M&As destroy stability

2008

Want to know why so many mergers and acquisitions end in ignominious failure? Well according to a study published in the July/August issue of the Journal of Business Strategy, the M&As destroy leadership continuity in target companies' top management teams for at least a decade following a deal because so many senior executives quit.

The study, "The Big Exit: Executive Churn in the Wake of M&As," found target company executive teams are generally stable before they are acquired. But the M&A quickly destroys this leadership stability and with it, the performance opf the organization.

What's more, this management instability isn't just a short-term issue, as is often thought. In fact target companies lose 21 percent of their executives each year for at least 10 years following an acquisition - more than double the turnover experienced in non-merged firms and a pretty staggering figure to boot.

"These findings are especially important in light of the correlation between the loss of top executives and a company's poor performance," said Jeffrey Krug, associate professor of strategic management in the Virginia Commonwealth University School of Business and lead author of the study.

"Companies involved in these deals need to understand the long-term effect on their executive ranks and they need to find ways to keep key executives on board."

Krug studied the turnover patterns at more than 1,000 firms and examined the employment of more than 23,000 executives.

He added that the recent M&As he looked at tended to created even greater instability within executive teams as globalization and technology trends increased the intensity of competition and generated greater industry turbulence.

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