Spin-off, a new company formed when a parent company carves out a portion of its business, which then operates as an independent company.

Spin-offs face unique environmental, health, and safety (EHS) challenges. Because spin-offs are new companies with different business interests and priorities than their parent company, a new EHS strategy and supporting programs must be implemented to meet the unique business context of the spin-off. In short, spin-offs must think and act like new companies, not like miniature versions of their parent.

Resource Challenges

Spin-offs generally have significantly smaller staffs and fewer financial resources than their parent, forcing them to be much more lean and nimble. For example, the EHS function may need to forego the parent’s leadership positions in its sustainability and governance programs and adopt solid, middle-of-the-road strategies that can be maintained with fewer resources. In other cases, entirely new programs and capabilities may need to be developed to replace services that were formerly supplied by the parent (e.g., auditing, contaminated site management). Consultants and other external resources may be needed to cover gaps in technical expertise or EHS program management at the new company.

Roadmap for EHS Spin-off Success

EHS success at spin-offs is greatly enhanced if the following five strategies are deployed.

1. Understand baseline conditions: Because most of the people who initially work for the spin-off have worked at the parent for years, this step might appear unnecessary, but experienced EHS leaders know that appearances can be deceiving. To understand the strengths, weaknesses, capabilities, and investment needs of the new company, a series of baseline evaluations should be conducted. Evaluations might include staff competency assessments, compliance and risk audits, investment plans for required compliance upgrades, IT systems assessments for EHS applications, and company performance relative to the expectations of key stakeholders. Where performance gaps are identified, a budget request for required upgrades should be prepared and submitted to senior management as soon as possible.
2. Establish an EHS vision for the new company: Armed with an understanding of the baseline conditions, risks, and capabilities of the new company, EHS leaders should next develop an EHS strategy that aligns with the new company’s business goals, objectives, and resources. As part of this process, EHS leaders should define the ambition of the new company with respect to EHS. Will the new company seek to be a leader among peers or will the company’s ambition need to shift to a more modest stance?
3. Develop appropriate EHS management systems and programs: One advantage of spin-offs is the fact that they usually inherit established EHS programs from their parent. If these programs and management systems are efficient, effective, and aligned with the spin-off’s EHS strategy and available resources, then it may be prudent to let the programs run as designed by the parent. If, on the other hand, programs are bureaucratic, ineffective, unnecessary, or unsustainable with current resources and capabilities, then they should be modified or eliminated. Experienced EHS leaders note that it’s generally a mistake to assume that the parent’s EHS policies, programs, and procedures can continue without modification.
4. Assess and improve information solutions: EHS leaders at spin-offs often note that their greatest challenges occur in the area of information solutions (IS). An inefficient patchwork of IT systems that was tolerated at the parent company may seem entirely inadequate at a new company. Even more galling, if the spin-off chooses to implement the parent’s homegrown IS system, it may be forced to lease the system and agree to expensive IT service contracts to keep the system up and running. For these reasons, it’s often easier to cast off the parent’s legacy IS systems and deploy a new, commercially available system that is appropriate for the new company. EHS leaders therefore need to act quickly, before deal closing if possible, to evaluate IS systems and user needs, develop an IS strategy for the future organization, and submit a business case for the new IS system.
5. Prepare for more change: As if life at a spin-off weren’t complicated enough, many EHS leaders at spin-offs will be asked to support aggressive cost reduction campaigns, adapt their programs to accommodate changing business conditions, or support further divestitures, plant closures, or mergers and acquisitions even as they are implementing their initial programs. These changing business circumstances will require EHS leaders to become even more nimble, and in many cases, people in the organization who cannot take the pace of change at spin-offs may voluntarily leave the company, further stressing resources available for EHS.

Conclusion

Although the challenges facing spin-offs are great, the changes that occur during a company’s transformation also provide opportunities to streamline and improve the EHS program. To be effective, the spin-off’s EHS strategy and organization must reflect the new business context, aligning with and supporting the new company’s business goals and objectives. The EHS program must be right-sized for the spin-off’s regulatory and risk profile and must provide streamlined support to facility operations. The new company must also be able to replace services formerly provided by the parent, either by developing new programs or by using qualified external resources. Finally, the entire program must be supported with appropriate technology tools and IS systems that manage risk, track essential information, and provide detailed insight into current performance and opportunities for improvement.

About the Authors

Michael Bittner, CPEA, is the Director of post-merger integration (PMI) services at Ramboll Environment & Health, a leading global environmental and health sciences consulting firm. Michael leads a team of consultants that provides clients and legal counsel with the strategic advice, technical assistance, and temporary staffing needed to overcome the EHS challenges associated with mergers, acquisitions, divestitures, and spin-offs. He has published several articles on the challenges of post-merger integration, is a former member of the Auditing Roundtable’s board of directors, and also serves as editor of the EHS Journal, an on-line magazine for EHS professionals.

Walt Shill is the Global Managing Partner, Client Services, at ERM. For more than 25 years Walt has lead a range of consulting practices to grow in diverse and complex environments. He has inspired and energized teams to drive change, developed new and innovative services, attracted new talent, restructured operations, and completed acquisitions to drive growth and improve profits. Walt has advised senior client executives on strategy, operational and organizational issues across a wide range of industries. He has a particular interest in enterprise transformation, organizational change, talent management, and M&A.

Photograph: At the Fair 3 by David Ritter.

Other PMI Articles in the EHS Journal

• After the Deluge: Designing EHS Organizations for Post-Merger Companies by Scott Nadler and Michael Bittner
• Mergers, Acquisitions, and EHS by Michael Bittner
• EHS Leadership: I’m being acquired…now what? by John D’Agostino and Donna Wiley
• Post-merger Integration Challenges in the Agrichem Sector by Michael Bittner, Kristine MacPhee, and Ashley Armstrong

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