensions and insurance • Compensation and benefits plans • Pending lawsuits • Union and employment contracts Integration Planning Stage Key Human Capital Issues for Integration Planning • Talent retention • Cultural alignment • Leadership transition • HR and organization policies Seagate’s HR deal team creates a summary of valuation and integration risks directed by the data analysis in the Due Diligence Dashboard. Source: Seagate Technology; Corporate Leadership Council; HR Executive Forum research. 18
  19. 19. HRFR19XP3MB 20© 2008 Corporate Executive Board.  All Rights Reserved. Supporting Tool Areas of Review Specific Information Requested by Seagate Received? Low Risk/ High Risk Issues/ Exposures/ Areas of Risks Base Salary Program Base pay plans: Eligibility criteria, participation numbers, targets, historical payouts, future obligations/ costs, timing/cycles. Variable pay plans (including any retention policies/plans): Eligibility criteria, participation numbers, targets, historical payouts, future obligations/costs, timing/cycles. Sales Pay Plans: Eligibility criteria, participation numbers, targets, historical payouts, future obligations/ costs, timing/cycles. Executive Pay Plans/Deferred Compensation: Eligibility criteria, participation numbers, targets, historical payouts, future obligations/costs, timing/cycles. Equity Plans and Obligations Stock Plans (omnibus plan document/details, restricted stock plan details, stock option plans, ESPP): Eligibility criteria, participation numbers, guideline amounts and vesting criteria for new hires and refresher (ongoing) stock, details and participation rates of ESPP, details of restricted stock in terms of eligibility, current recipients, vesting during a change in control. Benefits Plans and Costs Plan documents/contracts by country for health and welfare and any pensions/retirement/defined benefits plans. Costs of benefits plans. Voluntary Turnover Overall and by Key Employee Turnover by major site and level of employee for current calendar year and prior 1–2 years. Listing of any key executive (VP and above) departures in previous year as well as any groups/levels of employees who have had major turnover in previous year. Employee Headcount, Management Layers/Spans Headcount by major site, level of employee and functional organization. Organization charts for top levels and for all other levels available. Management layers from CEO to lowest level layer that supervises people and average manager spans of control. Listing of any expatriate employees, terms, costs. Green: All Information Received/ Low Risk Red: No Information Received/ High RiskYellow: Partial Information Received Seagate Due Diligence Dashboard Source: Seagate Technology; Corporate Leadership Council; HR Executive Forum research. 19
  20. 20. HRFR19XP3MB 21© 2008 Corporate Executive Board.  All Rights Reserved. Supporting Tool Areas of Review Specific Information Requested by Seagate Received? Low Risk/ High Risk Issues/ Exposures/ Areas of Risks Employment Agreements Listing of any executives with employment agreements or offer letters with details on the contractual obligations related to unpaid bonuses, stock options/restricted stock, change in control terms, etc. Explanation of types of employment contracts by country (e.g., contract labor terms/costs/risks). Severance Policies/ Costs Severance policy details (pay, policy caps, outplacement costs) by country and level of employee. Union Contracts/ Labor Risks Listing of details of any union/ collective bargaining contracts, annual costs, and risks in Singapore and China. List any current labor disputes, pending labor court cases or formal grievances by issue type, country, level of employee involved. Succession Plans/ Executive Risks of Departure Reports of current successor pools for VP and above positions as well as profiles/résumés for all VPs. Identify which execs are greatest risks of departure. Compliance Risks Minimum hiring age policies. Overtime policies/practices. Immigration policies/risks. Open Personnel Requisitions Number and level of open personnel requisitions by country and site. Employee Survey Results or 360-Degree Results Provide reports of any recent employee surveys/ 360-degree feedback results that can provide us with an insight into the culture, morale and opinions of employees. Seagate Due Diligence Dashboard (Continued) Green: All Information Received/ Low Risk Red: No Information Received/ High RiskYellow: Partial Information Received Source: Seagate Technology; Corporate Leadership Council; HR Executive Forum research. 20
  21. 21. HRFR19XP3MB 22© 2008 Corporate Executive Board.  All Rights Reserved. Applying a Cultural Lens Sterling leverages simultaneous traditional and cultural screens of target information Traditional Analysis Traditional Finding • Threats for the business • Liability exposure Cultural Insight • Authoritative versus egalitarian decision-making processes Traditional Finding • Size of benefit obligations • Cost per employee Cultural Insight • Paternalistic approach to employees • Low tolerance for risk Source: Sterling Financial Corporate; Corporate Leadership Council; HR Executive Forum research. Organizational Culture Indicators • Readiness for change • Resistance to change • Importance of teamwork • Importance of learning and development • Importance of diversity • Importance of relationship management • Tolerance of risk • Quality of internal and external communications Target Due Diligence Documents List Illustrative Cultural Analysis Employee Compensation and Benefits Plan Areas of Review • Structure of compensation system • Type of benefits and perquisites Executive Meeting Minutes Areas of Review • Formality of document • Size and number of documents • Explicitness of decision and guidance Target Due Diligence Documents  Employee compensation and benefits plans  Executive meeting minutes  Affirmative action plan  Code of conduct  Communications regarding audits/ findings  Employee handbook  Personnel policy manual  Open positions now being recruited  Status of employees on disciplinary action 21
  22. 22. HRFR19XP3MB 23© 2008 Corporate Executive Board.  All Rights Reserved. Culture as a Leading Indicator Sterling assesses the magnitude of cultural gaps using a cultural indicators scorecard… Cultural Indicators Scorecard …which helps HR to facilitate quick responses for mitigating cultural challenges Responses to Cultural Conflict Illustrative Mitigate through contract structure Walk away from deal Integration team works with Learning and Development personnel to craft training and communication materials that address the differences between the two cultures. The focus is on building on common strengths, open communication, and managing change. Fit Relative to Sterling Financial Organizational Culture Indicator Low Medium High Importance of teamwork X Importance of relationship management X Quality of communications across all levels X Readiness for change X Resistance to change X Importance of diversity X Importance of learning and development X Tolerance of risk X How to Assess Risk The HR due diligence team rates cultural fit for each cultural indicator and then further analyzes areas of “low” and “medium” fit that could add additional time or cost during integration if the deal closes. Early in discussions, senior executives show opposition to adopting a new culture. During integration planning, midlevel executives resist network-building with Sterling counterparts. Post-announcement, employees resist initial training about Sterling’s product offerings and vision. Source: Sterling Financial Corporate; Corporate Leadership Council; HR Executive Forum research. 22
  23. 23. HRFR19XP3MB 24© 2008 Corporate Executive Board.  All Rights Reserved. Attribute Statement A Assessment Statement B Impact of Differences Implications for Integration Planning Employee Motivation Work-Life Balance “Employees like working here because it affords them the chance to cultivate interests outside the office.” Acquirer: Target: “Employees like working here because it’s a high-performance culture based on achievement.” Stability and Innovation “Employees like working here because the company challenges established ways of doing things.” Acquirer: Target: “Employees like working here because it’s stable.” Personal Development “Employees like working here because they have the chance to develop personally and professionally.” Acquirer: Target: “Employees like working here because they get to be part of shared achievement.” Internal Communication Patterns Confrontation Style “In cases of underperformance, the company tends to be direct and confrontational, emphasizing the need to quickly get up to the company’s standards.” Acquirer: Target: “In cases of underperformance, the company tends to be patient, emphasizing the need to coach the underperformer to higher productivity.” Medium of Communication “Most communication happens in person or over the phone.” Acquirer: Target: “Most communication happens through e-mail.” Information Dissemination “The company is quick to tell employees news—good and bad—about how it is meeting its challenges.” Acquirer: Target: “The company tends to exercise caution in sharing information.” Methods of Decision Making Power Distribution “The company’s decisions tend to be made unilaterally.” Acquirer: Target: “The company’s decisions tend to be based on arriving at consensus.” Entrepreneurship “Employees would say that they have a chance to quickly put their new ideas to use.” Acquirer: Target: “Employees would say that their new ideas are subject to extensive vetting.” Centralization “Key decisions tend to be made by senior management.” Acquirer: Target: “Key decisions tend to be made by employees throughout the company.” Time Horizon Emphasis “The company tends to emphasize the long-term over the short- term in order to cultivate trust in customer relationships and invest for future growth.” Acquirer: Target: “The company tends to emphasize the short-term over the long- term in achieving the company’s ambitious performance targets.” Gauging Cultural Fit Twenty Questions to Gauge Cultural Alignment Supporting Tool Source: Financial Leadership Exchange; HR Executive Forum research. 23
  24. 24. HRFR19XP3MB 25© 2008 Corporate Executive Board.  All Rights Reserved. Attribute Statement A Assessment Statement B Impact of Differences Implications for Integration Planning Operating Styles Collaboration “When things go wrong, employees tend to focus on identifying and blaming the guilty parties.” Acquirer: Target: “When things go wrong, employees tend to focus on solving the problem together.” Process Focus “The company emphasizes getting to the right result.” Acquirer: Target: “The company emphasizes following the right steps.” Speed and Quality “All else being equal, the company tries to move quickly.” Acquirer: Target: “All else being equal, the company tries to ensure we maintain a high quality bar.” Reliance on Specialists “The company tends to rely on generalists, who perform a wide array of tasks fairly well.” Acquirer: Target: “The company tends to rely on specialists, who perform a few tasks extremely well.” Hierarchy “Employees would describe the company as ‘hierarchical.’” Acquirer: Target: “Employees would describe the company as ‘flat.’” Company Philosophy Role of Tenure “In giving out promotions, the company tends to quickly reward strong performance.” Acquirer: Target: “In giving out promotions, the company tends to emphasize the need to have a track record of achievement and tenure.” Diversity “Employees with divergent social/political views and backgrounds all feel equally at home at the company.” Acquirer: Target: “There are employees of some views and backgrounds who probably would not feel at home in the company.” View of Change “The company tends to embrace organizational change as full of new opportunities.” Acquirer: Target: “The company tends to shy away from change given the turbulence it can create.” View of Risk “The company encourages employees to take calculated risks.” Acquirer: Target: “The company encourages employees to rely on tried-and-true approaches.” View of External Stakeholders “In making decisions, the company would probably make a lower- ROI decision in order to address environmental or community concerns.” Acquirer: Target: “In making decisions, the company would probably drive toward a high-ROI decision with little attention paid to environmental or community concerns.” Gauging Cultural Fit (Continued) Twenty Questions to Gauge Cultural Alignment Supporting Tool Source: Financial Leadership Exchange; HR Executive Forum research. 24
  25. 25. HRFR19XP3MB 26© 2008 Corporate Executive Board.  All Rights Reserved. HR’s Role in Successful MA I. Engineering Comprehensive Information Capture II. Leveraged Targeted Analysis Frameworks III. Preempting Integration Derailment Opening Day Integration Risk Survey MA Progress TrackerDue Diligence Interview Guide Due Diligence Dashboard Cultural Alignment Survey Source: HR Executive Forum research. 25
  26. 26. HRFR19XP3MB 27© 2008 Corporate Executive Board.  All Rights Reserved. Reacting in the Moment Strict adherence to integration plans limits HR’s ability to react to unforeseen risks whereas regular monitoring of progress cues HR to preempt derailment Typical MA Integration Stallpoints Establish new organizational structure Identify leaders for newly formed business units Redefine role criteria to fit new organizational structure Calibrate base pay for all job levels Set performance review and promotion criteria Create and launch integrated formal review process Coordinate cross-company social activities to foster sense of community Extend development opportunities to designated HIPOs Establish new organizational structure Identify leaders for newly formed business units Redefine role criteria to fit new organizational structure Calibrate base pay for all job levels Set performance review and promotion criteria Create and launch integrated formal review process Coordinate cross-company social activities to foster sense of community Extend development opportunities to designated HIPOs Source: HR Executive Forum research. Engagement and Retention of Key TalentRewards and Performance ManagementOrganizational Design Engagement and Retention of Key TalentRewards and Performance ManagementOrganizational Design Integration Execution Dashboard Date: 12 March 2006 Leader: Mary Graham Project: HR RJC MA Task Owner Task Milestones Delivery Risk Task Progress Action Steps Retention: Execute retention plan for key management talent Local HR Anticipated Start: March 3 High Modified completion date 22 April Execution risk identified and reported to integration team. Conducting HIPO engagement survey to create retention plan with corporate HR Actual Start: March 3 Anticipated End: March 18 Actual End: Not on Track Staffing: Review processes, resources, and tools Local HR Anticipated Start: March 3 Medium Modified completion date 10 April Target company tracks different recruiting metrics causing a delay to beginning analysis. Have established a taskforce to standardize metrics Actual Start: March 9 Anticipated End: March 31 Actual End: Not on Track Cultural Integration: Understand work philosophy and values Corporate HR Anticipated Start: March 5 Normal Completed Cultural integration analysis completed March 10 Actual Start: March 5 Anticipated End: March 12 Actual End: March 10 On Track Training and Development: Design change management program for the line managers Local HR Anticipated Start: March 5 Normal On Track Proposal for training curriculum currently with CU. Final confirmation on track for approval 22 March Actual Start: March 5 Anticipated End: March 30 Actual End: On Track HRIT Systems: Identify gaps in HR related study Corporate HR Anticipated Start: March 8 Normal On Track Gap analysis on track for completion on 15 MarchActual Start: March 8 Anticipated End: March 21 Actual End: On Track Integration Execution Dashboard Date: 12 March 2006 Leader: Mary Graham Project: HR RJC MA Task Owner Task Milestones Delivery Risk Task Progress Action Steps Retention: Execute retention plan for key management talent Local HR Anticipated Start: March 3 High Modified completion date 22 April Execution risk identified and reported to integration team. Conducting HIPO engagement survey to create retention plan with corporate HR Actual Start: March 3 Anticipated End: March 18 Actual End: Not on Track Staffing: Review processes, resources, and tools Local HR Anticipated Start: March 3 Medium Modified completion date 10 April Target company tracks different recruiting metrics causing a delay to beginning analysis. Have established a taskforce to standardize metrics Actual Start: March 9 Anticipated End: March 31 Actual End: Not on Track Cultural Integration: Understand work philosophy and values Corporate HR Anticipated Start: March 5 Normal Completed Cultural integration analysis completed March 10 Actual Start: March 5 Anticipated End: March 12 Actual End: March 10 On Track Training and Development: Design change management program for the line managers Local HR Anticipated Start: March 5 Normal On Track Proposal for training curriculum currently with CU. Final confirmation on track for approval 22 March Actual Start: March 5 Anticipated End: March 30 Actual End: On Track HRIT Systems: Identify gaps in HR related study Corporate HR Anticipated Start: March 8 Normal On Track Gap analysis on track for completion on 15 MarchActual Start: March 8 Anticipated End: March 21 Actual End: On Track Course-Corrected MA Process 26
  27. 27. HRFR19XP3MB 28© 2008 Corporate Executive Board.  All Rights Reserved. How Are We Doing? Danske Bank surfaces and responds to integration derailment indicators through periodic integration performance assessments Danske Bank’s Integration Risk Management Process Danske Bank Insights • Execute survey when transaction noise has fallen and there is opportunity to identify and respond to risks. • Prioritize risks that have greatest impact on integration success, decide next steps, and assign responsibility. • Revisit affected elements of the integration plan and its execution to assess the need for adaptation. • Refocus integration resources on tackling high-impact human capital risks. 1 23 Spot Check Survey Risk Prioritization Dashboard Integration Survey Satisfaction I feel motivated in my job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I am willing to make an extra effort if necessary . . . . . . . . . . . . . . . . . . . . . . I would recommend others to seek employment at/in Northern Bank . . . . . . . . . . Image Northern Bank has a good image . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I am proud to tell other people that I work for Northern Bank . . . . . . . . . . . . . Other people consider Northern Bank to be a good place to work . . . . . . . . . . . . Senior Management Your overall perception of senior management . . . . . . . . . . . . . . . . . . . . . . Senior management’s ability to make the right decisions . . . . . . . . . . . . . . . . . . Senior management’s ability to inform employees . . . . . . . . . . . . . . . . . . . . . Line Manager Your overall perception of your line manager . . . . . . . . . . . . . . . . . . . . . . . The professional skills of your line manager . . . . . . . . . . . . . . . . . . . . . . . . The managerial skills of your line manager . . . . . . . . . . . . . . . . . . . . . . . . . Cooperation The professional co-operation with your colleagues . . . . . . . . . . . . . . . . . . . . The general atmosphere among your colleagues . . . . . . . . . . . . . . . . . . . . . . In my unit we are good at learning from each other . . . . . . . . . . . . . . . . . . . . Integration Progress I welcome and encourage change in Northern Bank . . . . . . . . . . . . . . . . . . . . I know where to go for information during change initiatives if I need it . . . . . . . . . I am comfortable going to this source for information . . . . . . . . . . . . . . . . . . . I know and understand the future development of Northern Bank . . . . . . . . . . . . I understand the structural changes planned in my location/area . . . . . . . . . . . . . I feel that the frequency of communication I received met my needs and expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I feel that the quality and detail of communication I received met my needs and expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I am highly motivated to make the future changes implemented by Northern Bank a success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I believe the future changes communicated to date will be good for further development of Northern Bank . . . . . . . . . . . . . . . . . . . . . . . . . . I believe the future changes communicated to date will be good for my career . . . . . . I believe the future changes communicated to date will be good for our customers . . . Strongly Disagree Strongly Agree Don’t Know Strongly Disagree Strongly Agree Don’t Know Very Poor Very Good Don’t Know Very Poor Very Good Don’t Know Very Poor Very Good Don’t Know Strongly Disagree Strongly Agree Don’t Know Acquired Company (1-100) Danske Bank (1-100) Benchmark or Expectation Gap Significance Impact on Integration Target Next Steps Responsibility Employee Commitment Overall Satisfaction 51 77 69 High Medium Motivation 62 80 71 Medium Medium Discretionary Effort 48 69 67 High High 60 Find appropriate engagement lever SVP HR Intent to Stay 52 75 72 High High 65 Find appropriate engagement lever SVP HR Recommend a Friend 57 72 70 Medium Low Image Overall Image 60 73 67 Medium Low Internal Image 59 77 61 Medium Medium External Image 65 70 69 Low Low Target Senior Management Perception of Senior Executives 63 81 75 Medium High 69 Collect more information HR Business Partner Ability to Make Right Decisions 55 77 74 High Medium Ability to Inform Employees 45 85 69 High High 79 Collect more information HR Business Partner Target Line Manager Perception of Line Manager 41 79 69 High Medium Line Manager Skills 49 82 75 High Medium Ability to Inform Employees 44 81 72 High High 75 Reassess scripting for line managers Communications Head, HR Integration Lead Cooperation Colleague cooperation 66 85 76 High High 72 Team building techniques HR Business Partner Atmosphere 54 71 67 Medium Medium Colleague Interaction 64 69 68 Low High Respect 65 70 66 Low Medium Learning 69 75 71 Low Low Integration Progress Openness to Change 44 NA 67 High High 63 Discussion forums on change benefits Communications Head, HR Integration Lead Information Access 56 NA 65 Low Medium Understand Changes 52 NA 61 Low High Communication Frequency 45 NA 64 Medium High 60 Increase volume of communications Communications Head, HR Integration Lead Communication Quality 43 NA 66 High High 61 Reassess formal communications Communications Head, HR Integration Lead Personally Support Changes 55 NA 62 Low Medium Changes Positive for Organization 51 NA 64 Medium High 62 Discussion forums on change benefits HR Business Partner Changes Positive for Individual 58 NA 63 Low High Changes Positive for Customers 60 NA 66 Low High Satisfaction I feel motivated in my job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I am willing to make an extra effort if necessary . . . . . . . . . . . . . . . . . . . . . . I would recommend others to seek employment at/in Northern Bank . . . . . . . . . . Image Business Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Integration and Migration Project is a High Priority Within My Business Unit . I feel there are opportunities for me to become involved in the changes in National Irish Bank . . . . . . . . . . . . . . . . . . . . . . . Integration Progress I know where to go for information during change initiatives if I need it . . . . . . . . . I am comfortable going to this source for information . . . . . . . . . . . . . . . . . . . I feel that the portal delivers information in a way that keeps me up to date . . . . . . . I know and understand the future development of Northern Bank . . . . . . . . . . . . I understand the structural changes planned in my location/area . . . . . . . . . . . . . I am highly motivated to make the future changes implemented by Northern Bank a success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I believe the future changes communicated to date will be good for further development of Northern Bank . . . . . . . . . . . . . . . . . . . . . . . . . . Strongly Disagree Strongly Agree Strongly Disagree Strongly Agree Very Poor Very Good Don’t Know Don’t Know Don’t Know Source: Danske Bank; Corporate Leadership Council; HR Executive Forum research. 27
  28. 28. HRFR19XP3MB 29© 2008 Corporate Executive Board.  All Rights Reserved. Danske Bank Integration Survey1 Satisfaction I feel motivated in my job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I am willing to make an extra effort if necessary . . . . . . . . . . . . . . . . . . . . . . I would recommend others to seek employment at/in Northern Bank2 . . . . . . . . . . Image Northern Bank has a good image . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I am proud to tell other people that I work for Northern Bank . . . . . . . . . . . . . Other people consider Northern Bank to be a good place to work . . . . . . . . . . . . Senior Management Your overall perception of senior management . . . . . . . . . . . . . . . . . . . . . . Senior management’s ability to make the right decisions . . . . . . . . . . . . . . . . . . Senior management’s ability to inform employees . . . . . . . . . . . . . . . . . . . . . Line Manager Your overall perception of your line manager . . . . . . . . . . . . . . . . . . . . . . . The professional skills of your line manager . . . . . . . . . . . . . . . . . . . . . . . . The managerial skills of your line manager . . . . . . . . . . . . . . . . . . . . . . . . . Cooperation The professional cooperation with your colleagues . . . . . . . . . . . . . . . . . . . . The general atmosphere among your colleagues . . . . . . . . . . . . . . . . . . . . . . In my unit we are good at learning from each other . . . . . . . . . . . . . . . . . . . . Integration Progress I welcome and encourage change in Northern Bank . . . . . . . . . . . . . . . . . . . . I know where to go for information during change initiatives if I need it . . . . . . . . . I am comfortable going to this source for information . . . . . . . . . . . . . . . . . . . I know and understand the future development of Northern Bank . . . . . . . . . . . . I understand the structural changes planned in my location/area . . . . . . . . . . . . . I feel that the frequency of communication I received met my needs and expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I feel that the quality and detail of communication I received met my needs and expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I am highly motivated to make the future changes implemented by Northern Bank a success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I believe the future changes communicated to date will be good for further development of Northern Bank . . . . . . . . . . . . . . . . . . . . . . . . . . I believe the future changes communicated to date will be good for my career . . . . . . I believe the future changes communicated to date will be good for our customers . . . Strongly Disagree Strongly Agree Don’t Know Strongly Disagree Strongly Agree Don’t Know Very Poor Very Good Don’t Know Very Poor Very Good Don’t Know Very Poor Very Good Don’t Know Strongly Disagree Strongly Agree Don’t Know Pinpointing Derailment Risks Danske Bank assesses employee perceptions of integration efforts to identify integration risks… 1 Find Danske Bank’s Full Integration Risk Survey in the appendix, p. 113. 2 Danske Bank acquired Northern Bank. …and prioritizes critical performance risks to determine next steps HR Steering Committee Communications Head Integration Head HR Business Unit Heads SVP HR HR MA Lead Risk Analysis Response HR focuses next-step action items on areas of medium or high gap and high impact on integration performance. High-impact risks, which have broad integration implications, are escalated by HR. Acquired Company (1-100) Danske Bank (1-100) Benchmark or Expectation Gap Significance Impact on Integration Target Next Steps Responsibility Employee Commitment Overall Satisfaction 51 77 69 High Medium Motivation 62 80 71 Medium Medium Discretionary Effort 48 69 67 High High 60 Find appropriate engagement lever SVP HR Intent to Stay 52 75 72 High High 65 Find appropriate engagement lever SVP HR Recommend a Friend 57 72 70 Medium Low Image Overall Image 60 73 67 Medium Low Internal Image 59 77 61 Medium Medium External Image 65 70 69 Low Low Target Senior Management Perception of Senior Executives 63 81 75 Medium High 69 Collect more information HR Business Partner Ability to Make Right Decisions 55 77 74 High Medium Ability to Inform Employees 45 85 69 High High 79 Collect more information HR Business Partner Target Line Manager Perception of Line Manager 41 79 69 High Medium Line Manager Skills 49 82 75 High Medium Ability to Inform Employees 44 81 72 High High 75 Reassess scripting for line managers Communications Head, HR Integration Lead Cooperation Colleague cooperation 66 85 76 High High 72 Team building techniques HR Business Partner Atmosphere 54 71 67 Medium Medium Colleague Interaction 64 69 68 Low High Respect 65 70 66 Low Medium Learning 69 75 71 Low Low Integration Progress Openness to Change 44 NA 67 High High 63 Discussion forums on change benefits Communications Head, HR Integration Lead Information Access 56 NA 65 Low Medium Understand Changes 52 NA 61 Low High Communication Frequency 45 NA 64 Medium High 60 Increase volume of communications Communications Head, HR Integration Lead Communication Quality 43 NA 66 High High 61 Reassess formal communications Communications Head, HR Integration Lead Personally Support Changes 55 NA 62 Low Medium Changes Positive for Organization 51 NA 64 Medium High 62 Discussion forums on change benefits HR Business Partner Changes Positive for Individual 58 NA 63 Low High Changes Positive for Customers 60 NA 66 Low High Danske Bank Risk Prioritization and Response Planning Questions on integration progress indicate the overall effectiveness of early integration efforts and highlight areas where changes to the original integration plan should be considered. Source: Danske Bank; Corporate Leadership Council; HR Executive Forum research. 28
  29. 29. HRFR19XP3MB 30© 2008 Corporate Executive Board.  All Rights Reserved. Progress Checks Danske Bank monitors the progress of efforts to manage integration risks through a monthly temperature check assessment… Monthly Temperature Check …while an integration spot-check survey undertaken six months after deal close assesses the effectiveness of efforts to overcome integration risks Integration Spot Check Survey Satisfaction I feel motivated in my job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I am willing to make an extra effort if necessary . . . . . . . . . . . . . . . . . . . . . . I would recommend others to seek employment at/in Northern Bank . . . . . . . . . . Business Unit The Integration and Migration Project is a High Priority Within My Business Unit . I feel there are opportunities for me to become involved in the changes in Northern Bank . . . . . . . . . . . . . . . . . . . . . . . Integration Progress I know where to go for information during change initiatives if I need it . . . . . . . . . I am comfortable going to this source for information . . . . . . . . . . . . . . . . . . . I feel that the portal delivers information in a way that keeps me up to date . . . . I know and understand the future development of Northern Bank . . . . . . . . . . . . I understand the structural changes planned in my location/area . . . . . . . . . . . . . I am highly motivated to make the future changes implemented by Northern Bank a success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I believe the future changes communicated to date will be good for further development of Northern Bank . . . . . . . . . . . . . . . . . . . . . . . . . . Strongly Disagree Strongly Agree Strongly Disagree Strongly Agree Strongly Disagree Strongly Agree Don’t Know Don’t Know Don’t Know Integration spot-check survey retests previously identified high-impact risks to identify effectiveness and impact of HR actions. HR Steering Committee Temperature Check Input • Update on execution of integration survey next steps • Direct employee feedback on integration execution • Key messages on acquisition and integration from exit interviews • Changes in recruitment, attrition, and sick leave metrics Objectives • Ensure integration execution is on track • Update execution strategy based on employee feedback • Ensure that communication plan is targeted at employee concerns • Identify and respond to any escalation in retention risk New questions based on output from the initial integration survey and the temperature check assessment. Source: Danske Bank; Corporate Leadership Council; HR Executive Forum research. 29
  30. 30. HRFR19XP3MB 31© 2008 Corporate Executive Board.  All Rights Reserved. Satisfaction Please rate your overall satisfaction as an employee. 1. How satisfied are you overall as an employee?.................................................................................. 2. Imagine a place of work that is perfect in all aspects. How close to this ideal do you consider your current job to be?.................................................. Overall assessment Please indicate to which extent you agree or disagree with the following statements concerning Northern Bank: 3. I feel motivated in my job.......................................................................................................................... 4. I always look forward to going to work................................................................................................ 5. I am willing to make an extra effort if necessary................................................................................ 6. I believe my colleagues think I do a good job....................................................................................... 7. If the conditions were to change for Northern Bank, I would be open to changes that would affect me.............................................................................. 8. I would like to be working for Northern Bank in two years’ time........................................................................................................................................ 9. I rarely look for other jobs....................................................................................................................... 10. I feel that I have many alternative job possibilities if I were to leave Northern Bank............................................................................................................ 11. I would recommend others to seek employment at/in Northern Bank................................................................................................................................... Please indicate to which extent you agree or disagree with the following statements concerning the Danske Bank Group: 12. I would like to be working for the Danske Bank Group in two years’ time................................ 13. I would recommend others to seek employment with the Group................................................ Strongly Disagree Strongly Disagree Very Dissatisfied Very Far From Strongly Agree Strongly Agree Very Satisfied Could Not Be Closer Don’t Know Don’t Know Don’t Know Don’t Know Integration Risk Survey Supporting Tool Source: Danske Bank; Corporate Leadership Council; HR Executive Forum research. 30
  31. 31. HRFR19XP3MB 32© 2008 Corporate Executive Board.  All Rights Reserved. Image Please rate the image of Northern Bank. “Image” is the reputation that Northern Bank enjoys in the world around you. Please indicate to which extent you agree or disagree with the following statements: 14. Northern Bank has a good image........................................................................................................... 15. I am proud to tell other people that I work for Northern Bank ................................................... 16. Other people consider Northern Bank to be a good place to work............................................ Senior Management of Northern Bank The following questions concern your rating of the senior management of Northern Bank. “Senior management” is the person/persons who make the strategic decisions for the area. Please rate the overall leader on the basis of your impressions and views—also if you do not have any concrete examples or direct contact with him/her/them. 17. Your overall perception of senior management ................................................................................. 18. Senior management’s ability to make the right decisions................................................................. 19. Senior management’s ability to inform employees............................................................................. 20. The ethics of senior management........................................................................................................... Line Manager Please indicate to which extent you agree or disagree with the following statements concerning the Danske Bank Group: 21. Your overall perception of your line manager..................................................................................... 22. The professional skills of your line manager........................................................................................ 23. The managerial skills of your line manager........................................................................................... Please indicate to which extent you agree or disagree with the following statements: 24. I have received sufficient information from my line manager since the sale of Northern Bank was announced............................................................................... 25. My line manager keeps me updated with changes as they affect me/my location................................................................................................................................. 26. My line manager is committed and supportive of the implementation of the changes communicated over recent weeks.............................................................................. Strongly Disagree Very Poor Very Poor Strongly Disagree Strongly Agree Very Good Very Good Strongly Agree Don’t Know Don’t Know Don’t Know Don’t Know Full Integration Risk Survey (Continued) Supporting Tool Source: Danske Bank; Corporate Leadership Council; HR Executive Forum research. 31
  32. 32. HRFR19XP3MB 33© 2008 Corporate Executive Board.  All Rights Reserved. Cooperation Please rate cooperation at your place of work. Cooperation is a broad term and consists of cooperation within your unit as well as cooperation between your unit and other units in Northern Bank and the Danske Bank Group. 27. The professional cooperation with your colleagues............................................................. 28. The general atmosphere among your colleagues.................................................................. 29. Social relations and interaction with your colleagues.......................................................... Please indicate to which extent you agree or disagree with the following statements: 30. I feel that the colleagues in my unit respect each other...................................................... 31. In my unit we are good at learning from each other............................................................ Conditions of Work Please rate your conditions of work. Consider the aspects that concern your daily work, your salary and benefits, and your professional and personal development. 32. Your job objectives and the contents of your work............................................................. 33. The physical working environment at your place of work.................................................. 34. The workload/pressure (if the workload/pressure is a problem give a low rating)..... 35. Your salary (including supplements and bonus) compared to what you could get in a similar position elsewhere............................................................. 36. Your benefits (holidays, flexible working hours, pension, clubs and other benefits) compared to what you could get in a similar position elsewhere..................................... 37. Your job security........................................................................................................................... 38. Your opportunities for professional and personal development....................................... 39. The attention given to your professional and personal development................................ Very Poor Strongly Disagree Very Poor Very Good Strongly Agree Very Good Don’t Know Don’t Know Don’t Know Integration Risk Survey (Continued) Supporting Tool Source: Danske Bank; Corporate Leadership Council; HR Executive Forum research. 32
  33. 33. HRFR19XP3MB 34© 2008 Corporate Executive Board.  All Rights Reserved. Integration Process Please indicate to which extent you agree or disagree with the following statements: 40. I welcome and encourage change in Northern Bank........................................................... 41. I know where to go for information during change initiatives if I need it....................... 42. I am comfortable going to this source for information........................................................ 43. I know and understand the future development of Northern Bank......................................................................................................................... 44. I understand the structural changes planned in my location/area....................................................................................................................... 45. I feel that the frequency of communication I received met my needs and expectations ............................................................................................... 46. I feel that the quality and detail of communication I received met my needs and expectations............................................................................. 47. I am highly motivated to make the future changes implemented by Northern Bank a success............................................................................. 48. I believe the future changes communicated to date will be good for further development of Northern Bank................................................................ 49. I believe the future changes communicated to date will be good for my career................................................................................................ 50. I believe the future changes communicated to date will be good for our customers........................................................................................ Strongly Disagree Strongly Agree Don’t Know Integration Risk Survey (Continued) Supporting Tool Source: Danske Bank; Corporate Leadership Council; HR Executive Forum research. 33
  34. 34. HRFR19XP3MB 35© 2008 Corporate Executive Board.  All Rights Reserved. Assessing Execution Risk ABN AMRO’s dashboard monitors integration execution and helps to proactively responds to integration milestone delivery risk Integration Execution Dashboard* Integration Execution Dashboard Date: 12 March 2006 Leader: Mary Graham Project: HR RJC MA Task Owner Task Milestones Delivery Risk Task Progress Action Steps Retention: Execute retention plan for key management talent Local HR Anticipated Start: March 3 High Modified completion date 22 April Execution risk identified and reported to integration team. Conducting HIPO engagement survey to create retention plan with corporate HR Actual Start: March 3 Anticipated End: March 18 Actual End: Not on Track Staffing: Review processes, resources, and tools Local HR Anticipated Start: March 3 Medium Modified completion date 10 April Target company tracks different recruiting metrics causing a delay to beginning analysis. Have established a taskforce to standardize metrics Actual Start: March 9 Anticipated End: March 31 Actual End: Not on Track Cultural Integration: Understand work philosophy and values Corporate HR Anticipated Start: March 5 Normal Completed Cultural integration analysis completed March 10 Actual Start: March 5 Anticipated End: March 12 Actual End: March 10 On Track Training and Development: Design change management program for the line managers Local HR Anticipated Start: March 5 Normal On Track Proposal for training curriculum currently with CU. Final confirmation on track for approval 22 March Actual Start: March 5 Anticipated End: March 30 Actual End: On Track HRIT Systems: Identify gaps in HR related study Corporate HR Anticipated Start: March 8 Normal On Track Gap analysis on track for completion on 15 MarchActual Start: March 8 Anticipated End: March 21 Actual End: On Track * All names and data are fictional. Source: ABN AMRO Holding N.V.; Corporate Leadership Council; HR Executive Forum research. Milestone Tracking The HR integration leader tracks task milestones on critical integration tasks and assesses whether the team is on track to meet the predetermined deadlines. 1 Course Correction The HR integration leader formulates corrective action steps where necessary to respond proactively to delivery risk. 3 Risk Alerts The HR integration leader uses the dashboard to report key integration business risks to the Project Integration Team. 2 34
  35. 35. HRFR19XP3MB 36© 2008 Corporate Executive Board.  All Rights Reserved. MA Management Tips Information Capture Due Diligence Analysis Integration Management Conduct an in-person meeting with your target counterpart as building rapport can expedite information capture. HR should not only send a questionnaire and document checklist to the target, but also follow up to confirm responses and gather more detail. In discussions with the target contact, pull up and conduct informal, in-the-moment synthesis to ensure the conversation continues in a productive direction. Leverage third-party information to fill in gaps and validate previously captured information. Use several screens when evaluating information including visibility, financial impact, and cultural fit. Cultural indicators are not “one-size fits all,” therefore invest in identifying indicators that accurately define your organization. Complete visibility is not always necessary for thorough analysis; press hard for information that will help assessing impact, not just differences. Analysis templates can help surface risk but can also be valuable reporting tools for communicating those risk areas to the integration team. Integration execution progress does not equate to quality; therefore, imbed assessment mechanisms in the integration plan that assess both criteria. Using integration performance “snapshots” shortly after instituting changes can quickly capture areas of underperformance. Track any HR integration milestones within the context of the cross-functional integration plan. Request similar integration dashboards from other functions to identify conflicts across integration planning efforts. Source: HR Executive Forum research. 35
  36. 36. HRFR19XP3MB 37© 2008 Corporate Executive Board.  All Rights Reserved. HR Executive Forum Member Driven Research Agenda and Services Constant and Unlimited Support for Member Organizations First Quarter 2008 Webinars Employment Branding—Part I 24 January 2008 Developing the next Generation of Leaders 24 January 2008 Engaging Managers in Compensation Discussions 12 February 2008 Employment Branding—Part II 27 February 2008 Accelerating Recruiter Performance 28 February 2008 MA 6 March 2008 Boosting the Effectiveness of Frontline Management 18 March 2008 Design and Execution Center Release European Benefits within Benefits Toolkit 26 March 2008 Annual Executive Retreat Building the HR-Line Partnership 27 March 2008, Chicago Benchmark Metrics New Hire Benchmarks March 2008 Webinars Developing an Onboarding Program 3 April 2008 Attracting Critical Talent 22 April 2008 Growing the Next Generation of Leaders 23 April 2008 Succession Planning May 13, 2008 Developing an Onboarding (Induction) Program 21 May 2008 Maximizing ROI of Total Rewards Packages 4 June 2008 Performance Management 17 June 2008 Leadership Development in China 19 June 2008 Design and Execution Center Release UK Europe HR 101 14 May 2008 Annual Executive Retreats Building the HR-Line Partnership 23 April 2008, California 7 May 2008, Atlanta Attracting Critical Talent 4 June 2008, London 25 June 2008, Virginia Succession Management 12 June 2008, Chicago Webinars Succession Management 16 July 2008 Managing Recruiter Effectiveness 20 August 2008 Growing the Next Generation of Leaders 24 September 2008 Design and Execution Center Release European HR Benchmarking Data 30 July 2008 Line Manager Toolkit July 2008 Annual Executive Retreats Growing the Next Generation of Leaders 9 September 2008, Toronto TBD August 2008, Australia Benchmark Metrics Turnover Cost Calculator September 2008 Webinars Building HR Line Partnerships 15 October 2008 Boosting Effectiveness of Frontline Management 19 November 2008 Driving Employee Engagement and Retention 4 December 2008 Design and Execution Center Release Recruiting in Europe within Recruiting Toolkit 21 October 2008 HR Training Toolkit November 2008 Annual Executive Retreat TBD Second Quarter 2008 Third Quarter 2008 Fourth Quarter 2008 36
  37. 37. HRFR19XP3MB w w w . h r e x e c u t i v e f o r u m . c o m HR Executive Forum Washington, D.C.  •  Chicago  •  San Francisco  •  London  •  New Delhi  •  Sydney 37

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