Lasting Impact: When a merger fails, companies feel the effects for years,
resulting in unusually high turnover and other negative business consequences,
according to researchers at Virginia Commonwealth University in Richmond.
Companies that are the object of such takeovers lose 21 percent of their
executives each year for at least 10 years. That’s more than double the turnover
of nonmerged companies. The findings, contained in the report “The Big Exit:
Executive Churn in the Wake of M&As,” underscore the correlation between
loss of top executives and a company’s poor performance, its authors say.
Lead author Jeffrey Krug, an associate professor of strategic management in
the VCU School of Business, cites three main reasons for the abnormally high
executive attrition in the wake of mergers. He notes that many companies tend to
“rotate their executives” to add value and fresh insights to the acquired
company, although these short-term assignments often hinder effective
integration. Second, more than half of all mergers “fail to live up to
expectations,” prompting acquiring companies to restructure or divest
“underperforming targets a few years after the acquisition.” Another hindrance:
When supervisors leave, managers often don’t get the “managerial discretion” on
decision-making they need to be effective leaders.
Krug and co-author Walt Shill, a managing director at Accenture, based the
research on the turnover patterns at more than 1,000 firms. They also examined
the employment of more than 23,000 executives. The full study appears in the
July/August issue of the Journal of Business Strategy.
= Member Only
