1Engro: Building a Conglomerate through People1

Syed Imran Saqib and Tania Danish

This is not a company for people who are looking for a nine to five job. This is a company for people who want to change the world- Asad Umar- Former CEO, Engro Corp.

Tahir Jawaid, HR Director Engro Corp, was planning the year ahead for the phenomenal team heand the top management of Engro had built in the last few years. It was May 2012. Looking outthe window of his office at Habour Front, in the sprawling metropolitan city of Karachi,Pakistan, Tahir felt very pleased with the outstanding performance of the company in the last seven years; Engro had successfully emerged as a diversified conglomerate, that was proving to be very tough competition to MNCs based in Pakistan.

It was now time to look forward and decide how to retain and motivate the high achievers that had made the success a reality. These people thrived on challenges at work and their risk-loving nature was what made the company diversify so successfully.

The Evolution of Engro:

It was 1957 when, in search for oil by Pak Stanvac, an Esso/Mobil joint venture led to the discovery of the Mari Gas field near Daharki Pakistan. Esso proposed the establishment of a urea plant in that area which led to a fertilizer plant agreement signed in 1964. In the subsequent year, Esso Pakistan Fertilizer Company Limited was incorporated, with 75% of the shares owned by Esso and 25% by the general public. The construction of a urea plant commenced at Daharki in 1966 and production began in 1968. At US $43 million, with an annual production capacity of 173,000 tons, it was the single largest foreign investment by a multinational corporation in Pakistan at the time.

From Esso to Exxon Limited:

In 1978, it was decided to rename the company from Esso Pakistan Fertilizer Company limited to Exxon Chemical Pakistan Limited. In 1991, Exxon decided to divest its fertilizer business on a global basis. The employees of Exxon Chemical Pakistan Limited, in partnership with leading international and local financial institutions, bought out Exxons 75% equity. This was at the 1 The case has been prepared by Syed Imran Saqib and Tania Danish, Assistant Professors at the Institute of Business Administration Karachi for class discussion and is not meant to depict good or bad handling of the situation. Contact ssaqib@iba.edu.pk, tdanish@iba.edu.pk. The case is to be used for class discussion only. Special thanks to Leon Menezes for his thorough review and comments.

2time, and perhaps still is, the most successful employee buy-out in the corporate history of Pakistan. Renamed as Engro Chemical Pakistan Limited, the Company has gone from strength to strength, reflected in its consistent financial performance, growth of the core fertilizer business, and diversification into other businesses.

In 2004, the Hussain Dawood group acquired the controlling shares of Engro and thus Engro became a part of the Dawood Hercules group of companies. In 2010, the management decided to centralize the growing businesses of the Company in a newly created holding Company Engro Corporation Limited or Engro Corp. Thus Engro emerged as one of Pakistans largest conglomerates with the Companys business portfolio spanning across sectors including chemical fertilizers, PVC resin, a bulk liquid chemical terminal, foods, power generation and commodity trade. Besides providing the long term vision for the company and overseeing performance of the subsidiaries and affiliates, Engro Corp was also designed as a body responsible for allocation of capital, management of talent, leadership development, HR guiding policies, leadership role in public relations and CSR activities, control structures, legal and IT support. From its inception as Esso Pakistan Fertilizer Limited in 1965 to conversion into Engro Corporation Limited in 2010, Engro came a long way and would continue working towards its vision of becoming a premier Pakistani company with a global.

The Companies within the Conglomerate:

Engro Fertilizers Limited:

Engro Fertilizers Limited, a wholly owned Engro subsidiary, was one of the leading fertilizer manufacturing and marketing companies in the country. It was primarily engaged in manufacturing and marketing of urea and NPK fertilizers. As an example of synergies between Engros business lines, Engro Eximp imported phosphate-based fertilizers which are distributed and marketed through Engro Fertilizers network as an extension of Engros overall fertilizer portfolio. The business offered a wide variety of fertilizer brands, which include some of the most trusted names by Pakistani farmers. These included Engro Zorawar, a high-phosphate fertilizer developed for alkaline soils. Engro Zarkhez is a high-end blended fertilizer product that offers a unique balance of nutrients for a wide variety of crops. Zingro is an imported zinc micronutrient, meant to overcome zinc deficiency in a wide range of crops.

Engro Foods Limited2:

Engro Foods Limited was a 90 percent owned subsidiary engaged in the manufacturing, processing, and marketing of dairy products, ice cream and fruit juices. The business owned two milk processing plants in Sukkur and Sahiwal and operates a dairy farm in Nara. Its vision of elevating consumer delight worldwide, the business has established several brands that have become household names in Pakistan such as Olpers (milk), Omore (ice cream), Olpers Lite (low-fat milk), Dairy Omung (UHT dairy liquid), Tarang (tea whitener) and Olfrute (juices).

Engro Foods Canada:

2 www.engrofoods.com

3With the acquisition of Al Safa a fast-growing and established Halal meat brand Engro Foods ventured into the North American market, starting from Halal Foods category.

The new organization, Engro Foods Canada Ltd., with a subsidiary Engro Foods USA, LLC, undertook the herculean task of aggressively growing the business in that market. With the vision of "Elevating Consumer Delight Worldwide," the companys focus shifted significantly towards the global operations in the years to come.

Engro Polymer and Chemicals Limited:

Engro Polymer & Chemicals Limited was a 56% owned subsidiary of the group and the only manufacturer of polyvinyl chloride (PVC) in the country, in addition to manufacturing and marketing caustic soda. The businesss vinyl chloride monomer (VCM) plant began production in the first quarter of 2010 and was able to achieve commercial production capacity by September 2010, making the entire integrated facility fully operational. The firm on average produced 150,000 tons of PVC a year and markets its products under the name of SABZ.

Engro Powergen Limited

Engro Powergen owned and operated Engro Powergen Qadirpur Limited a 220-megawatt power plant and the Companys first initiative in the power sector of Pakistan which was 10 percent directly owned by the holding company and 85 percent owned by Engro Powergen. The remainder is owned by the International Finance Corporation (IFC) a subsidiary of the World Bank. In 2010, Engros Powergen joint venture with the Sindh government, the Sindh Engro Coal Mining Company Limited, completed a detailed feasibility study (DFS) analyzing the technical, social and environmental viability of the Thar Coal mining project.

Engro EXIMP Private Limited3

Engro Eximp Limited was the groups commodity trading business that dealt primarily in the import and trading of phosphate-based fertilizers for Engro Fertilizers Limited such as DAP, MAP, MOP and SOP, and also imports micro-nutrients like Zinc Sulphate, which it supplies as raw material to Engro Fertilizers Zarkhez plant for manufacturing blended fertilizers.

In addition, Eximp also managed the procurement, processing and export of rice markets in Middle East and the European Union. Over the past five years, Engro Eximp had become the single largest importer of phosphates and potash fertilizers in Pakistan.

Engro Vopak Terminal Limited4:

Engro Vopak Terminal Limited is a joint venture with Royal Vopak of the Netherlands. Engro owns 50% of Engro Vopak Terminal Ltd.; a business engaged in the handling and storage of 3 www.engro.com4 www.engro.com

4chemicals and liquefied petroleum gas (LPG). In November 2010, the business completed 13 years of safe operations without a single 'Lost-time injury' reported. The business launched Pakistans first cryogenic import facility for ethylene, in line with the groups overall motto of pursuing and enabling excellence. Engro Vopak was also working to setup an LNG terminal around Port Qasim area to provide a much needed energy source for the country.

Engro Foundation:

As part of the core values (Exhibit 1), Engro Foundation heavily invested in community development serves as a single platform where all the corporate social responsibility projects of Engro are managed. The foundation along with its partners engages in sustainable development of communities by providing training and education to workers and underprivileged children. Engro Foundation works to build capacity in education by adopting and refurbishing schools. It has also worked extensively with the flood-affected regions of Sindh. Engro Foundations biggest project has been the Ittehad Model Village in the Ehsanpor district which was destroyed by floods in 2010. This has involved infrastructure development, solar electrification, and adult literacy in this village.

The Ambitious Expansion:

Engro enjoyed a rich history of undertaking challenging projects. After Exxon Chemical Pakistan limited (formerly Esso Pakistan Fertilizer Company) decided to divest its operations in Pakistan, the employees under the leadership of Mr. Shaukat Mirza, along with a consortium of local and international buyers, managed perhaps the most successful employee buyout in Pakistans history in 1992. In 1997, after the employee buyout, a significant expansion in the fertilizer business and diversification into Engro Asahi took place.

Asad Umar highlighted the fact that long-term strategy-making at Engro could be seen as an institutional process. The avenues for growth visible began to be explored in Shakuat Mirzas time and were carried out through Mr Zaffar Khans tenure. In 2004, the implementation of many of the ideas envisioned in the previous era started. You can say that my contribution to this whole exercise was emphasizing and concentrating on the country fundamentals Asad Umar humbly commented.

The most recent and perhaps the most significant wave of expansions came in 2004. Engro identified four major projects for expansion. All the projects looked very promising, but were very risky and required huge capital investment.

Under the leadership of Mr. Umar, CEO Engro Chemicals (later Engro Corp), the organization had a concerted vision of growing into areas where Pakistans country fundamentals were strong. This meant that each avenue of expansion provided Engro with a sizeable market, as well as infrastructure and availability of raw materials. With this in mind, Engro Corp initiated four ambitious projects.

Diversification into the Foods Industry through Engro Foods:

5Engro enjoyed a very good relationship with the dairy farmers because of their fertilizer business. The farmers trusted Engro and knew that they would be paid on time if they didbusiness with the company. Therefore, Engro decided to capitalize on its relationship with the dairy farmers and integrated forward into the consumer market. So strong was the belief in this new venture that Asad Umar threatened to resign from the post of CEO if the board did not go ahead with this project.

This calculated diversification helped Engro Foods Limited (EFL) make its mark amongst the biggest and fastest growing conglomerates in Pakistan. In a very short span, EFL grew to over 1000 employees, with a customer base of 5 million people per day. EFL surpassed competition and was able to earn Rs. 30 billion in 2011.

Engro goes global: Encouraged by the phenomenal success in the local market, Engro recently made its big leap into the $ 632 billion global foods business with the acquisition of Al-Safa, a leading halal meat brand of North America. Its newly formed subsidiary,Engro Foods Canada Ltd, and its subsidiary Engro Foods USA, LLC, gave Engro Foods the distinct advantage of being Pakistan's first local conglomerate to explore the world's fastest growing consumer segment and acquire a top quality international meat brand.

Power Plant in Qadirpur:

Engro Energy Limited, another Engro Corporation subsidiary, established a 220 MW power plant in Qadirpur as the companys first Independent Power Project (IPP), in 2005, which sought to utilize permeate gas, that would otherwise be flared at the Qadirpur gas field, thus helping reduce carbon emissions. This power plant was one of the first green power plants in the country.

Engro Polymer:

In 2007, the Company embarked upon an expansion, a backward integration project to enhance the PVC capacity to 150 KT, and set up EDC-VCM and Chlor-alkali plants.

The impressive array of companies was a result of a concerted effort in consolidating the Engro team and inducting people who fueled the growth.

Engro Vopak:

The first cryogenic ethylene storage facility in the country was set up to support Engro Polymeras a backward-integration project.

Urea Plant in Daharki:

In 2010, the company achieved mechanical completion and started trial production of the Cryogenic storage of its urea expansion project at Daharki; the worlds largest single train urea-ammonia plant, and Pakistans largest private sector industrial investment.

6Engros fertilizer manufacturing facility at Daharki had been experiencing ongoing expansion. This, coupled with the distinct dynamics of the highly nuanced fertilizer industry, warranted an independent and dedicated business entity and approach, reflected in Engro Fertilizers hope to become the leading urea manufacturer in the country following major upgrading of its manufacturing capabilities. ENVEN 1.3a tremendous expansion in Engros urea manufacturing facility - went into production in November 2011.

Mr. Khalid Mansoor, former CEO of Engro Fertilizer and one of the key figures behind the expansion of the fertilizer unit commented, The employees always had an unfulfilled appetitefor growth and is the reason that throughout the history of Engro we have never been static and there have been some small or big expansions or growth projects.

HR in Engro- An Enduring Culture of Excellence

As Engro emerged out of Exxon, it retained most of its cultural lineage, especially the importance of merit and developing leadership. Khalid Mansoor, former CEO of the fertilizerbusiness and one of the key figures behind the successive expansions to the fertilizer plants, said,From the days of Exxon it was clear that we wanted to recruit and develop the best talent. That is why you see that former employees working for many of the largest fertilizer set ups in the region. Companies such as Fatima Fertilizer, Safco in Saudi Arabia, Petrokemia, are all essentially staffed by ex-Engro employees. Similarly, Zaffar Khan, former CEO, also highlighted the fact that Engro was not based on individuals and it was an institution, and that the legacy and culture is perpetuated from one CEO to the next

This culture of excellence was perceived to be under threat when the Hussain Dawood Group started acquiring shares of Engro in a bid to take over the organization. A court dispute ensued between the Dawood Group and the Employee Management Group of Engro in 2004. However,both parties took a conciliatory approach for the settlement of the dispute. Zafar Khan recalled,One fine day we learnt that our shares were being purchased from the open market and that there was a takeover bid, so got we got a stay order. It took about two years for this dispute to be settled through reconciliation. The point I am trying to highlight is that the credit is due to the management for this of current system of excellence. However had the primary shareholder and sponsor (Mr. Hussain Dawood) not been open to letting our policies, practices and systems continue, things might have been very different. Credit to him that he allowed the value system and policies to continue and constructively contributed to the board

According to Mr. Hussain Dawood, this was a natural outcome of how he viewed the function of the boards - the board and the management are two organs of a business. The board is responsible for the long term strategy of the organization whereas the management has the responsibility for execution. The board is more responsible for the balance sheet and the management for the income statement.

Human Resource Management is about building human capacity. We believe and invest in our values and one of the values is to reward merit above all. This entails a compensation and performance evaluation system which is fair and objective, growth opportunities with diversity of experience, the leeway to make mistakes, a selection system which selects the best talent, so that people have the inherent confidence in the system. Engro had all these elements in its HR

7and other systems and it was in my own interest to not only support this system but to nurture it.Thus we protected the culture and enhanced it Mr. Dawood said.

The Market in 2005- Start of the Expansion

In 2005, when the ambitious expansion projects were kicked off by Engro, Pakistan was witnessing tremendous growth in the financial as well as the manufacturing sector. Investment in the stock exchange was at an all-time high. In addition, flow of foreign investment as well as repatriation of wealth by overseas Pakistan post 9/11 was driving consumer growth. GDP was growing at 7% per annum. Brokerage houses, security firms and investment banks were particularly aggressive in acquiring talent from the pool of fresh graduates.

During this time, newly- graduated students from good universities had to literally turn down interviews because they were flooded with offers from different organizations. Tahir Jawaid and his team found themselves in an aggressive competition for talent to provide a competent workforce for their growing organization.

Supply for the talent

During this initial period of growth, three groups of human resources were identified.

(i) Marketing Professionals: This talent was needed mostly at Engros food business for brand development, positioning of products, and sales. Since consumer marketing was a new territory for Engro, this pool had to come from established sources.

(ii) Industry-Specific Resources: quality assurance, food technologists, food safetyspecialists and engineers for the power business, and project managers for thefertilizer plant. This pool consisted of external and internal candidates.

(iii) The third group consisted of employees who were within the system that could be leveraged. This included expertise in supply chain management, process engineering,project engineering, operations and systems management. Internal recruitment could be done through Engros Fertilizer business, since a large pool of expertise was available within this group.

The fertilizer plant expansion and Powergen projects directly relied on the last group by internally placing project managers and engineers. The challenge was diffusing the talent throughout the system and to be able to capitalize on the sum of experiences and expertise already available within the organization.

Attracting Talent

The pace of growth was phenomenal which required a commensurate effort in hiring the talent to carry forward the projects. Despite the solid engineering and project management talent within the organization, a large proportion of lateral hires had to come from external sources, which was a challenge.

Syed Muhammad Ali, CEO of Engro Powergen, recalled his time while working on the fertilizer plant in Daharki, During the fertilizer plant expansion, it seemed that we were hiring people every day. All of us were pushed to utilize our networks to get people on board.

8The effort to hire people was invested both by the HR and individual line managers, In terms ofthe hiring effort, I think it was 50% by HR and 50% by the line managers, Muhammad Ali further recalled.

According to Mr. Khalid Subhani, CEO of Engro Polymer, unlike most projects of this scale the fertilizer expansion did not rely on the Engineering Procurement and Construction (EPC) model which relied on a third party to take up the project on behalf of the sponsor completely. Instead, Engro chose to manage the $200 million utilities part of the project which meant a greater need for qualified people who would be on Engros payroll.

Tahir reflected on this initial hiring phase: You see, most of these people were not actively looking for jobs. They had to be convinced and brought in from other organizations to build up the core team at Engro.

Thus, the core team comprised of people representing the length and breadth of the Pakistani business canvas. This was especially true for Engro Foods. Kanwar Saeed, Head of HR at Engro Foods, who had extensive local experience in HR commented, Engro became a melting pot for FMCGs like Nestle and Unilever.

Out-of-proportion jumps for a lot of core talent had to be offered. For example, the Marketing Manager of Coke was given the challenge of leading marketing at Engro Foods as the Marketing Director. However, this was not enough for attracting talent of this caliber. People as intelligent as our core team could not be enticed by money or promotions alone. You needed something more substantial to attract them, added Tahir.

This something more was the vision of Asad Umar and his predecessors; the team was doing something extraordinary which had not been done in Pakistan before. It meant undertaking the biggest expansion of a plant in Pakistan and launching a foods business to rival and compete with the multinational brands and companies that had a 100 year head start and market presence.

A lot of people in the core team were identified and handpicked by Umar himself, and the primary criterion was identifying with the vision of Engro Corp. One of my most important jobs is to sell the vision of the company. I often tell my team that if you are not able to achieve your objectives I will forgive you. However, if you are not thinking big, consistent with your potential, then I will not forgive you, Umar said.

Sarfaraz Rahman, CEO of Engro foods, often credited for his dynamic leadership of Engro Foods, talked about Asad Umars vision which brought him on board. He identified with the idea of launching something great for and with Pakistan. At the launch of Olpers I tried to communicate to my team the importance of what we were doing. I told them that when they are eighty years old, they will think back and say. "I did something worthwhileto build a team, visibles should be showed and material rewards are not effective

Despite this, there were certain areas in which people were scarce. For example, getting people in food technology was a problem. Engro Foods team was able to identify just one food technologist but he was more interested in his own entrepreneurial venture. Unlike MNCs like Nestle, where the recipes came from the head quarters, Engro foods had the added challenge of producing everything from scratch. HR & Engro Foods team had great difficulty in convincing

9him to join Engro since the food technologist was an innovator at heart and needed a lot of space to work.

Other than recruiting for the core team, which was an immediate existentialist requirement for Engro, the company also had to continue to keep its talent pipeline flowing. Initially, different companies such as Engro Polymer, Engro Foods and Engro Fertilizers directly recruited from universities but the effort was discrete and companies would do the campus rounds separately. The strategy was not working since the graduates seemed confused with multiple recruitment drives.

Consistent with the concept of a unified employer brand, the idea that You are joining Engro was initiated. This was a big paradigm shift for the recruitment of fresh talent at Engro. This new recruitment drive had to highlight that there were larger sets of opportunities across the conglomerate and the graduates would be looking at a diverse and long term career. This became a strong pitch for Engros employer branding.

If you do well in our part of Engro you have other avenues for growth. This was important because graduates used to come for the interviews and were interested to see their careers growin various Engro companies. Thus it became an important part of the value proposition. By connecting all the companies' career streams our access to human capital increased. Engro ended up at the top as 'employer of choice' multiple times, Tahir said.

In addition, the organization also started a thriving internship program and several interns wereasked to stay on board the projects even after the completion of their official internship. Most of the students were impressed by the rigorous selection system even during the internship selection. The candidates went through an IQ test, first round of interviews, and a group discussion. Engro had two batches of internees in the summer months.

The students had mixed reactions about the program. One internee commented on the fact that some companies within Engro Corp had a very unstructured and disorganized format of the project assigned to them during the internship, I was clueless as to what I was doing. On the other hand, some students seemed very satisfied with their experience. Other than 4-5 days where I had little work, I was very clear about my project and felt challenged. I think I have a good chance of getting a job at Engro after I graduate based on the positive feedback and encouragement I got from my supervisors.

For senior executive positions, executive recruiters were also hired. Sarfaraz Rahman and AfnanAhsan, former and current CEOs for Engro Foods, were both hired through executive recruitment agencies. For senior executives we had to go for executive recruitment agencies since we also wanted to tap the talent outside of Pakistan, Tahir said. Internally developed talent was preferred however; promotions depended on the preparation of the person next in line.We want the best person for the job, so the process is competitive which includes suitable candidates from outside Engro for the position. Promotion is not a birth right.

Different businesses faced different sets of challenges. For example, Engro Fertilizer, during the expansion of the plant, faced stiff competition from Fatima Group of Companies that was also installing its plant in the same industrial zone. At times, we would be in the final stages of

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hiring when we found that the candidate was lured away by the competition, Syed Muhmmad Ali said.

Selecting the Best

Mr. Khalid Mansoor commented on the historical emphasis on high potential hirings. I remember the very high standards for hiring new employees. One of the benchmarks was that if a person is not assessed to have at least senior management potential he would not be hired

Despite the pressure to hire quickly, the standards and guidelines were never compromised. An IQ test was administrated to all entering employees, including departmental heads.

At times, if the resource is very critical and you need him, you will see what kind of compromise you really want to make. Suppose there is a person who is technically savvy, and you need him desperately, but he may not fit the bill in the managerial competencies, then the CEO can condone this. But these are very rare cases; by and large we follow the process. Thiscompromise is almost never done for entry level positions, Khalid Subhani, CEO of Engro Polymer commented.

Managerial positions were subject to 3-4 individual interviews for which the interviewers wereprovided an interview guide instead of a list of questions. The interviewers were required to ask questions in areas in which the candidate demonstrated his or her proven proficiency such as examples and experiences of working in projects. The responses were evaluated on the complexity of the situation, how it was handled, and what the result was.

The interview questions were based on four areas (Exhibit 4): Ethics and Integrity, Passion to Excel (which included intellectual and interpersonal skills), Leadership Skills and whether the candidate had a Business Focus. An important goal of the selection process for the company was that a seamless cultural assimilation of the inductee takes place.

Khalid Subhani commented on the interview process: It really depends on the guy who is interviewing. He really knows which questions to ask including the knowledge domain. The set of questions may be different but all are directed to ascertain the knowledge bases and how he understands things. There is nothing on paper in terms of the questions provided by HR. However, we do train our managers and executives on how to do interviews. Engro had alsodone some preliminary studies on establishing the validity of the testing and interview process and according to the HR department the two are pretty much correlated.

Considered the most important selection tool, the one-to-one interview helped identify people who would be right for the organization. As Asad Umar pointed out, You sit with someone, and in fifteen minutes you can identify what the driver for life is for that person. One example: a person who is interested in what model of car and how much money he will get, as opposed to a person who wants to know about the company plans and how ambitious we are. When I was interviewing the current CEO of Foods, Afnan, the whole discussion was about how ambitious Engro Foods is; are we willing to be best in Pakistan only or do we have global ambitions?

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According to Tahir Jawaid, the Engro processes could be improved by employing different available methodologies. The existing IQ test did not look at lateral thinking, reasoning skills, ability to cope with uncertainty, and tolerance for ambiguity. They started to look at other selection mechanisms at the time. However, during the peak of the expansion, the volume at which Engro was hiring, the company could not have afforded to revamp the process or introduce new mechanisms. Ethics and honesty were very important differentiators for candidates but these were competencies were tapped in the interview process only.Unfortunately, Engro does not have psychometric testing at present, Sarfaraz Rahman commented.

The selection processes were similar but run independently by each company. The CEOs of the company had the veto power over the final selection of candidates.

Performance Management System and Succession Planning.

The performance management system at Engro was based on both behaviors and outcomes: what the results were and how they were achieved. Employees reviewed and filled in their objectives along with their supervisors. The behaviors were then assessed on the same values as were used for the selection process. Furthermore, the performance management review also collectedinformation on the development and management potential of the employees. These in turn became what Engro referred to as high potentials or HIPOs. The HIPOs were identified at avery early stage of the employees career.

The system is based on ruthless meritocracy. Forced-ranking and multiple assessments are employed even during the initial stages of an employees career. We advertise who the winners are, Asad Umar maintained.

The succession planning system held information about the potential candidates at different levels of preparedness for the next positions. The career path of the high potentials was managedat the Corp level. These HIPOs were identified through the performance management process and, once identified, their careers were taken over by Engro Corp. In effect, these candidates continued to function at their respective companies, but they were considered a companywide resource.

It would be natural to assume that the CEO of the company would be reluctant to let go of a valuable resource but this did not usually happen. The Executive Committee (ExCom) actually gave a clear message that the top talent had to be managed by Engro Corp.

Since these decisions are made at the executive committee level it is unlikely that the resource would have any problems from the company CEO. After all, there will be peer pressure to do what is right for Engro Corp as a whole rather than what is just good for the individual company if a CEO is reluctant to let go of their star talent, Ruhail Mohammed CEO of Engro Fertilizer said. On the other hand, Asad Umar stated that Engro had been producing exceptional functional leaders but struggled at times to develop business leaders who could move easily across the organization. Since most of us (senior management) came from an understanding of

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benchmarks it was unlikely that there would be too much disagreement on the potential of an employee

Despite the robust system of talent identification, some felt that the disclosure of the HIPO status was counterproductive. As one senior manager noted: Although this system is very fair and transparent, and has always existed, recently the HIPO status was disclosed to the employees in the form of a special event at a hotel. This has created a bit of resentment among employees who are not HIPOs. It is possible for my subordinate to have been identified as a HIPO while I have not been identified as one. This has created some awkwardness in the work environment.

The bell curve was used to rate officer level employees, but not the non-management cadre. The forced ranking was done on the basis of three tiers. At Tier III, the department heads of each company sat for the performance appraisals of their subordinates and force ranked their employees across departments. Essentially, they put ranks around the appraisal ratings. The idea was to push them into a bell curve. This was done at the individual company level.

In Tier II, department managers were evaluated at the COED committee level. (COED stands for Compensation, Organization and Employee Development). This included the CEO and otherexecutives. This committee just vetted the decisions reached in the previous tier. In addition, the committee compared and ranked department heads across company divisions.

Executives were ranked by the Board Compensation Committee (BCC) which comprised of Board members and the CEO, along with the Executive Committee. This forum rankedexecutives till the VP level. All executive rankings are endorsed by Engro Corp BCC.

It also required the executives to be aware of the talent and take part in their development. Asad Umar recalled, At any point I knew at least 90% of the HIPOs by name. We are a management company and not an investment company. The position of the CEO is an operational position.

The forced ranking system seemed to be working for the managerial level and appeared to have become part of the corporate culture. As one manager put it, On the management side, the bellcurve is more important than the experience curve. Another manager opined: I am all for the bell curveit brings out the best people. Sarfaraz Rahman stated that system worked because Engro Foods was over-shooting its targets, We were supposed to be a Rs. 9 billion company and we ended up being a Rs. 30 billion company. The company was able to reach and overshoot the objectives because individuals were exceeding their objectives.

Rewards

Engro was one of the very few Pakistani companies that offered a very competitive compensation package. The increments and bonuses were decided based on the results of the performance appraisal system. During the growth period a few schemes were put together to cater to the core team that was leading the effort. One such scheme was offering stock options tothose teams outstanding employees. People who were targeted were those most responsible for contributing to the growth. For example, the stock was offered at the current rate plus weighted average cost of capital. Some of the companies were not publically listed so the company had to depend on some internal measures to put a value for the stocks. The scheme entailed holding on to the shares for 3-4 years before liquidating.

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According to most senior mangers, this scheme was not solely responsible for the retention of employees. It was actually the enormity of the challenge of growth which kept people.Everywhere a big project was underway (biggest plant, brand development, launching a newcompany). People who were not getting the stock option, were not going away either. People were sticking around because the assignments were challenging and added a lot to their resumesand thus they took more heat than normally would be expected. How many start ups will you be a part of in your career? Tahir commented.

For the regular compensation system, the bonus and increments were based on the outcomes of the performance management system, which could have been variable. However, at the manufacturing plants, the unions insisted that the increments be same across the board hence the difference in compensation philosophy at both levels.

Tahir said, Engro's Compensation Philosophy is to be market aligned versus using any other factor to come up with compensation. Engro pegs its salary to a basket of companies; the choice of companies to peg against depends on which market your company is competing against, e.g.for foods it is FMCG, and for fertilizers it is oil and chemical companies.

There was a discussion on whether telecom should be benchmarked as a comparator company as they were the highest paymasters at the time and also attracting lot of talent. However, Engro decided to stay at the market average. This was a wise thing to do since the telecom wages eventually adjusted to the market, Tahir concluded.

Training and Development

Although managers were frequently sent to training programs both abroad and in Pakistan to executive development programs, the primary mode of training was on-the-job. The incumbents were pushed to learn on the job and even interns were given hands-on projects. In addition, the formal orientation was not considered as important as the socialization process and how the incumbents exhibited the values of the organization. Consistent with his social responsibility initiative Engro also conducts in-house training to encourage and motivate employees to volunteer for these initiatives and become more caring and responsible citizens.

The HR Organization

Along with the growth of the organization, the role of HR in Engro also evolved. HR for Engro Chemical (before the company was reorganized and renamed as Engro Corp in 2008) was responsible for corporate HR, although each of the constituent companies had an HR department of its own.

The key purpose of the Corporate HR at Engro was establishing guidelines and principles for alignment. This would mean aligning key systems of performance management, compensation philosophy, and diversity polices etc.

For example, Corporate HR did the salary surveys, defined and developed competitor baskets,and ensured consistent broad guidelines. Corporate HR also devised an incubation model for developing the HR competencies across the companies. For example, initially, the HR for Engro Foods was managed by Corporate HR since the hiring was taking place at a very fast pace and company-specific HR competencies were not developed fully. It was also a challenge to find

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good HR professionals since the field was still evolving. There were a lot of functional experts who had come into the field without the knowledge of HR. Additionally, the Dubai market for HR professionals was thriving, draining the Pakistani market. Everybody started hiring HR personnel. Capability was low and professionalism was low. They were not building capacity;every Tom Dick and Harry wanted to get into HR, recalled Tahir,

The idea was to have a balance between the core principles and the company needs. The relationship of Corp with the company is based on the McKinsey model which basically states that if you have to grow at a fast pace, you have to have the core similar and allow rest of the organization to grow itself. The core included the culture, performance management, competencies, structure and salary in terms of level, and developing a common leadership talent management structure, Kanwar Saeed spoke of the relationship between Corporate and company HR.

Each new business offered a different challenge for establishing HR functions. For Foods it wasmainly identifying and attracting talent. Another challenge was identifying competitor baskets for salary scales for different companies like Foods and Powergen. However, a lot of policies were implemented verbatim from the corporate guidelines. Tacit knowledge and real knowledge were transferred to the company. Now as you go along, the companies are adapting the practices based on their needs, Tahir said.

As the companies started growing it became difficult for corporate to manage the operational aspects of HR. After 18 months of incubation HR for Engro Foods became independent. A similar process was followed for Powergen and it also took about the same time to wean itself away from Corporate. After the initial set up, we were managing HR by ourselves. Kanwar our HR Head, had also taken over. By the time the holding structure was implemented in 2009, we were independent of Corporate HR but the policy guidelines were still consistent, Sarfaraz Rahman said.

Another challenge for corporate HR was cultural assimilation. People were coming from different companies and they were being given high levels of responsibility. The same was the case with HR. The incubation was required as the Corporate wanted to ascertain whether these young HR managers would be able to manage HR policies of that level. We spend a lot of time in discussions with the new recruits about the culture of Engro, Kanwar Saeed said.

Sarfaraz Rahman was of the same opinion. People from the Unilevers, P&Gs and Reckitt Benkiser are not trained to have innovative ideas. Since they operate within a defined structure they are not always equipped with the entrepreneurial spirit required of the start up.

Going Forward

The year 2012 saw Engros charismatic leader Asad Umar, who had captained the organization to phenomenal heights, resign to pursue a career in politics. For most of the team this was a difficult change to accept. Sarfaraz Rahman and Asif Qadir, CEOs of Engro Foods and Engro Polymer, also resigned within one year as did Khalid Mansoor who had spear headed the fertilizer expansions. According to Asif Qadir, former CEO of Engro Polymer, The fact that the organization can move forward with three CEOs resigning shows how robust the succession

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planning system is at Engro. Asad Umar downplayed the impact of his departure. This is an institution which is bigger than any individual.

According to Ruhail Mohammad, The people who resigned did so mostly for personal reasons;most of them have not joined the competition. Thus this does not reflect adversely on the health of the organization.

Another area of concern for Engro had been the non-supply of gas for its state-of- the-art fertilizer plant which was not operational since more than a month in 2012. It was demotivatingfor both workers and management to have participated in such a grand project and not to see it operational. So far, no staff had been laid off but according to some managers they could see early signs of attrition.

We consciously decided that we dont want to have a reputation of laying-off people because it is not good for the long-term reputation of the company. We dont want to be known as people who induct, hire and then lay people off, Mr. Syed Muhammad Ali commented.

This meant that Engro Foods, which was turning out to be a star for the conglomerate, had to increase revenue further to help the corporation sustain itself. You have to be very innovative in managing the profit margins, Muhammad Ali said.

Growth between 2005 and 2012 had slowed down. In addition, the business dynamic had become very different from what it was prior to 2005. At the same time, however, there was optimism in the business; Engro Foods in 2012 went for international expansion and started offits Canadian subsidiary. This presented an opportunity for growing in a new market and somemanagement staff was being sent there. In addition, the EXIMP (trading arm) was also flexing its muscles in the Dubai market.

The key question for HR regarding attrition was to identify which group was leaving; was it the stagnant employees or members of the core team? When you go through this level of growth,expectations become heightened, said Tahir. For most Engro employees, the marketability went up and many of them were looking for more challenging assignments. For a lot of people,towards the end, going from 30 billion to 45 billion became just numbers, Sarfaraz said.

Another issue was that the growth was driven by very strong business heads. At times, I felt that people were working for these personalities. For example Sarfaraz was like a father-figure.When he left, it had an impact on the culture. Engro Foods was led by his distinct leadershipstyle and persona. It was not a corporate persona; he was able to take his employees to a different level. I do not think it would be right to say that we needed to find someone to fill his shoes. Those shoes cannot be filled as the culture under him was unique, Kanwar Saeed, HR Head, Engro Foods stated.

Furthermore, Engro shifted its focus to internally develop talent rather than rely on buying talent like it did during the growth period. Earlier we relied on buying talent and now we need to concentrate on developing it in-house. We are looking at more technical apprentice schemes and better selection methods such as assessment centers, Tahir shared.

Engro posted a loss in the first half of 2012, the first time in its history. Tahir Jawaid gazed at the hustle and bustle of the crowd amassing on the shores of the Arabian Sea. Engro enjoyed the

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glorious position of being a preferred employer and the place to be from the viewpoint of the job seekers. Tahir was cognizant of the fact that HR would play a crucial role in keeping the staffmotivated as the Company entered the new financial year. The question though in everyones mind was whether the HR system was robust enough to withstand the departures of key figures,as well as the gas crisis, to produce the same quality of leadership that had propelled Engro to one of the most respected conglomerates in Pakistan.

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Exhibit 1 Engro Corp Values5

At Engro, we support our leadership culture through unique systems and policies which ensure open communication, foster an environment of employee and partner privacy, and guarantee the well being and safety of our employees.

Our core values form the basis of everything we do at Engro; from formal decision making to how we conduct our business to spot awards and recognition. At Engro we never forget what we stand for. Following are our core values:

Health Safety & Environment

We will manage and utilize resources and operations in such a way that the safety and health of our people, neighbors, customers, and visitors is ensured. We believe our safety, health and environmental responsibilities extend beyond protection and enhancement of our own facilities

Ethics and Integrity

We do care how results are achieved and will demonstrate honest and ethical behavior in all our activities. Choosing the course of highest integrity is our intent and we will establish and maintain the highest professional and personal standards. A well-founded reputation for scrupulous dealing is itself a priceless asset.

Our people

We strongly believe in the dignity and value of our people. We must consistently treat each other with respect and strive to create an organizational environment in which individuals are fairly treated, encouraged and empowered to contribute, grow and develop themselves and help to develop each other. We do not tolerate any form of harassment or discrimination.

Innovation & Risk Taking

Success requires us to continually strive to produce breakthrough ideas that result in improved solutions and services. We encourage challenges to the status quo and seek organizational environments in which ideas are generated, nurtured and developed. Engro appreciates employees for well thought out risks taken in all realms of business, and for the results achieved due to them, acknowledging the fact that not all risks will result in success.

Community & Society

We believe that a successful business creates much bigger economic impact and value in the community, which dwarfs any philanthropic contribution. Hence, sustainable business development is to be anchored in commitment to engage with key stakeholders in the community and society

5 http://www.engro.com/our-company/our-values/

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Exhibits 2 Committees for Performance Appraisal System

Tier III: Within the Company; Department Heads Rank Managers under them

Tier II: Department Heads ranked by the Coed Committee

Tier I: Executives are rated by the Ex Com committee

Corp BCC rates the all CEOs

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Exhibit 3 Financials (Source Annual Statements)

(Rupees) 2004 2005 2006 2007 2008 2009 2010 2011

Net Sales Revenue (In Millions)

12,797 18,276 17,602 34,121 40,973 58,152 79,976 114,612

Profit After Tax (In Millions)

1,611 2,319 2,547 2,834 4,207 3,719 6,441 7,811

Shares Outstanding at Year End (In Thousands)

152,940 152,940 168,234 193,469 212,816 297,942 327,737 393,284

Earnings Per Share 10.53 14.37 14.53 17.17 16.36 13.54 17.27 20.5

Dividend Per Share 8.5 11 9 7 6 6 6 6

Market Capitalization at Year End (In Millions)

19,775 25,151 28,684 51,414 20,528 54,604 63,519 36,457

Capital Expenditure (In Millions)

520 377 391 12,277 35,767 53,782 21,584 11,272

Total Assets (In Millions) 13,185 14,112 15,981 48,974 80,802 132,105 164,778 183,004

Current Assets 4,602,604 5,011,555 5,684,446 16,397,198 15,323,158 10,748,871 3,114,550 2,734,109

Current Liabilities 2,985,149 2,800,094 3,642,415 5,264,674 5,999,353 66,821,200 3,957,304 7,177,466

Total Equity (In Millions) 6,586 7,376 9,370 18,007 23,548 29,344 34,115 41,890

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Assignment Questions

1) How do you leverage and employer brand?2) What is the biggest challenge of Engro as it moves forward?3) What do you think about the selection process at Engro? Can you suggest improvements

in the process?4) Comment on the Management Development Program? How can it be improved?5) What is the level of autonomy should company HR departments enjoy?6) Assess the robustness of the Engro HR system and its ability to deal with high profile

senior management departures as well as the gas crisis.

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