Integration at TNKBP: HRs role

1
Integration at TNK-BP HRs role

• Association of European Businesses, 03 March 2005
  
• Paul McMorran

2
Overview

• TNK-BP in overview
• The TNK-BP merger integration process
• HRs role in the process
• What weve learned

3
TNK-BP geography
4
TNK-BP transaction
Alfa Access Renova
50
50
BP
TNK ONACO SIDANCO (57) RUSIA Petroleum(29) Rospa
n (44)
SIDANCO (25) RUSIA Petroleum (33) Moscow retail

• Reserves and production
• Long-term growth rates
• Leveraging on existing Russian partnership

• World-class technology
• World-class management
• Strong international partner

6.15bn (2.4bn 3.75bn in ?? shares)
??R
??
1.4bn
SLAVNEFT (50)
??R
??
5
TNK-BP top management
TNK-BP Board of Directors Chairman Mikhail
Fridman (AAR) Deputy Chairman Richard Olver (BP)
Board of Directors
BP Directors Patrick Chapman Brian Gilvary Tony
Hayward Lamar McKay
AAR Directors Len Blavatnik Alex Knaster Viktor
Vekselberg Jean-Luc Vermeulen
President CEO Dudley
COO Vekselberg/McVay
Executive Director Khan
EVP Strategy Bus. Development Sliger
EVP Support Services Bennett
EVP Internal Affairs Kondrashov
Chief Legal Counsel Maydannik
EVP Field Services Lyubashevsky
EVP PPM Cook
EVP Upstream Dibtsev
EVP Downstream Considine
EVP Technology Dupree
CFO Potter
External Hire
BP
TNK
6
TNK-BP and Russian industry peers

• Third largest Russian oil company

7
TNK-BP One year after the Deal

• History
• BP-AAR deal announced February 11, 2003
• Legal agreements
• signed June 2003
• TNK-BP operational September 1, 2003

• Today
• TNK-BP fully operational
• 17 months
• First results robust 2003 and 2004 performance
• Production growth 14
• Exports 52 of production
• Enhanced debt structure
• Paying down debt
• Five year strategy adopted
• Strong 2005 business plan

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Making TNK-BP Work

• Our goal is to become a world-class Russian
  company and industry leader in Russia
• We recognize that this is not an easy task, and
  encounter many difficulties in making the new
  company work
• The challenge is to bridge the divergent
  standards existing across the organization by
• Imposing high standards of corporate governance
• Achieving world-class HSE performance
• Building TNK-BPs own corporate culture

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Building a TNK-BP culture

• Cultural challenges
• Public company and owner-founder company
  heritages
• Putting the right incentives to performance
• Building a progressive common corporate culture
  that encourages performance, initiative and
  creativity
• Solution
• Even mix of heritages embedded at senior and
  middle management levels and across key
  management
• Mixed functional teams in management and
  operations facilitate cooperation and knowledge
  transfer
• Cultural integration program

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Cultural Integration Management heritages
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Mergers and JVs are common, but successful
integration is elusive
Acquisition Failure Rates Survey of 150 deals
over 500m

• Average premium paid is 36 above market value
• Only 33 of companies recover costs incurred in
  the deal
• Typical merger loses 16-49 of combined market
  share within 3-5 years
• 50 of failed MAs are attributed to poorly
  planned integration
• 75 of domestic MAs fail to reach their
  financial targets
• 33-50 are later divested

Substantially Eroded Returns
Created Substantial Returns
17
30
33
20
Eroded Some Returns
Created Marginal Returns
Source Accenture Research (OS Journal, April
1999 MA integration - Lessons from winners)
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Steps to Successful Integration
Do
Dont

• Allow parallel processes
• Allow the businesses to go forward unchecked
• Continue at pace without recharging the team
• Think youre done at Day 1
• Focus only on cutting costs
• Get buried in the detail

• Create a single integration process
• Be clear on how decisions are made
• Take time to reflect and plan phases of work
• Sustain integration process after Day 1
• Focus on total value creation
• Dont forget the big picture

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Integration Organization

• Provide assurance
• Ratify major decisions
• Resolve major conflicts
• Champion new culture

Integration Governance Board

• Set objectives, targets and milestones
• Report on progress
• Manage cross cutting issues
• Manage integration resources

Integration Directorate
Integration Work Teams

• Facilitate, define and execute the program of
  work
• Develop processes to facilitate integration
• Report on progress

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Work streams and work teams
Work teams
Upstream
Down- stream
Field Services
Tech- nology
GPA
Finance
Corporate Business Services
Organization People
Integrated Policies, Processes Systems
Baseline Performance Management
Streams of work
Synergy
Communications
Shareholder Interface
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3. Take time to reflect and plan phases of work
Integration planning
Phase 1
Phase 2
Phase 3

• Complete actions required for control at Day
  1
• Prepare Day 1 events
• Ensure accountability for integration is with
  line management
• Set-up processes to monitor integration post
  Day1

• Appoint leadership
• Connect current staff
• to TNK-BP structure
• Choose common processes systems
• Define corporate policies governance
• Identify synergy opportunities

• Mobilize teams
• Analyze current
• state
• Design organization
• models
• Determine actions
• required for Day 1
• Appoint executive

Day 1
Reflection Point
Reflection Point
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The big picture
Horizon 1
Horizon 2
Horizon 3

• Financial control
• Operational control

• One organization
• One set of processes
• One set of systems

• Transform TNK-BP to achieve its aspiration

Day 100
Degree of Integration/ Improvement
Day 1
Time
Control
Consolidate
Transform
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HR integration workscope
Selection and Appointment
Severance Transition
Day 1 Planning Headcount Tracking
Organizational Design
Employee Communication
Cultural Integration Change Management
HR Organization
HR Organization (and MIT team)
Terms Conditions
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Round 3 selection process
Sidanco TNK BP Others

• Organization models
• Level 3 job outlines
• - Streams Upstream, Downstream,
• Technology Oilfield Services
• Functional Groups

Interactive process with Level 2 Leaders and
Selection Board
Level 2 leaders discuss options with employees
not selected
No
No
Accept
Accept
Step 1
Step 2
Step 3
Step 4
Step 5
Yes
Step 6
Step 7
Yes
Confirm acceptance to Selection Board

• Assemble candidate pool,
• resumes

Review consolidated candidate pool
Select preferred candidate (alternates)
Discuss opportunity with preferred candidate
Make offer (letter of employment)
Announce appointments
Senior leaders
Selection Board with input from Level 2 leaders
Communications, with HR input (2 waves)
Level 2 leaders
HR
HR
HR
Create data base
Update data
Update data with outcome of discussion
Offers made
Preferred listing
Update data with outcome of discussion
Name, Present position, Company Location,
Business Area or Function etc.
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HR Support Management Tracking Communication
TNK-BP HR Support Weekly Flash Report
Team Name
Team Lead
Date
Main activities this week
Planned activities next week
Key Issues
Other
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HR Integration Highlights

• 75 executive appointments, 60 days before Day 1,
• on entirely new compensation and incentive
  programs
• Key employment policies in place by Day 1
• TNK-BP expatriate policies in place by Day 1
• 300 appointments by Day 1, 1148 appointments by
  Day 20
• 160 severances. Transition staff reduced to 15 by
  Day 100
• Compensation strategy for head office complete by
  Day 1.
• Terms and conditions harmonized by end 2003

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HR Integration Highlights (more)

• Cultural Integration program initiated and
  expanding
• Facilitated culture-building events for senior
  executives
• and workshops for senior management
• Company-wide baseline employee survey completed
• Developed company-wide strategy and draft
  Collective
• Agreements for 2004
• Orientation/enrollment conferences for 200 HR
  staff

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HR as Business Partner

• What weve learned
• In major mergers, HRs role as business partner
  is not
• an aspiration - but an imperative
• Ongoing business partnership for HR is not a
  right.
• We must deliver, and demonstrate, sustained
  value
• Creating value depends on HRs grasp of the
  business,
• and on business leaders grasp of the value HR
  can bring
• Communicating HR value is HRs responsibility!
• TNK-BP HR Committee - our partnership platform