Must see inside! During divestitures, sellers increasingly perform their own HR due diligence to put people assets in the best light and get the best price

HR Magazine, Sept, 2004 by Robert J. Grossman

Sometimes, lowering the price can be the right move for a seller. It may encourage a quicker sale, improving your cash flow and preserving morale for the remaining workers.

Whatever the final strategy, cover up, distort or withhold key information at your peril. "One of the tenets is to shed light on everything," says Zimmerman. "If you don't reveal the warts, the buyer will think it's cancer and not a wart. I'll uncover things and prepare to reflect them in the best light, assuming the buyer will assign penalty values to things that are not revealed or fudged."

When offers are received and weighed, HR input can be critical. That was evident when EDS France (a subsidiary of Plano, Texas-based Electronic Data Systems Corp.) received two offers for several units it was divesting. The executive team, HR included, struggled with the decision, recalls Jean-Louis Mutte, an HR consultant in Lille, France, who was HR director at EDS France at the time.

"My managing director asked everyone on the executive team to choose among the buyers and explain why," says Mutte. "I recommended selling to the one who put less cash on the table because I believed it would treat the people we were divesting better. I was backed up; we sold to the lower bidder."

Communicating and Preserving

Ideally, HR's participation in the pre-shopping and shopping phases is off the radar screen, confidential and conducted by only a few trusted staff members. But inevitably the news leaks out.

"You've got to be careful what you say and how you say it," Capizzi says. "If you think your discussions are a secret, think again; employees know what's going on. The word gets out sooner rather than later."

When it does, HR assumes the challenge of reassuring some understandably nervous people. "HR is asked to keep things running so the wheels don't come off," says Jim Bowers, vice president of Hay Group in Philadelphia. "People get nervous about being acquired. Once the word is out that we'll be sold by March, [employees think] 'I have an annual incentive that's due in June; I may as well leave now. It's good time to bail out.'"

HR should play a lead role in developing and implementing a communication campaign to prevent sabotage, calm possible union unrest and deal with other negatives that may cause a downward spiral before the divestiture deal closes. "Determine what, when and how you can communicate," Schneider says. "When I was VP for HR at The New York Times, I pulled a top-level team together to make these decisions--HR, the CFO, COO and general counsel."

Convey to employees in the unit slotted for "carving out" that it's the best thing that can happen, advises Frederickson. "Tell them that the company needs to be owned by people who know the business, who have more money, and that if it's not spun off, it may go out of business. Coach the management in the company that's being divested to look good so the investors will want to hold on to them. Prepare newsletters, hold town hall meetings--use all the communication tools available to you."