Tips for communicating with employees during a spin-off, demerger or divestiture

We spoke with Ted Birkhahn, managing director at Vested, who shared what he’s learned from working on spin-offs in the past.

General Electric, a storied American company, was split into three new brands on April 2 — GE Aerospace, GE HealthCare, and GE Veranova, the last of which will cover the energy industry.

Because the decision was announced in 2021 and didn’t take effect until earlier this year, many questions still exist as to how such an extreme case can be communicated with employees in mind.

We spoke with Ted Birkhahn, managing director at Vested, who shared what he’s learned from working on spin-offs in the past. Companies typically spin off a business unit when it’s determined there’s more value in the company if it’s broken up into separate parts rather than being managed together.

“You see this sometimes in conglomerates,” Birkhahn explained. “When some holding companies get too big and end up in such diversified industries, it’s hard for investors to understand how      to value the business.”

“Do they value you as this type of company or that type of company? They’re bullish about one part of the business, but not too enamored with another. Then the answer becomes, ‘let’s split up’ so investors can value each company distinctly on its own merits and category.”

Minimizing employee confusion with business education

When this happens, employees will understandably be challenged in wondering which part of the company they’re still with—especially if there’s been no clarity from their managers or dedicated executive communication.

Are you in the part of the company that’s being highly valued, as in, one of the primary reasons why the spin-off was happening—or do you sit in a part of the company that’s less attractive to investors?

“As part of your communications strategy, you’ve got to make sure that people feel confident and proud depending on where they go,” said Birkhahn. “And that it’s an organization they want to work for      post-breakup.”

The messaging can also frame future direction through education and context on the decision that employees who aren’t as business savvy may not intuitively understand.

A company like GE becoming so big and diversified that it’s hard for it to move on as one entity is an extreme example, but there are also other divestitures, breakups and spin-offs that happen because one piece of the business is simply underperforming or not part of the strategy going forward.

“So rather than let it sit there and fester, they go find a buyer that does value the business, who sees it as a solid fit for their strategy going forward,” Birkhahn said.

“That’s sending a message to employees that, ‘Listen, we’re being smart about our business and living up to the transformation that we promised. We’re going to invest in areas of the business that really fit under the core      growth strategy, and we’re going to use proceeds from the sale to potentially invest in other areas.’”

Different divestitures tell different stories to different employees

Spinning off and selling one arm of a company to another is a more straightforward story to tell for both the company divesting and the company acquiring the piece of the business than a holding company splitting itself up to unlock value.

“There are two sides of the spectrum there regarding divestment,” explained Birkhahn. “With the latter, there’s still much work to be done on the communication front.”

Employees who are part of a divestiture will want to know more about their new employer,  what working for someone new means for them and how it will impact them.

“Who’s the new company I’m working for, and am I really part of their future?” Birkhahn anticipates these employees asking. “Will there be redundancies?”

“And then if you’re the employee sticking around, the question is, ‘why are you doing this? How does this fit into whatever growth strategy you’ve embarked on? How does this impact my job and the company’s overall performance moving forward?”

The power of plain language

It’s no secret that the leadership of all companies involved will need to be doubly present during such divestitures and that being transparent is the best way to maintain trust and credibility.

“Leadership will say they are divesting this piece of business because x, and the reason should align under the business strategy,” Birkhahn said. “It should make sense to the employees. Maybe they’ll be somewhat surprised initially, but once they hear how it fits under the broader strategy, it should be very clear and easy for them to understand so they don’t question the motives.”

The only way to get there is to be clear and concise.

“Always remember to ask yourself when communicating, are you answering the fundamental question of ‘What’s in it for me?’” said Birkhahn. “If you can think about that when drafting your messaging strategy and standing up in front of employees as a leader, your language, tone, and delivery become much more effective because you can relate to the audience you’re talking to.”

Being prepared for leaks

While GE did many things right with its spin-off strategy, the innovative storytelling strategy of its brand newsroom didn’t overshadow the media narrative that this divestiture marked the dismantling of a great American company moving on from its storied past.

In moments such as this, remember that public perception impacts employee perception. Think of a mixternal comms strategy and segment your stakeholders from there – including how to reach and what to say to different employee groups.

This should also involve training leaders to address the rumor mill outright — not taking the stance that you can’t talk about it.

“You are obviously limited with what you can say and share, and you have to be very careful about that, but you also can’t fall into a hole until the day you are ready to announce,” said Birkhahn. “You want to make sure you’re controlling the rumor mills, addressing speculation along the way and assuring employees that the company will communicate with them as soon as possible about all the specifics.”

The best way to prepare for leaks is to anticipate them and be willing to communicate more along the way to whatever extent possible.

How managers can help

Don’t underestimate the power of your manager cascade in such moments, either. Beyond arming your managers with talking points, ensure they’re prepared to deliver them, too.

“It’s one thing to get it into their hands, but it’s another thing to make sure they feel comfortable conveying those talking points in real situations,” Birkhahn said. “In one-on-ones, in the hallways, over email, at the water cooler. That’s where information often gets shared     .”

Preparing them beyond providing the resource also provides you with a reporting backup—especially with a larger, dispersed workforce.

Starting day one on an equal footing

Assuming your managers are being supported by comms and your leaders are trained to speak with plain, open authority, the C-suite should be able to bring all the pieces together.

Birkhahn recalls working with the CEO of a global company who spent the entire first 24 hours on day one going around the world on Zoom hosting virtual parties to welcome employees in each market.

“He said, ‘No matter if you’re here in the US, Asia or Europe, this is everyone’s first day at the new company, and everyone will remember this day for good or bad.’ He wanted to ensure everyone had an equally positive experience on that first day. So simple but so smart. It made a huge difference in the post-launch surveys. Everyone felt really heard and excited to be on the journey together.”

More high-level executive and leadership comms resources are available exclusively to members of Ragan’s Communications Leadership Council. Learn more about joining the council here

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