Academic journal article Journal of Managerial Issues

The Moderating Effects of Executive Political Skill on Employee Uncertainty Post-Acquisition

Academic journal article Journal of Managerial Issues

The Moderating Effects of Executive Political Skill on Employee Uncertainty Post-Acquisition

Article excerpt

Mergers and acquisitions (M&As) are an important strategy for growth (Trautwein, 1990) and diversification (Lynch, 2006) in organizations. Further, M&As are associated with achieving organizational goals including market share, prestige, and survival (Shi et al., 2012). According to the Institute of Mergers, Acquisitions, and Alliances (2015), approximately 410,000 M&As took place between 2004-2013 with an estimated value of over $40 trillion. These figures demonstrate that M&As are an important part of a firm's corporate strategy.

Unfortunately, M&As are roundly criticized as a failed corporate strategy, and failure rates are estimated to be between 60 and 80 percent (Marks and Minis, 2001; Tetenbaum, 1999). Moreover, a study by McKinsey & Co. found that approximately 60 percent of M&As fail to return greater yields than the annual cost of capital required to finance the acquisition (Hitt et al., 2001). Other studies suggest acquisitions decrease firm value (e.g., King et al., 2004). Although there are many reasons cited for M&A failures, a prominent reason cited in the literature is the inability of firms to successfully manage the post-acquisition integration phase. For example, Jemison and Sitkin (1986) suggested that management system misapplication is a key impediment to acquisition success, specifically noting that defensiveness and arrogance of the acquiring and acquired firm's managers as a harrier. Along with this, another contributing factor for post-acquisition integration difficulties is related to employee issues. Issues experienced by employees have been recognized as a cause for between one-third and one-half of M&A failures (Cartwright and Cooper, 1993; Davy et al., 1988). This is partially due to employee uncertainty regarding future roles in the organization (Norman et al., 2013; Puranant et al., 2006). Understandably, top executives at merged firms believe that employee issues are more likely to affect long-term success than financial issues (Davy et al., 1988).

In this article, the authors examine employee issues that stem from uncertainty, including turnover intent, job satisfaction, absenteeism, and job strain. The author's focus is on the "acquisition integration" phase of the M&A, which occurs after the negotiations are completed (Carpenter and Sanders, 2007). The authors contend that a key element in reducing post-acquisition integration employee issues is the political skill of the top management team, or what the authors term "executive political skill." Political skill has been described as "the ability to understand others at work and to use that knowledge to influence others to act in ways that enhance one's personal or organizational objectives" (Ferris et al., 2005: 7). Given the challenges of the acquisition integration environment, the authors believe executives possessing high levels of political skill can inspire trust in employees (Ferris et al., 2005), which can lower job uncertainty and lead to positive employee outcomes.

In sum, it is important for researchers to focus on employee issues that result from M&A activity. If prescriptions can be made that allow top management teams to prevent employee issues from occurring, then acquisition integration should be more successful. Tire more tools that executives have at their disposal, the more value creation that can be derived from M&A activities. M&A has been linked to the loss of employees, which has an impact on the expected synergies (Marks, 1997). This paper proposes that top management political skill can make employees feel more at ease, reducing turnover intentions, absenteeism, and job strain, thereby increasing the likelihood of synergies that can be derived in M&A. As political skill can be learned, this tool can assist managers undertaking M&A to help reduce the likelihood of M&A failure. (1)

The authors continue the article by discussing the consequences that uncertainty can have on employees within organizations. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.