Allocation Processes in Mergers and Acquisitions: An Organizational Justice Perspective
| Published date | 01 March 2001 |
| Author | Christine Benedichte Meyer |
| DOI | http://doi.org/10.1111/1467-8551.00185 |
| Date | 01 March 2001 |
Introduction
The literature on mergers and acquisitions
reports high failure rates ranging from 50–80%
(Marks and Mirvis, 1986a). These financial
failures share several characteristics, among which
are high turnover, decreased productivity and low
morale (Citera and Rentsch, 1993; Marks and
Mirvis, 1985; 1986b). One important source of
these problems may be found in the way positions
and important functions such as head offices are
allocated and reallocated in mergers and acqui-
sitions (Citera and Rentsch, 1993). This paper
focuses on the trade-offs and constraints man-
agers face in the allocation of human and other
resources of symbolic importance.
In the merger and acquisition literature, allo-
cation processes have traditionally been viewed
from an efficiency perspective where the
managers’ main concern is to allocate positions
and important functions in order to maximize the
realization of synergies (Capron, Dussauge and
Mitchell, 1998). Some researchers in the field
have added to this perspective by suggesting that
mergers and acquisitions are highly political
processes in which managers strive for positions
(Buono and Bowditch, 1989). Although these
perspectives reflect important concerns, they
ignore the managers’ need to pay attention to
how organizational members react to the way
positions and main functions are allocated and
reallocated.
One perspective which explicitly addresses this
issue is the organizational justice perspective.
This is a perspective that provides insight into
how resources are allocated and how the
British Journal of Management, Vol. 12, 47–66 (2001)
© 2001 British Academy of Management
Allocation Processes in
Mergers and Acquisitions:
An Organizational Justice Perspective
Christine Benedichte Meyer
Department of Strategy and Management, Norwegian School of Economics and Business Administration,
Breiviken 2, 5035 Bergen-Sandviken, Norway
email: Christine.Meyer@nhh.no
This paper contributes to the understanding of allocation processes in mergers and
acquisitions by applying an organizational justice perspective. This is a perspective that
has been neglected in past research on mergers and acquisitions, but which is important
in understanding the challenges managers face in allocating human resources and other
resources of symbolic importance. In particular, the paper examines the trade-offs
between multiple goals in selecting distributive and procedural justice rules, and
identifies factors that constrain these choices. Mergers and acquisitions are typically
driven by multiple motives. The findings presented in this paper suggest that there are
different approaches to applying justice rules in mergers and acquisitions and that
these approaches have different implications for meeting multiple goals. The choice of
equity in combinations with fair procedural rules is an approach which complies with
the two goals of maximizing economic productivity and fostering relationships.
However, the choice of this approach rests upon an unbalanced power relationship and
relatively low ambiguity. When there is a high degree of ambiguity and a balanced
power relationship, management has to make trade-offs between maximizing economic
productivity and fostering relationships.
employees are likely to respond. Furthermore,
the literature provides a fruitful approach when it
comes to investigating the factors that influence
the choice of rules and procedures.
The objective of this paper is to apply the
organizational justice perspective to allocation
processes in mergers and acquisitions. The paper
is based upon an exploratory case study of two
mergers. These two mergers both took place in
the Norwegian financial industry, but they dif-
fered in their application of distributive and
procedural rules. Hence an important aim of this
paper is to try to explain why these mergers
differed, given the culture-bound Norwegian
context. In particular, I aim to (1) examine the
trade-offs between multiple goals in selecting
distributive and procedural justice rules, and
(2) identify factors that constrain these choices.
Literature on mergers and acquisitions
One important question in mergers and
acquisitions concerns the allocation of positions
and functions. The number of studies exploring
this issue in any detail is, however, rather small.
The literature seems to have been dominated by
staffing decision issues, though some research
(Buono, Bowditch and Lewis, 1985; Graves, 1981;
Ollie, 1994; Pedersen, 1991) focuses on other
merger-related issues in addition to logo, com-
pany name and location.
A few studies in the merger and acquisition
literature have discussed the difficulty of balan-
cing between different criteria such as power,
merit, equality and seniority. Marks and Mirvis
(1992) say that managers have a difficult job
weighing loyalty to their own people against
criteria such as merit and equality. However,
managers also need to balance between merit and
equality. On the one hand, equal distribution
provides learning and understanding, and it is
symbolic in the sense that it conveys to the
employees that members of both organizations
will be treated fairly and with respect (Schweiger,
Csiszar and Napier, 1994). On the other hand,
equality discriminates against merit and prolongs
the integration process (Schweiger, Ridley and
Martini, 1992). As for seniority (in terms of time
in the organization), this is a widely used criterion
because it is easy, safe (from a legal standpoint)
and quickly implemented (Serpa, 1988). However,
seniority does not treat the young performer
fairly and it is not necessarily in the best interest
of the shareholder.
Werhane (1988) views mergers and acquisitions
from an ethical perspective and suggests that the
reallocation and elimination of positions affects
the rights of employees. She argues that em-
ployees have the right to information that affects
their job, company or career and to participate in
decisions that affect their employment.
One factor that is expected to influence the
allocation of positions and functions is the power
differential (Halvorsen, 1984). Common indicators
of this power differential are relative size and
whether the combination is a merger or acqui-
sition (Haspeslaph and Jemison, 1991; Mirvis,
1985; Ollie, 1994). Moreover, research suggests
that the timing, criteria used and the outcome of
allocation decisions may lead to dysfunctional
individual outcomes (Fried et al., 1996; Ivancevich,
Schweiger and Power, 1987; Newman, 1993) and
influence the emerging culture in the combined
organization (Buono, Bowditch and Lewis, 1985;
Ollie, 1994). As mentioned in the introduction,
the merger and acquisition literature has
acknowledged that dysfunctional outcomes have
a negative impact on performance (Citera and
Rentsch, 1993).
Considering the amount of attention the
allocation of positions and functions receives in
‘real life’ mergers and acquisitions, there has been
surprisingly little research in this area. One reason
for this lack of research may be that it is difficult
to obtain access to the information needed to
study these kinds of often highly-political deci-
sions. Another reason may be a failure to
recognize the importance of this issue. The poten-
tial gain from borrowing from other fields to shed
light on allocation decisions has been largely neg-
lected (one exception is Hambrick and Cannella
(1993) who use relative deprivation theory).
Research studying allocation and reallocations
over time seems to be non-existent.
Organizational justice
Traditional discussions of organizational justice
have emphasized the role of distributive justice,
that is, the manner in which resources are
distributed and the responses to these distribu-
tions (Greenberg and Folger, 1983). Another
48 C. B. Meyer
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