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Executive Perceptions in Foreign and Domestic Acquisitions: An Analysis of Foreign Ownership and its Effect on Executive Fate.

Foreign acquisitions account for one in every six acquisitions in the United States and lead to a variety of positive and negative outcomes for executives in acquired U.S. companies. They often enhance career opportunities and enrich executives' international experiences but increase the chances of being replaced. Despite an increasing number of foreign acquisitions in the U.S.A. during the last twenty years, we still know very little about the differing perceptions of executives involved in foreign versus domestic acquisitions. A better understanding of such perceptions is important in light of the tendency of the popular press to focus on the negative aspects of foreign acquisitions of U.S. companies and landmarks. We present a framework for understanding executives' perceptions based on surveys and interviews with 284 executives and discuss five areas where executive perceptions differ: (1) cultural differences, (2) system changes in the acquired company, (3) acquisition negotiations, (4) executives' reaso ns for staying or leaving after the acquisition, and (5) postacquisition outcomes for the organization. Executives' perceptions differed significantly in each of these five areas depending on whether the executive was involved in a foreign or domestic acquisition.

What is the probability that an executive will depart after an acquisition? The evidence suggests that it is high. An average of 20% of a U.S. company's top management team will leave their firm in the first year after it is acquired. Almost 70% will leave within five years (Walsh, 1988, 1989). The odds that executives will leave increase significantly when a firm is acquired by a foreign multinational; about 75% of the firm's top management team leaves by the fifth year (Krug & Hegarty, 1997). In contrast to the high departure rates of executives in acquired firms, executives depart at significantly lower rates in firms that are never acquired; only about 8% leave each year. It is not surprising, then, that acquisitions generate considerable thought among target company executives about their future roles in the new top management team (see Figure 1).

Existing evidence suggests that target company performance falls as a greater number of executives leave, especially when key executives leave shortly after the acquisition (Cannella & Hambrick, 1993; Krishnan, Miller, & Judge, 1997). Performance problems can be attributed at least in part to the break in management continuity that occurs when senior executives leave; the experience of lost executives is not easily replaced. This helps to explain why more than one-half of all acquisitions fall to achieve preacquisition objectives and why so many target companies are divested several years after the acquisition. There is good evidence that the rate of loss of target company executives is an important determinant of acquisition success or failure.

Acquiring companies often replace departing executives with their own executives. These executives sometimes lack the experience and knowledge that enable them to pick up where departing executives left off. Strategic projects may be delayed or halted. The loss of senior executives may also send strong signals to lower level employees of troubles yet to come. Acquiring companies often impose system changes on the target company and initiate changes in administrative procedures, human resource management policies, and leadership styles. These changes lead to greater employee stress, uncertainty, and absenteeism, as well as lower job satisfaction, organizational commitment, and productivity (Schweiger & DeNisi, 1991).

The objective of this paper is to examine the perceptions of executives involved in foreign and domestic acquisitions. Do executives' perceptions differ when their firm is acquired by a foreign firm? If so, what explains these differences? Further, do these perceptions influence the executive's decision to leave the firm when he otherwise would have stayed? We collected survey data from and interviewed 284 U.S. executives involved in a broad sample of foreign and U.S. acquisitions. In doing so, we hope to shed light on how and why executives' perceptions of an acquisition differ when they are involved in a foreign versus domestic acquisition. Finally, we examine the role that foreign ownership plays in shaping executives' perceptions of an acquisition and influencing their decision to stay or leave.


We built a database of U.S. target companies by drawing a random sample of firms recently acquired by a U.S. or non-U.S. firm from Mergers & Acquisitions. Our sample included 142 acquisitions. Fifty-five firms were acquired by U.S. firms and 87 firms by non-U.S. firms. The 87 non-U.S. firms making acquisitions in the United States came from 15 countries. These included Australia, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Netherlands, Sweden, Switzerland, the United Kingdom, and Venezuela. We identified members of each of the 142 U.S. top management teams before the acquisition in Standard & Poor's Register of Corporations, Executives and Directors. Each U.S. firm had an average of nine executives in its top management team before the acquisition. Thus, 1,278 executives were affected by the 142 acquisitions we analyzed. Fewer than 370 of these executives (less than 30%) were employed in the target company five years after the acquisition.

With the help of executives in the M&A department of a Fortune 500 firm, a survey was designed to measure executives' perceptions on a variety of issues. These included employee morale following the acquisition announcement, the executive's intention to look for a new job, opportunities for promotion after the acquisition, and the executive's job status after the acquisition (see Appendix A). The survey was sent to 538 executives, about one-half of whom were no longer employed in the target company five years after the acquisition. Surveys were returned by 284 executives (a response rate of 52.8%). Ninety-seven (one-third) of these executives left, whereas 187 (two-thirds) stayed. Open-ended questions on the survey and telephone conversations with executives enabled us to gain a better understanding of the primary reasons for leaving or staying and the major issues surrounding each acquisition.


We analyzed the survey items to identify perceptual differences between executives who stayed and left after the acquisition, and to determine whether foreign ownership had a significant effect on shaping executives' perceptions of the acquisition (see Appendix B). Executives who stayed had a greater interest in their postacquisition job, greater job security, and stronger perceptions of the long-term personal benefits of the acquisition compared to executives who left. Executives who left were more familiar with the acquiring company at the time of the acquisition announcement and were kept better informed during the merger process than executives who stayed; however, they also believed that their opportunities for promotion were greater outside of the newly merged firm. Despite this finding, there were many target company "insiders" (i.e., executives who were kept informed during the merger process) who felt they had better opportunities for promotion inside the new firm; these executives stayed. Thus, some executive insiders stayed and others left. It is important to note, therefore, that executives' decisions about staying and leaving are often influenced by a complex set of issues that make it difficult to make accurate predictions about whether they will stay or leave based on their perceptions of a single issue. Last, the analysis indicated that executives were more likely to leave when their firm was acquired by a foreign multinational.


Based on the written survey comments and executive interviews, differences in executives' perceptions between the foreign and domestic acquisitions could be classified into five different areas:

1. Cultural differences,

2. Company system changes,

3. Characteristics of the acquisition negotiations,

4. Major reasons for staying or leaving after the acquisition, and

5. Postacquisition outcomes for the organization.

Each of these five issues offered insight into the differences in executives' perceptions when their firm was acquired by a foreign multinational rather than a U.S. firm.

Cultural Differences

When we asked executives to comment on the cultural differences between the two merging firms, the comments were overwhelmingly negative (more than 90%). Executives who were involved in the foreign acquisitions commented primarily on four areas:

1. National culture differences (e.g., communication problems, difficulties developing trust, a lack of understanding of U.S. business culture on the part of the acquirer, and the feeling that opportunities for promotion were limited within the foreign parent),

2. Corporate culture differences (e.g., a general lack of sensitivity and poor understanding of or appreciation for "our culture" on the part of the acquirer, culture clashes, and the disruption of business resulting from a failure to blend the two cultures),

3. Management style differences (e.g., the use of formal vs. informal command structures), and

4. Company differences resulting from the consolidation of a large and small company, private and public company, private and government-controlled company, or retail and wholesale operation.

All of these differences--differences in national culture, corporate culture, management styles, and company structure--diminished the cooperation between the merging top management teams. They also decreased the ability and willingness of target company executives to support the postacquisition organization.

Executives' comments revealed different attitudes toward the acquiring company depending on the country of origin of the acquirer. The following comments were indicative of the feelings of executives in U.S. companies acquired by a Japanese firm:

Volumes have been written on the differences between Japanese and American cultures. I could not possibly do this subject justice. They had little insight into American management and culture. Little understanding of U.S. markets. They had problems understanding our marketplace versus theirs on identical product lines. There was greater involvement in daily operations. People were placed into our operation. Their staff attempted to hand down directives with little or no knowledge of how our operation was run. They had a poor attitude toward women in industry.

Their approach to business was different. They did not believe in sharing information. Although I ran the company, I received no information from the parent company. There were problems interpreting the meaning of the actual language used by the Japanese.

Decision making was slower in Japan. Their focus was much longer than ours and financial goals were not clearly defined. We would get vague answers to questions asking what the Japanese firm expected.

Executives who were involved in an acquisition by a European company (especially a German, Swiss, French, Swedish, or Finnish firm) frequently characterized the acquirer as autocratic, closed, and slow to make decisions:

The greatest issue was foreign versus U.S. culture as opposed to company culture (i.e., language and how it is interpreted). National cultures were very different. We were open, friendly, quick to decide. The Finnish acquirer was more closed, argumentative, distrustful, and prone to endless discussion. Lack of trust, language differences, distribution channels, work habits, country cultures, and humor were problems. They were bureaucratic, dogmatic, political, and very much into form over substance. The U.S. style was more open. We were strongly oriented to favor customers and had a very open organization structure.

The Germans tended to be more dictatorial. The U.S. style was more open. They were very structured and did more detailed analysis. Much slower at decision making. The Germans had a stronger R&D mentality and were much more autocratic by nature. The Germans were lousy managers. Morale went downhill fast.

They did not understand our culture. No blending of cultures led to disruption of business. Key executive positions were filled by German managers. Many social and communications gaps exist. Given my personal background and experience and career objectives, I believed my chances of becoming a board member of a Germany company were slim whereas my chances of becoming a board member of a U.S. company were bright. Indeed, within a few months after leaving my position, I joined an American company as an executive vice president, CFO, and board member.

Swedish management did not understand U.S. business culture and wanted to operate us like a Swedish company--demanding better results but not willing to work out solutions to problems. Much more politics. Our culture was of no significance to them. Classic Swedish/U.S. differences were exacerbated by the Swedish feeling that their technology was superior to ours.

There were significant cultural differences in the way we and the French viewed unions, and approached compensation, benefits, and communications.

A trust relationship needed to be developed with the Italian acquirer. There were poor relations between the labor unions, salaried personnel, and upper management.

The Danish acquirer was a highly leveraged company whose primary interest was asset stripping.

It is worth noting that U.S. managers were equally negative about their interactions with British managers as they were with their Japanese and Continental European counterparts. This result was more interesting in light of the common perception of many that there are few cultural differences between the U.K. and U.S.A. Our survey indicated that executives viewed differences between the U.K. and U.S.A. as equally problematic as they did differences with other non-Anglo countries. The following comments were common:

The parent company was British. We were American. There was a general lack of sensitivity. They did not understand our business or our customers. There were differences in marketing strategy. The acquirer had little inclination to become involved in local community projects and organizations. More formality in the workplace, longer length of time to make decisions. They tried to lay their culture on the U.S. company without respect for U.S. management style.

British, colonial, male only, totally out of step with American meritocracy. British old school tie versus "up-and-at-em" U.S. tigers. U.S. companies were much more aggressive -- more risk taking, more delegation, more bias to action. They were bureaucratic, cold, and short-term oriented. Short-term profits became essential. Management was not people oriented. They blamed employees for industry problems and hard times. The management style of the U.K parent was basically a parent-child relationship. There was a total absence of understanding of the U.S. company's business and culture and no real interest in learning about them.

In contrast to comments made by executives in the foreign acquisitions, few of the executives in the domestic acquisitions mentioned problems resulting from differences in culture. Comments that were made, however, revealed that executives' interactions with managers from other regions of the United States also generated many negative feelings. These negative feelings diminished the ability of the acquirer to integrate the target company. A few of the interesting comments were:

The company that bought us was a northern company. They were not as friendly to the customer base. They immediately wanted to increase fees for any type of service. It was as though the "good old boy syndrome" was a joke to them and they went overboard on the thought that if customers wanted a service they would pay for it.

They were mid-Westerners who thought that New Jersey was expensive and salaries were too high.

We were perceived to be "small town" compared to their "cosmopolitan" attitude about our business. We were viewed as a stepchild by management.

Executives in the domestic acquisitions commented primarily on two areas. First, they were concerned with differences in the way the acquirer interpreted their business and a lack of understanding of the nature of their business:

The acquirer didn't understand the cyclical nature of our business.

There were geographical problems--a lack of understanding of our customers. Differences in people values such as morality, honesty, virtues, and ethics.

They were a product manufacturer. We were a service division. They didn't know our business.

They had zero experience dealing with our customers. The nature of our business was completely different; hence, a lack of understanding.

Second, executives were concerned about differences in management styles between the two top management teams (e.g., reliance on group vs. individual decision making, interpersonal cooperation vs. autocratic decision making, and team-oriented vs. bureaucratic and political decision making):

Our company emphasized planning before action and stressed the value of individual contributions. The acquirer was highly reactive, didn't waste time with planning, and didn't seem to care about employees as individuals.

Lack of autonomy, the lead-time for approval to run business, and group and corporate overhead allocations impacted earnings. Our family atmosphere disappeared. We did whatever it took to complete a task and they were more structured. They were top down management. We were team management.

The new owners treated employees as outsiders, distrusted them from the outset, gave them no credit, did not use their skills. New corporate would not listen to our ideas. There was no attempt to understand us, nor did they seem to care to understand.

Executives' reactions to the culture issue revealed sharp differences in how executives viewed the acquisition depending on whether the acquirer was foreign or domestic. To eliminate potential biases, we made no reference in the survey to the fact that the acquisition was foreign or domestic. In addition, we made no distinction between corporate and national culture. We believed that doing so would have focused the executive's attention on the "foreignness" question and motivated more negative feedback. When asked about how well the acquiring company understood their culture, executives in the purely domestic acquisitions made almost no mention of the word culture. Instead, they spoke about differences in management styles and the different ways the acquiring company interpreted their business. In contrast, almost all of the executives in the foreign acquisitions focused on the issue of cultural differences and misunderstandings to the exclusion of other differences. The fact that the acquiring firm was fore ign focused executives' attention on cultural differences between the two firms and heavily influenced the way they interpreted the positive and negative effects of the acquisition.

Target Company System Changes

When asked about system changes in their company after the acquisition, executives commented primarily on four areas of change:

1. Accounting, finance, and MIS systems,

2. Human resources and personnel,

3. Manufacturing and marketing systems, and

4. Organizational structure.

An overwhelming 65% of the executives responded that the acquirer had imposed changes in their company's accounting, finance, and MIS systems (e.g., reporting systems, forecasting and budgeting, tax accounting, inventory control, purchasing, cash management, electronic mail, order processing, and automation). The high rate of integration in these types of systems was not surprising insofar as they were perhaps the easiest systems to integrate when compared to the integration of human resources, personnel, and manufacturing and marketing systems. Changes in accounting, finance, and MIS systems may also have been a necessary first step in developing systems consistency between the merging firms; they helped the acquirer more quickly build some control over the acquired firm's operations.

The second largest group of changes made in the target companies were in human resources and personnel (e.g., retirement, insurance, medical, dental, compensation, payroll, bonus and incentive systems, stock option programs, and performance standards). U.S. acquirers were almost twice as likely to make changes in these areas. Foreign firms be more hesitant to make changes in these areas because of differences in legal requirements, industry structure, and national culture between the United States and their home country. In the case of retirement, insurance, medical, and dental programs, the foreign acquirers were constrained by U.S. legal guidelines and the structure of U.S. industry (e.g., structure of the U.S. health care, insurance, and investment industries). Moreover, cultural differences were more likely to limit the effectiveness of changes made in compensation, payroll, incentive systems, stock option programs, and performance standards. The highly individualist culture of the United States, for exa mple, has generally enabled U.S. firms to make heavy use of bonus systems, stock option programs, and other incentive programs to motivate and reward good performance. In more collectivist nations in Asia and Continental Europe, these systems are used more sparingly and firms emphasize salary and security as the primary methods for motivating and rewarding personnel. Foreign acquirers may have recognized the difficulties of integrating human resource and personnel systems given these cultural differences. Thus, it may have been in the best interest of the foreign firm to retain much of the structure of the U.S. companies' systems m these areas.

Executives in the foreign acquisitions were twice as likely to mention changes in manufacturing and marketing systems (e.g., production planning, scheduling, quality control, R&D, safety programs, sales management, customer service, product development, distribution, capital spending, and project approval) and organization integration (e.g., centralization of systems and activities, adoption of a matrix management structure, and implementation of more sophisticated integration mechanisms). This finding implied that different patterns of integration were used in the foreign and domestic acquisitions. Domestic acquirers were more likely to integrate human resource management and personnel policies; foreign acquirers were more likely to integrate manufacturing and marketing systems and organizational structure.

Mergers and acquisitions lead to different types of integration in the acquired company. In most cases, the acquiring company integrated the accounting, financial reporting, and MIS systems between the two firms, most frequently by imposing its own systems on the target company. A large number of acquiring companies also integrated human resource and personnel systems when purchasing a domestic firm. Foreign multinationals, in contrast, tended to leave the U.S. target company's personnel systems in tact. Differences in culture and legal systems increased the difficulties and diminished the effectiveness of integrating these systems. Foreign multinationals, however, were more likely to integrate the target company's manufacturing and marketing systems with their worldwide operations. Many of the cross-border acquisitions were motivated by a desire to integrate these systems to improve worldwide efficiencies and to take advantage of worldwide economies of scale and scope.

Acquisition Negotiations

The executives' responses to the survey and interviews indicated that executives in both the foreign and domestic acquisitions proceeded through acquisition negotiations with similar expectations for themselves and their company. When we looked at the most senior negotiators in our sample, however, we found that most of the executives who were the primary negotiator of an agreement with a foreign acquirer left after the acquisition. Most of the executives who were the primary negotiator of an agreement with a U.S. acquirer stayed. This finding indicated that cross-border acquisitions may lead some executives to inaccurately interpret the likely outcomes of the acquisition. Executives may have thought they were well informed and expected positive outcomes from the acquisition. After the acquisition, however, some executives found themselves terminated or in positions with lower status (Hambrick & Cannella, 1993; Lubatkin, Schweiger, & Weber, 1999). Communication and language interpretation problems probably d iminished the executive's ability to accurately judge the acquiring firm's intentions in some cases. Many foreign acquirers may also have decided to bring in their own executives even though they had not originally intended to do so. By replacing U.S. executives with its own, the foreign acquirer was able to more quickly establish control in the target company. This may have adversely affected target company executives who were not immediately terminated, by reducing their status, alienating them, and causing them to eventually leave. The following comments were typical:

The acquisition was not well planned, since the cost of the acquisition resulted in the acquirer having to sell off most profitable arms of the company to cover debt. My position was eliminated.

As a survival issue to the organization, I worked for something to occur--a merger was probably the least disruptive and overall best way to preserve the most. The new parent brought in their own senior executive.

I was the officer making the merger decisions. The U.S. management was no longer in charge and the parent company's style did not fit the U.S. market. I ended up leaving.

Executives who negotiated an agreement with a U.S. firm may have been in a better position to make accurate judgments about the intentions of the acquiring firm. Their closer geographical proximity to the acquiring firm increased the likelihood of a greater number of communications and meetings between executives of the two firms. A common language probably minimized communication problems and misinterpretations. It is also probable that many executives had greater knowledge of how the U.S. acquirer fit into their competitive environment. Executives may have more difficulty judging how a foreign acquirer will alter the firm and fit into its marketplace.

In several of the U.S. acquisitions, the acquiring company bypassed negotiations with target company management altogether and presented a tender offer directly to target company shareholders. These acquisitions were motivated primarily by the acquiring company's desire to control the target company by eliminating top management and to profit by divesting target company assets (i.e., the market for corporate control). Although highly developed in the United States, markets for corporate control are rare outside of the U.S.A. High stock ownership by institutions such as banks, insurance firms, and stakeholder firms that hold large share blocks for long periods has minimized these types of transactions in many countries, especially in Japan and Germany. In addition, the motivations of foreign firms that make acquisitions in the United States may minimize the number of unfriendly or hostile cross-border transactions. In our sample, foreign acquirers were motivated by one of three objectives: (1) the acquisition of U.S. brand names and technology, (2) entry into the United States, and (3) the consolidation of product lines. In the case of the first two objectives, the retention of U.S. executives may have played an important role in helping the foreign firm establish and learn the U.S. operation, at least over the short-term. Comments from executives in the U.S. acquisitions included the following:

This was a hostile takeover. White Knights were not available for support. I was terminated.

We were in a contest for control for five months. Out of a corporate office of 126, only six were offered positions--the rest became history. The company for the most part has been broken apart and sold.

It was a hostile takeover that became friendly following the transaction. It was clear from the start that my position would be eliminated. I was "parachuted." If I had had the choice, I would certainly have preferred the transaction never took place.

The buyer purchased with the intent of taking profit and reselling. Many people were hurt and left employment. The company has continued to fail since. I left.

We tried a leveraged buyout and put the company into play. We were sold to one individual for $3.4 billion. He kept all of the executive staff except the six people who attempted the leveraged buyout.

Why Executives Left

Thirty-one percentage of the executives who left following the acquisition were terminated. A greater number of executives in the foreign acquisitions (35%) were terminated than in the domestic acquisitions (24%). A majority of these executives left within two years of the acquisition. A few executives were terminated because their positions were eliminated through a management restructuring; however, the majority of terminations took place shortly after the acquisition as a means of bringing in the acquiring firm's own top management team. Most of the comments indicated that executives had similar reactions to and experiences with this process in both the foreign and domestic acquisition. Foreign acquirers, however, were more likely to fire more executives within the acquired top management team shortly after the acquisition than U.S. acquirers. Some of the comments made by the terminated executives were:

I was asked to leave along with eight other corporate officers over a year.

The new owners wanted to bring in their own management and as president, I was expected to leave.

I was terminated. A parachute had a one-year limitation.

I was told the company would not have a position for me. They kept my department but asked me to leave. I was an officer.

I was moved out--a violation of my contract--after about six months.

I left after the sale as the result of a management restructuring.

All but one division were sold. All senior executives were severed.

Comments by executives in the purely domestic acquisitions were similar:

I was terminated after being "used" for 90 days.

It was clear from the start that my position would be eliminated.

My position was eliminated, or rather it was filled by an appointee of the acquirer, so I didn't have much to do with it.

I was asked to retire at age 58. My job was eliminated when three premerged divisions were reduced to one.

I did not drink at all and to be an executive of the acquirer and not drink was a no-no. I was told to take the retirement package or take a cut in salary by 40% and another cut by 30% in three years.

Executives in the foreign acquisitions who left because of lower job status were also more vocal about their treatment by the acquiring company than executives in the domestic acquisitions. Some of the most frequent comments were:

I had no hope of remaining in the company. Near-term financial benefits were offset by loss of status, involvement, retirement benefits, high stress, too young to stop work (56), too old to easily find a comparable job. Subsequent career as an antique dealer in spouse's business... maybe a blessing.

I experienced a loss of independence and control. My job responsibilities were narrowed. The focus of the buyer did not include my operations.

My preacquisition job had broad authority and responsibility. The reorganized structure didn't make sense to me.

I lost sales responsibility. Twenty-one people were hired from outside my reporting. It was the wrong way and I did not care for it.

I had a lack of meaningful input to the new corporation. Our immediate superiors and peers (in almost all areas) were not as qualified as we were. Conformity and "obedience" were stressed over performance.

In contrast to the foreign acquisitions, executives in the domestic acquisitions were most likely to leave because of a gradual alienation from the acquiring top management team over time. About one-third of the executives in the domestic acquisitions mentioned this as the primary reason why they left, compared to only 6% in the foreign acquisitions. Three common themes surfaced in the interviews:

1. Acquiring company top management lacked leadership and direction,

2. Acquiring company managers were dishonest or lacked morale authority, and

3. Employees were treated poorly by the acquiring company.

Executives' feelings about these issues motivated many of the executives to seek employment elsewhere. Some of the comments included the following:

I was frustrated with the lack of new leadership. There was a failure to understand the needs of employees. Constant change of directors by new management. New management was deceitful and not to be trusted.

They compromised my ethics both personally and professionally. They totally disregarded employees and the company's long-term welfare. I left because of what I considered to be downright dishonest practices for the personal gain of a few investors.

I did not like the new culture. I could not see reinventing the wheel in someone else's vision. It was a good time to move on. I left while I was on top. A "package" made it easier to leave.

Overall, the results showed that executives left for very different reasons when their firm was acquired by a foreign multinational. Foreign acquirers were more likely to terminate U.S. executives, partially as a means of placing their own managers into the U.S. operation and establishing control. Domestic acquirers were more likely to have greater numbers of executives leave voluntarily. Many executives became alienated from the acquirer over time because of disagreements over leadership in and direction of the new company and decided to leave to pursue outside opportunities.

Reasons Executives Stayed

Executives who stayed commented on five primary reasons for remaining with their company after the acquisition:

1. Job satisfaction,

2. Increased job status,

3. Job security,

4. Autonomy, and

5. Personal issues.

Over one-third of the executives who stayed mentioned satisfaction with their postacquisition job as the primary reason for remaining. These executives believed the acquisition created greater career opportunities for them, although they had not been given higher titular status. A greater number of executives in the foreign acquisitions mentioned job satisfaction as the primary reason for staying. Many executives believed their career opportunities were enhanced because of their association with a multinational firm. The following comments by executives in the foreign acquisitions were common:

The merged company was stronger and more competitive. They supported our needs for growth and investment. I grew to understand, like, and respect them. My opportunities for growth expanded.

I had great admiration for their global management style. It greatly expanded my professional responsibilities and enhanced my professional independence.

They created growth opportunities for me and the company. I had a good comfort level with the corporate culture. The company had good integrity and a concern for people. They had a good trade record dealing with previous acquisitions.

There were opportunities for advancement and higher pay. The opportunity to be involved with a multinational company was exciting.

I saw an opportunity that the business would grow. I knew the merged company would need my services. I saw no downside to staying. There was a possibility to be involved in mergers and acquisitions in the future and I had international possibilities with the parent and its subsidiaries.

One-fifth of the executives stayed because they were given high status positions in the new top management team. When we broke the sample into senior (i.e., chairman, CEO, COO, and president) and junior (i.e., vice president, treasurer, secretary, and controller) executives, we found significant differences in how status was granted to executives in the foreign and domestic acquisitions. Fewer senior executives in the foreign acquisitions were asked to remain in their positions than in the domestic acquisitions. A greater number of junior executives in the foreign acquisitions, however, were given higher titular status and greater responsibilities than executives in the domestic acquisitions. This supported our previous finding that executives were more likely to be terminated in cross-border transactions. Foreign acquirers terminated a greater number of target company executives to place their own executives in the target company and to increase control. They then promoted junior executives into higher posi tions, perhaps as a way of retaining key executives. Such a strategy may be particularly beneficial when the foreign firm acquires technology and know-how; they need to retain executives who can best aid in the transfer of technology and know-how back to the acquirer.

Executives also stayed in the new company for job security reasons, which could be classified into one of three areas: (1) continued job security and stability; (2) lack of outside opportunities; and (3) age, length of service, and retirement age. Executives who stayed for reasons other than job satisfaction, status, or job security stayed for personal reasons or because the acquisition resulted in few changes in their job and day-to-day activities. In the former case, executives stayed because they had a strong personal commitment to their managers, employees, company, community, or brand. Comments included the following:

I could have retired at the time, but my roots were very deep with this company and community so I decided to stay and to use my experience and whatever influence I might have to help the company and its people through this very difficult period.

I had a responsibility to make the merger work--commitment to the company and people. Because I "cashed in," I felt an obligation to help the acquisition work. I was loyal to the brand. They promised to grow the business according to our vision. I had a loyalty to my employees.

The new owners did not take the time to get to know the company or the people. Initial meetings suggested "Your company is losing money because of you." There was no recognition of industry problems. I enjoyed the people with whom I worked. I hired many of them and felt a responsibility to them. I hoped that my initial readings of the new owners would change and that I could help pull the company into the black.

Overall, our survey and interviews with executives indicated that foreign ownership had a significant effect on the executive's perception of the acquisition. In general, foreign ownership intensified both the positive and negative perceptions we observed in the domestic acquisitions. More executives were terminated in the foreign acquisitions. Moreover, executives in the foreign acquisitions who left were more vocal about how they were treated by the acquiring company, especially in cases where the executive experienced a reduction in his job status. It is interesting to note, however, that executives who stayed expressed greater job satisfaction with the postacquisition jobs than executives in the domestic acquisitions. Many executives mentioned their association with a multinational firm and their enhanced international opportunities as the primary reason for their greater satisfaction. Key junior executives seemed to benefit the most, as they were elevated to more senior level positions as an enhancement for staying in the new firm. The promotion of key U.S. executives may have been a key element in the foreign acquirer's attempt to improve organizational learning. It may move its own executives into the acquired company as a means of learning the acquired U.S. operation; at the same time, it may transfer key U.S. executives into its own operations as a way of absorbing the knowledge and skills of U.S. executives.

Acquisition Outcomes

When asked about the organizational outcomes of the acquisition, 80% of the executives who left commented that the outcomes of the acquisition had been negative. Perceptions were strikingly more negative in the domestic acquisitions. Ninety-five percentage of the executives who left after acquisition by a U.S. firm had negative perceptions compared to 65% of the executives in the foreign acquisitions who left.

Fifty percent of the executives who stayed after acquisition by a U.S. firm had negative perceptions compared to 30% of the executives who stayed in the foreign acquisitions. Negative perceptions focused on two primary issues:

1. The acquiring firm's approach (e.g., low regard for employees, poor treatment of suppliers, lack of interest in the community, failure to adequately explain the mission of the acquisition, arrogance, egotism, hostility toward target company managers, fewer opportunities for advancement) and

2. Organizational outcomes (e.g., lack of planning in the new company, sudden changes, lack of support, desire for quick return or to "milk" the company, and pressure to cut costs).

The following comments were common:

Our company was more considerate of our people. The new owners considered they knew everything and existing managers knew nothing. The new owners cost themselves millions in lost profits.

The acquiring company totally destroyed employee, customer, and supplier morale.

There was no consideration whatsoever for employees, vendors, or the communities served. Their only objective was a specified return on investment and liquidations.

Management in the acquiring company did not care about our employees. They terminated staff that would have continued to be very good employees and would have been very loyal to the new company.

Total insensitivity on the part of the parent company in communicating with our staff before, during, and after the merger. They did virtually nothing early on to make us feel a part of the team.

There was an ongoing hostility toward old employees in the new company. Culture clashes resulted in 80% of the senior managers leaving, wiping out much consistency and competency.

We lost our culture and were told that it was wrong and ineffective.

The most significant positive comments came from executives in the foreign acquisitions. Executives most frequently mentioned greater access to capital, complementary technology, access to new technology, complementary geographical focus, access to international markets, positive attempts by the foreign firm to improve target company operations, and a stronger merged organization as the most significant positive outcomes of the acquisition. This finding was consistent with our previous observations. Multinational firms or firms with significant international operations created positive perceptions among acquired company executives regarding their opportunities for advancement, professional development, and personal growth. These perceptions increased executives' job satisfaction and increased the likelihood that they would stay.


Our research revealed that acquisitions affect target company top management teams in different ways. The largest number of executives departed shortly after the acquisition--about 60% left within three years. We presented the departure rates for the executives in our study in Figure 1. Executives departed at equal rates through the third year in both the foreign and domestic acquisitions. However, these data did not tell the whole story. Our results revealed that executives departed for significantly different reasons in the foreign and domestic acquisitions during the first three years after the acquisition. These differences would have been missed if we had only looked at the aggregated executive departure data. Executive departure rates were only equal insofar as executives in the foreign and domestic acquisitions were subjected to different effects that offset each other.

In the domestic acquisitions, the most common complaints addressed the acquiring company's lack of understanding of their business, suppliers, employees, and customers. Many executives complained about differences in how the two companies ran their respective businesses. Some companies granted significant autonomy to their managers; others made heavy use of delegation. Some companies were task oriented; others were team oriented. Some companies were cost-driven; others were marketing oriented. None of the executives ever used the word culture to refer to these differences. It is possible that executives associated the word culture with foreignness. In this paper, we referred to executives' comments as differences in management styles because the executives referred to them that way. We recognize, however, that elements of a company's management style are often imbedded in the company's corporate culture. Therefore, differences in corporate cultures undoubtedly accounted for many of the disagreements between the merging top management teams. In our interviews, it was apparent that executives resented seeing their traditions replaced by the traditions of the acquiring firm. The greater tendency of domestic acquirers to replace target company personnel policies with their own intensified conflicts about how to manage the new company.

In most instances, those executives in the domestic acquisitions who focused on differences in management and leadership styles ended up leaving the firm voluntarily. These executives became alienated from the acquiring company over time because of these differences. They eventually looked for opportunities elsewhere. Most of these executives commented on their dislike for acquiring company management, incompatibility between the two top management teams, their disagreement with the direction of the company, and their dislike for the acquirer's treatment of their company's employees. More than twice as many executives in the domestic acquisitions departed for these reasons. We didn't expect this finding. After all, the foreign acquirers were more likely to integrate manufacturing and manufacturing systems and organizational structure than the domestic acquirers. Interestingly, many executives who stayed after their firm was acquired by a foreign multinational viewed integration with the foreign acquirer as a positive outcome of the acquisition. The international experience of the foreign acquirer provided opportunities for many executives to gain international experience and to move up through the ranks of a foreign multinational.

Whereas more executives in the domestic acquisitions left voluntarily (77%), more executives in the foreign acquisitions left involuntarily (35%). Most of the involuntary departures were terminations or job eliminations. Overall, the foreign acquisitions led to a number of effects that were not present in the domestic acquisitions. These effects intensified executives' perceptions of both the positive and negative outcomes of the acquisition. A large number of terminations appear to have been undertaken to make room for the foreign multinational's own managers. Whereas many of the U.S. acquired company's senior executives were terminated, many junior executives were promoted as a means of retaining key U.S. executives. Both of these actions were motivated at least partially by a desire to enhance organizational learning. By placing its own managers into the U.S. company and exposing them to the acquired company's operations and managers, an acquirer is able to more effectively absorb the target company's cul turally embedded knowledge. A foreign acquirer also benefits by retalning key target company executives. By transferring executives to its home base or its other foreign subsidiaries, it exposes its own people to the tacit knowledge of target company executives. At the same time, it enhances the learning of target company executives by exposing them to its own operations. Thus, expatriate assignments and management transfers are an effective means of converting tacit knowledge into explicit knowledge.

We found that cultural differences impeded the transfer of knowledge by increasing misunderstandings and communications problems between the merging top management teams. They also intensified executives' uncertainty about future events, increased job insecurity, and triggered executives to consider outside opportunities. In some cases, they undoubtedly increased the acquiring firm's uncertainty and increased the likelihood that it would integrate the target using its own managers. Foreign acquirers that had significant international experience and had already made acquisitions in the United States were better able to reduce the negative effects of cultural differences. International experience enhanced their sensitivity to cultural differences and acquisition experience helped them build integration mechanisms that reduced integration problems and minimized the loss of key executives (Krug & Nigh, 1998).

Beyond the third year following the acquisition, executive departure rates in the domestic acquisitions returned to normal. In the foreign acquisitions, however, executive departure rates continued to rise at a higher rate than normal through the sixth year. These longer-term effects in the foreign acquisitions appear to have been the result of efforts to integrate the U.S. target with the acquirer's worldwide operations. During the first three years, foreign acquirers made greater efforts to retain junior executives that it believed could improve the integration process. Many junior executives were given higher status positions that encouraged them to stay. This explains why almost 40% of the executives who stayed after their firm was acquired by a foreign firm mentioned job satisfaction as their primary reason for staying. Many of these managers, however, were apparently replaced in later years. In the case of international joint ventures, incentives for remaining in the partnership diminish once knowledge is transferred from one partner to another, In the case of acquisitions, the retention of key executives may be a critical element in allowing the foreign acquirer to learn and transfer the acquired firm's tacit knowledge in the short-run. Once this knowledge is transferred, however, the incentives for retaining these executives decline, possibly triggering additional U.S. executive departures.


In this study, we found significant differences in the way executives perceived the positive and negative outcomes of an acquisition based on whether a foreign or domestic acquirer purchased their firm. Whereas the major effects of the domestic acquisitions occurred during the first three years after the acquisition, the major effects of the foreign acquisitions occurred over a six-year period. A more lengthy integration period, during which the acquired company was integrated with the foreign acquirer's worldwide operations, drove these long-term effects. On average, it took twice as long for the positive outcomes to show themselves in the foreign acquisitions. Executives who stayed over the long-term were best positioned to take advantage of these positive outcomes. Most executives, however, left shortly after the acquisition as both companies struggled to overcome cultural barriers and misunderstandings that hindered the integration process during the short-term. The more lengthy integration process in cross-border transactions helps to explain why foreign ownership intensifies executives' perceptions of both the positive and negative outcomes of an acquisition.

Our study revealed a number of issues of potential interest to executives involved in an acquisition. For executives in firms acquired by a foreign multinational, a large part of how they react to the acquisition is based on their perceptions of their job status within the new company. We found that foreign multinationals were more likely to terminate more executives than domestic acquirers to make room for their own executives. It was the target company's senior executives who were the first to leave. Those executives who stayed and had the most positive perceptions of the acquisition were most frequently junior executives (e.g., executives with the title of vice president) who mentioned greater job satisfaction and status as their primary reasons for staying. It was not titular status that mattered to these executives; rather, they viewed themselves as part of a bigger scheme that offered them greater opportunities for higher pay and advancement. They expected higher titular status to come later. These exe cutives believed that they played an important role in the new top management team, a role that was enhanced by the foreign company's s positive attitude toward them.

For companies making foreign acquisitions, the retention and cooperation of key executives in the acquired company plays an important role in supporting the integration process and making the acquisition work. It is particularly important to pay attention to how people are treated, because executives--especially senior executives--are strongly affected by how the acquirer treats fellow executives and employees. They have strong ties to their company's suppliers and customers, and to the community. They may have spent much of their lives building up the company and may have hired many of their employees. They are loath to see much of what they built torn down by outsiders that have little appreciation for the company's history and traditions. National culture differences intensify these feelings in cross-border acquisitions, because they increase misunderstandings and miscommunications. Successful acquisitions are in large part based on how the acquiring company approaches the integration process. Does the ac quirer show respect for the target company's employees, suppliers, and customers? Does it respect the company's history and traditions? Does it demonstrate a concern for the brand and the company's community? In our study, all of these issues had a significant effect on how U.S. executives viewed the acquisition and they heavily influenced the executive's decision to leave or stay.

Our study indicates several directions for future academic research on international mergers and acquisitions. We identified five reasons why executives choose to stay after an acquisition: job satisfaction, job status, job security, autonomy, and personal reasons. The executive's job status was of particular interest, since executives in the foreign acquisitions were more vocal about how they were treated during the integration process than were executives in the domestic acquisitions. The evidence in the literature and the results of our study, however, imply that we need a better way of measuring executive job status than mere titular status. A more accurate measure of job status would capture executives' overall impressions of their opportunities for greater pay and advancement, among other factors, in the new company.

Acquisitions create the greatest wealth when actual value is transferred between merging companies. Value transfer, however, leads to greater interactions among executives, heavier involvement of the parent company in the acquired company's affairs, and some autonomy loss for acquired company executives. Heavier involvement and autonomy loss, however, may not always motivate executives to leave in international acquisitions. Executives in our study often interpreted the positive and negative outcomes of the acquisition very differently, despite being exposed to the same phenomena. Many executives interpreted heavier involvement by the foreign parent as a positive outcome of the acquisition. It opened up additional opportunities to be exposed to more sophisticated global management systems and international experiences, and often offered opportunities for greater pay and advancement. A better predictor of executive perceptions in international acquisitions might be found by examining the nature of the acquire r's involvement. In some cases, heavier involvement leads to conflict, in other cases it leads to mutual appreciation and agreement over the long-term direction of the new company. The foreign multinational's approach to integration determines whether executives will view the acquisition as a positive or negative outcome. Researchers might look at the nature of the interactions between merging firms to determine the most reasonable path acquirers should follow in cross-border acquisitions.


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Survey Questions

1. Overall, I would characterize the merger as hostile.

2. Employee morale deteriorated when we learned we were going to merge with another company.

3. Some people felt fearful about their job security after the merger took place.

4. It was very stressful from the time we knew a merger would occur until it actually happened.

5. I considered looking for another job after I learned we were going to merge with another company.

6. Management in the acquiring company did not understand our company's culture.

7. When the merger took place, there were too many changes taking place too quickly.

8. I was familiar with the company we merged with when I first learned about the possible merger.

9. We were kept well informed about what was happening during the pre-merger process.

10. When the merger took place, the mission of the merged company was explained to me.

11. My job in the new merged company is (stayed)/was (left) more interesting and stimulating than my position prior to the merger.

12. My job in the new merged company is (stayed)/was (left) more enjoyable than the one I had in the old company.

13. Following the merger, my status was equal to or greater than in my former company.

14. After the merger I felt as committed to the merged company as I was to my former company.

15. The long-term effects of the merger for me personally, I believe, have been positive.

16. The merger resulted in better promotion opportunities for me (stayed). My career opportunities have been greater since I left my old company (left).

17. As a result of the merger we now have new systems.

18. We were given ample resources ($$, computer support, people) to facilitate changes after the merger.

19. The benefits plan of the new merged company is (stayed)/was (left) better than prior to the merger.

20. As a result of the merger I had to physically move to a new location.
              Discriminant Analysis of Executive Perceptions:
                     Probability that Executive Stayed
                                                             Std. Discrim.
                                                   Wilkes'     Function
Significant Perceptions                           Lambda [a]  Coeff. [b]
Interest in postacquisition job                      .806         .651
Job security                                         .736         .471
Perceptions of the personal long-term
benefits of the acquisition                          .674         .314
Opportunities for promotion after the acquisition    .691        -.344
Familiarity with acquirer at time of
acquisition announcement                             .706        -.306
Foreign versus domestic acquisition                  .660        -.251
Kept informed during merger process                  .647        -.243
Significant Perceptions                           Sign.
Interest in postacquisition job                   .000
Job security                                      .000
Perceptions of the personal long-term
benefits of the acquisition                       .011
Opportunities for promotion after the acquisition .015
Familiarity with acquirer at time of
acquisition announcement                          .001
Foreign versus domestic acquisition               .016
Kept informed during merger process               .023

(a.)Indicates that perceptions between stayers and leavers were significantly different. Numbers close to 1 indicated a high degree of commonality between the variable and disciminant function. Dependent variable 0' left, 1' stayed. Eigenvalue '0.546, canonical correlation '0.594.

(b.)Standardized coefficients indicated relative importance of discriminating perceptions in the final discriminant function or equation. A positive (negative) value indicated a greater probability that the executive stayed (left) after the acquisition.
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Article Details
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Author:Krug, Jeffrey A.; Nigh, Douglas
Publication:Journal of World Business
Article Type:Statistical Data Included
Geographic Code:1USA
Date:Mar 22, 2001
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