But addressing the issues head on sometimes met with resistance, pitting the new regime against the old. That was the case when Ewing brought in a number of new recruits from the private sector to work alongside pre-privatisation managers with a view to injecting more commercial expertise into operations. "The reaction was mixed," she says. Some managers felt threatened, while others liked the idea of management teams that were a combination of "old and new blood."
Ewing — who left BAA when it was taken over last year by Spanish construction group Ferrovial, and is now vice-chairman of Deloitte — remembers that "there was a period initially when I believe the CEO [Mike Clasper] and myself felt as though our authority was extremely limited because our instructions or requests were not being implemented within the business. 'They mean well, but they do not understand this business and therefore we will do what we think is right to protect them from making mistakes' was a common, very well meaning reaction."
But Ewing stood her ground. "It took time, constant, quality communication and encouragement for the organisation to realise that change was required and would be good for the business...For those who were not convinced, they either self-selected to leave (the majority), or they found themselves in different positions (where their influence was limited), or were asked to leave."
Reporting For Duty
At Petrom, OMV's Davies had weeks, not years, to make a number of changes. As he recalls telling his staff, "Task one: please don't tell me that things need fixing, and please don't ask me to wait two years for the numbers, because we closed the deal in December 2004, and from the first quarter of 2005, you're coming in as part of the reporting of the group." But given that finance at Petrom "was never run like it would be at a western company" and that the reporting needed to be done under US GAAP (and later IFRS), hitting the reporting deadline was "easy to say, hard to execute."
Davies' biggest human capital concern at the time was one of resourcing. Finance at Petrom — with 2,500 staffers — was as sprawling and as decentralised as the rest of the company, divided into 120 autonomous units, each with management accounting systems of variable quality.
It was clear to Davies that he'd have to import his own crew, not only to meet the reporting deadlines but also to tackle the bigger issues such as setting up a shared service centre and rolling out a single ERP system. Hence, a "compilation" team from Ernst & Young was brought in to produce the first set of financial statements, while he set up a separate team — made up from his own staff and Cap Gemini consultants — "to work on 'this is where we need to be.'"
But what about the OMV finance staffers? When he first presented the integration plans back in Vienna — requiring many of them to relocate to Bucharest — he wondered whether he was going to face a mass rebellion. But he was in for a surprise. Staff were enthusiastic, particularly OMV's younger managers, who saw it as a great career opportunity that would help them move up the ladder more quickly. After all, "rarely in your life do you have a chance to go in to a company the size of Petrom and radically transform it," Davies says.
From a human-capital perspective, Davies reckons he'll have a better idea of how successful Petrom's radical transformation has been further down the line. It'll take a few more years, he says, "before you visit OMV and Petrom and aren't struck by the fact that you have two different organisations." Until then, OMV has a monster on its hands.
Additional reporting by Janet Kersnar
Eila Rana is a senior writer at CFO Europe.
In An Ideal World
It's reassuring that a piece of research from Hewitt Associates, a HR consulting firm, published earlier this year shows that many companies are giving human-capital management — long overlooked in the deal-making process — the attention it deserves around negotiating tables. Hewitt found that more than three-quarters of 57 European companies it recently polled address HR risks — ranging from leadership gaps to the costs of harmonising salaries and benefits — during the due diligence process.
But there's a problem with Hewitt's research: it's based on the assumption that companies are granted adequate access to their target's human-capital information. That's often not the case during privatisations, says Rachel Di Vito, a partner in Ernst & Young's human capital division. In a recent deal she worked on, the acquirer found it difficult to estimate post-merger staff-related costs because the target wouldn't release its contracts, citing data protection concerns.
There are other reasons why state-owned targets aren't forthcoming with critical HR information. One is that the deals often take place in a highly political environments, so deal makers are more guarded than usual about releasing potentially sensitive, or damaging, information. They also simply might not have the information, says David Davies, CFO of Austrian oil and gas company OMV. That was the case when OMV acquired Petrom, Romania's state-owned oil and gas company, in 2004. Like many state-owned behemoths, he says Petrom didn't have a reliable asset register, let alone detailed data on its 75,000 employees.
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