Heidrick & Struggles: Building a Spin-off Board: Are You Ready?

Every day seems to bring news of another corporate spin-off, split-off, or equity carve-out — or of investors clamoring for one. In the event, the parent company must form a board for the new entity and reconfigure its own board, all under great time pressure. Filling one board seat is difficult enough. Filling as many as ten or more is downright daunting. The complexities multiply and so do the risks of making mistakes — mistakes that a company and its shareholders may have to live with for a long time. A closer look at how thoughtful parent company boards avoid them suggests five guidelines that other boards can follow to best ensure that their new — and existing — boards are ready for a more focused future.

In 2014, more companies pursued spin-offs than in any other year in the past decade, and the number of such deals already announced for 2015 is expected to maintain that rapid pace. In many cases, leaders of diversified companies see separations as an opportunity to create more value by allowing management to focus on its core business, monetize undervalued assets, and separate businesses that are out of phase with each other and drag down the stock price.

Suggested guidelines to ensure best practice that should be followed:

• Managing complexity and reducing risk
• Plan to temporarily expand the board prior to the split
• Begin recruiting new directors as soon as the separation is announced
• Establish a structured timeline and project plan
• Holistically approach board composition through a board planning matrix
• Ensure that a spin-off outperforms the market

To read the full articles and guidelines, click here.