Leadership in a Post-merger

8/3/2019 Leadership in a Post-merger

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Leadershipinapost-mergercontext

Theimportanceofpeopleskillsoverpolitics

MarilleG.Heijltjes*

HannekeS.terVelde

MaastrichtUniversity,theNetherlands

Abstract

DrawingonthemergerandCEOsuccessionliteratureaswellasonfindingsfromresearchon

organizationalchange, this study examineswhat leadership issues drive success inapost-

mergercontext.Ourdatafrom45recentlymergedunitswithinacooperativebankinEurope

indicatethatthepeopleskillsof thenewlyappointedtopmanagermattermost.Specifically,

his/herintegrationabilityfollowedbytheabilitytopositivelyinfluencetheinternalworking

environment are significantly correlated with post-merger success. Politics in terms of

whetherthetopmanagerhadatrackrecordinsideoroutsidetheorganizationdidnotappear

tobeimportant.

Keywords:Merger,leadership,CEOsuccession.

* I am grateful to the School ofBusiness ofAucklandUniversity ofTechnology (New Zealand) for

contributingresourcestowritethispaper.

Correspondence:Marielle G. Heijltjes, Maastricht University, Faculty of Economics and Business

Administration,OrganizationandStrategyStudiesdepartment,P.O.Box616,6200MDMaastricht,the

Netherlands.E-mail:[email protected]


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Leadershipinapost-mergercontext

Theimportanceofpeopleskillsoverpolitics

Abstract

DrawingonthemergerandCEOsuccessionliteratureaswellasonfindingsfromresearchon

organizationalchange, this study examineswhat leadership issues drive success inapost-

mergercontext.Ourdatafrom45recentlymergedunitswithinacooperativebankinEurope

indicatethatthepeopleskillsof thenewlyappointedtopmanagermattermost.Specifically,

his/herintegrationabilityfollowedbytheabilitytopositivelyinfluencetheinternalworking

environment are significantly correlated with post-merger success. Politics in terms of

whetherthetopmanagerhadatrackrecordinsideoroutsidetheorganizationdidnotappear

tobeimportant.

Keywords:Merger,leadership,CEOsuccession.


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Introduction

Reportsfromfinancialanalysts,mediaandsurveyscontinuallyindicatethatmostmergersfail

andmanystudieshavesoughtanswerstothequestionwhy(Epstein,2004).Althoughfailure

can partly be explained by financial, market and strategic factors, the role of the

implementationprocessshouldnotbeunderestimated(MarksandMirvis,2001;Schulerand

Jackson,2001;PabloandJavidan,2002;Epstein,2004).Sinceamergerentailstheblending

of two formerly independent organizations, it represents sudden and major change to an

organization (Cartwright and Cooper, 1990). When analyzing the organizational change

literatureitbecomesapparentthatpreviousresearchonthesuccessoforganizationalchange

hasshownthatreorganizationattemptsaremoreoftenthannotineffective(SorgeandVan

Witteloostuijn, 2004). Working in a post-merger context thus appears to be an especially

inflammableenvironment and thequestionemergeswhat leaderscando ifanything to

beatthesestatistics.

Historicallytheleadershipliteraturehasbeendividedonwhetherleaderscaninfluence

organizationalperformance.Oneschoolof thought rooted inorganizational ecology argues

that environmental forces determine the success or failure of organizations (Pfeffer and

Salancik,1978;Aldrich,1979).Empiricalstudiesinthistraditionhaveingeneralfailedto

findperformancevariationsthatcouldbeattributedtoleadershipfactors(Roweetal,2005).

Theleaderinthisviewisthusinconsequentialoratbestaphenomenologicalconceptcreated

byorganizationalmemberstounderstandthecomplexityofcausalitiesintheworldaround

them(MeindlandEhrlich,1987).

Anotherschoolofthoughtbasedontheimportanceandimpactofstrategicchoice

(Child,1972)arguesexactlytheopposite.Throughtheirstrategicactions,leaderscanhave

a significanteffect onthe performance of the organization and thusdomatter (Chatterjee,

LubatkinandSchulze,1999;BoalandHooijberg,2000).Manyempiricalstudieshavebeen


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conducted within perspectives building on these assumptions such as the upper- echelon

perspective (Hambrick and Mason, 1984) or strategic leadership theory (Cannella and

Monroe, 1997). Empirical results have been mixed, however, leading to a plea for the

incorporation of longitudinal factors (BoalandHooijberg, 2000;Roweetal., 2005)and a

considerationofthecontingencyfactorsinvolved(LinandLi,2004).

Our contribution to this debate is threefold.First,we incorporate longitudinal data

withrespecttoorganizationalperformanceinourstudyallowingustoinvestigatetimeeffects

ofleadershiponorganizationalperformanceassuggestedbyRoweetal.(2005).Second,we

incorporate contingency factors by studying leadership in a specific post-merger context

following suggestions by Lin and Li (2004) and thirdly, we go beyond the question of

whethertheleaderaffectsperformancebyalsoexaminingthenatureoftheleadershipissues

thatdrivesuccess.

In the next sectionwe briefly review studies addressing the question what impact

leadersactuallyhaveontheorganization.Wefocusonsuccessionresearchasthesestudies

specificallyaddressthecontextofchangeandtransition.Thefollowingsectionthenrefersto

thepost-mergercontext.Themainquestionsexploredare:whatmakesthiscontextspecific

andwhatarethedriversforsuccessinsuchanenvironment?Subsequentlyourframeworkfor

analysisaswellasourhypothesesispresented,followedbyadiscussionofthemethodology

andtheresults.Inthefinalsectionwediscussourresultsanddrawconclusions.

Theimpactoftheleader:lessonsfromsuccessionresearch

Following the viewson the importanceof leadership outlined inthe introduction thereare

threeperspectivesontheimpactofasuccessioneventontheperformanceofanorganization

(Friedman and Singh, 1989). The first perspective referred to as common-sense theory

(Grusky, 1963) - sees succession as a means to adapt to changing conditions in the


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environment and is thus viewed as having a positive impact onperformance (Dalton and

Kesner,1985).Therationalebehindthisreasoningis thattopmanagementcanfacilitatethe

translationofexternalinformationtoorganizationalmembersandthusreduceconflict.Inthis

way,theorganizationwillbebetteralignedtotheenvironmentandbeabletobetterperform

(LinandLi,2004).Someempiricalstudiesinthistraditionrevealthatbetween20and45%of

performancevariancecanbeattributedtothesuccessionevent(DayandLord,1988).

Thesecondpointofviewcalledtheviciouscircletheory(Grusky,1960)-argues

thatsuccessionhasadisruptingeffectonexistingworkroutinesandstructuresresultingina

negative impact on performance. The resulting conflict and lowered morale following a

succession will further reduce organizational effectiveness and ultimately lead to further

changesinleadership(Roweetal.,2005).

The third group of studies finds succession an inconsequential event that has no

impactatall.Accordingtothispointofview,replacingapersoninchargeisjustasymbolic

politicalaction,aformofritualscapegoating(GamsonandScott,1964;Boeker,1992).

Althoughempiricalsuccessionstudieshaveyieldedsupportforallthreeperspectives

(KesnerandSebora,1994),themainconclusiontobedrawnfrompreviousstudiesisthatthe

fieldisveryfragmentedwithlittleattentiontoorganizationalandenvironmentalcontextual

variablesthatcouldhelpexplainthedifferencein findings(LinandLi,2004).Furthermore,

thequestionoftiminghasbeeninsufficientlyaddressed.AccordingtoRoweetal.(2005)it

takes time for a new leader to become familiar with the organization inorder todevelop

organization-specific skills. Furthermore, drawing on theorganizational learning literature,

they claim it takes time for the organizational members to learn and implement the new

direction. Any performance improvements can thus only be seen after sufficient time has

elapsed. Timecompressiondiseconomies(DierickxandCool,1989) even suggests thatby


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trying to shorten the time available for learning organizational specific knowledge,

diseconomieswilloccurresultinginworseperformance.

Nexttotime,oneofthemostimportantcontextualvariablestoconsiderissuccessor

origin(KesnerandSebora,1994;LinandLi,2004).Manystudies(e.g.Zajac,1990;Viranyet

al.,1992;ShenandCannella,2002)findthatfirmswithinsiderCEOstendtobesignificantly

more profitable than firms with outsider CEOs. Insider succession is associated with

continuity,greaterloyaltyandthuswithasmalldisruptiveeffect(seeforexampleBoeker&

Goodstein, 1993; Lauterbach, Vu and Weisberg, 1999). Furthermore, information

asymmetriesbetweentheBoardandoutsidecandidatesaboutthecharacteristicsoftheCEO

create adverseselection problems(Zajac,1990).Asa result, 'aBoard'sdecision tohirean

outsideCEOwill,onaverage, be aworsedecision (in termsofperformance implications)

than a Board's decision to hire an insider CEO' (Zajac, 1990: 220). Externally recruited

managers may also lack the internal social and political network and knowledge of the

organizationalsystems(Viranyet al.,1992;ShenandCannella,2002).Asaresulttheymay

have difficulty implementingchange.Thissuggeststhe importance of anothercontingency

factor toconsider, namely the strategic objective tobeachieved. Ifchange is the strategic

objectiveoftheorganization,outsidersuccessionisoftenseenasameantoinducethisinthe

organization, as outsiders are not bonded to organizational politics and established social

normssetby the formerCEO(Friedman andSaul,1991).The induction ofradicalchange

does, however, not necessarily need to lead to improvedperformance.Other studies have

demonstratedthattheseactionsalsotakeplaceforsymbolicreasons(Boeker,1992)implying

thatthedeterminationofsuccessortypeismoreapoliticalprocessthanonegearedtowards

performanceimprovements(LinandLi,2004).

Inadditiontoorganizationalcontingencyfactors,environmentalfactorsareimportant

in explaining performance differences. Lin and Li (2004) demonstrated the importance of


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industry environment, next to the importance of successor type in determining the

performance consequences of top management successions. Therefore, the next section

examinesthespecificcontextinwhichthisstudytookplace.

Thepost-mergercontext

Mergersare apopularmethod oforganizationalgrowth anddevelopment since theyallow

firmstocompeteinwaystheywouldnothavebeenabletoalone(PabloandJavidan,2002).

Thespecificobjectiveofthemergerdependsonthetype.Horizontalmergersinwhichtwo

relatedorganizationsarejoinedareaimedatgainingeconomiesofscale.Byjoiningforces

they aim to better exploit existing core competences resulting from the increase in size.

Verticalmergerswhichinvolvetwounrelatedorganizationsshouldhelpgaineconomies

of scope (Boot and Schmeits, 1999). In this case firms might get access to resources,

capabilitiesandmarketsthattheywouldnotindependentlycontrol(PabloandJavidan,2002).

Whetherthesesynergiesareindeedattaineddependsonhowwellthedifferentstagesofthe

mergeraremanaged.

During amerger four stages can bedistinguished: the planning phase, the anxious

phase, themerger phaseand the evaluationphase (Graves,1981). Although each phase is

important,most researchto datehas focusedonthe first threephaseswhichdealwith the

strategicvisionandfit,negotiation,thedealstructure,duediligenceandpre-mergerplanning

(e.g. Shrivastava, 1986; Cartwright and Cooper, 1990). Much less is known about what

happens in the implementation and evaluation phase (Epstein, 2004). This phase is

characterizedbyrealizing thepossiblesynergies thathavebeenidentifiedinthepre-merger

phases through knowledge building, relationship building and effective transition

management (Marks andMirvis, 2000). So it is during this phase that the value creation

attributedtothemergershouldtakeplace(Birkinshaw,BresmanandHkanson,2000).This


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ispartlyamatterofstrategicintentdefiningandrealizingwhocontributeswhat,whenbut

even more of organizational alignment. In the alignment phase the formerly independent

organizations are integrated through attention to culture and organizational processes of

decision-making,communicationandtrust-building(SchweigerandWeber,1989;Cartwright

andCooper,1990;PabloandJavidan,2002).

We will focus on this post-merger context: the physical integration between the

organizationsalreadytookplaceanditisuptoanewleadertoeffectivelyguideandintegrate

theneworganization.AccordingtoShrivastava(1986),integrationtakesplaceatthreelevels:

procedural, physicalandsocio-cultural. Procedural integration involvescombining systems

andproceduresofthemergedcompanieswiththeobjectivetohomogenizeandstandardize

workprocesses. Physical integration involves theconsolidationofproduct lines, plant and

equipmentandrealestateassets.Finally,socio-culturalintegrationinvolvesissuesrelatedto

culturalandpeopleaspects,aswellastotheestablishmentofnewleadership.Essentialtasks

of thenewleaderareselecting, retainingandmotivating keyemployees andmanaging the

communicationprocesswithallstakeholders.Thisisregardedasthekeyprocesstomerger

success(SchulerandJackson,2001).Althoughitislessofaproblemtointegrateaccounting

systems, processes and physicalassets, integrating the former cultures and the people isa

toughjob(AshkanasyandHolmes,1995;Covin,Kolenko,SightlerandTudor,1997;Marks,

1997;Daniel,1999;Epstein,2004).

Leadershipinapost-mergercontext:sixhypotheses

Integrating the logic expressed in the previous two sections, a model of the proposed

relationships between aspects of leadership and post-merger performance is presented in

Figure1.Thediscussionontheimpactofleadershipandthelessonslearnedfromsuccession

researchareincorporatedintothepoliticalaspectofleadership: whowillbethenextleader?


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Theleadershipissuesspecificto thepost-mergercontextareaddressedbythepeopleskills:

what should a leader in that specific context do particularly well? The issue of timing is

addressedbyassessingorganizationalperformanceatfourdifferentmomentsintime.

.

INSERTFIGURE1ABOUTHERE

The argumentation underlying the relationships and the specific hypotheses are

providedbelow.

Aswasdiscussedintheprevioussection,socio-cultural integrationisconsideredcrucialfor

thesuccessofamerger(Epstein,2004).Thefailureofamergeristhusoftenattributedtoa

lackofattentiontoculturalintegrationandhumanresourceissues(Mark,1997;Bourantas

andNicandrou,1998;SchulerandJackson,2001).Therationalebehindthislineofreasoning

is the following (Veiga et al., 2000):when an employee has a good fit with the existing

organizationalculture,itbecomespartoftheemployeesidentity.Inotherwords,theperson-

culturefitishigh.Giventheresearchfindingsthatindicatethatorganizationalcultureisan

importantdeterminantofanindividualscommitment,satisfaction,productivityandlongevity

within a group ororganization, failing to address a change in person-culture fit can have

severeconsequences.Employeesmayloosecommitmentandrefusetocooperate,resultingin

negative behaviour. These negative behaviours in turn influence performance negatively

(CartwrightandCooper,1990).

Furthermore,followingtheargumentsputforwardbyRoweetal.(2005),evenifthe

socio-culturalintegrationissuccessfulthiswillnotimmediatelybeassociatedwithimproved

post-mergerperformance.Thenewleaderaswellastheorganizationalmembersneedtimeto

getacquaintedwiththenewcultureandtolearnthenewrulesandroutines.Thisleadstoour

firsthypothesis:


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Hypothesis1: As time progresses, successful socio-cultural integration and post-merger

performancearepositivelyrelated

Nexttotheimportanceofsocio-culturalintegration,theinternalworkingenvironmentwithin

the new organization is important. Because the merger represents sudden and major

organizational change, it will lead to stress and uncertainty among employees. If an

organization doesnot havestrategies inplaceto helpcopewiththis uncertainty, it isvery

likelytoresultinnegativeemployeebehavioursuchasloweredmorale,jobdissatisfaction,

acts of sabotage, lower productivity, increased turnover and absenteeism rates (Cartwright

andCooper,1990;AshkanasyandHolmes,1995).Thesenegativebehaviourshaveanegative

effectonpost-mergerperformance.So,theinternalenvironmentneedstobemanagedsuch

thatsatisfactionandproductivityincrease,whileatthesametimeturnoverandabsenteeism

decreaseforthemergertobesuccessful.

Asinhypothesis1,wealsoexpectatimeeffectinhypothesis2forthesamereasons

offeredpreviously.Thisleadstooursecondhypothesis:

Hypothesis2: Astimeprogresses,animprovementintheinternalworkingenvironmentand

post-mergerperformancearepositivelyrelated

Since building a positive internal working environment is an essential part of successful

integration,wealsoexpectsocio-culturalintegrationandtheinternalworkingenvironmentto

be related. Previous research suggests significant drops in employee productivity and

employeesatisfactionandsevereincreasesofleadershipturnoverandlossofkeyemployees,


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when poor integration occurs (Schuler and Jackson, 2001). This generates the third

hypothesis:

Hypothesis3: Successful socio-cultural integration and an improvement in the internal

environmentarepositivelyrelated.

The first three hypotheses addresswhichpeopleskillsmightbepositively associatedwith

postmergerperformance(thewhatofleadership).Thefollowingthreehypothesesprovidean

additional perspectiveby examining issues related to the politics involved: does itmakea

difference forpost-merger integration,managing the internal environment andpost-merger

performance,whethertheleadercomesfrominsideoroutsidetheorganization(thewhoof

leadership)?Thisvariabletocharacterizethetopmanagerisconsiderespeciallyimportantin

apost-mergersettingsincethechoiceforaninsideroroutsiderCEOreflectsthedirectionand

strategytheorganizationwishesto takeinthefuture(BoekerandGoodstein,1993).Epstein

(2004) argues that one of five factors driving merger success is the presence of a clear

integrationstrategythatreinforcesthatthisisamergerofequalsratherthananacquisition

(p.176).Thismakesthepoliticalcomponentassociatedwithsuccessiontypeinthissetting

veryimportant:thechoiceofanoutsidersignalstothepeopleoftheorganizationthatanew

organizationwithintegratedpoliciesandanewintegratedculturewillbebuildoutofthetwo

separateentities.Knowledgefromeitheroneofthepreviousentitiesisneithernecessarynor

desirable. Furthermore, as it isassumed that insidershavemoredifficulty to let go of the

organizationalpoliciesand culture that theyare acquaintedtoo, it isassumed that insiders

have more difficulty in integrating two or more former independent organizations than

outsiders.Thisleadstothefourthhypothesis:


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Hypothesis4: Inapost-merger context, an insiderCEOis less successful in socio-cultural

integrationthananoutsiderCEO

Thesamereasoningappliestogeneratingimprovementintheinternalenvironmentofthenew

organization.Havingahistoryinoneofthepreviousentitiesisadisadvantageinthiscontext

sinceitmaybeviewedasoneentitywantingtoacquiretheotherratherthanmergingonan

equalfoot.Thisgeneratesourfifthhypothesis.

Hypothesis5:Inapost-mergercontext,aninsiderCEOwillgeneratelessimprovementinthe

internalenvironmentthananoutsideCEO

Inlinewiththeargumentthatoutsideleadersarebetterabletoinitiatechange(Goodstein&

Boeker,1991;Wiersema,1992;Haddadj,1999),itisproposedthatoutsiderswillthusbeable

tofacilitatetheorganizationsresponsetotheenvironmentalchangeswhicharecausedbythe

mergerandovercomeanyinertialforcesthatmightexist(Singh,HouseandTucker,1986).

Thisresultsinhypothesis6.

Hypothesis6: In a post-merger context, an insider CEO will generate lower post-merger

performancethananoutsiderCEO


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Methodology

Sampleanddatacollection

Thedatareportedinthisresearcharefromasampleof45European1cooperativebankswhich

mergedbetween1997and2002.Thesecooperativebanksarepartofthesameorganization,

thereby minimizing the effect of the environment on performance and maximizing the

comparabilitybetweenbanks.

Weconstructed our sample by sendingaquestionnaire to theCEOsofall the 105

banks thatmergedbetween1997 and2002within thatparticular organization.Fourweeks

afterthequestionnairewassenttothebanks,thenon-respondingbankswerecontactedagain

withtherequesttocooperate.Thisresultedinresponsesfrom81banks,leadingtoaresponse

rateof77%.However,another36questionnaireswerenotusedin theanalyses:threebanks

wereexcludedbecausetheymisinterpretedourquestions,twenty-ninerespondents(eighteen

in2001,sevenin2002andfourin2003)wereexcludedsinceitwasnotpossibletoobtain

enoughperformancedataandfourquestionnaireswerefilledinbysomeoneotherthanthe

CEO.Thisleadtoafinalsampleof45CEOsfrombanksthatcameintoexistedafterthe

mergerbetweentwoorthreebanks.

Measurementofvariables

Post-mergerperformance

Post-merger performance is operationalized as bank productivity. Bank productivity is a

commonperformancemeasureinthebankingindustryandisdefinedasthebankingbenefits

dividedbythecosts.Bankingbenefitsinthisdefinitionisthegrossprofitcorrectedforthe

interestrevenuesbanksreceiveovertheircapital.Thestandardvalueforbankingprofitability

1Althoughtheparticipatingbanksarealllocatedinonecountry,theirlocationisnotrevealedforreasonsofanonymity.


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providedbythecentralorganizationis1,3meaningthatthebankingbenefitsshouldbe30%

higherthanthecostsofthebank.

Post-mergerperformanceisevaluatedoverthethreeyearsafterthemergerandforeachyear

the performancedatapublishedinDecember are used.The yearinwhichthemerger took

placeisthebaseyearandissetast=0.ThismeansthatifabankmergedinJune2000,the

Decemberperformancedataof2000ist=0.Thefirstyearafterthemergerissetast=1,the

secondyearast=2andthethirdyearast=3.Inthiswayitispossibletocomparethesample

sincethemergerstookplaceindifferentyears.

InsiderandoutsiderCEO

AninsiderisdefinedasaformerCEOoremployeeofoneofthemergingfirmsandiscoded

1.Anoutsiderisdefinedassomeonecomingfromoutsidethemergingfirmsandiscoded0.

Socio-culturalintegration

Socio-cultural integration is measured as the perceived success of the socio-cultural

integration by the CEO. This was not asked directly, but was determined based on the

answers toan open-ended questiononwhatwent rightandwhatwentwrong in the post-

mergercontext.Allanswersandtheassociatedvaluejudgmentswithrespecttopeopleand

cultural aspects were then grouped. If the CEO perceived the process of socio-cultural

integrationtobesuccessful,itwascoded1,ifitwasperceivedasunsuccessfulitwascoded0.

Internalenvironment

Theinternalenvironmentwasoperationalizedbyassessingtheperceivedchangeinemployee

satisfaction,employeeproductivity,turnoverandabsenteeism.TheCEOwasaskedtoratethe

perceivedchangesince the administrativemerger dateona 3pointscale: 1 representing a


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decrease,2 representingnochangeand3representinganincrease.TheanswersoftheCEO

werethenrecodedintooneinternalenvironmentscore.Ifthreeormoreinternalenvironment

variableschangedinapositivedirection,theinternalenvironmentwascoded1signallingan

improvement. If less than three variables increased, the internalenvironmentwas coded0

indicatingnoimprovement.

Results

Firstofall,thedescriptivestatisticsforallvariableswereanalyzed.Thedistributionofthe

numberofmergerfirms,insidersandoutsidersispresentedinTable1.

INSERTTABLE1ABOUTHERE

Table2presentsthedescriptivestatisticsandSpearmancorrelationsfortherelevantvariables.


Thecorrelation betweensocio-cultural integration andpost-merger performance is positive

andsignificant forbankprofitabilityinyears twoandthreeafter themerger.These results

providestrongsupportforhypothesis1whichpredictedthatastimeprogresses,successful

socio-cultural integration and post-merger performance are positively related. The lack of

significant resultsforyear1canbe explainedbythetimeit takes tosuccessfullyestablish

socio-culturalintegration(QuahandYoung,2005;Roweetal.,2005).

Hypothesis 2 predicted that as time progresses, an improvement in the internal

workingenvironmentandpost-mergerperformancewouldbepositivelyrelated.Theresults

alsoprovidesupportforthishypothesisasinyearthreeafterthemergerthereisapositive


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correlation between bank profitability and an improvement in the internal working

environment.Thetimeeffectsuggestedinthehypothesisisthusalsopresenthere.

Hypothesis3arguedthat successfulsocio-culturalintegrationis positivelyrelatedto

an improvement in the internal environment. This hypothesis is tested by looking at the

correlationbetween socio cultural integrationand the different componentsof the internal

environment. The results show that only one component of the internal environment is

significantlycorrelatedwithsocio-culturalintegration.Apparentlysuccessfulintegrationgoes

handinhandwithincreasingemployeeproductivity,butnotwiththeotherelements.

The nextanalysis exploreswhether the originof the newCEOmakesadifferencefor the

relationships between socio-cultural integration, improvements in the internal environment

and post-merger performance.Mann-Whitney tests are used to analyze whether the mean

scoresoftheinsiderCEOsdiffersignificantlyfromthoseofoutsiderCEOsontheproposed

relationships.TheresultsarepresentedinTable3.


Sincenoneofthe test turnedoutto besignificant, thereappears tobenodifferencein the

proposedrelationshipsinhypotheses4to6betweeninsiderandoutsiderCEOs.Hypotheses

4to6arethusrejected.

Discussionandconclusion

This paper has analyzed two relatedquestionswith respect to leadership inapost-merger

context.Thefirstquestionaddressedwhat a leader shouldmanage tosuccessfullymanage

post-mergerperformance.Thesecondquestionreferredtowhoshouldmanageit.Overall,our


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results suggest that what is being managed is more important in relation to post-merger

performancethanwhomanagesit.

Specifically,ourfindingsrevealthataleadershouldfirstandforemostfocusonsocio-

cultural integration. Creating a new structure,managing the change process, retaining and

motivatingkeyemployees,communicatingwiththediversestakeholdersareamongthekey

tasks to engage in (Schuler and Jackson, 2001). Furthermore, following the argument put

forwardby Rowe etal(2005), the positive correlationwithpost-mergerperformance only

occurs after a reasonable amount of time has elapsed. In line with findings from the

organizationallearningliterature(Crossanetal.,1999)thissuggeststhattheleaderaswellas

theorganizationalmembersneedtimetodevelopandlearnskillsthatarespecifictothenew

organization.InthecontextofthegenerallyshorthoneymoonperiodnewCEOsgettoprove

themselves(Greineretal.,2003),thisfindinghasinterestingmanagerialimplications.

Our findings furthermore indicate that the leader should work on improving the

internal working environment.Here it takes longer, however, before a significant positive

relationshipwithperformanceemerges.ThetimeeffectassuggestedbyRoweetal.(2005)is

indeed also present here. Although, unfortunately no data are available to explain the

dynamicsbehindthetimeeffect,thiswouldbeaninterestingavenueforfutureresearch.

Anotherimplicationarisingfromourresultsisthattheleadershouldpayattentionto

both, socio-cultural integration and the internalworking environment and not assume that

managingoneautomaticallyleadstotheother.Ourresultsindicatethatthatisnotthecase.

Surprisingly, socio-cultural integration was only associated with improved employee

productivityandnotwithanyoftheothercomponentsof theinternalworkingenvironment.

Although the finding with respect to the relationship between employee productivity and

socio-culturalintegrationisconsistentwithpreviousstudies(SchulerandJackson,2001),the

lackofsignificantcorrelationswiththeothercomponentsisstillsurprising.Associo-cultural


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integrationwasnotfurtherspecifiedinthisstudy,futureresearchshouldaddressthisissueto

beabletotranslateourfindingsintooperationalsuggestionsfornewlyappointedleadersin

recentlymergedfirms.

Finallyastothequestionwhoshouldmanagepost-mergerprocess,ourresultsshow

that itmakes no difference whether an insider or outsider CEO performs the job. These

findingsyieldsupportfortheviewthatthechoiceofsuccessortypeismoreapoliticalprocess

thanaseriousperformanceissue(LinandLi,2004).Althoughtheappointmentofanoutsider

mightsignalacertainstrategicdirectiontothediversestakeholdersinthemergerormight

bypassinternalpoliticalprocesses,thereisnosignificantpost-mergerperformancedifference

comparedto insiderCEOs.Themanagerialimplicationsfortheleaderselectionprocessare

that post-merger performance benefits when people skills are valued over politics. If the

leader subsequently alsogetsenough time toworkon successful socio-cultural integration

alongwith improvements in the internalworking environment, changesincreaseto indeed

beatthehighmergerfailureratestatistics.


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H1

H2H5

H4

H6

H3

Figure1: Overviewoftherelationshipsstudiedbetweenleadershipandpost-mergerperformance

Socio-culturalintegration

Managingtheinternal

environment:

-satisfaction -production -absenteeism -turnover

Post-mergerperformance:

-accountingmeasuresatfourmomentsintime

Originoftheleader:

Insideroroutsider

LEADERSHIP:

POLITICS WHO? PEOPLESKILLS WHAT?

POST-MERGER

PERFORMANCE


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Year Mergedbanks(n) OutsiderCEO(n) InsiderCEO(n)

1997 6 1 5

1998 15 3 12

1999 12 2 10

2000 12 1 11

Table1: Distributionofnumberofmergers,outsiderandinsiderCEOsovertheyears


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26

Variab

les

M

ean

Sd

N

Correlations

(1)

(2)

(3)

(4)

(5)

(6)

(1)Socio-culturalintegration

0

.594

0.499

32

-

-

-

-

-

-

(2)Em

ployeesatisfaction

0

.580

0.499

45

0.279

-

-

-

-

-

(3)Em

ployeeproductivity

0

.644

0.484

45

0.403**

0.305**

-

-

-

-

(4)Turnover

0

.910

0.288

45

0.072

0.049

0.257*

-

-

-

(5)Ab

senteeism

0

.560

0.503

45

-0.115

-0.131

-0.104

0.035

-

-

(6)Internalenvironment

0

.244

0.424

45

-

-

-

-

-

-

(7)Bankprofitabilityt=0

1

.263

0.126

45

0.190

-

-

-

-

-0.064


1

.268

0.139

45

0.168

-

-

-

-

0.120


1

.282

0.152

45

0.314*

-

-

-

-

0.162


1

.270

0.153

45

0.624***

-

-

-

-

0.261*

Note:

*correlationsignificantatthe0.1le

vel,**correlationsignificantatthe0.05level,***correlationsignificanta

tthe0.01level(two-sided).

Table2:

Descriptivestatisticsa

ndcorrelations


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27

Variab

les

Ma

nnWhitneyU(insiders

versusoutsides)

Levelofsignificance(2-

tailed)

Socio-

culturalintegration

48

0.776

Emplo

yeesatisfaction

130,5

0.928

Emplo

yeeproductivity

99.5

0.206

Turnover

119

0.374

Absenteeism

132

0.971

Bankprofitabilityt=0

101

0.331


96

0.259


116

0.631


123.5

0.771

Table3:

ResultsofMannWhitneytestsbetweentheinsiderandoutsiderCEOs

Documents

Leadership in a Post-merger