Brain drain: why top management bolts after M&As

Purpose – This paper aims to analyzes merger, firm, and country characteristics that may explain the root causes of long‐term executive instability in target company top management teams. Design/methodology/approach – Mergers involve two different groups of executives – executives in place at the time of the acquisition (“incumbents”) and those brought into the target after the acquisition (“new‐hires”). In order to understand why many target companies experience long‐term instability in their top management teams, patterns of turnover in these two distinct groups were analyzed over a 17‐year period in 730 target companies. Findings – Analysis of the data revealed that a range of factors create conditions in target companies that lead to prolonged leadership instability. Different deal types such as tender offers, hostile takeovers, divestitures, and leveraged buyouts, the nature of merger negotiations, growth and profitability of the target company, headquarters location of the acquirer–whether foreign or domestic, and foreign investment experience of the acquirer all lead to significantly higher turnover rates for both incumbent and new‐hire executives. These effects may continue for ten or more years after the acquisition. Practical implications – Acquisitions create instability within target company top management teams. This instability can be traced back to conditions that existed at the time of the merger. Organizations involved in mergers and acquisitions (M&As) might leverage these new insights to more effectively deal with leadership issues early in the post‐merger integration process. This may be an important first step in reestablishing long‐term leadership continuity in acquired firms. Originality/value – This research is the first to provide insight into the root causes of long‐term leadership instability in target companies. It is also the first to examine the effects of M&As on executives who join a company several years after its acquisition. Future research by the author will report on the relationship between leadership stability and long‐term performance in target companies. A deeper understanding of this relationship may provide new insights into why so many M&As fail.