Line | In an effort to explain why business acquisitions |
often fail, scholars have begun to focus on the role | |
of top executives of acquired companies. Acquired | |
companies that retain their top executives tend to | |
(5) | have more successful outcomes than those that do |
not. Furthermore, existing research suggests that | |
retaining the highest-level top executives, such as the | |
CEO (chief executive officer) and COO (chief operating | |
officer), is related more positively to postacquisition | |
(10) | success than retaining lower-ranked top executives. |
However, this explanation, while insightful, suffers from | |
two limitations. First, the focus on positional rank does | |
not recognize the variation in length of service that | |
may exist in top executive posts across companies, | |
(15) | nor does it address which particular top executives |
(with respect to length of service) should be retained | |
to achieve a successful acquisition outcome. Second, | |
the relationship between retained top executives and | |
acquisition outcomes offered by existing research | |
(20) | is subject to opposing theoretical explanations |
related to length of service. The resource-based view | |
(RBV) suggests that keeping acquired company top | |
executives with longer organizational tenure would lead | |
to more successful outcomes, as those executives | |
(25) | have idiosyncratic and nontransferable knowledge |
of the acquired company that would be valuable for | |
the effective implementation of the acquisition. The | |
opposing position, offered by the upper echelons | |
perspective (UEP), suggests that retaining top | |
(30) | executives having short organizational tenure would |
lead to more successful outcomes, as they would have | |
the adaptability to manage most effectively during the | |
uncertainty of the acquisition process. | |
Responding to these limitations, Bergh conducted | |
(35) | a study of executive retention and acquisition |
outcome that focused on the organizational tenure of | |
retained company top executives in 104 acquisitions, | |
followed over 5 years. Bergh considered the | |
acquisition successful if the acquired company was | |
(40) | retained and unsuccessful if it was divested. Berghs |
findings support the RBV position. Apparently, the | |
benefits of long organizational tenure lead to more | |
successful outcomes than the benefits of short | |
organizational tenure. While longer tenured top | |
(45) | executives may have trouble adapting to change, it |
appears that their perspectives and knowledge bases | |
offer unique value after the acquisition. Although | |
from the UEP position it seems sensible to retain | |
less tenured executives and allow more tenured | |
(50) | ones to leave, such a strategy appears to lower the |
probability of acquisition success. |
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