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<ul><li><p>The Business of HR</p><p>Highlights from Mercers Strategic HR Symposium</p><p>September 4 6, 2007Washington, DC</p></li><li><p>ii</p></li><li><p>1</p><p>An introductionPat Milligan, chief markets officer, Mercer</p><p>It was a privilege to host Mercers 2007 Strategic HR Symposium, The Business of HR, in Washington, DC, last fall. Over the course of the discussion and dialogue, we tackled the business of HR from many perspectives. Some notable examples: Wal-Marts Susan Chambers discussed the talent challenges at the worlds largest retailer. Joan Kelly of DHL Express described how to use technology to engage a global workforce. Michael Capellas of First Data Corp. dis-cussed leaderships pivotal role in business transformation.</p><p>These summaries give a flavor of last years symposium and are a good reflection of the experience that you will enjoy at our next strategic HR symposium, planned for September 2008. We at Mercer look forward to welcoming you.</p></li><li><p>2</p><p>M. Michele Burns became Mercers CEO in 2006. Previously, she served as CFO of Mercers parent company, MMC. Her tenure as CFO and chief restructuring </p><p>officer for Mirant and as executive vice president and CFO </p><p>of Delta Airlines and her background in consulting with </p><p>Arthur Andersen have shaped her thinking about human </p><p>capital issues. She started the symposium by affirming the </p><p>strategic and competitive importance of human capital at </p><p>Mercer and offering a strategic road map for HR leadership </p><p>in any business.</p><p>A CEO perspective on the value of human capitalM. Michele Burns, chairman and CEO, Mercer</p><p>Table stakes and strategic partneringTable stakes is a card-playing term I like to use. It refers to the number of chips required to get into the game. Heres how I would define table stakes for a chief human resource officer: You must have an effective and efficient HR organi-zation, one that allows you to also focus on your CEOs human capital issues and priorities. </p><p>Here are the kinds of questions that need asking: How do you staff your HR organization in a global world? How do you begin to metrics-manage a complex global workforce to achieve the goals of the company and the strategy of the com-pany and measure the value thats created? And then how do you communicate that value both up to the board and to the CEO and how do you communicate that value to the workforce? </p><p>In my opinion, no company in the world can reach its strategic objectives without employing appropriate metrics, including those that measure the return on human capital. If the company is in a state of change, you as the HR leader must inject yourself in the middle of the strategic planning process. At the end of the day, you will be responsible for delivering on that strategy. So its absolutely essential to play a role in its development. </p></li><li><p>3</p><p>Mercers Strategic HR Symposium 2007Insights from the speakers</p><p>Michael Capellas, First Data Corp. ............................................................................. 4</p><p>M. Susan Chambers, Wal-Mart .................................................................................. 6</p><p>Dr. Adrian Wooldridge, The Economist ..................................................................... 7</p><p>Adrian Slywotzky, Oliver Wyman ............................................................................. 9</p><p>Thomas Ptter, Allianz Capital Partners ................................................................. 10</p><p>Lori Sabet, The Carlyle Group .................................................................................. 10</p><p>Symposium bytes: Neil Howe, economist; Joan Kelly, DHL Express .................... 13</p><p>Mercers points of view ............................................................................................ 14</p></li><li><p>4</p><p>With his unique perspective on both the technology industry as former CEO of Compaq and MCI and the role of leadership in business transformation, </p><p>Michael Capellas shared insights on HR leadership and </p><p>its role in building high-performance cultures.</p><p>Business transformation: The role of leadership and cultureMichael Capellas, chairman and CEO, First Data Corp.</p><p>HR must own really, truly own and have responsibility for the integrity of the performance management system. If you look at really great companies, employees know whats expected of them. Pretty basic stuff, right? But then look at companies that get themselves into trouble. You find that the employees didnt know what was expected of them. The performance management systems sent incredibly mixed messages about what behavior was good, what behavior was bad, and then rewarded the wrong things. </p><p>I encourage all HR people to take this up as a mantra: Sense isnt common, and what you can do just by applying common sense is amazing. One of the things I have always told our HR people is: One of your jobs, which is incredibly difficult, is to keep me from doing stupid things.</p></li><li><p>5</p><p>If you look at really </p><p>great companies, </p><p>employees know </p><p>whats expected of </p><p>them. Pretty basic </p><p>stuff, right?</p></li><li><p>6</p><p>Leading the people agenda for the worlds largest retailerM. Susan Chambers, EVP, People Division, Wal-Mart</p><p>The HR leader for Wal-Mart, M. Susan Chambers, pre-sented her views on the challenges of global HR for an organization that has experienced tremendous growth and </p><p>faces the increasing complexity of building and maintaining </p><p>a world-class workforce.</p><p>Weve been fortunate that weve been able to find the talent that we needed as weve grown. But the right talent is going to be so much harder to find, retain and develop. So we are going to take a much different approach. We have begun to partner with schools and partner in urban markets where there are fewer oppor-tunities for people ... to help create the workforce that were going to need for the future.</p><p>We believe that around 60 to 70 percent of our transactional work could be deliv-ered through employee and manager self-service. That effort begins by looking at the services we provide in a whole new light. For instance, one of the problems that we have with the significant turnover in retail is that you cant train people fast enough on the complexities of state employment laws and policies. So were looking at setting up service centers, where HR representatives can call and get the kind of help they need to interpret those policies and laws. </p><p>Culture and sustainabilityOne of the symposiums attendees asked Ms. Chambers: Can you say a little bit more about changing the culture at Wal-Mart?</p><p>Chambers: We like change. We thrive on change. But you can overwhelm people with change, especially if you arent communicating, helping associates not only understand whats in it for them, but letting them play, letting them influence the process. And so weve created a program of town hall meetings and other commu-nication venues where associates and managers can have a real dialogue on change. </p><p>And youve probably read about our sustainability initiative. Its so exciting for all associates, but particularly for younger associates who are just coming on board with us or thinking of joining us. Whether its recycling, using less, consuming less, losing weight we have amazing programs that have become quite popular. </p></li><li><p>7</p><p>Talent shortages are all over the place in specialized skills and in business leadership. We have a severe shortage of top management skills and abilities. It used to be that in the economic development business, what you wanted to do was attract big companies that could provide jobs. Now states are in the business of attracting creative workers with all sorts of incentives. Kansas offers people free land if theyre young and entrepreneurial. North Dakota has tax breaks. Puerto Rico is about to abolish the federal income tax, if it can do it constitutionally, for young, talented workers. Universities are also getting into the talent business. Now, in the Midwest, its no longer the idea that youre driven by the Big Three automakers. Car companies are driven by the Big Ten universities.</p><p>Rich countries around the world are re-rigging their immigration systems to try and attract talent. Theyre using restrictions; theyre creating incentives. Ireland and Singapore both have government departments devoted to attracting talent, and many countries around the world are using their university systems to attract talent. New Zealand and Australia are particularly innovative in that area.</p><p>A lot of companies and a lot of public organizations in the West have relied over-whelmingly on having an almost infinite source of brainpower from India and China, and from Asia in general. [But] that is going to dry up as we see India and China growing were not going to have this talent diaspora, which is beginning to go back home. And were beginning to see a populist backlash against free-market capitalism. Were seeing it in China, with this worry about growing inequality. Were seeing it here [in the US] with people like John Edwards, who ran a very populist campaign. I think this could spread all around the world. We need to factor this into our thinking about the future.</p><p>A shifting balance: The global economy and the war for talentDr. Adrian Wooldridge, Washington bureau chief, The Economist</p><p>Attracting, recruiting and retaining talent is one of the biggest challenges organizations face. The Economists Dr. Adrian Wooldridge talked about the global war for talent </p><p>and how it is changing.</p></li><li><p>8</p><p>For every type of risk ... </p><p>theres someone out there </p><p>who has developed a </p><p>very effective counter-</p><p>measure ... to turn it into </p><p>an opportunity.</p></li><li><p>Orphans of risk management: Understanding and exploiting the upsideAdrian Slywotzky, partner, Oliver Wyman, and author of The Upside</p><p>9</p><p>Theres been so much work done on hazard, financial and operating risk, and relatively little on strategic and human capital risk. Advances in managing financial risk have dramatically improved the performance of banks 70 percent of their total risk is financial. For us non-banks, its strategic and human capital. Strategic: My brand collapses, technology changes, major projects fail. Human capital: My top decile of talent leaves, we lack the right skills for our new busi-ness design or theres a succession crisis.</p><p>So what significant human capital risks should Fortune 500 or Fortune 1000 companies be anticipating, quantifying and managing? Theres a shortage of skills I dont have the people I need to execute my business model. And attrition in the worst case, of my very best people. Also, poor customer service can really damage your brand. Or an inability to evaluate and assess talent. Those are just some of the human capital risks out there.</p><p>Technology and project risk can be devastating whether its an IT project, a new product development or an M&amp;A. Daniel Kahneman, the Nobel Prize-winning economist, says of the roots of risk, Human beings are structurally configured to be overly optimistic about the odds of success on a project by a factor of three or four.1 In fact, the odds of success are usually as low as 10 to 20 percent.</p><p>Theres been a fundamental change in the incidence of risk. Over the past 10 years, 30 percent of the Fortune 1000 have experienced a loss of market value of 60 percent or greater in a 12-month period. Its not just the market, its the under-lying economics. Strategic risk is something that had always been associated with the tech sector, where there were frequent collapses in market value. This has begun to spread to the bluest of blue chips, and even to the very best manage-ment teams, with the very best business models.</p><p>In the dynamic landscape of risk management, companies are not giving enough attention to strategic and human capital risk. Oliver Wyman partner Adrian Slywotzky argued </p><p>that these two risk orphans need to move up the senior </p><p>management agenda.</p><p>1 Dan Lovallo and Daniel Kahneman, Delusions of Success: How Optimism Undermines Executives, Harvard Business Review, July 1, 2003.</p></li><li><p>10</p><p>The view from private equity: Winning the war for talentThomas Ptter, CEO, Allianz Capital Partners, and managing director, Allianz Alternative Asset Holding Lori Sabet, SVP, global human resources, and managing director, The Carlyle Group Dr. Eric Warner, region head, M&amp;A consulting business, Mercer</p><p>During the past decade, the worlds major private equity firms have attracted the best and brightest talent, as the growth, global reach and influence of PE continues. </p><p>In this panel discussion, Allianzs Thomas Ptter joined </p><p>The Carlyle Groups Lori Sabet and Mercers Eric Warner to </p><p>explore what lessons the corporate world can learn from PE.</p><p>Eric Warner: What can private equity firms teach the corporate world about winning the war for talent? Both of you have been involved in developing and building up your firms from a very early stage. So could you say a little bit about the strategies and techniques you use for identifying, attracting and winning the best talent for your organization?</p><p>PE and recruitingLori Sabet: When I first started, we primarily hired investment bankers. But our talent needs have stretched and diversified alongside our business. Today we need different skill sets. So were looking in corporations, M&amp;A, corporate development, the consulting industry, the Big Four organizations.</p><p>We primarily work through search firms, but we also encourage our employees, our portfolio companies, our senior advisers and our consultants to identify individuals for us as we go along. We are most interested in individuals who are looking for an entrepreneurial opportunity and are willing to take a big risk for a potentially large reward.</p><p>Thomas Ptter: When I look back over the past 10 years, I think the challenge of recruiting has changed. Today, everybody in private equity, everybody in consulting, everybody in investment banking and now everybody in the hedge fund competes for the top 2 percent people with the best expertise, the best domain expertise.</p></li><li><p>11</p><p>What persuades people to come to you and not somewhere else? It is a combina-tion of two things. No. 1 is culture. And No. 2 is the clear communication of what makes your business distinct. It never ceases to amaze me how few people are able to clearly explain to somebody they are interviewing what the organization is about, what the organization wants to do and achieve, whats expected of the indi-vidual, and what can happen if he or she meets those expectations.</p><p>Warner: Tom, does the institutionalization of your talent processes affect your ability to attract the best talent in any way? </p><p>Ptter: I think the increase in formal processes and procedures enhances our ability to attract the best talent, because it makes us more predictable. It moves us away from the star system, which poses significant risks to the business. If the star leaves, then suddenly youve got disarray and the organization cant function anymore.</p><p>In a world that has become as complex as ours, you cant buy a $5 billion market cap company anymore, with one genius or financial hero, cape blowing in the wind, doing the deal. I think you need multifunctio...</p></li></ul>