How do you align the governance and culture of the parent and the spin-off entities?

1 Why governance and culture matter

Governance and culture are essential elements of any organization's identity and performance. They define how decisions are made, how risks are managed, how values are communicated, and how people are motivated and engaged. In a spin-off transaction, both the parent and the spin-off entities need to establish or adjust their governance and culture to reflect their new strategic objectives, operational realities, and stakeholder expectations. This can be a daunting task, as it involves addressing issues such as board composition, leadership roles, policies and procedures, reporting systems, incentive schemes, and organizational culture.

2 Common pitfalls to avoid

One of the most common pitfalls in spin-off transactions is to assume that the governance and culture of the parent entity can be easily replicated or transferred to the spin-off entity. This can lead to misalignment, confusion, and conflict, as the spin-off entity may have different goals, capabilities, and challenges than the parent entity. Another common pitfall is to neglect the governance and culture of the parent entity after the spin-off, as it may also need to adapt to the loss of a business unit, a change in its competitive position, or a shift in its stakeholder relations. Both the parent and the spin-off entities should conduct a thorough assessment of their governance and culture needs and gaps before and after the spin-off, and develop a clear plan to address them.

3 Best practices to follow

In order to ensure successful spin-off transactions, it is essential to involve both the parent and the spin-off entities in the governance and culture design process. This process should include a shared vision, a clear division of responsibilities, and mutual respect and trust. A dedicated governance and culture team or committee should be established, composed of representatives from both entities, to oversee and coordinate the alignment efforts, communicate progress, and resolve any issues or disputes. Additionally, it is important to define and communicate governance and culture principles and expectations for both entities, based on their strategic priorities, operational requirements, and stakeholder interests. This should be done in accordance with legal and regulatory obligations. Furthermore, appropriate tools and metrics should be used to implement and monitor the governance and culture changes. These can include board evaluations, leadership assessments, employee surveys, performance reviews, and stakeholder feedback. Finally, it is important to review and refine the governance and culture practices based on lessons learned as well as feedback received in order to foster a culture of continuous improvement and learning.

4 Examples of successful spin-offs

To illustrate how some companies have successfully aligned their governance and culture in spin-off transactions, two examples are PayPal and eBay, and HP Inc. and Hewlett Packard Enterprise. In 2015, PayPal spun off from eBay to unlock the growth potential of both businesses, while Hewlett-Packard split into HP Inc. and Hewlett Packard Enterprise to create more focused and agile businesses. To align their governance and culture, PayPal and eBay established independent boards of directors, defined and communicated their distinct missions, values, and strategies, created separate incentive plans and compensation policies, and maintained a cooperative relationship. Similarly, HP Inc. and Hewlett Packard Enterprise formed independent boards of directors, articulated and communicated their unique visions, cultures, and brands, developed separate performance management and reward systems, and preserved a collaborative relationship.

5 How to learn more

Spin-off transactions are complex and challenging, yet also rewarding and exciting. They provide restructuring professionals a great opportunity to learn from the experiences and best practices of other companies. To expand your knowledge on spin-off case studies, consider reading books, articles, and reports that analyze different spin-off scenarios and outcomes, such as Spin-Off to Pay-Off: An Analytical Guide to Corporate Divestitures by Joseph W. Cornell. Additionally, attending webinars, workshops, and conferences can offer you the chance to hear from speakers and panelists who share their insights on spin-off transactions, like the Spin-Off Research Conference by The Edge Group. Furthermore, joining online communities, forums, and networks that connect you with other restructuring professionals who are interested or involved in spin-off transactions can be beneficial, such as the Spin-Off Professionals Association (SOPA).