7 Good leadership in mergers or acquisitions is about charisma, dynamics with employees, personality, context, and information processing

A merger or an acquisition is a prime example of organizational change, and there are different theories about what style of leadership is appropriate. Leaders need to tackle issues such as the fear that employees have about the unknown – fears that could lead employees to engage in withdrawal behaviours, lack of commitment, and deliberate reduction in productivity (Fried et al., 1996; Choi et al., 2011). There is also the risk that employees will resist the change by engaging in counterproductive behaviours that jeopardize the success of the merger or the acquisition (Empson, 2001; McEntire & Bentley, 1996; Apfelthaler et al., 2002; Quah & Young, 2005; van Dijk & van Dick, 2009; Teram, 2010; Jetten & Hutchinson, 2011). Some authors suggest that during the transition period preceding a merger or acquisition, employees feel a sense of loss and other negative emotions (Appelbaum, Gandell, Yortis, Proper, & Jobin, 2000; Levinson, 1976). Such evidence was discussed in Chapter 3, and it suggests that one role of leaders during mergers or acquisitions is to manage employees’ emotions – their fears, uncertainty, anger, and shock – in order to prevent these emotions from having a significant impact on employees’ performance, attitudes, and commitment to their jobs. This suggests that the style of leadership needed is one that considers the individual needs of employees, supports them through the change and devises strategies that will help mitigate the impact of the change on employees. There are multiple theories about leadership in organizational change and it is important to extrapolate the extent to which each theory can be applied as a “best practice” viewpoint on good leadership styles during mergers or acquisitions. The first theoretical perspective that we will discuss is the neo-charismatic perspective on leadership. In his seminal work on leadership, Kotter (1996) argued that organizational change demands a strong leader who is capable of championing a new vision in the organization and encouraging people to embrace the change. This view fits with Burns’ (1978) classic transformational and transactional leadership theory, which postulates that a transformational leader is someone who inspires and intellectually stimulates employees, harnessing their individual motives or talents, and inspires them by modelling ideal behaviour. Literature suggests that a radical change process, such as a merger or an acquisition, needs such leadership in order for the transformative plans of the organization to be successful (Beer & Nohria, 2000; Cartwright & Cooper, 1993; Appelbaum et al., 2000). That perspective explains how leaders can convince employees to back a proposed merger or acquisition and get on board with working towards the new organization’s goals, but a weakness of this theoretical perspective is that it does not sufficiently address the emotional needs of employees during a merger or acquisition. The second theoretical perspective that we are going to discuss focuses on the idea of a leader’s personality traits based on evidence that a leader’s personality traits correlate with their effectiveness in leading (Judge & Bono, 2000; Judge, Ilies, Bono, & Gerhard, 2002; Derue, Nahrgang, Wellman, & Humphrey, 2011; Bono & Judge, 2004). In Chapter 3 we discussed research showing that during a merger or acquisition, employees grapple with a sense of uncertainty about their future and other negative emotions, including fears and worries about how the merger or acquisition will change their job security, job role, and job satisfaction, suggesting that a leader needs to be emotionally intelligent, charismatic, and have a nuanced approach to interacting with individual employees. An advantage of the personality perspective is that it explains individual differences among leaders and it discusses both positive and negative personality traits, including narcissism and Machiavellianism. A disadvantage of the personality perspective is that it does not sufficiently address contextual factors such as the type of merger or acquisition, or the economic climate (see Chapters 1 and 2). The third theoretical perspective that we are going to discuss addresses both context (to some extent) and leader-employee interactions. Leader-member exchange theory postulates that leaders develop closer exchange relationships with certain followers, while with the rest, the relationship is based on formalized roles of authority and rules (Dansereau, Graen, & Haga, 1975; Graen & Cashman, 1975; Graen, 1976). An advantage of this perspective is that it acknowledges the complexity of leadership and the impact of interpersonal dynamics on a leader’s style. A disadvantage of this perspective is that it does not systematically address contextual issues (see Chapter 1) in a way that can help merging or acquiring/acquired organizations develop rules of thumb about what leaders should be doing. The fourth theoretical perspective that we are going to discuss is the informational processing approach to leadership (e.g. Lord & Hall, 2005). Mergers or acquisitions often involve many instances of processing information, making decisions, running consultations, and communicating information. Keeping employees properly informed about an organizational change process can help them cope better with the transformation and buy into the new organizational projects (Bridges, 1991; Appelbaum et al., 2000; Kotter, 1996). A leader who is good at information processing and decision-making could, as part of their leadership capabilities, be someone who helps manage employees’ uncertainties or fears by keeping them well informed, consulted, and sufficiently aware about how decisions are made. Such a leader could also help employees understand why the organizational change was necessary, and the advantages of the merger or acquisition in terms of projected financial benefits and job security. This theoretical perspective, therefore, has a number of advantages, such as offering organizations rules of thumb about best practice in mergers or acquisitions. A disadvantage of the perspective is that it does not sufficiently foresee “random” or “noise” variables such as motivation, group processes, leaders’ emotions or employees’ emotions, or behaviour. Leaders might have excellent information processing abilities but group processes (see Chapter 5), their own emotions (see Chapter 3), or being on the job market and planning to quit (see Chapter 4) could make them feel unmotivated to harness their information processing abilities at an optimum level. Psychological flaws within the organization’s knowledge management processes (see Chapter 8) can also limit the realism of the information processing approach to leadership during mergers or acquisitions. After our brief review of the main theoretical approaches to leadership, we will draw conclusions about what constitutes “best practice” in leadership during a merger or acquisition.

Should leaders in mergers and acquisitions be charismatic visionaries?

In Burns’ (1978) theory of leadership, a good leader has a vision and inspires other people to help them make that vision a reality. This style of leadership is called transformational leadership, and it involves acknowledging that employees are motivated by their own interests, desires, and goals, and therefore leading them requires harnessing those motivations through an individualised approach, including offering employees the right intellectual stimulation (Burns, 1978, 2007). One leader who embodies the transformational leadership style is Richard Branson (Niphadkar, 2017), who told Forbes that “If you love what you do and if you believe in what you do, others will share your enthusiasm.” When Branson was asked about his top three leadership principles, he said:

Branson’s emphasis on having a passion, a creative and energetic spirit, inspiring people, and trusting people to make his vision a reality suggests that he is a transformational leader. Branson was born in 1950 and, with only a secondary school education, he went from living as a squatter to launching a business selling music records, then progressed into growing a business empire by launching a large number of companies in many different industries (e.g. music retail, holidays, airlines, TV cable channel provision, alcohol, trains, space travel) under his brand the Virgin Group. Along the way, as well as starting many companies, Branson’s companies also acquired firms such as the Mastertronic Group in 1984 (which manufactures computer games products such as Sega consoles), the bank Northern Rock in 2012, and the airline FlyBe in 2019 (FlyBe, 2019). Branson was knighted, has an estimated net worth of nearly $4.6 billion and is said to be the sixth-richest person in the United Kingdom (Schawbel, 2014). Branson’s description of his leadership style in the interview with Forbes (Schawbel, 2014) suggests that he is a transformational leader who had the dream of spotting what the market lacked for consumers in terms of valuable products or services.

Branson’s emphasis on humour and laughter in leadership suggests that he is charismatic, thus embodying both Burns’ (1978, 2007) theory of leadership and other theories that can be called “neo-charismatic” theories of leadership (House, Spangler, & Woycke, 1991; Beyer, 1999). Although charisma appears to be the essential criterion of transformational leadership, there are five sub-components of transformational leadership according to the Multifactor Leadership Questionnaire (Bass & Avolio, 2000; Avolio & Bass, 2004). We present some examples of each sub-type and how they apply to a merger or an acquisition context:

1. 1 Inspirational motivational leadership: A leader with this style of transformational leadership talks about, and shows, their vision in a way that employees find inspiring. An example would be a CEO who clearly and positively explains the reasons for a merger that employees and shareholders feel sceptical about. The CEO vividly articulates a future picture of success in profits, the brand’s popularity with customers, the respectability of the brand for employees, and the company’s share value, thus transforming the scepticism into excitement and anticipation about the positive outcomes of the merger.
2. 2 Idealized attributed influence leadership: A leader with this style of transformational leadership is seen by employees as someone who genuinely cares, thus he or she inspires a sense of trust and employees feel emotionally close to him or her. An example would be a leader from an acquiring company who is asked to lead the employees of the acquired company. The leader understands the needs of all the employees and their fears. His or her sympathetic style persuades the employees to respect him or her and they are seen as a role model.
3. 3 Idealized influence behaviour leadership: A leader with this style of transformational leadership displays model behaviour; they behave in a way that shows what values they hold. An example is a manager in a company that is about to be acquired. The manager leads a team of employees who are loyal to their professional values, and they are shocked and angry about the acquisition because they are afraid of its impact on their freedom and their deep-rooted value system. The manager defends his or her team when necessary and communicates all necessary information about the acquisition (including information about uncertainty or risk) in a way that inspires employees on the team to feel that the manager is doing his or her best to protect the team’s professional values.
4. 4 Intellectual stimulation leadership: A leader with this style of transformational leadership interacts and speaks with employees on an intellectual level by debating with them analytically as part of reaching goals. An example is a merger involving a large well-known software company and a less-known, but reasonably successful, computer games company. The CEO of the software company is not convinced that the product development costs incurred by the computer games company are necessary or reasonable, but she has a style of leadership that involves being intellectually curious and is receptive to alternative arguments using logic and evidence. The CEO has meetings with managers and staff in the computer games company, asks many technical questions, engages in an intellectually meaningful debate, uses logic or evidence, and through these analytical, intellectually interesting meetings, the CEO concludes that the costs are reasonable and comparable to other companies in that industry. The CEO’s style impresses the managers and staff within the company that is about to be acquired, and they start to feel positive and receptive towards the acquisition.
5. 5 Individualized consideration leadership: A leader with this style is attentive to the things that individual employees find motivating or interesting, and he or she achieves the vision by inspiring employee to make the best use of their talents, motivations, or interests. An example is a supervisor who has been tasked with creating a cross-site team representing two manufacturing companies that are about to merge. Communication between the two sites has been previously difficult because of missed calls, unattended meetings, and unanswered emails caused by a mixture of stress-related staff absence and turnover after the merger was announced. The supervisor starts by having individual meetings with every employee possible, and he finds out what concerns, interests, and goals each employee has about their work and the merger. The supervisor finds that some employees are worried about being made redundant after the merger. He finds out that employees who are about to retire are worried about a hike in their company pension contributions after the merger. Other employees are worried that an innovative chemical process they have spent a year developing will be shelved after the merger, leading them to feel disappointed and demoralised. Other employees are worried that there will be a pay and promotion freeze after the merger. By finding out about their individual concerns or motives, the supervisor discovers what assurances are going to be the right ones for each employee as an individual. This approach inspires the employees to feel less stressed and less likely to look for another job, thus reducing absence and turnover and allowing progress with the cross-site team work.

Rowold (2005) found that all five sub-types of transformational leadership are positively correlated, with coefficients ranging from approximately 0.3 to 0.5 when leaders were rated by colleagues of a similar rank, or ranging from 0.35 to 0.7 when leaders were rated by colleagues of a lower rank. We do not have information about whether Richard Branson conveys all five sub-types of transformational leadership, or information about the impact of his style of leadership on the success of acquisitions by Virgin, but it is plausible that such a successful entrepreneur can make an acquisition successful. Aside from his leadership, it plausible that Branson’s personal drive, determination, and talent for spotting good business opportunities predict the success of his acquisitions as much as his style of leadership. Rather than delineating the indicators of leadership in the way that Bass and Avolio (2000) and Avolio and Bass (2004) do, some theorists conceptualise charismatic leadership more generally (House et al., 1991; Howell & Frost, 1989; House, 1977) because literature about transformational leadership and literature about charismatic leadership could broadly capture the same types of leaders (House & Podsakoff, 1994; Conger & Kanungo, 1998). Literature suggests that what matters is whether the leader is effective at inspiring employees to identify with and support his or her goals (Judge & Piccolo, 2004; Conger & Kanungo, 1998; DeGroot, Kiker, & Cross, 2000; Lowe, Kroeck, & Sivasubramaniam, 1996).

There are certain factors that can help a transformational leader be effective at motivating employees (Meindl, 1990). In theory, executives, managers, and supervisors with a transformational leadership style should inspire employees to accept and work towards supporting a merger or acquisition even if the employees were initially sceptical of the idea. Theoretically, the inspiration should happen when the leader charms employees into putting their trust in them, modelling positive behaviour such as being collaborative with staff from the partner organization, motivating employees to support the merger or acquisition by showing them how they can personally benefit (e.g. pay, promotion, doing work that harnesses their individual passions), and by leading discussions or activities about the merger or acquisition that the employees find intellectually stimulating. However, employees are unlikely to respond to the same leader in the same way, and therefore some employees are likely to end up more motivated about the merger or acquisition than others. For example, Shamir, House, and Arthur (1993) theorised that charismatic leaders do not produce the same effects or effects to the same extent among all employees because some factors facilitate or inhibit the influence of the leader on employees. It is plausible that the leader’s behaviour needs to appeal to the existing values and identities of the employees and be perceived as similar to them in their value and goals. A charismatic leader is unlikely to have the same impact inspiring an employee who perceives work as a means to an end as on an employee who perceives work or tasks as an end in itself (Goldthorpe, Lockwood, Bechhofer, & Platt, 1968). Similarly, transformational leadership might not be equally effective in all situations, states, or industries the organization is in or operates in if there is a clash in social, political, or ethical values.

The debate, however, is whether all leaders (e.g. chief executives, directors, managers, or supervisors) actually need to be transformational leaders during a merger or acquisition, and whether transformational leadership has a significant impact on outcomes such as employee performance, turnover, job satisfaction, or team harmony. The study of charisma in leader behaviour has gained a lot of attention (e.g. Dinh et al., 2014) and there is empirical support for the idea that transformational or charismatic leadership has a positive association with a range of organizational and employee performance indicators such as profit, employee absenteeism, and employees’ willingness to engage in continuous development (Rowold & Laukamp, 2009). Research has also found that transformational leaders may be associated with more positive organizational citizenship behaviours among employees and an ethical working climate (Zehir, Müceldili, Altindağ, Şehitoğlu, & Zehir, 2014). Other studies point to the positive relationship between charismatic leadership and positive work attitudes, job involvement, job satisfaction, and turnover intentions (de Hoogh et al., 2005; Cicero, 2007). On the other hand, leaders high on charisma may abuse their power over followers and have them discard any negative information (Conger, 1990). In terms of outcomes for mergers or acquisitions, in a review of 69 empirical studies in leadership in mergers and acquisitions, Junni and Sarala (2014) found that behaviours that fall under the transformational leadership category, such as providing employment security, showing empathy and caring towards employees, as well as having an open communication with them had a positive influence on variety of employee reactions and attitudes that are common in mergers and acquisitions (see Chapters 3, 4, 5 and 6). Employees are much more satisfied with their work and the organization after the merger and feel more positive about the impact of the change event (Covin, Kolenko, Sightler, & Tudor, 1997). They feel more motivated to work and are more committed to the organization and the job (Chipunza, Samuel, & Mariri, 2011). Also, they show increasing willingness to change (Hinduan, Wilson-Evered, Moss, & Scannell, 2009) and are more accepting of the change (Nemanich & Keller, 2007). A more positive approach to the merger or the acquisition reflects on their level of engagement and performance on the job (Nemanich & Vera, 2009). In fact, the organization performs better overall under a transformational leadership (Vasilaki, 2011; Babić, Savović, & Domanović, 2014). Therefore, by communicating the purposes, vision, and expectations to employees, providing challenges and attending to employees’ needs, transformational leadership in mergers and acquisitions can minimise the impact of uncertainty on employees’ attitudes towards the change. Employees are provided with the necessary resources to cope with the change while leaders ensure a climate of safety and self-expression. This is reflected in employees’ dedication and commitment to their work, and ultimately, in the success of the merger or the acquisition.

In short, we can surmise that good leadership during a merger or acquisition should most probably be transformational, especially in cases where employees are resistant to the organizational changes and a leader has the opportunity to directly inspire and motivate employees to support the goals of the merger or acquisition. However, leaders must be aware that transformational leadership will not have a uniform effect on all employees because of variation in employees’ work-related goals.

Should leaders in mergers and acquisitions be transactional?

Leaders in mergers or acquisitions might not need to be charismatic and inspirational if they do not have the power or the opportunity to have meaningful influence over employees. For example, a manager of a team in an organization that has formally agreed to axe that team as part of a merger might have little influence over the employees’ sense of feeling demoralised, upset, and uncommitted to their jobs. A department director in a company undergoing an acquisition who decided to go on the job market might intrinsically possess transformational leadership traits, but lack the time or incentive to behave like a transformational leader because they are planning on changing jobs. Therefore, the question is whether transformational leadership is always necessary or feasible in circumstances of mergers or acquisitions. Perhaps a leadership style that is focused on checking whether employees have completed their tasks is more realistic or useful. Burns (1978) conceptualised transformational leadership as something different from a style of leadership called transactional leadership, where the leader focuses on the exchange between himself or herself and followers (e.g. employee) based on a reciprocal relationship of the employee completing his or her job and the leader issuing rewards or penalties. Burns argued that a transactional leader strives to offer followers something they want but in exchange for something the leader wants (see also Kuhnert & Lewis, 1987). Burns (2007) argued that transactional leadership is like substituting one thing for another, whereas he conceptualised transformational style as a process that initiates changes in what something is. Transactional leaders are thus defined as people who explain what work needs to be done by an employee or what standards they need to meet, and when the employee meets these requirements, the leader compensates them (Bass, 1985, 1990), such as through praise, rewards (e.g. bonuses, promotion, time off, or a reduced workload). Burns (2007) argued that a leader can be transformational or transactional, but never both. However, evidence by Bass (1985) and others shows that the same leader can display both leadership styles, and that people with transformational leadership traits also tend to have transactional leadership traits. For instance, research asking employees or colleagues to rate a certain leader has shown that their ratings of his or transformational leadership traits tend to correlate with two types of transactional leadership traits (Rowold & Laukamp, 2009). According to the Multifactor Leadership Questionnaire (Bass & Avolio, 2000; Avolio & Bass, 2004), there are the three sub-types of transactional leadership. We present some examples of each sub-type from the merger or acquisition contexts:

1. 1 Contingent rewards leadership: A leader with this style of transactional leadership is someone who emphasises the task elements of a job, and he or she rewards employees who complete tasks and/or who complete tasks to the standard required. The leader thus makes an employee’s access to rewards such as positive feedback, a pay rise, or a promotion contingent on the employee fulfilling the task requirements. Imagine a manager in an organization that is being acquired, and the manager leads a team of IT staff required to combine the two organizations’ data management systems while also completing their regular job responsibilities. The manager sets an overtime pay scheme to reward those IT staff who work extra hours to complete the IT tasks relating to the acquisition.
2. 2 Active management by exception leadership: A leader with this style of transactional leadership is proactive in monitoring whether employees are completing the tasks they are required to complete and/or to the standard required. The leader looks to spot employees who are deviating from the task expectations (e.g. completing work on time or completing tasks using procedural rules) and punishes them, such as by negative feedback, a negative appraisal, performance management, or disciplinary processes. An example is a director of a company that is about to merge with another company. The director wants all employees to support the merger and he actively searches for signs of employees whose actions disrupt or obstruct the merger (e.g. being hostile towards, ignoring, or discriminating against staff from the merging partner organization). The director penalises such employees by giving them a formal warning.
3. 3 Passive management by exception leadership: A leader with this style of transactional leadership lets employees complete their tasks without monitoring them, then takes action against an employee only when he or she does not fulfil the task requirements. An example is a supervisor of a team of drivers in a logistics company that has just been acquired by another logistics company, and for whom new rules apply about aspects of their job. The supervisor does not actively look for evidence of whether or not drivers are complying with the new rules, but she intervenes when a problem occurs in an instance where a driver did not comply with the new rules set by the acquiring company.

Rowold (2005) found that leaders who use a contingent rewards approach tend to use an approach of active management by exception, with a correlation of 0.21 when rated by colleagues at a lower rank (but no significant correlation when rated by colleagues of a similar rank), whereas active management by exception and passive management by exception tend to be negatively correlated with coefficients between -0.34 and -0.22. The focus of transactional leadership in a merger or acquisition context would thus be on accomplishing the tasks at hand with the leader controlling which employees get rewarded or penalised. In terms of outcomes for mergers or acquisitions, transactional leadership is positively associated with job satisfaction and normative commitment to change (obligation to support change initiatives), and negatively with employees’ intentions to quit an organization (Hinduan et al., 2009). Transactional leadership may also help reduce job role ambiguity (Mackenzie, Podsakoff, & Rich, 2001), which can be a significant problem in mergers and acquisitions (Fried et al., 1996). By setting clear objectives and monitoring the performance of the employees, leaders with a transactional style clarify employees’ role and task requirements in exchange of rewards (Lo, Ramayah, Min, & Songan, 2010). Thus, in a merger or acquisition context, a transactional style can alleviate the employees’ anxiety (Rafferty & Restubog, 2010) and state of confusion (Lundbäck & Hörte, 2005). However, the orientation of transactional leaders towards achieving goals, meeting task requirements, ensuring employee performance and problem-solving can be to the detriment of inspiring emotional engagement among the employees, which can be a barrier to change (Beatty & Lee, 1992). Cultivating a sense of commitment or engagement among employees might thus require more than a task-focused leader (Shamir et al., 1993).

However, this is not to say that transactional leadership is not good leadership – it is. We suggest that leaders in mergers and acquisitions should embody both a transactional and transformational leadership style because they are not antagonistic leadership styles. The evidence that the same leader can be both a transactional leader and a transformational leader suggests that managers, supervisors, and other types of leaders during a merger or acquisition could adapt their leadership style to the demands of the situation. Bass (1985), Conger and Kanungo (1988), (Waldman, Bass, & Yammarino, 1988) and others suggest that a leader can complement their transactional leadership style with a transformational leadership style as a way of increasing the extent to which employees or other types of followers boost their effort and performance. This implies that an effective leader should focus on both exchanges of effort and rewards with employees, and also inspiring employees with charm and a vision that boosts their effort and performance (Waldman et al., 1988; Conger & Kanungo, 1988, 1987; Bycio, Hackett, & Allen, 1995). The augmentation effect has been validated in empirical studies, whereby transformational leadership did add beyond the effects of transactional leadership on a range of outcomes, such as follower satisfaction with the leader, follower motivation, leader job performance, and leader effectiveness (Judge & Piccolo, 2004).

Therefore, context is quite important in determining what counts as good leadership. Before we delve into the issue of context in more detail, let us consider an approach to leadership that resonates with the notion of transformational and transaction leadership, but differs in arguing that leaders vary their style from employee to employee, according to the relationships that they have with them. This is an approach that emphasises the importance of interpersonal contextual factors when it comes to deciding what counts as good leadership.

Leader-member exchange theory

Another dominant perspective in leadership research is the leader-member exchange (LMX) paradigm (Dinh et al., 2014). The theory, although identified more than 40 years ago, it is still of much interest to researchers, and together with the neo-charismatic, trait, and information processing theories, dominates much of the literature in the field. The main tenet of the leader-member exchange theory is that leaders develop closer exchange relationships with certain followers, while with the rest, the relationship is based on formalized roles of authority and rules (Dansereau et al., 1975; Graen & Cashman, 1975; Graen, 1976). Therefore, leaders vary their interactions with different followers, which determines the nature of the relationship. These relationships tend to develop early during the leader-follower exchange and to remain relatively stable over time (Graen & Cashman, 1975; Liden & Graen, 1980). The quality of these relationships is what determines the attitudes and behaviours of both leaders and followers (Gerstner & Day, 1997; Liden, Sparrowe, & Wayne, 1997).

In the initial theory formulation, the relationships between subordinates and leaders was classified into ingroup, which included relations based on trust and support, and outgroup, which referred to the relations largely based on formal rules and procedures and roles of authority (Dienesch & Liden, 1986; Graen, 1976). Later on, these discrete classification of relations between leaders and followers were eventually discarded and replaced by a continuous measure of quality (Graen & Scandura, 1987). As such, a high LMX relationship is characterized by trust (Brower, Schoorman, & Tan, 2000), interaction, and supportive behaviours that go beyond the confines of the normatively prescribed contract. By contrast, a low LMX relationship is characterized by attitudes and behaviours limited by the working arrangements, job tasks, and formal roles of subordinate and superior (Brower et al., 2000).

The leader-member exchange theory has found strong empirical support in the literature. A high-quality relationship between follower and leader, based on mutual trust and support, has been found to be linked to organizational performance and citizenship behaviours (Ilies, Nahrgang, & Morgeson, 2007). Previous meta-analysis on the outcomes of a high-quality leader-follower relationship (Gerstner & Day, 1997) found significant positive associations with satisfaction with supervision, overall satisfaction, organizational commitment, and role clarity. Authors found significant negative associations with role conflict and turnover intentions. Overall, they concluded that having a high LMX relation with one’s supervisor has a positive impact on the entire work experience, including performance and affective outcomes. Later meta-analytic evidence (Dulebohn, Bommer, Liden, Brouer, & Ferris, 2012) on the antecedents and outcomes of leader-member relations suggested that there are a range of factors that influence the quality of the interaction between subordinate and leader. Authors categorised the antecedents into follower characteristics, leader characteristics, and interpersonal relationships. Follower characteristics include affect-related variables such as positive/negative affectivity, trait-related factors (namely those discussed earlier in the Big Five Factor model), locus of control, and skill-related aspects. Leader characteristics include leadership style (transformational/contingent-reward behaviour), personality traits (extraversion and agreeableness), as well as supervisor’s expectations of the followers. The relationship characteristics found by Dulebohn et al. (2012) in their meta-analysis included perceived similarity, affect/liking, ingratiation (reported by supervisor and subordinate), self-promotion, assertiveness, and leader trust. The outcomes seem to confirm the previous similar analyses. A high-quality relationship between leader and follower is linked to lower turnover and turnover intentions, role ambiguity and role conflict, higher job performance, OCB, employee commitment, job satisfaction, justice perceptions, and empowerment.

Various issues arise in a merger process and the leaders may find themselves engulfed in problems and situations that need to be taken care of. Furthermore, most of the time, information is sterilized by the middle management when passed to the top management. It is thus important that leaders become aware and avoid the false sense of security (Vaara, 2001) and remain vigilant to any potential source of conflict or event that might require his or her intervention (Fulop et al., 2002). The management needs to establish a high-quality leader member exchange with the employees so that the working climate becomes one where employees trust each other and the management. Otherwise, a disinterested behaviour from the leader may easily backfire and crystallize into fiercer forms of resistance to change (e.g. voicing complaints in the media).

Building a high-quality exchange relationship with the employees is crucial in mergers and acquisitions. Employees fearful about the change may become disengaged and lose commitment or withdraw psychologically from their job (Fried et al., 1996). A relationship between the employee and the supervisor characterized by mutual support and trust helps maximize the employee’s resources to cope with the distressing work situation, thus reducing risk of employee turnover and turnover intentions, role job performance, satisfaction, and empowerment (Dulebohn et al., 2012). The leaders will thus be able to prevent the development of divisive relationships between groups and a working climate characterized by conflict (Barratt-Pugh et al., 2013). The relational skills are thus crucial for the success of post-merger integration, which may sometimes outweigh the managerial skills.

This perspective resonates with the idea of transactional and transformational leadership to some extent, but the main difference is that the latter perspective views leadership style as something that is fixed across different employees, whereas the leader-member-exchange approach views leadership style as something that can vary from one employee to another. Our view of the evidence is that there is not enough empirical evidence comparing these theoretical perspectives and providing a definitive conclusion about which theory of leadership is supported by real data across different organizations and contexts. Many studies tend to focus on one theory rather than test competing theories. What this leaves us with is the conclusion that different leadership styles exist, but we now ask when certain leadership styles are more appropriate than others. How can leaders in mergers or acquisitions who want to adapt their leadership style know what style is most appropriate?

Why leaders should adapt their style to the demands of the situation

Fiedler’s contingency theory of leadership posits that the effectiveness of a leader is a function of not just their style of leadership, but also the demands of the situation that they are leading (Fiedler, 1971). Although Fielder conceptualised leadership style in terms of whether someone is task-oriented (focused on getting employees to get the job done) or relationship-oriented (focused on having amiable interpersonal connections and rapport with employees) (Fiedler, 1967; Miner, 2005), his theory offers a vital emphasis on contextual factors. Leaders with one style or another perform differently in particular situations the organization is experiencing (Fiedler, 1971). Fielder defined the favourableness or unfavourableness of a situation in three ways. The first is the extent to which a leader has power or authority over employees, such as having a say in what happens, being able to reward or punish employees, and being able to have a meaningful influence. The second is the structure of the task, such as having clear rules, procedures, job designs, and defined end goals (e.g. revenue or profit rises) versus ambiguous processes or end goals. The third is the quality of the relationship between the leader and the employees, such as a situation where the latter are loyal, respectful, and receptive on one hand or rebellious, rejecting, and combative on the other. For instance, Fielder suggested that situations with high levels of authority accorded to leaders, strict rules and policies, and employees who are respectful and loyal to the leader can benefit from task-oriented leadership more than relationship-oriented leadership in terms of employees’ task performance (Fiedler, 1965). In contrast, in work situations where leaders have low authority, the rules or procedures are ambiguous, and the relationships between leaders and employees are poor, a leader who is relationship-oriented will produce higher group performance (see Fiedler, 1965 for a detailed description of the different categories). These types proposed by Fiedler are also called “octants,” as a depiction of author’s graphical representation of the taxonomy as a cube (Fiedler, 1965, 1971).

Contextual factors are important in mergers and acquisitions because they are not all the same. Sitkin and Pablo (2004) suggested that in mergers and acquisitions, a leadership style that encompasses personal, relational, contextual, and charismatic attributes can stimulate commitment, confidence, and comfort for employees, but this suggests a mixture of the different leadership styles that we have discussed. Sitkin and Pablo (2004, 2005) argue that mergers and acquisitions require a sense of personal leadership or the ability to convey a personal vision, emotions, and beliefs, which ultimately helps in building credibility among employees. This implies that leader-member exchange theory is applicable in organizations that have experienced mergers or acquisitions in the sense that individual relationships with employees matter, but it also suggests that transformational leadership is the most appropriate leadership style because it involves inspiring employees to support a vision. A review by Junni and Sarala (2014) suggested that different leadership styles have a variety of psychological effects on employees. Transformational leadership is associated employee reactions, integration, and the performance of a merger or acquisition (Chipunza et al., 2011; Schweizer & Patzelt, 2012; Nemanich & Vera, 2009). In contrast, a high-quality leader-member exchange relationship appears to encourage supportive rather than resistant employee behaviours given that relational, contextual, supportive, and stewardship leadership had a positive impact on the success that organizations have at achieving integration after a merger or acquisition (Schweizer & Patzelt, 2012)

Likewise, transactional leadership might be the best style in certain circumstances after a merger or acquisition, or you might even want to conceptualise a leadership style in the way that Fiedler did, which is in terms of how focused a leader is on relationships with employees and how focused they are on getting employees to do their jobs. Many of these leadership styles are unlikely to be mutually exclusive, which means that managers and other types of leaders are capable of adapting their style to suit the demands of a particular employee or group of employees. Other contextual factors include those within the wider global or national context in cross-border mergers and acquisitions (Aguilera & Dencker, 2004; Krug & Nigh, 2001; Goulet & Schweiger, 2006), as well as the broader organizational context (Stahl, Chua, & Pablo, 2012). National culture can determine norms about leaders’ power and employees’ tolerance for dominant leadership or leadership promulgating uncertainty (Hofstede, 1991) and their responses to mergers or acquisitions (Goulet & Schweiger, 2006; Stahl et al., 2012, and Chapter 6). National culture can also determine norms, laws, or regulations about employee relations, such as the presence or power of unions, and therefore a tailored approach is needed by leaders in cross-border mergers or acquisitions (Angwin, 2001). (Goulet & Schweiger, 2006).

It seems to be common in mergers and acquisitions for the management to be enthusiastic about combining the partner organizations (Choi et al., 2011), therefore leaders can play an important role in helping employees support the organization’s goals. Nonetheless, a word of caution is needed in viewing leadership as a panacea for the problems likely to face organizations after a merger or acquisition Choi et al.’s (2011). Evidence suggests that as time goes by after the merger or acquisition, leaders can lose their initial enthusiasm and remain passive and fairly invisible. The study suggested that they withdrew from work and the organization, and were waiting out the changes to be enacted at a middle-management level or leaving the employees on their own to cope with the organizational changes without providing any form of support. This raises the question of whether transformational and transactional leadership relating to a merger or acquisition’s goals is at risk of ebbing away after the organizational change, and fizzling into laissez-faire leadership. According to the Multifactor Leadership Questionnaire (Bass & Avolio, 2000; Avolio & Bass, 2004), laissez-faire leadership is a third possible type of leadership that is comprised of avoiding telling employees what to do, making decisions about their work, not getting involved in setting their goals, and not punishing or rewarding them for their performance. An example is a chief financial officer in an acquired organization who does not get involved when his or her team comes for guidance regarding the implementation of new accounting systems following the acquisition, and does not offer support in mediating conflicts or relationships between employees in the two partner organizations.

To summarise, good leadership during or after a merger or acquisition can be one or more of several leadership styles, such as transactional versus transformational leadership, and good leadership can also involve personalising the style to individual employees or depending on the demands of the situation. Good leadership can also be conceptualised in terms of how focused leaders are on getting employees to complete tasks that they need to complete versus focusing on having rapport with employees which, again, should be tailored towards the demands of the situation. Each leadership style can be good, depending on the context. Next, having discussed perspectives about leadership that consider a leader’s style, we will discuss perspectives on leadership that consider a leader’s personality.

Is a leader’s personality important in mergers and acquisitions?

Some theoretical perspectives emphasise a leader’s personality traits as an important correlate of his or her success in emerging as a leader and leading effectively (Judge & Bono, 2000; Judge et al., 2002; Derue et al., 2011; Bono & Judge, 2004). One of the major theories about personality, the Big Five theory, postulates that people have some level of five personality traits – extraversion, conscientiousness, agreeableness, openness to experience, and neuroticism (Costa & McCrae, 1992; McCrae & Costa, 1994). Extroversion involves being sociable and preferring to spend time with other people. Conscientiousness involves being honest, well-organised, disciplined, and fulfilling one’s duties or responsibilities to a high standard. Agreeableness involves avoiding conflict or debates with other people. Openness to experience involves being adventurous, inventive, and curious, such as seeking exciting new activities and being creative. Neuroticism involves being anxious about a lot of things, having a tendency to easily experience negative emotions, and being emotional unstable. Judge, Ilies, et al. (2002) found that extraversion is a personality trait that correlates positively with the likelihood of someone emerging as a leader and in being an effective leader. Extraversion helps the quality of behaviour and interactions in group settings, and it helps people be successful at persuading or motivating other people. Another personality trait that the study found to correlate positively with both leadership emergence and effectiveness was openness to experience, whereas conscientiousness was only positively related to leadership emergence, and agreeableness was negatively associated with leadership emergence.

However, Hogan and Kaiser (2005) argue that the Big Five model of personality only captures positive human personality traits which, in work settings, could be manifest during circumstances where people want to make a positive impression, such as in a job interview, whereas there may be personality traits that people have when they are not impression managing their behaviour. In their review of the trait leadership perspective, Judge, Piccolo, and Kosalka (2009) suggested that there is a “bright” and a “dark” side of each personality trait. They suggested that the following are bright personality traits because they represent socially desirable attitudes or behaviours with positive social consequences: conscientiousness, extraversion, agreeableness, emotional stability, openness to experience, and traits represented by other personality perspectives such as core self-evaluations. This trait captures the fundamental evaluations people hold of themselves. The dispositional traits encompassed by the core self-evaluations construct are self-esteem, internal locus of control, generalized self-efficacy, and neuroticism (Judge & Bono, 2000; Resick, Whitman, Weingarden, & Hiller, 2009). Leaders high on core self-evaluations may cultivate a climate of fair and just exchanges between effort and rewards, and are more willing to consider the individual needs of the employees. On the other hand, a very high core self-evaluation is equivalent to very positive self-appraisals, and consequently to narcissism and hubris. In certain situations, they may optimistically pursue projects based on the generalized conviction of enhanced management capabilities. Although the personality traits that we have discussed so far could be generally positive in organizations and for leaders (Judge et al., 2009), it is plausible that they require certain contexts. For example, a highly conscientious leader could be very effective in an organization that values procedures, conventions, and prescribed norms. The same leader in an organization that is volatile might be less effective than another type of leader in being indecisive or resisting change (LePine, Colquitt, & Erez, 2000), even when urgent decisions are needed (Hogan & Hogan, 2001). In a merger or acquisition, a conscientious leader might remain effective only within the confines of prescribed rules and regulations, but less so if there is chaos or uncertainty about rules. Likewise, extraversion is a common trait among leaders (Judge, Ilies, et al., 2002; Stogdill, 1948) and it is associated with positive employee outcomes (Judge et al., 2002; Judge, Erez, et al., 2002). However, leaders high on extraversion are also prone to hold inflated views of themselves and of their capabilities (Hogan & Hogan, 2001). As such, they may be motivated to engage in large-scale projects (Beauducel, Brocke, & Leue, 2006) including mergers or acquisitions, but with a sense of overconfidence that lacks due consideration to all aspects (Oancea & Kamau, 2015). This implies that each personality trait has a “good” and “bad” side. Table 7.1 provides a summary that helps you understand what this means.

Therefore, no single personality trait is entirely good or entirely bad. The impact of a leader’s personality trait on employees within organizations experiencing a merger or acquisition will thus depend on a variety of factors, including a leader’s overall personality. Furthermore, we caution against placing leaders on a pedestal because, in reality, the impact of one given manager or executive within an organization can be limited, especially in large organizations where they rely on the people they manage, or on the people managed by the people they manage. We thus conclude that a leader’s personality is important, but only one of many factors relevant to effective leadership in mergers and acquisitions. We also highlight the fact that perspectives about personality (Table 7.1) do not capture everything that can be said about a leader’s personality. We will look at additional perspectives next.

More about “dark” personality traits

Dispositional traits that are socially undesirable and have negative implications in social circumstances are commonly referred to as dark traits (Judge, Ilies, et al., 2002; Judge et al., 2009). These include: narcissism, hubris, social dominance, and Machiavellianism. The bright and dark sides of dark traits are summarized in Table 7.2. Narcissism is a relatively stable dispositional trait which is characterized by perception of grandiosity, inflated self-appraisals, and self-love (Campbell, Brunell, & Finkel, 2006; Campbell, Hoffman, Campbell, & Marchisio, 2011). People with a narcissistic trait, exhibit a strong desire for power and high self-esteem. They tend to engage in actions meant to attract others’ attention and admiration. They do not display empathy towards others and display manipulative or exploitative tendencies. However, there are situations where a narcissistic leader (in being charismatic) may be beneficial for leadership and group effectiveness (Rosenthal & Pittinsky, 2006). Motivated by the desire to attract attention and be looked upon by followers, narcissistic leaders are likely to engage in more innovative endeavours, such as corporate acquisitions (Chatterjee & Hambrick, 2007).

Hubris refers to an individual’s excessive self-esteem based on overly positive evaluations of themselves and inflated self-appraisals of their capabilities (Blais et al., 2008). Hubristic leaders grossly overestimate their abilities and competences, and underestimate the resources needed for organizational success. They tend to be dismissive of others’ opinions, as they are convinced no one has a better understanding of the problem than he or she does (Hotchkiss, 2002). The hubris hypothesis posits that in mergers or acquisitions, CEOs are overconfident in their abilities to capture value from the merger, and thus engage in combinations that actually destroy value (Roll, 1986; Hayward & Hambrick, 1997). Hubris-infected managers, acting on fabricated compatibility between the two organizations and inflated evaluations of their capabilities, systematically pursue the objectives of the merger which may contribute to short-term gain but not necessarily sizable gains over the long run. On the other hand, hubristic leaders are likely to maintain their perceptions of self-worth even in challenging situations. They manage to inspire confidence and provide a sense of security for the followers. They are quick to make decisions and engage in innovative ventures (Baumeister, Campbell, Krueger, & Vohs, 2003; Hayward, Shepherd, & Griffin, 2006; Haynes, Hitt, & Campbell, 2015).

One of the most common types of personality that is studied in research about mergers and acquisitions is managerial hubris (Roll, 1986; Hayward & Hambrick, 1997; Alexandridis, Fuller, Terhaar, & Travlos, 2013). Hubristic leaders might be overconfident in their abilities to capture value from a merger or acquisition, they might have inflated expectations about what can be gained, and they may help short-term gains but not necessarily sizable gains for the organizations in the long term (Hodgkinson & Partington, 2008). There are several hypotheses about what causes and correlates with hubristic personalities. Some suggest that past success encourages leaders to formulate higher goals for themselves, and thus hubris (Oancea & Kamau, 2015; Bandura, 1977). In other words, past success can help leaders learn to be overconfident (Billet & Qian, 2008; Zollo, 2009; Doukas & Petmezas, 2007). It is also possible that hubristic leaders can behave in a risky manner because they are anxious to succeed and they may therefore respond to signs that their plans are failing by engaging in risky corrective measures (Campion & Lord, 1982; Hollenbeck, Williams, & Klein, 1989; Oancea & Kamau, 2015; Nadolska & Barkema, 2014; Choi et al., 2011). Thirdly, they may perceive an otherwise unstable environment as highly controllable (Bandura & Wood, 1989; Vaara et al., 2014) and they might fail to engage in effective self-regulation by pursuing certain goals, even when evidence suggests that the goals are not going to succeed (Zimmerman, 2013; Oancea & Kamau, 2015). Aside from hubris, there is a lack of sufficient research about the impact of many other “dark” personality traits on employees within organizations experiencing mergers and acquisitions. Therefore, we encourage further research about narcissism, Machiavellianism, and social dominance orientation within organizations that are about to merge or acquire/be acquired.

You will notice that the previous theories about leadership style and leaders’ personality traits focus on what we can call general dispositional trends, but what about a leader’s competence with job-related knowledge and tasks such as processing information or making decisions? We will discuss this next.

Information processing theories about leadership

There is scepticism about the deterministic view of perspectives that focus on fixed traits (Mumford, Zaccaro, Harding, Jacobs, & Fleishman, 2000), such as a leader’s style or their personality. Leadership is a function of unique characteristics, such as feelings, thought patterns, and behaviour (Funder, 2001; Allport, 1961; Feist & Feist, 2009), but these might be characteristics that leaders could learn even if they do not have the “natural” disposition towards them. The information processing approach to leadership argues that good leadership is a complex mix of behavioural, cognitive, and social skills that can be developed over time (Zaccaro & Klimoski, 2001). These skills, according to the information processing paradigm, can be learned with experience or through observations and integration of what is learnt into cognitive systems that govern a person’s behaviour, thoughts, and social experiences (Lord & Hall, 2005). Good leadership is, in this perspective, a matter of how competent a leader is at knowing the work (e.g. knowing about engineering while leading an engineering company), how competent the leader is at accessing and using their knowledge, and how much a leader can be considered an expert within the field. In order for leaders to progress from being novices to experts, Lord and Hall (2005) proposed that they need to rely less on processing knowledge from working-memory (a type of short-term memory within the brain that focuses on the immediate tasks at hand) and more on processing knowledge in a way that taps into broader memory, thus allowing more complex problem-solving and collaborative work with employees. In other words, the perspective suggests that leaders who are novices use a system of knowledge that focuses on surface-level or immediately apparent problems, whereas leaders who are experts have achieved a sense of connecting patterns among the different problems that they have ever encountered (or pattern learning with time), and this helps them better lead a variety of situations and employees. Expert leaders are thus quicker in identifying solutions to various problems without resorting to general heuristics or rules of thumb about superficially similar situations (Patel & Groen, 1991). They can tend to store and retrieve knowledge unconsciously (Hanges, Lord, & Dickson, 2000; Smith, 1996; Newell, 1990).

The information processing approach includes the dual-system processing perspective proposed by Smith and deCoster (2000), which implies that novice leaders engage in rule-based processing by using knowledge that is case-based, and thus it is a slow and effortful process for such leaders to use new information and process unfamiliar problems. On the other hand, there is the associative processing mode, which is based on connectionist memories (Smith and deCoster 2000) and this tallies with previous conceptualisations about expert leadership. In simplistic terms, over years of experience, individuals develop associations between information or stimuli, and this can explain why expert leaders may be better at solving problems in a wide variety of situations. Some authors suggest that such leaders develop automatic thinking in the sense that, even in the presence of one stimulus or a few stimulus, they are able to access other relevant information and use it based on intuition that the association most probably holds true in the new context (Smith & deCoster, 1998). This suggests that expert leaders have information processing networks within their brain that help them interpret new or unfamiliar stimuli, determine the causes or solutions to problems, and develop new goals because they are able to generalise knowledge from previous experiences (Martinko, Harvey, & Douglas, 2007). Think, for example, of a taxi driver. At first, he or she may not be familiar with all the routes or streets in a big city, or how house numbering works in some areas. He or she might not use shortcuts and lack familiarity with alternative routes, therefore they may prefer to take routes they know well. But as he or she begins to drive the streets frequently, consciously choosing landmarks for guidance in the city like buildings or other such points of interests, he or she becomes proficient at manoeuvring around. The driver may become so adept at it that he or she may not ultimately need any GPS assistance to complete a ride. They automatically build on the knowledge they have accumulated, make connections between landmarks and destinations, know when to avoid particularly congested areas, and take different routes in certain time intervals. This allows them to perform their jobs faster and with less effort than novices. The same goes for leaders. They build knowledge, associations, and connections between various facts and events, and then, as they are exposed to various situations, they put this knowledge to use by searching for similar situations and contingencies they have already experienced and managed in the past. As know-how reaches some form of maturity, leaders can develop the necessary skills to perform their jobs.

Therefore, good leaders in mergers in acquisitions could be those who are competent experts within the domain concerned (e.g. a manager within an oil services company that is competent at oil service analytics). They may also be leaders who are able to develop across time in identity terms, such that their identity as a leader becomes a part of their sense of self (Lord & Hall, 2005). Lord and Brown (2004) distinguish between individual and collective identities and, building on Chapter 5, it is plausible that leaders who are more experienced in leadership become more oriented towards the employees they lead (Hogg, 2001; see Chapter 4). In mergers and acquisition, leaders may, with time, learn how to manage effectively, and there is thus scope for leaders to change from being novices to experts. Poor prior experience with a merger or acquisition can correspond with low organizational performance after the merger or the acquisition (Ellis, Reus, Lamont, & Ranft, 2011). Prior experience can also increase the likelihood that a prospective merger or acquisition will actually complete its intended transactions (Muehlfeld, Sahib, & Van Witteloostuijn, 2012). In terms of pricing and target valuation during the bidding process, leaders seem to learn as experience accumulates, and gradually converge to a more accurate assessment of the real value of the target firm (Aktas, de Bodt, & Roll, 2009, 2011). Similarly, after a merger or acquisition, during the integration stage, more experience can help intercultural learning and performance (Dikova & Rao Sahib, 2013).

In summary, the idea that leaders have fixed styles or personalities is not set in stone, and nor is it the case that what matters is only what a leader’s style or personality is. It is also important to consider a leader’s competence within the domain of knowledge or expertise that is the focus of the employees they manage, as well as a leader’s accumulation of experience at leading. This section shows that leadership can mature with experience.

Conclusions

In this chapter, we have addressed the topic of leadership in mergers and acquisitions. We reviewed dominant theories about the psychology of leadership and we discussed how to apply these theories in understanding what counts as good leadership in mergers and acquisitions. We discussed transformational and transactional leadership styles, and their implications for employees and organizations that are experiencing mergers and acquisitions. We discussed related approaches that conceptualise leadership in terms of style, while also conceptualising leadership in terms of context, such as the leader-member exchange theory and contingency theory of leadership. We then discussed theories about how the personality of a leader is relevant to their work as a leader, and we evaluated the so-called dark and bright sides of various personality traits, including considering how they can help or be a hindrance in mergers or acquisitions. We discussed personality in terms of standard perspectives such as the Big Five theory (e.g. extraversion, agreeableness, openness to experience) and also in terms of perspectives focusing on “pathological” personality traits such as narcissism, hubris, and Machiavellianism. We discussed evidence that even these “bad” traits can have advantages as well as disadvantages. We then discussed information processing approaches comparing novice and expert leaders, and discussing why experience helps leaders transition from using knowledge or expertise in a simple, case-by-case way, to using it in a more generalizable manner that allows more complex problem-solving with employees. This raises the question of how relevant expertise among all employees (not just managers) is to the success of mergers and acquisitions, and therefore how important organizational learning among employees is, which Chapter 8 will discuss.