In the wake of a planned merger between Exelon Corp. and PSEG that never materialized, Gary Snodgrass, Exelon's HR chief and a key player in the attempted deal, is helping his workforce move on.
When it comes to the failed merger between Exelon Corp. and Public Service Enterprise Group, S. Gary Snodgrass doesn't mince words: "It was a bitter disappointment," says the executive vice president and chief human resource officer at Chicago-based Exelon, the nation's largest utility company.
That could be an understatement: After nearly two years of strenuous preparation and planning, sacrificed holidays and vacations, 12-hour workdays, and then agonizing delays as New Jersey state regulators repeatedly held up approval of the merger, Exelon finally called the deal off last fall.
Had the projected $13.7 billion merger been successful, it would have created one of the world's largest utility companies and its second-largest nuclear power operator, a literal powerhouse with customers and facilities stretching from the Midwest to New England.
The Exelon/PSEG behemoth would have had an estimated $27 billion in annual revenues and $3.2 billion in net earnings. It would have employed 28,000 people, serving more than 9 million business and residential customers.
It's no wonder Snodgrass and others at Exelon feel somewhat bitter about the outcome. And yet, in his case, he's eager to move on.
"This is a great company, with a great future and great people," he says. "People can choose how they're going to respond to adversity and disappointment, and we're trying to hit it head-on."
To that end, Snodgrass is spearheading an effort to help Exelon configure itself for continued leadership in an industry that has changed a great deal within the past decade and a half. He's busily "re-recruiting" the company's top managers and high-potentials while helping to craft a strategy that will get the entire employee population re-energized after what had been an unusually drawn-out merger process. Indeed, the company could find itself gearing up yet again for another merger in the near future.
"Our business plans have changed, and we need to ensure the structure of the organization is aligned with the strategies of the company," Snodgrass says.
From Gorilla to Banana
When Exelon announced its intent to acquire Newark, N.J.-based PSEG two years ago, the deal was hailed by many industry experts as a smart move. Exelon's solid reputation for managing nuclear generators compared favorably with PSEG's, while both companies had made great strides in customer service. Together, it was assumed, the two organizations would make a formidable utility.
"Given the dedication both companies have to achieving results, I think their combination would have been good for their shareholders, their employees and their customers," says Gregg Edeson, a partner at PA Consulting Group in Los Angeles who works closely with utility companies on HR- and business-related issues.
Ten or 15 years ago, a merger of this scale in the electric utility industry would have been highly unlikely, to say the least. However, the industry has changed drastically in the years since then. Once regarded as almost "quasi-governmental" entities, with regulated rates and guaranteed profits, utility companies today find themselves competing in a deregulated environment that's much more competitive -- and much less predictable -- than what came before.
Deregulation lets customers shop around for their electric provider and gives utilities the opportunity to expand their operations to multiple states. Approximately 20 states have deregulated their markets, which tends to force utilities to become much more competitive and cost-conscious. The old model of guaranteed profits and guaranteed jobs has, in many cases, gone by the wayside.
It also led to the creation of a different sort of utility company. Consolidation became the name of the game, and Exelon Corp. is emblematic of that. The company itself was created by the merger of two major utilities in 2000: Chicago's Unicom Corp. and Philadelphia-based PECO Energy.
Today it's one of the most admired firms in the industry, winning accolades from local business leaders in the areas it serves and from the national media. Exelon has been named the nation's most-admired utility company for the last two years in a row by Fortune magazine and was named one of BusinessWeek magazine's "50 Best Companies to Launch a Career" in 2006.
From the merger's outset, Snodgrass played a key role in planning and implementing it. Given Exelon's focus on recruiting and retaining the best talent, this wasn't surprising. Indeed, he believes some of the most pressing merger-related challenges are people-related: "In mergers, the soft stuff is the hard stuff. It may be even harder than the operations stuff, when all's said and done."
The so-called soft stuff included the work necessary to retain key managers from both companies, maintaining employee morale during the often-unsettling merger process and creating a "shared vision" for what the combined organization would look like in terms of culture and mission.
One of the most delicate matters facing Snodgrass was the mind-set of PSEG's workers, who hadn't expected to see their employer acquired by another company.
"They'd expected to be the acquirer, not the acquired," he says. "When the merger was announced, there was a state of euphoria at Exelon, but not at PSEG. The PSEG folks had been at their jobs for 20 years or more, in many cases, and their company had a history of success. They'd expected to be the big gorilla, and now all of a sudden they were looking at being the second banana."
Peggy Pego, Snodgrass' counterpart at PSEG, concurs: "Many of our employees were very sad to learn we would no longer be independent." (See sidebar for more on PSEG.)
Snodgrass and his direct reports met with their HR counterparts at PSEG almost immediately after the merger announcement to forge a working relationship and establish rapport. He also met with groups of PSEG employees to reassure them they'd be treated well in the new company.
"This was not a merger of equals," says Snodgrass. "We were acquiring them. But we approached it as a merger, not an acquisition. We went the extra mile to solicit their involvement."
Many of his efforts were directed at corporate-level employees at both companies because, due to the fact that their service areas did not overlap geographically, the so-called "craft workers" (linemen, repair crews, etc.) at each company would be minimally affected. However, although massive layoffs were not anticipated, there would be some overlap in the white-collar areas, and some duties would change. There would also be job transfers, with certain Exelon employees moving from Chicago to New Jersey, and vice versa.
Snodgrass, who joined Exelon in 1997 (back when it was still Unicom Corp.) after serving as vice president of HR at building-materials firm USG, was careful to remember lessons learned from the 2000 merger with PECO as he planned the new one. One of the most important lessons was the need to keep in mind the cultural differences between two organizations.
"In the last merger, we put cultural differences on the back burner, and told ourselves we'd get to it two or three years after we got the deal done. And you know what? That was a mistake," he says. "Acknowledge up front that there are cultural differences, operating differences, organizational differences, and discuss it. Don't dwell on it, but don't try to sweep it under the rug, either."
This was particularly relevant given that Exelon's corporate culture was more fast-paced and "results-driven" than PSEG's, which more closely resembled the cautious, conservative culture found in traditional utilities, says Snodgrass.
In fact, bridging cultural gaps involved yet another oft-cited tenet of successful mergers -- the need to communicate, and even over-communicate, using the fastest medium possible.
"You've got to communicate at 'e-speed' during a merger," he says. "Otherwise, you'll get myths developing very fast about who's going to be leading what, who'll be on the senior team and what the HR policies and practices will be. People will take the smallest bit of information and they'll run with it, so you've got to demystify those myths by communicating at warp speed. I know it's a cliché but it's true: You can never over-communicate during a merger."
Toward that end, Snodgrass and his staff created an electronic newsletter called "Eye on Integration," consisting of the latest updates on the merger, that was sent out each week to Exelon and PSEG employees. Updates focused on which managers would be filling certain positions, IT-related integration efforts and the progress of the merger-integration teams.
Indeed, another lesson learned from the PECO merger was the need to work closely with those integration teams, says Snodgrass. "During the first merger, we formed separate teams: the HR team, the finance team, the operational team and so forth, and simply said, 'Here are your responsibilities; go get them done.' We didn't realize these people get frustrated, too," he says. "We didn't recognize the fact that these people are busting their tails and would appreciate some recognition and some guidance."
This time around, Snodgrass took a more formalized approach, clearly defining the roles, responsibilities and expectations for each team member.
He also met with them on a regular basis and put a priority on making sure they felt appreciated.
"The point is, don't ignore them," he says. "Having them meet [chairman and CEO John Rowe] for dinner, get a note of appreciation from him, -- just an acknowledgement that they're busting their butts and they're going through a rough time -- [was crucial]."
Snodgrass himself put in plenty of long hours during the pre-merger process, with lots of unused vacation time to show for it.
"Everyone here was wearing two hats," he says. "We'd downsized a bit after the PECO merger and were a much leaner organization than before. Consequently, folks had to do their regular jobs and their merger-related work, such as serving on the integration teams. No one had the luxury of being able to focus only on their regular jobs. Our definition of flex-time came to be: come in early, stay late."
The lengthy approvals process needed for the merger to go through was nearly complete, but stalled when it came to the final hurdle: the New Jersey Board of Public Utilities. Opponents of the merger, most of them New Jersey residents, claimed the deal would lead to massive rate increases for the state's customers. Lengthy hearings were held, and the merger process dragged on. Exelon began moving the date of the expected merger approval back from late spring to early summer of 2005, and then further still.
The drawn-out process began to grate on the corporate staff in Chicago.
"As people left the company or retired, we'd held those positions open in order to minimize layoffs once the merger was complete," says Snodgrass. "But as things dragged on, the unfilled positions caused more work for everyone else. We kept reminding people we were holding those positions open so people displaced elsewhere could move into those jobs."
Finally, after the New Jersey regulators rejected as inadequate Exelon's offer of $600 million in concessions to consumers, the company canceled the merger in mid-September.
"We were all very disappointed," says Virginia Brown, Exelon's vice president for corporate leadership development and one of Snodgrass' direct reports. "Everyone had wanted this to happen."
Suddenly, the high-level jobs that some Exelon managers had expected to be moving into were no longer there.
"We'd named the top officers of what was to have been the combined company nearly a year before," says Rich Landy, senior vice president of the HR merger integration team. "There were going to be a lot of good opportunities for people because of this merger. The merged company would have been a very robust, industry-leading organization. It's a shame it didn't happen."
Snodgrass, disappointed himself, urged his staff and his colleagues to be open about their feelings.
"One of my colleagues, who'd worked very hard on this, said, 'Well, this was an interesting experience, and we learned a lot.' I said, 'Yeah, and what else?' " he says. "Because I knew deep down she was hurting. I said it was OK to acknowledge the pain and disappointment you're feeling, because you've put your heart and soul into this for two years, and no one's blaming you for it not working out.
"People have missed vacations and worked nights and weekends -- I think, in a way, they've established their credibility to an even greater degree."
Snodgrass knew he had to move quickly to prevent dashed expectations from morphing into an exodus of talent. The company was at risk of losing some of the key people who'd thought they'd be moving into positions of greater responsibility, he says.
"You can't just tell people, 'OK, this isn't going to happen, so go back to your desks now,' " he says. "They might reply, 'Actually, I think I'll bypass my desk on my way out the door.' "
John Rowe, Exelon's CEO, was keenly aware of the pain.
"We spent two years and a lot of money on this merger," he says. "Everything has been geared around it, and now all of a sudden people have to go back to what they were doing before. It's an emotional rollercoaster, and HR has to help our people deal with it."
Carolyn Ott, a senior consultant with WJM Associates in Basking Ridge, N.J., has worked closely with executives in the wake of failed mergers. A key thing for managers to remember, she says, is to work quickly to "re-recruit" valued employees so they don't feel taken for granted.
"For people who were expecting something from a merger that didn't go through, having a one-on-one meeting with their manager is very important," she says. "This one-on-one conversation with people lets them know they're valued. [What works is] a simple 'I know you expected a promotion because of this, and in the future you'll be considered for these opportunities again.' Making people feel like they're significant, that the top executives appreciate them -- that will go a long way toward rebuilding the esprit de corps that's so important, and which needs to be recharged. Don't assume people are OK and can just go back to normal."
At Exelon, Snodgrass met with the company's 12 senior leaders and devised a communication plan for employees that focused on the company's future plans in an effort to renew excitement and restore morale. He also devised a massive effort to re-recruit the company's 700 top managers via a series of meetings to discuss why the merger failed, lessons learned and the company's vision for future opportunities.
"These top 700 managers manage the rest of our 20,000 employees," he says. "Once we make sure they're on board, they can go out and help to re-engage the rest of our employees."
As Landy puts it, "we need leaders in place who are enthusiastic about what they're doing. Exelon's a cool place with a lot of stuff going on. So we had to get people re-energized and refocused."
To that end, Exelon is using one-on-one meetings and town-hall gatherings to spread the word to employees about its new business strategy, says Snodgrass, one that emphasizes continued growth. The company is also re-emphasizing its mission statement, says Rowe.
"Essentially, our mission is to keep the lights on, operate our plants safely and reliably, recognize the diversity of our customer base and continue making money," he says. "What Gary and I have been trying to do together is to remind employees how important and how durable the basic principles in our mission statement are. In a way, everything we do is tied to it."
Although Rowe would not comment specifically on Exelon's future merger strategy, a recent Chicago Tribune story speculated that the company may seek to acquire PSEG again if it sheds its regulated business, which would remove PSEG from the oversight of the regulatory board that caused Exelon such grief. Exelon will also continue to expand into non-regulated areas of the industry, says Snodgrass.
"Much of our growth, going forward, will be coming from the non-regulated side of the business," he says. "In the past, the company had been equally distributed between the regulated and non-regulated part of the business. Now, the non-regulated side will be in the driver's seat. That's a dramatic change for a utility company."
If there's anyone qualified to help guide Exelon through the process of recovery and renewal, it's Snodgrass. In addition to his long career in HR, he's also the author of a book on career development, When Your Career Means Business, and was awarded the 2004 Colleague of Distinction Award from the Human Resources Management Association of Chicago for his role in attracting new members to that organization and revitalizing its funding and educational offerings.
"I've been running utilities for the past 23 years, and Gary is by far the best HR person I've worked with," says Rowe, who joined the company in 1998 after serving as CEO of New England Electric System. "He treats his job more as a professional and less as an ad hoc set of responsibilities. His breadth of experience makes all the difference."
Bruce R. Ralph, corporate vice president of HR at Zebra Technologies Corp. in Vernon Hills, Ill., worked with Snodgrass early on in his career at USG and has stayed in touch with him ever since.
He credits Snodgrass with serving as a valuable mentor during their long friendship. Several years ago, when Ralph faced the potentially risky decision of whether to leave an executive-level job at a well-established company for the HR role at a technology start-up, it was Snodgrass he turned to for advice.
"He was willing to meet me for dinner that night; we talked things through and, in the end, he was tremendously supportive," says Ralph. "He did a great job of mentoring me. He'd gone through the same thing himself, when he left a comfortable position at USG to work for Exelon.
"Both Gary and I share some fundamental beliefs, one of them being that to be successful in HR, you have to have a deep understanding of your organization's business," he says.
Snodgrass himself is committed to keeping Exelon's HR department closely linked to the business. In addition to re-engaging the workforce, he's launched a reorganizing effort that's examining ways to make the department more efficient and effective, an initiative that had already been scheduled for after the merger.
"We've since concluded that there's too much transactional stuff going on, so we're revising the HR generalist role to be more client-focused and moving some of the basic work to a shared-services center," he says.
According to Brown, Exelon "always uses these circumstances to take big steps toward improvement."
"We're examining whether the way we develop our leaders is as effective as it could be, whether our organizational structure is as good as it can be," she says. "We learned from the merger that we're doing a lot of things right, such as succession planning."
Above all, Snodgrass says he's got plenty of reasons to stay positive.
"This company is in a very good position," he says. "Our reputation is excellent, our platform is strong. We've got great people. We're excited about the future."
It's also "no time to sulk," says Brown. "One of my counterparts recently asked me, 'Was it all in vain, that two years spent on the merger?' I said, 'No, not at all. It was actually pretty cool.' "