Looking Outside

For CEOs, two key outward-looking activities that relate to growth are acquisitions and investor relations.

Acquisitions

Chapter 8 examined the problems that corporations face when they get new resources through acquisition. There is good reason to believe that the poor results of acquisitions often are caused by neglect of the human capital aspects of those deals and failure to integrate the new people into the various businesses properly. This is where a savvy CEO can make a huge difference in a deal’s outcome. Here is some advice:

• Be very cognizant of the differences in human capital between the acquiring organization and the target enterprise. Uncover and evaluate the facts about the workforces that are coming together. Those facts should inform your decisions.

• Remember that predeal due diligence usually focuses on quantifiable balance sheet factors. Human capital issues generally are overlooked during due diligence even though they are often the most important parts of the deal.

• Estimate the potential scope of integration. Should the target company be fully integrated with the acquirer, partially integrated, or operated as a separate portfolio company? Differences in human capital and people practices can help a CEO find the answer.

• Always approach the combined organizations as a system. A change in one is likely to affect the other.

Investor Relations

Many securities analysts and a number of key institutional investors are looking beyond tradition-bound financial statements and current growth rates when they size up companies. They are asking about the “intangibles,” including human capital, that command market premiums over book value. As was explained in Chapter 11, investors’ attention to the people side of the business is growing. As a result, CEOs with a powerful story to tell about their people can expect an attentive audience. Those CEOs can differentiate their companies—and potentially garner higher share prices—if they can make a case that the following things are true:

• They have metrics in place that track human capital performance.

• They have a strategy for making the most of human capital.

• Their human assets are strengthened continually through rewards, training, career development, and targeted recruiting.

• People practices are aligned with the business strategy.

• Human assets are being allocated to their most productive uses.

If you are the CEO and have a powerful story to tell about your people, make that part of your investor communications. Don’t hide your light under a bushel. If you don’t have a strong story to tell, build one from the principles and practices advocated in this book. Otherwise you may not be able to differentiate yourself from rivals in your industry.