A Slew of Spin-Offs

People have May-December romances, but November, it seems, is a good month for corporate breakups.

In the span of a week, three massive companies with almost $200 billion in revenues separately announced that they will divide themselves into multiple smaller organizations. The purposes behind such spin-offs vary, but analysts say they can create more focused, nimble organizations beneficial to all stakeholders. But to do this well, leaders need to juggle everything from internal talent tug-of-wars to disagreements over common purposes, issues that can derail the legacy organizations as well as the spin-offs. “There can be very disruptive. There’s a lot of work to be done,” says Nathan Blain, Korn Ferry’s global lead for optimizing people costs.

The most immediate task is determining who will lead the spin-off firms and the organization that remains. “Start with the premise of the deal. What’s the North Star? Why are they doing the deal?” says Juan Pablo Gonzáles, a Korn Ferry senior client partner and the firm’s sector leader of professional services. Zeroing in on the premise, followed by assessing the skills, traits, and behaviors of existing leaders, can help dictate who goes where.

Those assessments can also identify leadership gaps, says Greg Button, president of global healthcare services at Korn Ferry. Indeed, Blain says one of the unspoken truths of corporate breakups is that there can be a war for talent between the legacy organization and the spin-off business. Sometimes there is one critical leader but she can only go to one organization. That means the others will have to go out and find someone from the outside to fill a gap.

The new organizations will also need boards, and their director composition is especially critical, experts say. Since the goal of the spin-out is to be publicly traded, often right away, the board will need experienced business operators and chief financial officers as directors. Plus, thanks to pressure from investors and stock exchanges, the board will need directors from underrepresented groups from the start.

The spun-out company will also need to ensure it has HR, IT, accounting, and other critical systems in place so it can actually function once it’s out on its own. Often the spin-off will sign temporary service agreements with the legacy organization, giving the spin-off some time to build or buy its own capabilities. But those agreements aren’t ideal, Blain says, because the prices the legacy organization charges the spin-off for services can be high.

All of this is to set up each organization for the actual separation, but leaders on both sides have to keep thinking about their future talent. The organizations likely will have to change their compensation plans and cultures. Indeed, instead of seeking out talent that thrives in stable, mega-sized organizations, leaders will have to find recruits skilled in and engaged by smaller, nimbler businesses. “They’ll have to re-create the employee value proposition,” says Linda Culliton, a Korn Ferry senior partner and global account lead.

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