Designing for an IPO: HR’s role

HRM systems and processes are a significant part of enabling an organization to achieve a successful IPO. Not just pre-IPO but also post. But what I've found in my looking into this topic over the last couple of weeks is that there isn't much in the way of useful, practical information to draw on and tracking it down has been time consuming. However, some of what I've turned up has been useful and interesting so collected here is a small selection of the stuff that I've found most helpful in preparing the report I was writing.

I located a 1999 research article by Theresa Welbourne and Linda Cyr called The Human Resource Executive Effect in Initial Public Offering Firms that is available through Cornell's Digital Commons. Although it is 13 years since it was written it proved an excellent start point as the researchers

"By applying organizational inertia concepts, studied whether having a senior HRM executive, reporting to the CEO, affects firm performance in a sample of initial public offering (IPO) firms. Results indicate that smaller and fast-growth IPOs experience the most gain from having a senior human resource executive."

The company I am working with does not have a senior HR executive but is thinking about recruiting one so I contacted Dr Welbourne who is now at the Center for Effective Organizations to find out if she is still pursuing this line of research and the answer is yes.

Her 2010 report HRM in IPOs "provides critical information for firms planning to go public and those going through high rates of change. Based on several empirical studies and case study work done over the last 20 years, the research finds that the key to survival, stock price growth and earnings growth is structural cohesion, which is an employee‐generated synergy that propels a company forward in the direction needed to respond to change. When structural cohesion is high, firms can withstand change and thrive; when low, they go out of business."

The authors define "structural cohesion" as an "employee generated synergy that propels the company forward." Motion, energy, momentum and sense of urgency were all factors studied in the research. The finding was that employees going forward in the same direction and on a path that fits strategic goals drives positive financial performance and long-term survival.

The research also found that the higher the rate of change, the more important the HR factors. Paradoxically this did not mean that as rate of change goes up, more HR is needed. In fact, in some ways, as rate of change goes up it was found that less HR, or perhaps "lighter and faster" HRM was the key to making a positive impact in the firm. The author of the research notes that:

"When it comes to specific HR practices, our research began to find that putting in heavy HR systems can backfire and have negative effects on structural cohesion and the firm's ability to move forward".

This too was helpful as the company I'm working with is busy putting in heavy duty prescribed HR systems and processes across its various business units – which flies both counter to Dr Welbourne's research and to arguments by various others. David Clutterbuck, for example, wrote a provoking article Don't Be Blinded by HR Bling. In it he notes that

"In recent decades, HR has accumulated a fearsome array of processes and procedures, all meant to make it more effective in supporting organisations and more respected for doing so. New methodologies are embraced enthusiastically, imported into the HR catalogue and imposed on increasingly wary line managers.

Like bling, many (perhaps most) of these processes look shiny, but do they actually achieve anything? Or are they the equivalent of the fake Rolex – flashy but worthless?

In my recent researches, I have been encouraged by how many thinking HR professionals have started to question the value of the processes they use. What, they ask, is the evidence that they work? And they feel a sense of relief when they realise that, where credible evidence exists, they don't work."

Discussed as some of the non-working processes are leadership competences, succession planning, and annual appraisals.

Following up the performance management points the hack (does anyone know the difference between a hack and a blog?) The end of performance management (as we know it) by Bjarte Bogsnes, Performance Management Development, at Statoil tells how that company has gone down the route of 'self regulation' rather than 'control' of various aspects of performance. Similarly to Welbourne and Clutterbuck Bogsnes says that

"Traditional performance management easily becomes a medicine with side effects so serious that they completely outweigh the benefits. We might feel we get "control", although a closer examination will probably reveal that much of it is only an illusion of control."

And asks the qustions: "Do detailed job descriptions really ensure that talent, competence and resources are fully utilised? Do thick procedure manuals cover every possible situation that can occur? Do detailed variance analyses of actual vs. budget secure that we now are safely back on track? Does actual cost coming in spot on for every single budget item prove that we spent our resources in the most optimal way? Does "hitting the number" represent great performance if our path is covered by casualties, if there was strong and unexpected tailwind, if we were completely outperformed by peers?"

In answer, he presents the view that "We need to create a new and different framework for teams and people to perform within, with different and wider boundaries but also with new rules of the game. This requires something new, but also just as much dismantling of the old, all the stuff that work more as barriers than support for great performance. There are significant implications for how we define performance and set targets, how we forecast, how we allocate resources and how we evaluate and reward performance."

So how does one do this? Well there are hosts of companies willing to demonstrate that they can help. Workday is one technology company that looks interesting. It "gathers all your workforce, talent, and spend data in one system, giving you visibility into trends that make a difference." And has a white paper that explains "why your current HR systems hold you back".

SAP has a similar white paper which is stashed with the wonderful management jargon that Lucy Kellaway, a columnist on the Financial Times, would poke fun at. It is called IPO Readiness: Preparing Your Company for a Liquidity Event: Maximize Valuations and Aftermarket Performance, but even so it managed to ask some helpful questions. The one that caught my attention was "Do we have the right HR structure in place, given our company's growth trajectory?" This went back to the discussion about whether to appoint a senior HR executive and what the relationship is between HR at a corporate level and HR within the business units that the company I'm working with is exploring.

PWC's Roadmap for an IPO has disappointingly little in its 104 pages of the guide to going public on HR matters, merely saying that "

Research suggests that proactively addressing an organization's human resource issues in the context of an initial public offering can increase the likelihood of a successful offering. Executive compensation and making sure the organization has an appropriate depth of talent are examples of two key areas of focus.

Eepulse is a consulting and research company (Theresa Welbourne, mentioned earlier is President of this) that provides consulting and research on "Fast HRM" . This company (teamed with Mercer) is "working to speed up HRM process and tools to meet the needs of the managers who are their clients and the pace of change in the business world."

What have I got from this, and other information on HR and IPOs? Some consistent messaging on reducing traditional HR oversight and control using prescriptive processes and systems, maintaining compliance via enabling local self-regulation within guidelines (Bogsnes talks tells the story of a traffic regulation experiment which is fun to read). Having a senior HR executive in post, and doing a lot of preparation work prior to the IPO and, more importantly, continuing that post IPO.

Any experience you have on the role of HR in IPO work would be welcome.