The Impact of Prior Performance on Leadership Appointment in a Merger of Equals

Leadership appointment during mergers has a logical and established precedent when there is a clear target and acquirer. However, in the extraordinary case of Merger Of Equals (MOEs) – where this is relatively equal ownership, board representation, earnings contribution etc this process is much less defined and can often have serious consequences on the merger, both in closing negotiations as well as post-merger performance. Intuition assumes the better performing CEO should and will be appointed. In practice, however, that is often not the case. It is arguable that performance can be defined through objective means (financially & operationally), yet CEO appointment usually is resolved through political negotiations and financial concessions. Building upon previous studies of mergers and employing public information and reported financial data in multivariate statistical analyses, this study examines two research questions pertinent to MOE leadership appointment. First – is prior performance of merger CEOs a significant predictor for leadership selection in MOEs, and second what metrics of past performance by merger CEOs, if any, are significantly correlated with short-term financial and operational success of the merged company? Determining whether or not a relationship exists between past performance and leadership selection, as well as post-merger success can have significant influence on the leadership appointment process for Mergers of Equals.