Role of Human Resources in demerger

Introduction: While there are many definitions for demerger, let me put it in a simple manner.

Demerger: Demerger is the converse of merger and acquisition. The act of splitting off a part of an existing company to become a new company, which operates completely separate from the original company. A demerger can take place through a spin out by distributed or transferring the shares in a subsidiary holding the business to company shareholders carrying out the demerger.

Reasons for demerger: Every demerger has its own unique reasons based on the organization goals. Here is a few of them:

• Strategy to enable others to exploit opportunity effectively to optimise returns when the parent company is unable to do so;
• To make financial and managerial resources available for developing other more profitable opportunities;
• Selling of unwanted or surplus or unconnected parts in the business as a restructuring strategy to get rid of sick part of the company.

Stages of demerger:

1. Pre-demerger: Based on strategy, the management appoints a team of employees for developing and execution of the plan.
2. Due diligence: Due diligence is done on possible reorganization, compliance to be followed, status of accounts receivables, payables and etc.
3. Dis-integration: This is the most crucial part of entire demerger process and includes identifying key talent, budgeting for various systems, filing of demerger in court of law, applying for new licenses, registration of demerged company under various compliances, communication to employees.
4. Post demerger: This is the final stage and an important and delicate stage in a demerger. This is called as a delicate stage as the newly appointed or current management has to meet the expectations of employees, market share holders, manage profits and growth.

HR Role in demerger: The role of HR in demerger is more or less the same in merger & acquisition but it is very delicate as the threat of demerger is always loss of best talent. HR plays a key role by helping people on

• Coping up with change and culture
• Formulate the various policies, procedures and systems in place
• Design organizational hierarchy structure
• Provide assurance on Job security
• Registration and Compliance of local labour laws

 Best practices to be followed by HR during and after demerger:

• Identify leaders from the parent company who would lead the demerged company for effective implementation and communication of the same to employees.
• Identify key talent and skills which are required for demerged company.
• Redesign or remap the hierarchy structure.
• Manage the change of culture.
• Organize employee engagement activities.
• Explain the new set of policies and procedures.
• Educate managers and conduct employee counseling.