Aon 09.15 09.15

The Transformative Role of Human Capital in
Mergers, Acquisitions, and Divestitures
The 6th Annual Conference on Mergers and Acquisitions
July 2012

M&A Environment Through First Quarter 2012

Source: 2012 Merrill datasite/monthly M&A Insider Mark 2012, we expect activity to increase during the year

Aon Hewitt | Global Aon Mergers and Acquisitions Solutions
Proprietary & Confidential 2

Sustained Shareholder Value Creation Remains Challenging

Were all Transaction Goals Achieved?

Yes
22%

78%

No
Distribution of Total Return to Shareholder versus Industry Benchmark
(TRS measured 24 months after deal announced) Source: 2008, Aon Hewitt/ M&A Transaction and the Human
Capital Key to Success – Global Report

Significantly value-destroying deals
Significantly value-creating deal
(TRS less than -20%)
(TRS greater than 20%)
Factors Contributing to Deals not Meeting Goals
22%
Frequently Rated High Frequently Rated Low
39%
 Cultural integration issues  Payroll integration/
 Inconsistent/ unclear implementation issues
communication of synergy  Compensation integration/
20% objectives implementation issues
Value-destroying deals  Integration/ implementation took  Benefit integration/
(TRS less than zero) longer than expected implementation issues
19%  Insufficient attention/ priority to  HR operations integration/
workforce/ people issues implementation issues
Value-creating deal  Insufficient/ incorrect employee  Staffing selection issues
Source: Accenture analysis
(TRS greater than zero) communications


One Possible Explanation


Human Capital Issues Remain a Huge Tripwire in Global
Transactions
Top 10 drivers of deal failure
(% of respondents)

The top drivers for deal failures
Integration took longer than
expected
41% are Human Capital issues,
but only 15% of time in due
Cultural integration issues 33%
diligence is spent on HR &
Inconsistent communication
of synergy objectives
32% Communications.
Insufficient attention/ priority
30%
to workforce/ people issues
Percent of time spent on each function
Poor/ misinformed strategy 28% during due diligence
Other
Risks/ liabilities not identified 10%
during due diligence 26% Communications
Finance
5% 25%
Insufficient execution
capability/ competency 26% Sales and
Marketing 10%
Leadership “infighting” and/
or buy-in 22%

Price paid for target was too 10%
Human
high 20%
Resources 20%
Failure to implement an Business Line/
appropriate org. structure 18% Operations
20%
Legal
0% 10% 20% 30% 40% 50%
Source: 2009 Aon Hewitt/ The Deal Human Capital Study
Source: 2012 Aon Hewitt/ Culture Integration in M&A, Survey Findings


Cost and Growth Synergies Always Involve Human Capital
Value of Synergies
(Assumed)

Growth

…depend

+
on business – –
+ +
strategy and
workforce
Transaction Integration
Costs
=
ability/ Costs
Value of
willingness
Target Maximum
to execute it
Value of Price For
Costs
Acquirer Enterprise

Metrics of Success
Objectives Methods to address HR issues

 Identification of HR and Risk Liabilities
Pay the Right Growth synergies are almost exclusively
 Purchase price adjustment
Price  Obtain protection for HR/ Risk liabilities and cost driven by Human Capital — physical
assets, process reengineering, or tech
 Retain key talent infusion are enablers of growth.
Achieve Growth  Retool workforce
Synergies  Minimize disruption
 Improve processes and efficiency The “winners” are those firms that can
build execution capabilities and
 Identify HR/ Risk cost savings measure outcomes around growth
Manage Cost  Estimate severance and restructuring synergy capture
 Capture economies of scale in purchasing goods/ service
 Minimize litigation

Human Capital Synergy Examples

Synergy Type Representative Examples
Pay the Right Price  Eliminating redundant jobs, delayering, functional redundancies
(easy to identify)  Capturing scale economies in purchasing goods/services (e.g., consolidating
vendors)
 Reducing overhead costs
Achieve Growth  Enhanced productivity and enhanced client engagement and pull-through
Synergies (difficult to  Driving target company’s superior or complementary products through the
estimate) acquirer’s sales force and distribution channels
 Expanding the acquiring company’s sales by running products through the target
company’s distribution channel
 Using scale of combined company to access new revenue enhancement
opportunities (e.g., expanded deal flow)

Manage Costs  Transferring best practices and core competencies from one company to another
(result in both cost  Improving core business processes (e.g., faster, lower-cost product development
savings and revenue process)
enhancements)  Outsourcing/BPO/EBO


M&A Planning: A Human Capital Lens

M&A Planning Blueprint for Human Capital
Area Topic Target Evaluation Due Diligence Integration Planning Implementation

Org. Structure Review publicly available info re: org. Assess overall organization model Develop new org model, detailed org Transition to new organization
Org. design charts model/charts
Design Leadership Review publicly available information Identify initial key talent and Finalize leadership team (plan) and Select/deselect leadership team and
(proxy, websites) and identify key background identify leadership competencies assess performance
talent
Governance Review publicly available info regarding Conduct high-level “as is” baseline Establish new governance model – Implement new model and identify
reporting relationships assessment of reporting relationships eliminate/change/enhance/add transition issues, risks and
outlining differences functional roles opportunities
Executive Review publicly available information to Assess existing employment contracts; Develop new employment agreements Execute individual employment
Comp. & compensation determine compensation levels of exec identify existing commitments; as needed agreements
Benefits team determine executive team for
combined entity
Employee comp. Review publicly available info and Assess competitiveness and Establish rewards strategy for Implement new rewards strategy; align
develop hypotheses on potential effectiveness of current plans and combined entity; design and establish with change and communications
Retirement plans issues; Identify local country labor law vendors; identify risks and quantify specific plans programs; mitigate activities
Health care requirements material liabilities liabilities and risks
benefits
Other benefits

Staffing levels Review publicly available info. for Assess current staffing levels; estimate Develop detailed selection process; Execute selection and staffing process;
Staffing staffing and structure; hypothesize on potential headcount synergy target train managers to execute process transition to new org model and
Talent potential issues staffing levels
Selection& Retention Consider those employees critical to Determine key roles and retention Develop retention plan for identified Execute retention plan and timing
Staffiing retain issues key talent
Consultation Initial understanding of implications Initial planning discussions with works Incorporate works council requirements Execute project plan based on deal
Employee Requirements within countries involved in deal councils in those countries affected in into deal terms and project plans terms and timing requirements from
Relations EMEA works councils
Collective Review publicly available information Understand current labor environment Establish overall labor strategy for the Execute communications to union
bargaining and identify local country labor law and agreements; identify and quantify independent entity; tailor for individual leadership; conduct negotiations;
agreements requirements material liabilities bargaining agreements implement agreements

Culture Review publicly available info. including Compare current cultural attributes; Assess cultural issues and potential Execute specific actions to drive
Culture national culture and industry info. conduct high-level gap analysis impact on integration timeframe and culture and engagement changes;
costs periodically monitor changes through
Employee Review publicly available info. Including Establish baseline engagement levels; Develop a plan of decreasing surveys to gauge progress
Engagement industry info and id. potential areas of identify risks associated with the disengagement timeframe and
concern/focus divestiture increasing employees level of
engagement to maintain the business
Compliance Review information including company Analyze risk management Develop priority compliance action Monitor critical compliance activities
values, internal policies, external culture/controls; identify and report plans through transition
relationships major risks
Change High-level assessment of change Assess readiness for change; identify Develop change management plan, Execute integrated change plan;
Manage Management management requirements integration risks including leadership, involvement, monitor success and tune as needed
the learning components
Change Communications Understand communication capabilities Understand existing channels and Identify key stakeholders; begin Continue executing tactical
for deal and notify necessary preferred ways of communicating executing tactical communications communications; integrate across all
constituents (legal) program HR activities
Program Understand deal rationale, geographic Establish basic infrastructure, including Expand infrastructure to manage Continue rigorous program
Management requirements and initial project timelines, data room, reporting, individual HR workstreams; formalize management; measure and track
Office structure meeting logistics governance progress against synergy targets


Sources of Human Capital Risks
Talent Risk Reputational Risk
 Evaluation of individual leaders from CEO down against  Due diligence of business entities, owners and management
competencies critical to success in post-deal environment teams, potential board members and key hires, and JV
partners.
 Application of range of valid, sound, and target-appropriate tools
delivered by highly experienced, professional global team. Fact-  Proxy fight and hostile takeover defense support
based talent value assessment on which to base compensation
 Results translate into real benefits including prevention of
and retention offers
reputational damage, increase in critical negotiating leverage,
 Due diligence of team effectiveness of leadership team; and reduced financial losses resulting from misrepresentations.
Assessment of depth of bench strength and succession risk
 Identify and avoid financial losses resulting from
 Identification of performance and retention risk, lending results misrepresentations.
to quantification of potential retention considerations in
 Identify possible trailing litigation or regulatory issues
transaction value
 Gain a more complete understanding of involved parties
 Analysis includes a competency profile of each individual along
with recommended actions to address lacking areas and drive
results

Culture Risk Compliance Risk
 Evaluation of a properly calibrated risk environment that  Evaluation of compliance programs across all functional
encourages leaders and employees to make business areas that is appropriately documented, communicated,
decisions that maximize the risk/return trade offs within the risk implemented and reported.
tolerance of the company
 Due diligence on compliance related policies and
 Due diligence on risk environment and governance focusing on procedures, compliance communications, ethics and
assessment, monitoring, and control environment and likelihood compliance training, whistle blower programs, compliance
for reckless behaviors hotlines, processes for treating alleged incidents; risk
assessments; and business and compliance review
 Analysis of internal policies and practices and governance
processes.
model e.g., does management demonstrate active commitment
to risk management policies and practices? Does the company
culture and pay practices support the operational risk
management environment that is appropriate?


Global Due Diligence: Focus on Key Workforce and Compliance
Issues

People Assets Adverse Margin Impacts People Costs Workforce Flexibility
 Profile key management  Understatement of  Benchmark jobs and  Goodwill issues/morale
 Organization chart ongoing program costs people costs  Procedure steps
 Skill profile  Severance payments  Benchmark staffing  Legal barriers
 Commitments to future levels
 Demographic  Union/Work Council
characteristics cost increases issues
 Collective agreement  Temporary/contract
commitments workers
 Expatriates
 Relocation expenses

Asset Liability Impacts Adverse Revenue Impacts Organizational Fit Compliance
 Change of control  Sales incentive design  Cultural barriers  Programs and
triggers  Likely employee turnover  Incompatible job processes
 Pension, welfare  Retention plans definitions  Illegal payments
liabilities understated  Incompatible reward  Discrimination
 Pending industrial
 Contracts with disputes structures  Acquired rights
executives may contain  Incompatible process  Payroll & HRIS
future liabilities and structure
 Collective agreements
 Book accruals  Duplicate jobs
understated, e.g.  Employee commitments
vacation, sales
commission


Address Country-Specific Labor and Compliance Issues

 Many countries have local laws and practices that can have a significant effect on the price of
a deal

Brazil China France Germany Israel Japan
 Pension  Employment  Triggering of  Triggering of  Complex  Complex
underfundin laws vary by Individual and acquired rights labor laws compensation
g province union rights programs
 Variation in  Increasing
 Plan tax  Some  Post-retirement pension duties for  Variation in
status benefits are medical and life valuation social pension
set by law methods security valuation
 Minimum  Termination
methods
health  Unrecognize indemnities  Restrictions on  General
benefits d benefit asset transfers trend over  Restrictions on
 Early retirement
costs and the last retirement plan
 Termination incentive plans  Eliminate
liabilities decade of changes
indemnities pension
 Formal and “legalization
 Constraints discrimination  Restrictions on
 Small group informal ” of the
on policies/practice asset transfers
insurance severance plans workplace
severance s
costs  Employee
practices  Employee  Recent
 Implementing housing
housing legislation
retirement plan subsidies
subsidies increasing
mergers
protection of  Minimum legal
 Complex labor
 Complex labor employees benefit levels
environment
environment
 Legal limits on
 Individual
reductions in
employment
benefit levels
contracts


The Critical First Step is to Understand the Business Strategy

Buy Competitors Buy Suppliers

 Acquire people or technology  Secure raw materials/inputs
 Expand geographically  Improve quality
 Gain market share  Lower costs: R&D, production, inventory
 Reduce costs: sales,  Acquire hard-to-duplicate assets
marketing, inventory  Respond to deregulation
 Enter higher-margin industry segment

Diversify Buy Customers

 Balance market risks  Own distribution network
 Expand product portfolios  Freeze out competitors
 Enter entirely new businesses  Lower costs: production, inventory, sales
 Integrate product line  Improve identity/visibility


Define an Overarching Integration “Philosophy”

POSSIBLE INTEGRATION “PHILOSOPHIES”

Limited Integration Dominant Player Absorption

Holding Company A
Company Dominance

Company Company
A B Company B

Very little integration of A & B B’s assets are fully integrated into A

Mutual Best of Both Integration Transformation to New Company

Integrated Integrated
Best of Best of Best of Best of
New New
Company A Company B Company A Company B
Company Company

Full merger of best practices from A External New Company
& B to create a new entity Best Practices Best Practices

Best of Both integration that also incorporates
external and new company best practices


Integration Success is Linked to Sustained Focus on Leadership and
Key Talent

 Utilize leadership practice strategies and approaches on a consistent and sustained basis than
underachievers

Extent* to which the leadership practices are utilized
100%
94%

81% 82% Underachiever
80%
80% Overachiever
75%
73%
71%
68% 68%

62% 63%
60%
60% 58% 57% 56%
50%

40%

20%
Identification Assessment Selection Use of formal Coaching/
Having leaders Onboarding Having
and retention of leaders/ and leadership mentoring
and key talent of leaders/ leaders/key
of leaders/ key talent placement competency leaders and
lead key talent
key talent of leaders/ model for key talent
participate in talent participate in
integration ongoing key talent transactions
teams leadership
development
programs

*Responses of 4 and 5 was considered where 5 indicate “Always”

Source: Aon Hewitt M&A Research Database

Leadership Assessment and Selection

Key drivers for leadership assessment
Best practices to engage and retain leaders
and selection in acquisitions
 Limited or questionable data is provided about  Engagement begins with orientation, but requires
key leaders from the acquired organization continued conversations and engagement by the
acquirer
 Early assessments are often inaccurate –
especially when provided under severe time  Executives require more than retention packages
constraints (e.g., competitive compensation and benefits, career
development, strategic vision)
 Political considerations may play a key role
(e.g., would target CEO’s assessment be the  Targeted development and reward strategies for key
same as yours?) technical and functional experts

 Business objectives and strategies may be  “Mentoring” relationships between acquired leaders
different requiring a different type of leadership and peers in the business who have been “acquired”
(e.g., transformational vs. transactional
change)  GE Best Practice: Performance-based retention
targeted at achieving business financial targets
(including synergies) plus non-financial actions such
as mentor or IDP


Acquirers are Increasingly Using More Comprehensive
Leadership Assessment Tools and Methods


Understanding National Cultural Differences Is Essential to the
Success of the Transaction

Linear-Active, Multi-Active Reaction Variations

Hispanic America MULTI-
ACTIVE

Italy and Spain Africa

Russia Arabs

France Iran and Turkey

BELGIUM INDIA

Australia and Denmark Indonesia and Philippines

Netherlands and Norway Korea

U.S.A. China

LINEAR-
Switzerland REACTIVE Vietnam
ACTIVE
U.K. Sweden Finland CANADA Singapore Hong Japan
Germany Kong
Source: When Cultures Collide, Richard Lewis, Third Edition.

National Culture Recognizing differences - Israel
Values :
Obsession to survive
Courage
Energy
Opinionated views
Impatience
Morality
Modernity
Practical & pragmatic
Informal people
Poor listeners
Friendly atmosphere but
business like.
Full use of high technology
Seeking innovation and
improvements
straightforward
Source: Richard D. Lewis

Addressing Organizational Culture is Highly Correlated with
Success

What defines How it is
culture demonstrated

Leadership
What they attend to, measure, reward
and control; role modeling and coaching Customer Experiences

Employee Experience
Organizational Structure

Mission, Objectives, Shareholder Value
Values and Strategies. Formal
statements, charters, creeds
Brand Promise
Business Partner
Programs, Policies, Relationship
Practices
Criteria for recruitment, promotion & exit

Work Environment Business Results
Design of physical
space; Socialization
Patters

Culture Must Align With Strategic Priorities and Drive Value

Major Strategic Priorities

Efficiency Quality Innovation Customer Service Company Image

Cultural differentiators* by strategy in financial high-performance companies

 Safety focus  Teamwork/BP sharing  Diversity of thought  Career development  Shared understanding
 Structure/process  Process quality focus  Supervisor relations  Performance of company direction/
efficiency  Empowerment  Stimulating management brand
 Training  Training environment  Local flexibility  Shared values/pride
 Coordination  Long-term orientation (physical)  Positive working  Integrity
 Data orientation  Understanding  Stimulating relationships  Leadership
 Performance customer’s quality environment  Supportive service  Belief in P/S quality
management expectations (interpersonal) environment
 Focus on priorities  Data orientation  Information sharing  Customer knowledge
 Involvement  Collaboration/  Service orientation
 Workload/resourcing teamwork  Values
 Physical conditions  Support for risk taking  Learning/information
 Customer  Rewarding innovation sharing
understanding  Bias for action  Belief in P/S quality
 Anticipating customer
needs
 Flexible work
arrangements
 Credible leadership

* Differentiators derived from employee research into the survey questions and
topics on which financially successful companies excel versus their peers.

Aligning Culture with Strategy Leads to Better Engagement and
Retention Outcomes

44% more employees are engaged
Strong Culture Alignment 7% 35% 51% 7%
in companies where culture is aligned
with strategy

Low Culture Alignment 9% 20% 42% 29%
71% of employees in companies
with misaligned cultures are either
0% 20% 40% 60% 80% 100% passive or actively disengaged
Highly Engaged Moderately Engaged Passive Actively Disengaged

1%

Strong Culture Alignment 51% 30% 5% 13%
2X the number of employees will stay
with companies where culture is aligned
with strategy

Low Culture Alignment 25% 36% 19% 3% 18%

75% of employees are likely to
0% 20% 40% 60% 80% 100% leave companies where culture is not
I have no plans to leave Would consider another job offer
aligned with strategy
Actively looking for another job Made plans to leave
Plan to retire in the next few years Source: Aon Hewitt’s Engagement 2.0 Study


What are M&A Overachievers Doing Differently?

Answer: Less analysis, more action!

Assess Current State Culture 75%
89%
Underachievers
Define Future State Culture 70% spend more time
89%
assessing culture
Analyze Current/Future Culture Gaps 75%
89%

Make Organization Structure Changes 100%
78%

90% Overachievers
Redesign HR programs
67% spend more time
Managing culture.
Conduct Team Building Interventions 90%
78% Ie, the “How”

Communicate Regarding Culture 85%
78%

50% 60% 70% 80% 90% 100%
Overachievers Underachievers
SOURCE: Aon Hewitt’s Culture Integration in M&A Study


Validate/Implement: Understanding the “What” to Drive Culture
Change

• Link between the CMO (Change Management Office) and the PMO
• Process to link go-forward culture to business strategy
Link to Business Strategy • Monitor cultural and change readiness risks
through the CMO • Develop and manage execution of integration roadmap
• Ensure alignment of people-programs and initiatives to business strategy

• Conduct accelerated culture assessment; utilize survey tools with cascading
scope from leadership down
• Leadership interviews and focus groups to assess and validate legacy cultures
Culture Assessment and and go-forward culture
Integration Planning • Develop and execute culture integration plan; mobilize leaders and change
sponsors

• Identify, train, and equip change leaders and sponsors
• Emphasize Leadership change agility, change network implementation and
acculturation
Change Readiness and • Provide formal training and coaching for leaders in cultural integration
techniques
Managing Engagement
• Deploy culture/engagement surveys and measurement tools; analyze and
reporting findings
• Ongoing engagement monitoring with focused interventions as needed


Culture Integration to Aim Towards a High Performance Culture

Indicators of a successful culture
Mistakes to avoid during culture integration
integration
In the longer term, the success of culture  Often integration leaders not held accountable for
integration is does not lie in the similarity of culture integration
merging businesses, but in building a High  Lack of urgency in addressing culture
Performance Culture.
 Executives do not see the need to address culture at
all
Following activities should be included in culture
integration plan  Leaders (often managers/supervisors) not skilled at
leading change
 Leadership role modeling of desired behaviors  What employees experience does not match what
they’re told
 Communication of performance expectations  Relegating culture to HR; treating it as “soft” stuff
 Conduct assessment but ignore ongoing change
 Talent and skill development
process
 Reinforcement with formal mechanisms  Ignoring subcultures, which invariably exist


Aon Hewitt’s Culture Integration Approach: Phases and Timeline

Assess/Validate Validate/Implement Implement/Measure
Validate
ID Cultural/Change Develop Integration
Cultural/Change Change Planning Business Alignment / Link to PMO
Readiness Risks Roadmap
CMO/LINK TO Readiness Risks
BUSINESS TRATEGY Assess Alignment of People-Programs/Initiatives Plan Alignment of People-Programs/Initiatives Execute Alignment of People-Programs/Initiatives
To Desired Culture To Desired Culture To Desired Culture and Business Strategy
Accelerated Culture Broader Culture/
Mobilize Leaders and Change Sponsors Continued Pulse Surveys
Assessment; Survey(s) Finalize Future State Engagement Survey
CULTURE Leadership Assessment Culture
Preliminary Culture Integration Plan Ongoing Culture Integration Execution
and Interviews
“WHAT”

Stakeholder/Audience Identify Change
Change Leaders/Sponsors Coaching
Analysis Leaders/Sponsors
CHANGE READINESS Change Mgmt Tools Focus on Leadership Change Agility, Change Network Evaluate Change Steady/Future State
Change Impact Analysis
to Leaders Implementation and Acculturation Progress Change Capability Dvmt.
Engagement Question
Pre-Close Engagement
Design in Culture Culture/Engagement Survey Deployment Culture/Engagement Analysis and Reporting
Data Analysis (existing)
Survey
ENGAGEMENT Alignment of Business/People Initiatives People/Business Interventions to Drive Engagement
Hi-Po/Retention Discussion Triage Ongoing Engagement Monitoring

Gather Input
(Interview/Survey) Socialize/Gain Buy-In on
LEADERS Train on Culture/Change Coach on Culture/Change
Assess Alignment, Capabilities to Drive Cultural Go-Forward Culture
Integration & Change Readiness

Equip/Train to Drive Change Execute Change Initiatives
“HOW” (Levers)

Identify Critical Stakeholders
STAKEHOLDERS Understand Current Perspectives Provide Information/
(Risks/Opportunities) Gather Feedback

Continued Communication Support
Execute Key Alignment Communications Continue Ongoing Culture Communications
(Leadership and Integration-Specific)
COMMUNICATIONS Build and Enhance First-Line Manager Leverage Feedback Loops /
Launch Culture Communications Support
Communications Mechanisms Adjust Comms Approach as Needed

Gather Available Propose Business and
Monitor Available Metrics Pulse Survey(s)
Baseline Metrics People Metrics
MEASUREMENT Link Changes in Culture to
Embed Metrics Perspective in Survey(s) Develop Integration Scorecard
Employees/Business Outcome Measures


Aon Hewitt’s Culture Integration Approach: Outcomes
Assess/Validate Validate/Implement Implement/Measure
• Business alignment / link to deal objectives • Business alignment / link to deal objectives • Business alignment / link to PMO
• Identify cultural and change readiness risks • Continue culture/change readiness assessment and change • Execute alignment of people-programs/initiatives to desired
CMO / Link to • Develop Integration roadmap planning culture and business strategy
Business Strategy • Assess alignment of people-programs/initiatives to desired • Plan alignment of people-programs/initiatives to desired
culture culture

• Accelerated culture assessment • Preliminary culture integration plan • Ongoing culture integration execution
• Leadership assessment and interviews • Broader culture/engagement survey • Mobilize leaders and change sponsors
“WHAT”

Culture • Culture/engagement survey (cascade from leadership down ) • Mobilize leaders and change sponsors • Continued culture/engagement pulse surveys as need to
• Finalize future state culture • Consider focus groups for survey feedback track progress

• Stakeholder/audience analysis • Focus on leadership change agility, change network • Change sponsor/leader coaching
• Change impact assessment with culture implementation and acculturation • Evaluate change progress and recommend actions as
Change Readiness • Identify change sponsors/leaders (in conjunction with talent • Change sponsor/leader coaching needed
selection approach) • Evaluate change progress and recommend actions as • Steady/future change capability development
• Change tools to leaders and managers needed

• Pre-close engagement data analysis (existing) • Culture/engagement survey deployment • Culture/engagement analysis and reporting
Engagement • Engagement question design in culture survey • Ongoing engagement monitoring • Ongoing culture/engagement monitoring
• Hi-Po/retention discussion triage • Alignment of business/people initiatives • People/business interventions to drive engagement

• Gather input (interviews/surveys) • Socialize buy-in on go-forward culture • Continue leadership on-site employee meetings by
• Assess Alignment, Capabilities to Drive Cultural Integration & • Train on culture/change location/function/group
Change Readiness • Gain leadership input on cultural integration plan • Coach leaders on walking the talk (culture/change)
Leaders • Ensure senior management and executive leadership buy-in • Coordinate leadership on-site employee meetings by • Link with talent selection/staffing process
and involvement location/function/group • Follow up measurements of leadership change capabilities
“HOW” (Levers)

• Facilitate leadership alignment on go-forward culture and • Link with talent selection/staffing process and alignment compared to baseline
future state

• Identify critical stakeholders; change sponsors and • Equip/train to drive change • Execute Change Initiatives
champions • Set up stakeholder network and game plan • Continue to update stakeholder game plan
Stakeholder • Conduct leadership forums to reach stakeholders • Mobilize change sponsors and champions • Stakeholder meetings and initiatives
• Provide basic change management tools • Facilitate manager/employee discussions • Monitor feedback loop
• Understand current perspectives (risks/opportunities) • Provide information/gather feedback

• Support leadership communication • Launch culture communication approach • Continue ongoing culture communications
• Continue integration communications • Execute key alignment communications • Adjust communication approach as needed
Communication • Build and enhance first-line manager communication • Leverage various communication forums • Leverage feedback loop
mechanisms

• Propose business and people metrics • Monitor available metrics • Leverage pulse surveys to assess culture change and
• Gather baseline metrics available • Develop Integration scorecard leadership adoption of culture
Measurement • Embed metrics perspective in survey • Use feedback loop to get metrics input • Link changes in culture to employee and business-related
outcome measures


Workforce Engagement is Important

What is Engagement? Why does Engagement Matter?

 I tell others great things Total Shareholder Return
Say  I would recommend this firm to a
friend seeking employment Engagement Levels TSR values

over 65% 22% above average
 I rarely think about leaving
Stay under 45% 28% below average
 It would take a lot for me to leave

 I am inspired to do my best every day
Profitability and Revenue
Strive  I am motivated to contribute more
Revenue Profitability
than is required Engagement Level
Growth Growth
over 65% 15% 39%
Average Distribution of Employee Engagement
50% under 64% 10% 14%
41%
40% 36%
Source: Aon Hewitt 2011 Trends in Global Engagement
30%

20%
13%
10%
10%

0%
Actively Passive Moderately Highly Engaged
Disengaged Engaged
Source: Aon Hewitt Engagement 2.0 Employee Survey - US


Reduce Risk and Cost of Disengagement and Accelerate Financial
Value of Changes
The Individual Change Path
Understanding Preference Value Adoption
= Behavior

Integrating

Rationalizing

(shortest duration possible)
Testing

Resistance
Over-
Confidence Letting Go

Disengagement
“valley of despair”

The “change curve” is unavoidable and expected as employees learn and grow through the change
event. The depth and duration of disengagement can be managed and minimized.


In Transactions, Employees have a Raft of Pressing Questions
about how They are Impacted Personally

Employee
My Company
communication should
address these concerns. My Team
My Work
My Career
My Money
My Future

What will What will What will How will my What will What will
happen to happen to my happen to day-to-day happen to the happen to my
me? ability to earn opportunities work change people I work Company?
money … for my career … short term? with?
short- and … long term?
long-term?

Integrating Program Management and Change Management Yields
the Best Results

Program Management Office Integrated Change Aligned Efforts and Outcomes
Management Office
 Pinpoint accountability  Effective allocation of
 Define and manage resources
 Define benefits
stakeholder interests
 Faster time to value
 Monitor progress
 Map specific employee
 Rapid stakeholder
 Assess and manage risk behaviors that need to change
engagement
 Optimize spending within
budgets +  Gather data to facilitate
leadership decision making =  Higher benefits realization

 Proactive risk management
 Improve operating  Attack barriers to change
environment  Sustained momentum
 Formulate and implement
 Create greater synergy change strategy
integration among work
teams


To Build Execution Capability, Develop a Detailed Change Strategy
that Includes Specific Activities and Deliverables

Driver Example Activities and Deliverables
Effective Leaders  Leadership working sessions
 Tailored integration training sessions for managers

Effective  Integrated multi-media communication program (web, print, town
Communication halls, etc.)
 Detailed audience analysis
Effective Involvement  Extensive employee research (focus groups, surveys, etc.)
 Employee involvement on integration teams

Effective Capability  Targeted training sessions
Building
 Identification of new required skills and competencies; plans to
develop them
Effective  “Line of sight” analysis, linking organizational and employee
Measurement actions to business results
 Detailed scorecarding, tracking operational, financial, customer, and
other metrics


Amiad – Arkal Integration – Israeli Case study


Amiad – Arkal PMI Case Study
April May June July Aug. Sept. Oct. Nov. De
Area c.

Integration Approach definition
I General Planning Approved PMI PLAN
Leading teams assignment

Communication Comm. planning
II On-going communication
D-Day comm.

Key People Identify Key People
III KP retention meetings
retention
Streams check lists

IV Orientation workshop - mngs
Gap Analysis
Gap analysis report

Vision, Org. Vision & strategic planning
High level Organizational structure
V Structure &
Management assign.
Management Rest of org. Organizational Mng Team Building
structure
Identify Key
Customers customers
VI Sales & working
Effective Customer Service
Co-meetings processes
retention
Orientation to Emp. Define
VII Cultural Merger Prof. Training Global
Mix. Business teams company
Branding
values
VIII QC & conclusions

About Us


Aon Hewitt: A Snapshot
• Aon Mergers & Acquisitions Solutions
Aon Corporation

Aon Risk Solutions Aon Hewitt Aon Benfield

• Retail Brokerage • Corporate Transactions • Treaty Reinsurance
• Captive Management • Talent and Rewards Consulting Brokerage
• Affinity Programs • Employee Communication, • Facultative Reinsurance
• Select Personal Lines Engagement, and New Media Brokerage
• Premium Finance • HR Business Process • Capital Markets
Outsourcing • Financial Advisory
• Total Rewards • Analytics &Technical Services
• Claims Management

Aon Hewitt Overview Core Strengths Valued by Our Clients

#1 Human capital consulting and outsourcing firm in the world • Aligning complex situations to strategy
• Balanced and holistic approach across IT,
90 Number of countries in which Aon Hewitt operates
people, process, and organization
330 Number of Aon Hewitt offices around the world
• World-class consultants and methods
29,000 Number of Aon Hewitt colleagues around the world • Best-in-class change management and
$8.5 billion Aon revenue (2010 corporate) engagement through transitions


Aon Mergers and Acquisitions Solutions (AMAS)

Risk and HR M&A Specialists

 World-class thought leadership and experience from more
than 4,000 diligence assignments over the past 5 years
 25 years continuous commitment to providing focused
diligence advice to corporate and private equity clients
 Staffed with 400 dedicated professionals worldwide
including MBA’s, attorneys, actuaries, as well as former
risk managers, brokers, underwriters, claims adjusters,
management consultants and investment bankers
 Leveraging human capital and risk expertise from 60,000
professionals in over 500 offices across 120 countries
 Dedicated consultants who bring strong level of
AMAS Global Footprint
transactional expertise and ready availability to our
M&A clients
 Dedicated resources in all major business regions
throughout the world who bring local expertise in their
respective business and regulatory markets

Announced the creation of Aon M&A Solutions in January 2011, creating the only integrated
global advisor across risk and human capital solutions.


Aon’s M&A Solutions: Capabilities Summary
Aon is the leading provider of HR-related M&A services globally and manages over 200 transactions per year
including the largest and the most complex and successful business combinations over the past 5 years.
Our People Our Experience and Expertise Our Market Presence

 Dedicated group of M&A Overall Acting as HR M&A partner to Cisco Hired as ongoing global HR M&A
specialists – M&A and  On average, our consultants have providing support for multiple partner. Provided due diligence
restructuring are all we do; over 20 years experience working transactions, including $3.2B and integration support for multiple
focused on delivering end-to- with some of the world’s most acquisition of Tandberg (35+ transactions as well as HR M&A
end capability for major sophisticated organizations countries); working directly with HR training for GE employees globally
organizational change events including GE, HP, Nokia, UPS, M&A Leader
IBM, Abbott, Cisco,
 Industry leading experts – Providing strategic support for global Provided due diligence and
Wal-Mart, among others
Practice-leader level consultants expansion, specifically growth in Latin integration support for multiple
 Worked on 500+ transactions in
formerly with largest America (Brazil); working directly with transactions in addition to
past 5 years, including some of the
competitors, joined together to Global Business Integration executive providing HR M&A training for
most complex acquisitions in
deliver distinctive value within Finance organization Philips employees globally
recent history

 Global expertise – Worked on Depth and Breadth of Services Leading HR due diligence efforts for Provided HR M&A integration
transactions involving every  Provide services throughout the Comcast‘s 51% ownership stake in support on multiple transactions in
region of the world; specialize in transaction lifecycle – Due NBC Universal (joint venture with GE). addition to HR M&A training and
addressing human capital issues diligence, integration planning, $30B transaction involving 45+ HR partner for numerous joint
in complex global deals post-merger integration and countries; working closely with SVP ventures
restructuring Comp & Benefits and business strategy
 Industry Expertise – Expertise in
 Integrated set of expertise across a leader
a multitude of industries
including transportation, media, broad range of HR domains Leading transition efforts to stand up Hired as Joint Venture HR M&A
financial services, healthcare, including benefits, compensation, HR programs and operations for the partner for Ricoh/ Global Infoprint
high technology, manufacturing, communications & change joint venture entity; working directly joint venture in addition to
retail management, HRIS, HR with EVPHR from NBCU and providing HR M&A training for IBM
operations, HR policies, leadership executives from GE and Comcast employees globally
 Holistic Skill Set – HR technical selection and staffing, organization
(e.g., benefits, employment law, design, payroll, training & Hired as ongoing HR M&A partner for Led global compensation &
compensation), organizational development HP MADO and have provided due benefits integration support for
(e.g., culture, change diligence and integration support in Abbott’s $7B acquisition of
management, organization Methods, Tools and Technology multiple transactions, including $13B Solvay’s pharmaceutical unit, one
design), and business  Leverage proprietary methods, acquisition of EDS (320,000 of the largest pharmaceutical deals
strategy/operations (e.g., tools and technology to deliver employees in 60 countries) completed in 2009
business strategy, operational consistent M&A solutions across all
process design) domains and around the world


Aon 09.15 09.15

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