Making a merger work: AOL Time Warner-the largest merger in history—may succeed because of HR leadership - Mergers & Acquisitions - human resources - Company Profile

HR Magazine, March, 2002 by Marc Adams

Julian Kaufmann sits in front of his computer screen, reviewing the results of an e-commerce training program he and his HR team conducted for 1,300 top executives at AOL Time Warner Inc. "The evaluation of the program is pretty straightforward," explains Kaufmann, the company's vice president for leadership and organization development. "We just reach out to people who have been through the program, and we say, 'Tell us a story of what has happened as the result of your participation in this forum.'"

The e-mails that flutter across Kaufmann's monitor offer a glimpse of the potentially lucrative synergies starting to take shape. For example, in Sweden, a managing director of the corporation's home video business learned valuable tips about downloading movies from the Internet that he hopes to parlay into a marketing plan.

The training program is part of an aggressive HR strategy to help build the bottom line at AOL Time Warner, the company formed when Dulles, Va.-based America Online Inc. acquired New York-based Time Warner for $162 billion in the largest merger in corporate history.

When the merger received final regulatory approval in January 2001, the newly combined company became the world's largest media, entertainment and Internet service conglomerate. As it moves into its critical second year, its front office is relying on HR to help make all the pieces fit.

"I think HR--or what we call 'people management' -- will play a critical role," says co-chief operating officer Richard Parsons, who will succeed Gerald Levin as chief executive officer in May. "At the end of the day, our ability to succeed depends entirely upon the people who are driving our business-whether they have the creativity, capacity to innovate and ability to execute, and whether they can do these things collaboratively."

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Parsons is banking on what he calls "enlightened" HR policies to fuel the company's drive to expand its market share. And experts generally agree that, having survived more than a year of layoffs, acquisitions and major internal adjustments, the company now will be able to sharpen its focus on HR strategies to chart its future course.

"I think you need a couple of years to determine if a merger is going to work," says Tom Wolzien, media analyst at Sanford C. Bernstein & Co. in New York. "The first year, you're kind of running on adrenaline. In the second year, you start to see what you've really got."

Wolzien says that, "[the merger] will work in the long run--the principal reason being that both sides had a concrete reason to do the merger and could see exactly what they were getting from each other. All the employees were put in a position to see easily that there was value in their daily work lives. Going forward, it's important for the employees to be able to say, 'I understand why this is happening.'"

To achieve this, the company's HR executives minimized their conventional functions as administrators and payroll experts in favor of more proactive roles as coaches and profit consultants.

That's a vital transition in an economy rocked by record numbers of corporate mergers, acquisitions and retrenchments. According to data supplied by Thomson Financial, a publishing company that tracks mergers and acquisitions, nearly 56,000 deals worth $6.4 trillion were announced between 1995 and 2000. That's almost twice the number--and six times the dollar volume--of transactions announced during the previous five years.

Fewer than one-half of those unions have survived, however, so HR executives at AOL Time Warner feel it's up to them to troubleshoot for the front-line managers who are drumming up new business and keeping the ship afloat.

"The first role that HR has is to look at how the business is being put together--that's before you do staffing, training or anything else," says Mark Stavish, executive vice president for HR at the company's America Online unit in Dulles. "It's a matter of taking stock of all your respective assets and saying to yourself, 'How do we make these assets work better together?' Then you can really engage the CEOs around those issues. Once you get that going, things like compensation systems sort of fall into place.

To ease the merger transition--and make sure the pieces fit together as seamlessly as possible--HR took the following initiatives:

Structure. When merger plans were announced in 2000, an HR transition team identified the human resource functions that needed the most attention. For instance, the group determined that some of the company's units don't need a constant HR presence, so some HR managers divide their time among several divisions, depending on workload.

Routine administrative duties either were outsourced or shifted to other departments, allowing the FIR department to concentrate on strategic planning. This also enabled the firm to limit the HR staff to about 550--a remarkably lean ratio of approximately one HR professional to 160 employees.

Foreign operations. As soon as the merger was approved, the entire foreign HR staff was flown to a summit at America Online's Dulles headquarters to socialize and plot global strategy. Meanwhile, all of America Online and Time Warner's businesses in London, Paris and Hong Kong were transferred to a single headquarters office in each of those cities to speed up production and communication, with HR handling site and facilities planning and identifying foreign labor issues related to the merger.