Academic journal article Journal of Leadership & Organizational Studies

Neo-Charismatic Leadership and the Fate of Mergers and Acquisitions: An Institutional Model of CEO Leadership

Academic journal article Journal of Leadership & Organizational Studies

Neo-Charismatic Leadership and the Fate of Mergers and Acquisitions: An Institutional Model of CEO Leadership

Article excerpt

Abstract

CEOs face complex situational demands at each phase of the merger process. We offer an institutional perspective on how pre-merger and post-merger objectives and demands translate into CEO leadership role requirements. By illustrating how these role requirements are well-served by CEO neo-charismatic leadership, we answer why the rise of CEO neo-charismatic leadership is relevant to the merger context. Our model contributes to the institutional understanding of the merger process and its demands, and specifies forms of executive leadership needed for mergers to be successful.

Keywords

Neo-charismatic leadership, institutional theory, mergers, acquisitions

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What predicts merger and acquisition (M&A) success remains unexplained by research (Hitt, Harrison, Ireland, & Best, 1998). The following factors have been previously explored: human resource issues (Napier, 1989), integration activities (Zollo & Singh, 2004), organizational learning (Vermeulen & Barkema, 2001), cultural fit (Weber & Camerer, 2003), and others. We might expect leadership to be cited among these major factors. After all, studies in finance and strategic management credit leadership as the determinant of M&A performance (Fulmer & Gilkey, 1988; Haspeslagh & Jemison, 1991; Schweiger, Ivancevich, & Power, 1987). Indeed, given an important role of organizational change in mergers, studies of M&As were encouraged in terms of neo-charismatic leadership (Bass, 1990). Bass's (1990) optimism was well justified: Neo-charismatic theories proved to be credible executive "road maps" to leading macro- and micro-level change processes. As witnessed by a considerable and growing body of work that applies neo-charismatic theories to the study of mergers, Bass's call is enjoying productive scholarly response (Nemanich & Keller, 2007; Nemanich & Vera, 2009; Waldman & Javidan, 2009).

This emergent body of work advances the knowledge about the role of neo-charismatic leadership in M&As. Many leadership aspects of the M&A phenomenon are yet to be clarified. Despite the tapestry of ideas and thoughts, existing efforts still do not offer a comprehensive answer to the important question: Why should neo-charismatic leadership emerge in the M&A context? What exactly is it about the M&A process itself that makes the assumptions of emergence and performance of neo-charismatic leadership plausible? So far these questions have been left unexplored. Proliferation of research on CEOs and their leadership as a mechanism to realize the merger opportunities have not offered much guidance in understanding the linkages between the merger process, CEO leadership, and the merger performance. Exactly when and how merger performance might be best understood in terms of CEO leadership?

With neo-charismatic leadership (Bass, 1985; Podsakoff, MacKenzie, Moorman, & Fetter, 1990) and the process-based view of acquisitions (Haspeslagh & Jemison, 199 I) as our foundation, we envision success in premerger preparation and postmerger integration as demanding different aspects of CEO neo-charismatic leadership. Our model examines how situational demands translate into specific leadership role requirements. It suggests what a CEO is supposed to do to ensure merger success. Finally, we envision that the premerger demands, leadership role requirements, and neo-charismatic behaviors are representative of what is expected from both the acquirer's CEO and the target's CEO. Naturally, our rationalization of the neocharismatic leadership at the postmerger applies to the CEO of the unified firm alone.

CEO Leadership and the Fate of Mergers: An Illustration

M&As have been one of the more notable strategies for corporate growth in recent decades. In the first half of 2004, the total value of M&As reached $394.2 billion (Grone, 2004). …

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