Using CEO Succession to Integrate Acquired Organizations: A Contingency Analysis

Related acquisition involves the purchase and consolidation of firms in the same or related product markets (Ansoff and Weston, 1962; Chatterjee, 1992; Datta, 1991; Datta and Grant, 1990; Harrison et al., 1991). Research has shown that about half of related acquisition activities fail to achieve expected economic and synergistic benefits (Fairburn and Geroski, 1989). Such failures have been attributed to the inability to effectively integrate newly acquired organizations (Cartwright and Cooper, 1993). Although there is a growing interest in post-acquisition integration, our understanding of how integration is actually pursued remains limited. This study provides an empirical test of the relationship between related acquisition and one such integration strategy – CEO succession in acquired firms. We maintain that the probability of CEO succession is high when all or a majority share of an organization’s assets are acquired (through purchase, exchange or gift) by a suitor company. In such a situation, the acquirer may encourage CEO succession as an integrative mechanism to introduce its values, strategic priorities and operational procedures into the new subsidiary. However, it is unlikely that CEO succession will occur in all acquired firms; there may be conditions under which retaining the acquired CEO may facilitate the goals of related acquisition (e.g. the CEO’s knowledge of the acquired firm may be needed during the integration phase of acquisition). In this study, we focus on two organizational conditions that may moderate the relationship between related acquisition and CEO succession: the need for integrative action and power of the acquired organization. These arguments are explicated in a theoretical model and tested with longitudinal panel data on all US community hospitals from 1980 to 1988. The study enhances understanding of postacquisition CEO succession in three respects. First, British Journal of Management, Vol. 9, 181–197 (1998)