The effect of leadership style on talent retention

The effect of leadership style on talent retention during Merger and
Acquisition integration: evidence from China
Jiali Zhanga
, Mohammad Faisal Ahammada
*, Shlomo Tarbab
, Cary L. Cooperc
,
Keith W. Glaisterd and Jinmin Wange
a
Nottingham Business School, Nottingham Trent University, Nottingham, UK; b
Management School,
University of Sheffield, Sheffield, UK; c
The Management School, Lancaster University, Bailrigg,
UK; d
Warwick Business School, University of Warwick, Warwick, UK; e
Nottingham University
Business School, University of Nottingham, Nottingham, UK
Leadership and talent retention are critical HR-related components in post-merger and
acquisition (M&A) integration, but the extent to which these factors interact with each
other and eventually contribute to the success of post-M&A integration is underexplored. The present study investigates the effect of leadership styles on talent
retention strategies and on the effectiveness of post-M&A integration in a Chinese
context. Based on in-depth examination of an M&A case study, we propose that an
authoritative, coaching, task-focused and relationship-focused approach has a positive
influence on talent retention and effective post-M&A integration in a Chinese context.
As far as talent retention strategies are concerned, authoritative leaders use
communication, whereas leaders adopting a coaching style use an incentive structure
to positively influence talent retention. Furthermore, task-focused leaders use position
and performance in order to identify and retain talented employees. By contrast,
relationship-focused leaders emphasize the guanxi network, communication and an
incentive structure in their strategies of talent retention.
Keywords: human resource management; leadership styles; post-merger integration;
talent retention
Introduction
In the past two decades, cross-border mergers and acquisitions (M&A) activity has
increased significantly in emerging markets (Cooke 2006; Chen and Young 2010; Cooke,
Wood, Psychogios and Szamosi 2011). M&As involving Chinese enterprises have
increased in both deal numbers and value. For example, statistics provided by Thomson
Reuters show that over 3000 M&A transactions involving Chinese enterprises, with a
combined value of USD 131.1 billion, were reported in 2010. Among these deals, crossborder transactions amounted to USD 80.7 billion, a 21.2% increase over the amount of
USD 63.6 billion recorded in 2009.
Despite the crisis in the global financial markets, M&A activity has increased in every
sector across the globe (BCG 2010). The growth in M&A activity, the volume of capital
involved and the popularity of M&As stand in sharp contrast to their high rate of failure
(Schweiger and Lippert 2005; Weber, Tarba and Reichel 2009, 2011). Regarding China,
Budden (2007) found that about 75% of M&As by multinational enterprises create no value or
less valuethan expected, and only about 25% ofM&As producedthe expected growthin China.
Rather strikingly, one of the enduring paradoxes in M&A activity has been the
propensity of corporations and executives to engage in M&As despite consistent evidence
q 2014 Taylor & Francis
*Corresponding author. Email: [email protected]
The International Journal of Human Resource Management, 2015
Vol. 26, No. 7, 10211050, http://dx.doi.org/10.1080/09585192.2014.908316
that post-merger performance of acquiring firms is disappointing. For example, in 2011,
global M&A activity shattered previous years deal volume records, and recent surveys
reveal that despite the financial market crisis, executives remain upbeat about their M&A
plans around the world (Bloomberg 2012; Deloitte 2012). A possible explanation to this
paradox is that existing knowledge on M&As provides a limited and insufficient
understanding of different parts of this important phenomenon. For instance, it is possible
that top executives might perceive an M&A as an important step for corporate growth at
the pre-merger stage, but poorly implemented during the post-merger process (Weber,
Tarba and Oberg 2014). However despite their popularity, M&As remain poorly
understood and poorly executed (Gomes, Weber, Brown and Tarba 2011).
Earlier studies have attempted to explain the performance of M&As, but a review
of the relevant literature in different research areas such as strategic management,
international management, finance and organizational behavior reveals that findings are
inconsistent. For example, meta-analytic studies that examined the most frequently used
variables in recent research were not able to establish clear predictors for M&A success or
failure (Stahl and Voigt 2008; Haleblian, Devers, McNamara, Carpenter and Davison
2009). One meta-analysis found that none of the strategic and financial variables studied
are significant in explaining the variance in post-acquisition performance, and suggested
that future research pay more attention to non-financial variables (King, Dalton, Daily and
Covin 2004). The difficulty in making M&As succeed has been traced to inadequate
strategic rationale and lack of pre-acquisition evaluation, as well as to the inappropriate
management of the post-acquisition integration (Almor, Tarba and Benjamini 2009;
Weber, Tarba and Reichel 2009, 2011; Ahammad and Glaister 2011; Weber, Tarba and
Rozen-Bachar 2011).
It is well recognized that the post-M&A integration process is one of the critical factors
affecting the success of M&As (Sitkin and Pablo 2005a; Nemanich and Keller 2007;
Vasilaki 2011a, b). Successful post-M&A integration depends on a sound leadership style
that enables organizational and cultural adaptation as well as alignment of expectations
between the amalgamating entities (Sitkin and Pablo 2005b; Waldman and Javidan 2009;
Gomes, Cohen and Mellahi 2011).
Regardless of where the cross-border M&As take place, global talent management has
become one of the core issues in the post-M&A integration process (Schuler and Jackson
2001). Consistent with Huselid, Beatty and Becker (2005) and Collings and Mellahi
(2009), we defined talented employees as the high potential and high-performing
employees who can fill the key positions that have the potential to have an impact on the
competitive advantage of an organization. Earlier studies have found that employees may
experience an unstable period during post-M&A integration and leave the company
because of uncertainty, which may decrease the value of the newly merged company
(Schuler, Tarique and Jackson 2004; Gomes et al. 2011). Previous research also shows that
long-term instability of executive teams can result in a failure of M&A (Cannella and
Hambrick 1993; Hambrick and Cannella 1993; Lubatkin, Schweiger and Weber 1999;
Krug 2003a, b; Krug and Shill 2008). Talent retention is therefore one of the important
determinants of post-M&As integration success.
The preceding discussion suggests that leadership and talent retention are critical
people-related themes in post-M&A integration, but the extent to which these factors
interact with each other and contribute to the success of post-M&A integration is underresearched. The aim of this paper is to investigate the influence of leadership style on talent
retention in M&As and in doing so to examine the effectiveness of post-M&A integration
in M&As involving Chinese companies. The paper contributes to the literature in several
1022 J. Zhang et al.
ways. We investigate the leadership styles appropriate during the M&A integration
process in Chinese companies. Leadership styles have been studied extensively in a
western context; however, there are few studies addressing the issue with regard to
Chinese companies. We explore talent retention strategies common in China. Despite a
significant degree of academic and practical interest, the topic of talent management
remains under-investigated (Collings and Mellahi 2009; Iles, Chuai and Preece 2010).
Although the area of talent management in China has been developing (McComb 1999),
there has been little empirical research on the topic (Cooke 2008). Furthermore, we
examine the underlying relationship between leadership styles and talent retention in the
M&A integration process. A study by the Saratoga Institute (Hodges 2008) based on
nearly 20,000 interviews suggests that leadership contributes to almost all of the reasons
for talent loss.
The paper is organized as follows: the next section includes the literature review on
HR practices, leadership and talent management in the M&A in general and in Chinese
contexts. The third section develops the conceptual framework of the paper. The fourth
section discusses the research method adopted to investigate the research questions. The
following section presents the findings and discussion, and the final section presents the
conclusion.
Literature review
HR practices during post-M&A integration
A central question in HRM in emerging economies is whether each nation follows a
distinct paradigm or whether these paradigms have converged toward low value-added
policies and best-practice HR systems (Wood, Dibben, Stride and Webster 2011).
Brewster, Wood and Brookes (2008) found variations in a range of HR practices and
concluded that multinational corporation tended to manage their HRs in ways that are
distinct from those of their host country. Furthermore, Brewster, Wood, Brookes and Van
Ommeren (2006) showed that the HR component is affected not only by organizational
size but also by sector and national location.
Within a complex organizational context, M&As pose many challenges to both
executives and researchers because handling the interface between the two merging
organizations is a multifaceted and multistage process (Gomes et al. 2011). Executives and
researchers alike face a daunting challenge in attempting to develop and accumulate
specific knowledge and capabilities about the M&A process management in general and
HRM practices during M&A in particular (Weber and Fried 2011a, b). Despite the fact
that HR has been mentioned frequently as an important factor in M&A success (Goulet
and Schweiger 2006; Nikandrou and Papalexandris 2007; Budhwar, Varma, Katou and
Narayan 2009; Melkonian, Monin and Noorderhaven 2011), there is a dearth of theoretical
and empirical studies about the interrelationship between M&A performance and HR
practices applied by the acquiring firm during the integration period following an
acquisition. This is particularly the case for cross-border M&As (Weber and Tarba 2010).
After exploring the critical differences between acquirers from various countries in the
way in which HR is managed in cross-cultural conflict situations, and after examining the
relationship between HR practices and post-merger performance in different countries,
Weber, Rachman-Moore and Tarba (2012) concluded that there is no clear best practice to
address the conflict situation and to enhance M&A performance. Specifically, the findings
of Weber et al.s (2012) study demonstrate that changes in acquiring firms HR practices,
including training methods, communication and autonomy granted to HR managers, are
The International Journal of Human Resource Management 1023
significantly associated with M&A performance. However, the aforementioned
relationships are complex and vary in M&A deals done in different countries. While
the results indicate that there are some similarities between M&A in general, there are still
considerable differences in the approach taken by the acquiring companies of different
nationalities. For example, acquirer managers and employees coming from a culture of
high power distance (meaning acceptance of status differences between instructor/
manager and trainees) and strong uncertainty avoidance (namely unwillingness to take
risks and try new approaches) are likely to require and perform better in training programs
that rely more heavily on structured and passive learning techniques, such as reading
assignments and lectures. However, employees coming with a cultural background that
emphasizes a culture of weak uncertainty avoidance and low power distance will probably
perform better with experiential training techniques, such as on-the-job training.
According to Weber et al. (2012), this may explain the positive relationships found
between on-the-job training and performance of the Danish acquirers (characterized by
low uncertainty avoidance and low power distance). Similarly, it may elucidate on the
negative relationship between on-the-job training and performance of Belgian acquirers
(characterized by high uncertainty avoidance and high power distance). Finally, since
there is a need to match the changes in autonomy and communication with nationality
differences, an increase in autonomy granted had a positive impact on performance of
Japanese acquirers, but negatively affected the performance of the Belgian acquirers
(Weber et al. 2012). Prior research studies have suggested that the amount and quality of
communication have a positive effect on management and employees, leading to
improved post-acquisition performance (e.g. Marks and Mirvis 1998). However, rather
strikingly and contrary to common wisdom, the results of the Weber et al.s (2012) study
indicate that an enhanced communication can have negative effects, at least for the
German acquirers.
In recent decades, studies examining the success of post-M&A integration have
focused more on such soft factors as HR issues rather than on traditional financial growth
drivers. The two most frequently mentioned HR issues in prior research on post-M&A
integration are leadership (Schuler and Jackson 2001; Able 2007; Knilans 2009) and talent
retention (Weber and Camerer 2003; Wang and Nishiguchi 2006; Horan, Lee, Muravska,
Sinha and Wang 2007).
Leadership in M&A context
Leadership has been long recognized as one of the critical factors affecting the success of
post-M&A integration (Lind and Stevens 2004; Sitkin and Pablo 2005a, b; Nemanich and
Keller 2007; Vasilaki 2011a, b). Successful post-M&A integration depends on a sound
leadership style that enables organizational and cultural adaptation as well as alignment
of expectations between the amalgamating entities (Covin, Kolenko, Sightler and Tudor
1997; Thach and Nyman 2001; Sitkin and Pablo 2005a, b; Kavanagh and Ashkanasy 2006;
Nemanich and Vera 2009; Waldman and Javidan 2009; Gomes, Cohen and Mellahi 2011).
If during the transitional period of post-M&A integration employees believe that their
leaders care about them, they develop a positive attitude toward the change and commit to
greater involvement in the integration (Able 2007).
Papalexandris and Galanaki (2009) argued that the leaders role is to articulate a vision
of what is possible and to motivate people to transform this vision into reality. House and
Shamir (1993) suggested that it is the leaders responsibility to convert the values, needs,
preferences and aspirations of their followers from individual into collective interests.
1024 J. Zhang et al.
There are different schools of thought in leadership theories that emphasize different
leadership styles. Wildermuth and Pauken (2008) contended that transformational and
authentic leadership styles can improve employee engagement. Transformational leaders
inspire followers to adhere to a common vision, whereas authentic leaders combine ethical
and transformational qualities to achieve a common mission. Goleman (2000) contended
that an effective leader must require immediate compliance with a coercive leadership
style, enlist people in support of a vision with an authoritative leadership style, create
harmony and form emotional bonds using an affinitive leadership style, forge consensus
through participation using a democratic leadership style, set high standards for
performance implementing a pacesetting leadership style and develop people for the
future applying a coaching leadership style.
Waldman and Javidan (2009) on their part proposed that personalized charisma
results in an absorption strategy and creates resistance to change, resulting in a turnover
that varies in degree between the acquiring and the acquired firms. By contrast, socialized
charisma encourages collaborative vision-formation and decision-making processes that
ultimately attain transformation in both combining firms. Using the primary data from a
multinational sample of corporate employees in the USA and Europe, Schweizer and
Patzelt (2012) applied hierarchical linear modeling to reach the conclusion that fast
integration has a positive effect on employees motivation to stay with the firm. The effect
of fast integration becomes stronger when the supervisor adopts relational, contextual,
inspirational, supportive and stewardship leadership styles.
Talent management in M&A context
As Farndale, Scullion and Sparrow (2010) noted, current knowledge about the role of
the corporate HR function in multinational corporations in the area of global talent
management is still very limited. Mellahi and Collings (2010) stressed the barriers to
effective global talent management, and drawing on agency and bounded rationality
theories, discussed the underlying causes of talent management failure in multinational
corporations. Makela, Bjorkman and Ehrnrooth (2010) explored decision processes
involved in the identification of internal talent. Based on an in-depth case study, they
reached the conclusion that three factors are involved in the decision process: cultural and
institutional distance between the locations of a potential member of the talent pool and
the decision-makers, homophily between the individual and the decision-makers, and the
network position of the individual.
Access to talent is becoming one of the principal reasons for M&As, dominating
conventional motives such as market power in horizontal M&As, channel control in
vertical M&As, and risk reduction and cost saving in hybrid M&As. Regardless of where
the cross-border M&As take place, global talent management has become one of the core
issues in the post-M&A integration process (Schuler and Jackson 2001).
Global talent management is about systematically utilizing IHRM activities (complementary
HRM policies and policies) to attract, develop, and retain individuals with high levels of
human capital (e.g., competency, personality, motivation) consistent with the strategic
directions of the multinational enterprise in a dynamic, highly competitive, and global
environment. (Tarique and Schuler 2010, p. 124)
The four current research streams in talent management are talent management as a
collection of typical HRM practices, functions or activities (Lewis and Heckman 2006,
p. 140); talent management as a categorization of employees into different talent groups
(Lewis and Heckman 2006); talent management as a concept of internal talent pools and
The International Journal of Human Resource Management 1025
succession planning (Boudreau and Ramstad 2005; Lewis and Heckman 2006; Hartmann,
Feisel and Schober 2010) and talent management as the identification of pivotal talent
positions that significantly affect the competitive advantage of a company (Collings and
Mellahi 2009).
In this paper, we tend to agree with the fourth perspective of talent management (Huselid
et al. 2005; Collings and Mellahi 2009), which emphasizes on the identification of key
positions that have the potential to have an impact on the competitive advantage of an
organization. Talented employees are subsequently identified and developed to fill the
previously identified pivotal talent positions. Thus, the focus of talent management should
be the development of a talent pool of high potential and high-performing incumbents to fill
the key positions that have the potential to have an impact on the competitive advantage of
an organization.
Prior studies have found that employees may experience an unstable period during
post-M&A integration and leave the company because of uncertainty, reducing the value of
the newly merged company (Haspeslagh and Jemison 1991; Schuler et al. 2004; Gomes
et al. 2011). Prior studies also show that the long-term instability of executive teams may be
an important cause of merger failure (Cannella and Hambrick 1993; Hambrick and
Cannella 1993; Lubatkin et al. 1999; Krug 2003a, b; Krug and Shill 2008). Similarly,
Weber and Tarba (2011) and Gomes et al. (2011) pointed out that cultural clashes during
the post-merger integration often increase instability within the top management team of
the target company, which in turn has a detrimental effect on the performance of the
acquiring firm.
Talent management is important in the case of China for several reasons. First, the long
isolation of the country and its command economy virtually eliminated the HR function
(Bruton, Ahlstrom and Chan 2000). M&As in China are therefore liable to encounter
significant difficulties in HR management of local firms. Second, because the central
government considers private firms to be the cause of declining employment in the stateowned enterprises, western investors are often encouraged to hire large numbers of
workers from the acquired state-owned firms, many of whom have inadequate skills or
training. This can pose additional difficulties in cross-border M&As (Bruton et al. 2000).
Third, traditional Chinese education has relied on rote memorization, and tends to
discourage creativity and innovative thought, which reduces the human capital of use to
multinational corporation (McComb 1999). Consequently, the limited pool of key talent
and the keen competition for it make it difficult to attract and retain people with the
requisite skills in the post-M&A phase (Eyring 2008).
Talent management focuses on the acquisition and retention of talented employees.
The war for talent was an important objective of talent management in China (Iles et al.
2010). According to Malila (2007), as a result of acute talent shortages, high attrition
rates and the ease with which quality employees are able to change employers,
multinational corporations operating in China are struggling to attract, train and retain
the talent they need in order to gain a competitive edge. Talent plays a key role in the
relationships a firm has with its external stakeholders. Wang and Nishiguchi (2006)
suggested that firms should first identify key business and regulatory relationships in the
pre-deal phase, then move to identify individuals who must be retained in order to keep
the targeted relationships. The most crucial and effective retention factor in China has to
do with the career development of employees. Chinese employees are likely to choose to
avoid uncertainties and seek other opportunities if the company fails to dispel their
misgivings with a clear employment strategy, effective HR assessment and timely
communication.
1026 J. Zhang et al.
Conceptual framework
We argue that the effectiveness of post-M&A integration in China is affected by
leadership style and talent retention. We further argue that talent retention is affected by
leadership style (Figure 1).
Goleman (2000) found that the distinctive leadership styles used by successful executives
are coercive, democratic, empowering, authoritative, pacesetting and coaching. However,
following Brewster et al. (2008) and Brewster et al. (2006), we argue that the leadership styles
that are appropriate in the Chinese M&A context may be different from those in western
countries. Moreover, following Hom and Xiao (2011), we suggest that leadership style may
affect talent retention in China. We also conjecture that talent retention influences the
effectiveness of post-M&A integration in China as it does so in other countries.
According to Collings and Mellahi (2009), talent management can improve
organizational performance by identifying pivotal positions. Talent management is
mediated by work motivation and organizational commitment, which can affect the
performance of the firm. Hartmann et al. (2010) noted that multinational corporations
transfer their talent management practices to China without making many changes,
focusing on the development of talented employees and on the creation of an
organizational culture. Global talent management has become one of the core issues in the
post-M&A integration process irrespective of where the cross-border M&As take place
(Schuler and Jackson 2001).
We argue that the leadership style and talent retention are distinct in the case of
Chinese M&As. Because the guanxi network is a unique feature of Chinese culture, it is
important for western multinational corporations to grasp its significance for leadership
and talent retention in post-M&A integration. Guanxi has historical roots, embedded in
informal social networks developed through relationships such as family, marriage,
schooling and work (Wank 1996; Park and Luo 2001). It is critical for multinational
corporations to aggressively develop their own guanxi network if they want to ensure the
smooth operation of their acquired firms in China.
One of the most effective ways of developing a guanxi network is to retain the
employees in the acquired company, specifically the employees who have strong
connections with the government and with various stakeholders of the acquired firm. Hom
and Xiao (2011) concluded that guanxi ties reinforce employee retention in Chinese
companies. Moreover, prior research indicates that because Chinese leaders show more
task-oriented leadership styles than western managers do (Shenkar, Ronen, Shefy and
Chow 1998; Brousseau, Ho and Tseng 2005), it is important to consider leadership style
and talent retention strategies in exploring the factors that affect the effectiveness of postM&A integration in China.
Effectiveness of
Post-M&A
Integration
Leadership
Style
Talent
Retention
Figure 1. Conceptual framework.
The International Journal of Human Resource Management 1027
Research method
Given the paucity of research on leadership styles and talent retention with respect to Chinese
M&As, we adopted a narrative research approach. Scholars and practitioners have been
showing a growinginterest in the applicability of qualitative methodsto international business
research. This interest is reflected in several recent publications (Welch, Marschan-Piekkari,
Penttinen and Tahvanainen 2002; Marschan-Piekkari and Welch 2004) that draw on
theoretical and methodological contributions in a cross-disciplinary field encompassing
discourse analysis, narratology, organization studies and others. Stahl and Mendenhall (2005)
noted that the majority of researchers in the field of M&A adopt a fairly conventional postacquisition integration perspective and therefore rely heavily on quantitative methodological
and analytical tools. As a result, they do not necessarily capture the sociocultural aspects of
such a complex and multifaceted organizational change processes as M&As.
Narrative approaches to cultural analysis are particularly appealing because of their
ability to capture the richness and complexity of cross-cultural encounters in
organizational life (for example, strategic alliances, joint ventures and M&As) because
of their capacity to go beyond what can be assessed by more traditional sources of data
such as surveys and structured or semi-structured interviews (Denning 2008).
Several research studies in the field of M&A have used the case study approach to
address various issues that arise following acquisitions, such as the management roles of
the acquired firm (Graebner 2004), the sellers view of the acquisition process (Graebner
and Eisenhardt 2004), explorations of the dynamics of pre-acquisition employee reactions
in the acquired firm (Teerikangas 2012), knowledge transfer in M&As (Ranft and Lord
2002; Zou and Ghauri 2008), trust in M&As (Stahl, Larsson, Kremershof and Sitkin 2011)
and trust asymmetries in acquisitions of entrepreneurial firms (Graebner 2009), cultural
clashes in high-tech M&As (Drori, Wrzesnievski and Ellis 2011) and the implementation
of post-acquisition integration approaches (Schweizer 2006; Teerikangas, Very and
Pisano 2011; Monin, Noorderhaven, Vaara and Kroon 2012). Consistent with earlier
research and owing to the interpretive nature of the study, we adopted an in-depth case
study together with semi-structured interviews.
Research design and data collection
The case selected for the study is a cross-border acquisition conducted in China by a
European company in 2008. To ensure anonymity, the acquiring firm is referred to as FA
and the acquired firm as FB. FA (part of the FA group) is headquartered in East China. FA
is involved in other M&A deals in China. Between 2001 and 2011, FA acquired nine
international and local firms in China, each with a strong presence in its sector and serving
a specific customer demand. Based on the above discussion, it can be argued that FA has
vast experience of conducting M&A deals in China.
FA acquired FB in 2008 and adopted an absorption strategy so that the acquired
company conforms to the acquirer in corporate culture, working style and managerial
system. Consequently, analysis of FB M&A deal by FA can assist use in examining the postM&A integration issues such as leadership and talent retention challenges that could be
faced by other companies conducting M&A deal in China. As a result, we believe that
acquisition of FB by FA is a of Chinese M&A and investigation into this
case could generate rich and in-depth information for the exploration of research questions.
Data on the various stages of the acquisition were collected by in-depth interviews
with executives who were directly exposed to and involved in the acquisition processes.
Data collection and analysis were based on the case study methodology (Eisenhardt 1989;
1028 J. Zhang et al.
Yin 1994; Eisenhardt and Graebner 2007) and included the following steps: initial
formulation of research questions and identification of important constructs; selection of
the case: the case was chosen for theoretical reasons, based on the replication logic.
According to Eisenhardt (1989) and Eisenhardt and Graebner (2007), the objective of
theoretical sampling should be to choose cases that are likely to replicate or extend theory.
As noted by Siggelkow (2007) in his seminal paper concerning the persuasiveness and
generalizability of case studies, even a single case can be a very powerful example. In
particular, studying a single acquisition in depth allowed us to collect extensive data to
help us understand the dynamics of the acquisitions. Although a single case study may
limit generalizability (Drori et al. 2011), our aim was to shed light on the dynamics of
leadership styles in M&A and not to test a theory of leadership as such. Our case study
enabled us to explore the effect of leadership style on key employee retention in the new
amalgamated entity and generate new theoretical insights based on the process we have
explored (Yin 1994; Eisenhardt and Graebner 2007; Siggelkow 2007).
A strategy of snowball sampling of respondents was used to generate the sampling
frame. Leaders (respondents) from both the acquiring and the acquired company were
identified through the personal contacts of one of the authors of the paper. The president of
the acquired company, who is one of the respondents, was asked to nominate qualified
candidate key talent respondents. Taking into consideration the number of respondents to
be interviewed within a limited period, the time available for transcription, translation and
data analysis, and the efforts required for data gathering, the number of interviews was
limited to nine: four of the respondents represented the leaders perspective and five the
perspective of the key talent.
The following characteristics were required to qualify as a leader respondent: (a) midto-high level management position at the acquiring or the acquired company; (b)
involvement in the post-acquisition integration planning and implementation process.
The selection of talent respondents were guided by the literature on talent management
and by the recommendation of top management team of FB. Consistent with Huselid et al.
(2005) and Collings and Mellahi (2009), talent management focuses on the identification
of key positions which have the potential to differentially impact the competitive
advantage of the firm. Thus, talent respondents were those with high potential and highperforming employees who could fill those key positions with the greatest potential to
contribute to the competitive advantage of the firm. In addition, the characteristics
required to qualify as a talent respondent were: (a) being a manager or employee at the
acquired company; (b) having been retained after the acquisition or having been involved
in the post-acquisition integration process. Using the above criteria, the top management
of FB was also asked to provide a list of 10 20% of the key personnel at the top level and
of 70 80% of employees in key areas of the company at various levels, both middle and
operational. Based on the above criterion, five talent respondents were identified.
To capture a cross-section of views, we involved in the research respondents from various
departments (production, sales, financial) and at different levels of the managerial hierarchy.
Of the leader respondents, two were from the acquiring and two from the acquired company,
three were high-level managers and one a mid-level manager. The five key talent respondents
were all from the acquired company and were recognized as key personnel to be retained
during the integration process. To ensure anonymity, leader respondents are coded as LR1-4
and talent respondents as TR1-5. Table 1 lists the respondent and interview details.
An interview guide was prepared in order to remind the interviewer of the main themes
that needed to be covered (Saunders, Lewis and Thornhill 1997). To avoid including
misleading or misunderstood questions in the interview guide, a leader respondent from
The International Journal of Human Resource Management 1029
the acquiring company was used as a candidate for a pilot interview. The questionnaire
was then revised based on the feedback provided by the leader respondent. The interviews
were carried out either in the respondents office or in a meeting room in the respondents
company. All the leader interviews and one of the five talent interviews were performed
by one of the authors. The other four talent interviews were conducted by another
experienced interviewer familiar with the FA FB acquisition. Following procedures
identified by Fisher, Buglear, Lowry, Mutch and Tansley (2007) and Saunders et al.
(1997), each question was asked initially in an open manner to encourage the respondent to
talk about the topic expansively. As the respondents answered the question, open or closed
probing questions were asked to check the detail. To allow thorough and repeated
examination of the interviewees answers, the interviews were recorded with a digital
voice recorder. Interviews were conducted in the language of the host country (Mandarin
Chinese). To ensure comparability and equivalence, a contract translator (a native speaker
of Mandarin and an English major) translated each interview from Mandarin into English
and (as a check) back into Mandarin. Transcriptions were proofread and verified by one of
the authors to ensure authenticity and reliability.
Given the richness and volume of data involved, Nvivo 8, a software application for
analyzing qualitative data recommended by Fisher (2007) as well as by Bryman and Bell
(2003), was employed to facilitate data organizing, sensemaking and theorizing processes
in this study. With the aid of Nvivo 8, coding of data became easier and more flexible.
Following Bryman and Bells (2003) and Fisher at al.s (2007) instructions, the main
themes were first organized into a hierarchical order in accordance with the sequence of
questions in the interview guide so as to form a node tree. The node tree was gradually
modified and enriched with later emerged free nodes, and finally constructed a
comprehensive indexing framework for data analysis.
Case background
FA group
The FA group is a world-leading supplier of solutions and systems for the measurement
of objects in one, two or three dimensions, headquartered in Europe. It has more than
Table 1. Respondent and interview details.
Respondent
code Company Position Date of interview
Interview
duration
(minutes)
LR1 FA CFO of Greater
China region
17 August 2011 63
LR2 Transferred to FB
from FA 1.5
years after the
acquisition
At FA: production
manager
6 September 2011 77
At FB: president
LR3 FB VP 7 September 2011 74
LR4 FB Financial manager 7 September 2011 46
TR1 FB Financial manager 6 September 2011 44
TR2 FB Engineer 7 September 2011 38
TR3 FB Production team leader 7 September 2011 58
TR4 FB Sales representative 7 September 2011 56
TR5 FB Sales representative 7 September 2011 58
1030 J. Zhang et al.
11,000 employees in 42 countries worldwide, and its portfolio comprises a large
number of world-class brands that represent high quality and reliability. The vision of
FA was to be a market leader, first or second in the world, in each strategic business
unit in order to generate growth and shareholder value. The rapid growth of FA was
achieved mainly by M&As, with M&As being one of the most important strategic tools
used by FA to extend its businesses in new and existing markets. The FA acquisition
strategy was to monitor a large number of companies in order to identify applicable
acquisition targets that could strengthen the product portfolio of the company and
improve its distribution network.
FA (part of FA group) is headquartered in East China and has approximately 2000
employees. It provides world-class integrated solutions to Chinese customers based on its
global resources in the application areas of geo-systems, metrology and technology. By
the end of 2011, FA had acquired nine international and local firms in China, each with a
strong presence in its sector and serving a specific customer demand.
FB
FB develops, manufactures and sells professional measuring equipment and instruments.
FB is headquartered in Shenzhen and has more than 100 employees, with an extensive
countrywide sales and service network. Before the acquisition, it was a medium-sized
private manufacturer of measuring instruments. Based on its R&D and production
capabilities, FB offered many high-precision measuring products. Differentiated from
other subsidiaries of the FA group, which target high-end markets, FB offers leading
technology, better quality, practical function, and moderate price to customers (source:
internal document).
The acquisition took place on 1 August 2008. The absorption strategy adopted by FA
for the integration of the new entity is described by Marks and Mirvis (1998, 2011) as
making the acquired company conform to the acquirer in corporate culture, working style
and managerial system. In the first few months after the acquisition, FA sent several senior
managers, including LR1 and LR2, to the headquarters of FB in Shenzhen, helping them to
establish the new managerial system.
Findings
During the interview sessions, interviewees are explicitly requested to provide opinions
and views of specific M&A under study as well as of Chinese M&As in general. The
findings obtained from the interviews are presented in the following three sections. The
first section presents the findings related to the effect of leadership style on post-M&A
integration in the context of Chinese M&A; the second section presents the findings
related to the effect of talent retention on post-M&A integration in the context of Chinese
M&A; the third section reports the findings related to the effect of leadership style on
talent retention in the context of Chinese M&A.
Effect of leadership styles on post-M&A integration
In this section, we investigate the underlying relationship between leadership styles and
the effectiveness of post-M&A integration. During the interviews, the respondents were
asked about their perceptions of various leadership styles contributing to the successful
post-M&A integration process in a Chinese firm.
The International Journal of Human Resource Management 1031
Empowering, coercive and democratic leadership styles
Most LRs indicated that leaders are the final decision-makers in most circumstances,
especially on strategically important issues. At the same time, leaders also like to allow
their staff to make their own decisions on some less important operational-level issues.
As one LR put it:
In most cases, the decision-making right is under my own control. But it depends on what
decision it is, important or unimportant. Generally speaking, those not so important … can be
decided by the employees themselves. As for those important things, I make the final decision
myself. (LR1)
By contrast, all TRs claimed that their leaders had granted them a certain degree of
decision-making power (empowering) within their areas of responsibility, and employees
appeared comfortable with the situation.
Generally speaking, the matters concerning policies are still performed according to the
leaders instructions. But … he still allows us to act on our own initiative to some extent
rather than stipulating everything too rigidly. (TR3)
The findings suggest that strategic decisions are made by the leaders. Because post-M&A
integration is a strategic decision, employees are not granted autonomy in strategic
decision-making, and thus the empowering leadership style is not appropriate during postM&A integration.
Although leaders are the decision-makers in most strategic decisions, the majority of
respondents claimed that autocracy and coercion were not advocated in implementing
these decisions, because autocracy and coercion will impact employees morale and will
definitely damage team stability (LR1). Therefore, autocratic or coercive leadership
styles are not appropriate.
Concerning the extent to which leaders are willing to consult with employees in the
process of decision-making, most leaders indicated that they would listen to employees if
their suggestions were constructive, but if a controversy occurred, more than half the LRs
indicated that they would insist on having their way.
If I understand that an employees opinion is right, my style is that I generally can accept the
employees opinion; if … I insist that I am right, I will certainly stick to my opinion. [ … ]
Discussions with employees … may waste some time. Sometimes I am quite decisive in
making decisions and I wont spend too much time discussing it [with employees]. (LR1)
The majority of TRs claimed that their leaders were willing to listen to their suggestions
attentively as part of the decision-making process. TRs appeared rather content with
making suggestions concerning only the details, leaving important decisions to their
leaders. This finding is consistent with the above report about TRs being satisfied with
being granted decision-making power only within their area of responsibility. It is also
consistent with Chen and Tjosvolds (2006) argument that Chinese employees prefer to
defer to their leaders rather than participate in decision-making. The viewpoint that best
describes this unique democratic leadership style in the perception of most respondents is:
democracy goes first, with centralization at its heels.
The contradiction between LRs and TRs on the perceived degree of democracy may be
the result of the fact that LRs consider important issues when answering this question
whereas TRs consider problems within their areas of responsibility. This situation may be
explained by Weicks (1995) sensemaking property of plausibility, which emphasizes
peoples intuitive judgment in their process of sensemaking in a complex environment. As
discussed above, employees seem content to make suggestions only on details and leave
important decisions to their leaders. In the post-M&A integration process, TRs may also
1032 J. Zhang et al.
feel uneasy about freely expressing their views to their leaders. Concerning the extent to
which employees are allowed to act on their own initiative, all respondents indicated
unanimously that as long as employees can finish their work on time, leaders are willing to
allow them to act on their own initiative.
I hope they had better undertake all matters, and then I can be totally free from worry [Smile].
(LR2)
Clearly, this sentiment is based on the premise that the newly merged company has
established certain rules and procedures for employees to follow, and employees are clear
about what they should do to attain the objectives of the company, which may be difficult
to achieve at an early stage of post-M&A integration. As Goleman (2000) suggested, the
democratic style makes less sense when employees are not competent or sufficiently
informed to be offering sound advice. In the present study, although several LRs described
themselves as democratic leaders, democracy may not be practiced in full at an early stage
of post-M&A integration, as LR1 suggested:
Fully democratic styles will not possibly work [immediately after the acquisition], because
they [employees from the acquired firm] dont even know what to do. (LR1)
Pacesetting
Most LRs claimed that the standards they set for employees were quite practical and
achievable:
I will set a relatively high target for the employees; if they can easily attain it, they will not
make progress. [ … ] But generally I wont push them too hard. [ …] If they cannot achieve
the target, I will give them some specific instructions [to help them out]. (LR2)
All TRs agreed that their leaders made certain demands of them, but in most circumstances
they were able to achieve the targets their leaders set because the requirements were usually
reasonable. Furthermore, an overwhelming majority of LRs and TRs indicated that leaders
did not often replace employees when those were not able to reach the required goals. The
leaders usually provide training programs for those who failed to meet requirements (LR1,
TR1, TR3, TR5), or transfer them to other positions (LR2, LR4). Only those who are
subjectively unwilling to do the job well (LR1) or those who are not loyal to the company
or use dishonest methods in their work (TR3) were fired. Thus, the findings do not support
pacesetting as an influential style in the studied context and indicate that the traditional
pacesetting leadership style has been gradually abandoned by Chinese leaders.
Authoritative
An overwhelming majority of respondents claimed that it was very important for
employees to understand the vision of the company and that leaders should communicate
their vision. Moreover, leaders should share information about the domestic and global
macroeconomy with employees (TR1, TR3). The main occasions for leaders to share this
information with employees are the annual meeting as well as regular meetings (LR3,
TR1, TR3, TR5) and casual talks (TR4, TR5). Some respondents stressed that keeping
employees informed about the vision and objectives of the company may help contribute
to the stability of the workforce (LR1, LR4, TR5).
Being aware of the companys vision and the future development direction of the company
… will certainly be beneficial for [the employees] personal development, as well as the
stability of the team. If an employee is caught up in the trivia of everyday things without
The International Journal of Human Resource Management 1033
seeing the future, and feels what he is going to do tomorrow is the same as what he has done
today, [and] if he is not clear about where the company is heading, he may definitely feel
frustrated as time goes by, and he may probably quit in that case. (LR1)
[If I am well informed about the objectives of the company] Ill be dead set on working at the
company. [ … ] As the saying goes, if the nation is prosperous, the people of the nation can be
strong and powerful. Similarly, if the firm is prosperous, the employees of the firm can be
strong and powerful. (TR5)
All respondents were of the view that leaders can lead their staff to achieve the vision of
the company as long as staff follow the leader. Most of the LRs had great confidence in
their role in the post-M&A integration:
Now Im basically the spiritual leader of FB [smile]. [A spiritual leader] is needed at the
beginning [of the post-acquisition integration]. I hope that when I leave FB someday, these
things will be passed down from one generation to another. (LR2)
Moreover, the findings indicate that leaders in the studied context would like to serve as
role models for employees to follow:
[My leader] always sets a good example for us to follow, and this pushes us to do a better job
in line with the companys plans and his thoughts. (TR1)
I think the leader should take the lead in doing things in a down-to-earth way. [ … ] [My leader
is so successful because] he has developed a hands-on leadership style. Seeing him work so
hard, his subordinates also made utmost efforts to do their jobs. (LR3)
It is clear that many respondents emphasized the importance of leaders being all-around
role models for employees because of the employees confusion and ignorance concerning
the newly established working practices at the early stage of M&A integration. Several
LRs considered it important for post-M&A leaders to explicitly tell their staff what to do
because most employees at the acquired firm did not know what to do and how to do it.
During the early period of the integration, you do not need to give too much decision making
power [to employees]. Because even if you give it to them, they do not know how to do it. It
would be better if you give them some frameworks or stipulate some procedures for them to
follow. [ … ] The more detailed and more operational the procedures are, the better. [ … ] Be
sure not to let them make the choice. [ … ] When they begin to know how to do it, you can
empower them to some extent. (LR2)
The above findings suggest that an authoritative leadership style is appropriate during
post-M&A integration at Chinese firms.
Coaching
All the respondents claimed that leaders would like to help their staff develop. Many of the
leaders did not mind teaching employees how to do their jobs.
If you cant do it, it doesnt matter. Look at the way I do it. Even if you still cant do it after
that, it doesnt matter and we can try again. Ill teach them slowly, train them, and let them
gradually adapt to the new requirements. (LR1)
Several TRs (TR1, TR2 and TR5) expressed their willingness to learn from leaders
through daily instruction. The coaching style works particularly well when employees are
already aware of their weaknesses and would like to improve their performance.
I certainly hope [he can give me some instruction], because when he teaches me I can learn
from his experience, this is a good opportunity for learning and growth. (TR2)
A vast majority of respondents indicated that leaders would like to help employees
establish long-term development goals for their personal careers. Leaders conversations
1034 J. Zhang et al.
with employees about their future careers usually took place during the annual review of
their performance (LR1, LR2, TR3), whenever employees encountered some difficulty or
made some mistake (LR1, TR2), on the day they joined the company (LR2), or on random
informal occasions (LR1). LR2 said:
I think Im now qualified to give them some instruction about their personal development.
I usually talk with employees for two or three hours on the first day of their joining the
company. A very important part of the conversation is about their career planning after they
enter the company [ … ] Additionally, for those key employees, at the end of each year, I will
ask them to write a personal development plan about their blueprint for next years work,
about the direction in which they want to develop, or the current shortcomings in their work.
Based on the above findings, we conclude that a coaching leadership style has a positive
effect on the motivation and performance of employees, which in turn enhances the
effectiveness of post-M&A integration.
Task-focused
A clear majority of respondents indicated that in their working with employees, leaders
always focus on tasks and goals, and attach great importance to rules and workflows.
According to the respondents, the leaders emphasis on goals and workflows may be
closely related to the management style of FA.
Yes, [I always focus on tasks and goals]. FA itself is goal-oriented and financial data-oriented.
(LR2)
Yes, my leader attaches great importance to rules and workflows especially after we joined the
FA Group, ISO is the guarantee for rules and workflows. [ … ] The Group will also have a
spot-check of some of our forms and contracts to see whether they have been done according
to the workflows and rules. (TR1)
These findings indicate that leaders stress rules and workflows during the post-M&A
integration, which is consistent with Brousseau et al. (2005), who suggest that Chinese leaders
show a markedly greater inclination to use task-oriented styles than Western leaders do.
Relationship-focused
All respondents indicated that leaders care about the employees sense of belonging and
about a harmonious atmosphere within the team. Many claimed that this could be regarded
as part of the corporate culture of FA.
Im highly concerned about it. [ …] When employees have a sense of belonging to the team
they may stay longer and their enthusiasm can be aroused. (LR1)
If an employee has no sense of belonging to a company … even if he sits there in the office
for eight hours, he may not be doing his work. If he has a sense of belonging, he may work
even beyond the working hours. (TR2)
A sense of belonging and harmony within the team are established mainly by organizing
team-building or entertainment activities (LR1, LR2, LR4, TR4) and by improving the
employees working, dining or accommodation environment (LR2, TR3). Furthermore,
employees greatly appreciated an easygoing and amiable personality, which can also be
viewed as a feature of a relationship-focused leader:
I think [a successful leader] shouldnt be tough and harsh, he should be easy-going.
Because in an integration process employees will keep considering whether they will
be fired, there will be mental fluctuation in their mind. I think a tough leadership style may
The International Journal of Human Resource Management 1035
intensify the employees distress. […] Generally, if the firm isnt too bad, employees actually
are unwilling to leave. If the leader is not too tough, the process of change wont be that intense.
(TR4)
I think an amiable leadership style is the most helpful. [ … ] You feel he is trustworthy in the
first place, and you can pour out your heart to him, and you feel free to make suggestions to
him on the future development of the company. (TR1)
More than half the respondents indicated that in their working environment leaders
care about employees emotional changes, communicate with them and try to comfort
them if necessary. However, none of the respondents indicated that leaders had ever
inquired proactively about the employees personal lives. Weicks (1995)
sensemaking property of social context is relevant in this case. In Shenzhen,
relationships between colleagues are not as close as those in inland cities. Leaders
may consider asking about an employees personal life as a violation of individual
privacy. Similarly, most respondents claimed that usually there is no private
relationship between leaders and employees, and if there was such a relationship it
was usually limited to idle chatter.
Most LRs restricted caring for employees to working hours and did not advocate a
genuine private relationship. LR2 thought that private relationships between leaders and
employees may have a negative effect on work. Some leaders indicated that they would
rather make friends with peers than with their subordinates, without involving a superiorto-subordinate relationship. LR1 said:
I will only build private relationships with those who have similar personalities or common
interests with me. [ … ] I dont intend to have a closer relationship with anybody
intentionally. The employees of my department have never intended to be closer with me
either. (LR1)
This finding suggests that relationship-focused leadership can be appropriate at a Chinese
firm, where guanxi is highly valued (Tse, Lee, Vertinsky and Wehrung 1988; Alston 1989;
Wong and Leung 2001; Chen and Tjosvold 2006), especially at the stage of post-M&A
integration, when team harmony, increased morale and improved communication must be
built (Goleman 2000). This is reflected in the respondents attitude toward the significance
of building a sense of belonging, trust and harmony in the team.
Preceding sections reported the findings regarding the influence of leadership style on
the effectiveness of post-M&A integration. The findings indicate that empowering,
coercive, democratic and pacesetting leadership styles are not appropriate in Chinese
firms. In contrast, task-focused, relationship-focused, authoritative and coaching
leadership styles had a positive influence on the effectiveness of post-M&A integration.
Based on the above findings, we formulate the following proposition:
PROPOSITION 1. Task-focused, relationship-focused, authoritative and coaching leadership styles positively influence the effectiveness of post-M&A integration in Chinese
firms.
Effect of talent retention on post-M&A integration
In this section, we investigate the influence of talent retention on the effectiveness of postM&A integration. According to LR1, after the acquisition all former employees were
taken over by the new combined entity, except those who left of their own will. FA
management was prudent and decided not to replace former employees, recognizing that
this may cause instability in the acquired company. LR2 said:
1036 J. Zhang et al.
I dont recommend immediately replacing former members of the company either. [ … ] The
retention of a respected figure [remaining employees] in the company may stabilize a great
number of employees. (LR2)
The was very young, and most mid-level managers were in their
20s, but the team was quite stable. One important reason for this was that the tradition of
human concern advocated by FA has been largely inherited and widely accepted by FB
employees. FB employees felt that they were cared for (TR1). The HR stability after the
deal may have served as a significant factor in the success of post-acquisition integration.
LR3 stated:
The former FB was always replacing staff. […] But this seldom happens now. […] President H
said: Few employees at FB would stay if I continue to [fire employees]. [I realized that] I
should nurture them and tolerate their mistakes. (LR3)
We conclude that talent retention was considered to be an important factor influencing the
effectiveness of post-M&A integration. Consequently, we formulate the following
proposition:
PROPOSITION 2. Talent retention positively influences the effectiveness of post-M&A
integration in Chinese firms.
Effect of leadership style on talent retention
In this section, we investigate the manner in which leadership style affects talent retention
during post-M&A integration and we explore the strategies employed by various leaders to
retain talented employees. Respondents were asked to discuss the possible effects of
leadership style on talent retention. An overwhelming majority of respondents indicated
that the employees decision to stay with the company is often greatly related to leadership
style.
Employees may choose to stay if they think the leaders working style is reasonable. If they
dont think so, and they cant change the status quo, they will certainly choose to leave. (TR3)
[The employees choice to stay with the company] proves his recognition of [ … ] the leaders
moral quality and personality. (LR3)
When focusing on detailed leadership issues, most respondents indicated that the
replacement of a leader is likely to cause loss of talent in that leaders team if the style of
the new leader is not accepted by team members (LR1, TR3, TR4) or if the original leader
was so influential that he was regarded as a spiritual leader by his followers (LR1). Based
on the above findings, we formulate the following general proposition:
PROPOSITION 3. Leadership style affects talent retention at Chinese firms.
We further investigated the specific strategies employed by various leaders to retain
talented employees. These strategies include position, performance, guanxi network,
communication and incentive structures.
Position
Most respondents considered it more logical to identify key positions first, then fill these
positions with talented people, than to identify talent first and find suitable positions for
them, because you need a person to fit the position but not the position to fit the person
(LR1). This is consistent with Collings and Mellahi (2009) who argued that the starting
The International Journal of Human Resource Management 1037
point of talent management is identification of pivotal positions rather than of talented
individuals.
LR2 emphasized in particular that retaining talent in key positions can be crucial for
the stability of the newly formed firm during the transition period:
Talent in key positions must be retained at the beginning of the integration process. This has a
bearing on whether the company can have a steady transition [ … ] and it is important for the
fusion and inheritance of some original things into the new company. (LR2)
The strategically important positions that contribute to the sustainable competitive
advantage of the organization and that were recognized by respondents were mostly in
production and R&D because FB is a manufacturer in the first place (LR1), and in
managerial operation, which is the lifeblood of a firm (LR4).
In view of the great importance ascribed by respondents to both task-focused
leadership style and identification of key positions to be retained, we formulate the
following proposition:
Proposition 3a. A task-focused leader tends to identify key positions to be retained and
thereby exerts a positive influence on successful talent retention.
Employee performance
All LRs suggested that there is no need to invest in the training of the entire staff or to
bring everyone to a high level of performance, because time and energy are limited, they
should be devoted to key personnel. LR1 commented:
If all employees in a company are excellent, this company certainly cant retain them. The
composition of a companys human resource is just like five fingers. 10%-20% of them are
good performers, 60%-70% are in the middle range, and 10%-20% are at the bottom and on
the verge of being fired. (LR1)
The majority of respondents claimed that performance appraisal was necessary. According to
LR1, this is because it is related to the employees salary and promotion and because the
cultivation of a firms talent also relies on performance appraisals. This is consistent with
Collings and Mellahis (2009) argument that the focus of talent management systems should
be on the high-performing employees rather than on all the employees in the organization.
In light of the importance that respondents ascribed to a task-focused leadership style
and to performance appraisal, we formulate the following proposition:
PROPOSITION 3b. A task-focused leader tends to differentiate talent based on
performance, and thereby exerts a positive influence on successful talent retention.
Many TRs suggested that performance appraisal should be conducted in a moderate
way. According to them, a rigorous performance appraisal may put too much pressure on
employees (TR2, LR1, LR4). They indicated that loyalty and honesty to the company
(TR1, TR4, TR5) are more important than business performance. TR1 concluded that:
In fact, performance appraisal is only a means by which we can differentiate the performance
among employees and then communicate with them about it [to find solutions for poor
performers]. (TR1)
The distribution of appraisal results should be carefully considered. The practice of
posting appraisal results for public viewing was unanimously opposed by all LRs and TRs
because it may cause employees to lose face (or mianzi).
1038 J. Zhang et al.
My view is that such information should by no means be made public. We should respect
employees dignity. If everybody knows one is poor in performance, he may feel embarrassed.
(LR1)
All LRs and TRs indicated that poor performers should not be immediately fired. First, the
employees contribution should be assessed using a comprehensive standard, with special
regard to the employees honesty and loyalty to the company, which was emphasized by
many respondents (LR3, TR3, TR4, TR5). Moreover, poor performers should be given a
second opportunity (LR1, LR2, LR4).
Guanxi network
The literature identifies guanxi as a significant resource in China (Tse et al. 1988; Alston
1989; Wong and Leung 2001; Chen and Tjosvold 2006). Wang and Nishiguchi (2006)
even suggested that firms should first identify key business and regulatory relationships,
then focus on the individuals who should be retained in order to keep the targeted
relationship. This view is supported by the findings of this study.
All LRs claimed that relationships with customers, distributors and suppliers are very
important. Many of them indicated that because FB is a manufacturing firm, the stability of
the customer base (LR1, LR2, LR3, LR4, TR4), the robustness of the supply chain (LR1,
LR2) and the effectiveness of the distribution channel (LR2, LR3, LR4, TR3) may have
a direct bearing on the companys lifeline (LR2). As LR2 suggested, people who control
the customer resources of the company are a very important talent to retain.
Considering the importance respondents ascribed to a relationship-focused leadership
style and to the retention of talent associated with crucial business resources, we formulate
the following proposition:
PROPOSITION 3c. A relationship-focused leader tends to recognize the competence of
talent with connection to crucial business resources or with a guanxi network, thereby
exerting a positive influence on successful talent retention.
Surprisingly, the relationship with government at various levels, which is regarded as a
competitive advantage for foreign companies doing business in China (Chen and Tjosvold
2006), was not endorsed by respondents. Many respondents indicated that government
authorities, media and industrial associations had nothing to do with the operation of a
company, unless it was undertaking some government-related business (LR1, LR3). This
finding may have to do with the higher level of economic development in Shenzhen than in
underdeveloped or inland cities, as TR2 suggested:
If the citys economy is highly developed, the relationship with the government may not be so
important; but in the underdeveloped areas or inland cities, such a relationship can be very
important because every document must depend on the government to approve. In the
developed cities, norms have been formulated, and you dont have to rely on relationships.
What you should do is just follow the procedures and fill out some forms. (TR2)
Communication with talented employees
Earlier literature indicates that under the influence of the Confucian concepts of
zhongyong (seeking means) and harmony Chinese people prefer to compromise in private
(Wong and Leung 2001). This can also be applied to communication between leaders
and employees. Findings indicate that all LRs recognized the importance of private
communication for talent retention.
The International Journal of Human Resource Management 1039
I will communicate with employees in private and try to figure out why on earth they decide to
leave. (LR3)
Similarly, more than half the TRs indicated that they preferred to communicate privately
than by means of formal notices.
I prefer the informal way [of communication]. Because its not so formal, I can fully express
myself without worrying too much. (TR3)
In light of the great importance that respondents ascribed to a relationship-focused
leadership style and to private communication in talent retention, we formulate the
following proposition:
PROPOSITION 3d. A relationship-focused leader tends to communicate with talent
privately, thereby exerting a positive influence on successful talent retention.
Hodges (2008) argued that communicating with employees consistently about the
goals and about the strategies needed to achieve these goals can make employees feel
valued and respected, and therefore reduce the possibility of their leaving. This finding
raises the issue of the content of communication between leaders and their staff. Most
leaders involved in the present study indicated that if they decided to retain certain
employees they would keep them informed about the changes expected in the firm after the
acquisition. They also provided several success stories to illustrate this point:
Now we are considering promoting a young man as financial manager. One and a half years
ago he said he wanted to leave. At that time, he was an ordinary staff member … but I could
see he has potential. [ …] We had a very open talk for two hours about the companys future
development, including the strategic development plan of FA, which he didnt know before.
Besides, I told him heart-to-heart about my own experiences and my personal growth in these
years. [ … ] Immediately after our talk he expressed his inclination to stay. (LR1)
[A medium level manager] told me that he couldnt stay any longer. [ … ] He wanted to hear
my ideas and later I fully reassured him. I told him to wait for two months because there would
be some real changes [in the company], changes completely different from past … and he
stayed. (LR2)
In the same vein, all TRs indicated that they hoped to learn more about the future
development of the company from their leaders.
I hope to receive information about the companys future development because its not good
to be absorbed only in work, even for an ordinary employee. The development of the company
determines personal development. [ … ] When the river rises, the boat floats high. (TR3)
In light of the great importance that respondents ascribed to authoritative leadership style and
to communicating company goals and strategies, we formulated the following proposition:
PROPOSITION 3e. An authoritative leader tends to communicate with talent about company
goals and strategies, thereby exerting a positive influence on successful talent retention.
Incentive structure
Findings indicate that salary increase is regarded as an effective retention incentive. All
respondents indicated that higher salary is to some an effective means of retaining talent.
As TR2 commented, it is the simplest and most direct way to retain talent. Wages also
rank first among possible reasons for loss of talent. This finding may also have to do with
the importance people ascribe to money in Shenzhen. In this respect, Weicks (1995)
1040 J. Zhang et al.
sensemaking property of social context is applicable. Despite the solid endorsement of
monetary incentives, LR1 explained its limitations and considered it only as a secondary
and temporary measure for talent retention:
Raising salary is only a secondary means by which the company can retain talent temporarily.
Even if talent is retained with money in the short term, they may choose to leave soon. (LR1)
Similarly, many respondents showed keen interest in granting employees the option of
buying shares in the company. Some respondents even deemed it as the most attractive
incentive for talent retention because employees benefit from shareholding materially by
sharing the bonus (LR4). Owning shares in the company may give employees a sense of
belonging (TR2) because they are in the same boat as the company. Many people in
Shenzhen are interested in developing their own business, and holding company shares
satisfies their desire to some extent.
Findings also show that promotion to more senior levels and in the absence of
immediate promotion, providing an attractive plan for personal career development in the
medium or long term, are considered to be highly effective incentives as well. To some
extent, a promising future is perceived to be equal to a salary increase and to an elevated
sense of self-worth. LR1 said:
If you are promoted and your career develops well in the future, itll definitely bring changes
in salary. [ … ] As long as your career development is guaranteed, youll certainly be
spiritually contented. These aspects are interconnected. (LR1)
LR3 noted that the personal development plan promised by the company should be
realized within two to three years, otherwise the trust between the company and employees
will be damaged. Providing comprehensive training in professional skills, which is not as
material as the financial incentives noted above, proved to be highly valued.
It is more important that the company … gives you opportunities to develop yourself. [ …] If
… your staying at the company is just like staying at school, you not only work but also can
study and improve yourself, you certainly wont leave. (TR5)
Next in importance to these incentives are improved welfare, such as paid annual holidays,
medical care, shuttle buses to and from work, canteens, tours, a care system for the
employees family and children, etc.; opportunities for employees to move laterally to
positions of interest; and the possibility of moving to more convenient working locations.
These incentives seem relevant to human concern, which is consistently valued at FB as a
corporate culture inherited from FA. TR1 said:
There certainly should be human concern. No matter how high the salary you give him, if you
dont treat him well, he wont [work with you … ] Not everybody wants only money. People
need emotional communication, they need to feel that the companys environment is
harmonious and relaxed. [ … ] People want happiness, they want to work happily. (TR1)
The above findings suggest that providing comprehensive training and showing human
concern were used as strategies for talent retention. In light of the great importance
respondents ascribed to a relationship-focused leadership style and incentives showing
human concern, we formulate the following proposition:
PROPOSITION 3f. A relationship-focused leader attaches great importance to providing
incentives that show human concern, thereby exerting a positive influence on successful
talent retention.
In light of the great importance respondents ascribed to a coaching leadership style and
to comprehensive training, we formulate the following proposition:
The International Journal of Human Resource Management 1041
PROPOSITION 3g. A coaching leader attaches great importance to employees training
programs, thereby exerting a positive influence on successful talent retention.
Conceptual framework with propositions
Based on the findings presented in the preceding sections, we extended our conceptual
framework with specific propositions, as shown in Figure 2. The first proposition suggests
that authoritative, coaching, task-focused and relationship-focused styles are the ones that
respondents claimed to be successful and applicable in post-M&A integration in Chinese
firms (P1). The second proposition suggests that talent retention exerts a positive influence
on the effectiveness of post-M&A integration in China (P2). The third proposition
suggests that leadership styles affect talent retention (P3).
Due to the variations in the strategies employed by leaders with different leadership
styles, we have formulated specific propositions relevant to the four leadership styles.
Leaders pursuing task-focused leadership styles use position (P3a) and performance (P3b)
to identify and retain talented employees. In contrast, leaders adopting relationshipfocused leadership styles employ the guanxi network (P3c), communication (P3d) and an
incentive structure (P3f) as strategies for identifying and retaining talented employees.
Whereas authoritative leaders use communication with employees, leaders pursing
coaching leadership styles use incentives as a strategy for retaining talented employees.
Discussion and implications
Effect of leadership style on post-M&A integration
Findings indicate that authoritative, coaching, task-focused and relationship-focused
leadership styles are appropriate for achieving effective post-M&A integration in China.
Effectiveness of
Post-M&A
Integration Leadership Style:
Talent Retention
Task-Focused
Relationship-Focused
Authoritative
Coaching
Position
Performance
Guanxi Network
Communication
Incentive Structure
P1
P3 P2
P3a
P3b
P3c
P3d
P3e
P3f
P3g
Figure 2. Conceptual framework with propositions.
1042 J. Zhang et al.
Autocratic, empowering, democratic and pacesetting leadership styles were found to be
inappropriate during post-M&A integration in China.
An authoritative leadership style contributes to effective post-M&A integration in two
ways. First, authoritative leaders assist employees in understanding the vision and objectives
of the company (Goleman 2000; Strange and Mumford 2002) by clearly communicating and
sharing the relevant information at annual and regular meetings. Keeping employees
informed about the vision and objectives of the company contributes to the stability of the
workforce, that is, to talent retention, which in turn contributes to effective post-M&A
integration. Second, authoritative leaders attempt to serve as role models for employees,
which reduces confusion and ambiguity regarding the newly established work practices at the
early stages of post-M&A integration. Moreover, authoritative leaders provide explicit
instructions to employees about the tasks they are required to perform in order to achieve
smooth post-acquisition integration. Therefore, the authoritative leadership style may be
appropriate during the post-M&A integration in China.
A coaching leadership style was also found to be effective in China. Coaching
leadership assists employees in improving the skills and competences required to perform
well in the combined firm. Therefore, a coaching leadership style has a positive effect on
the motivation and performance of employees, which in turn enhances the effectiveness of
post-M&A integration. Moreover, a relationship-focused leadership style exerts a positive
influence on the effectiveness of post-M&A integration and can build team harmony,
increase morale and improve communication.
We found that a task-focused leadership style is also appropriate in China. According
to earlier studies, task-focused leadership emphasizes tasks as well as clear goals, rules,
processes and procedures (Brousseau et al. 2005). In this study, the vast majority of
respondents indicated that when working with employees, leaders always focus on tasks
and goals, and attach great importance to rules and workflows. Findings indicate that
leaders emphasize the need to establish rules and workflows during the post-M&A
integration in China. This finding is consistent with Brousseau et al. (2005), who suggest
that Chinese leaders showed a markedly greater inclination to use task-oriented styles than
their western counterparts.
Effect of talent retention on post-M&A integration
The findings of the study indicated that talent retention was considered by respondents to
be one of the significant factors affecting the success of post-M&A integration in China.
Leaders tend to avoid dismissing employees in the acquired Chinese firm immediately
after the acquisition. To be consistent with the pre-M&A tradition of the acquired firm, the
acquiring firm adopts a humane approach in employee management because the stability
of HR after the M&A deal is considered to be a significant factor in the success of postM&A integration. Therefore, in China, talent retention has been found to exert a positive
influence on post-M&A integration.
Effect of leadership style on talent retention
The study found that leadership style has a significant effect on talent retention during postM&A integration. An overwhelming majority of respondents indicated that the employees
decision to stay with the company is generally related to a great extent to leadership style.
Most respondents indicated that the replacement of a leader is likely to result in loss of talent
in the leaders team if team members do not accept the new leaders style.
The International Journal of Human Resource Management 1043
Various leaders employed a range of strategies to identify and retain talented
employees in the acquired firm. Task-focused leaders tend to emphasize retaining talent in
key positions because it can be crucial for the stability of the newly formed firm during
post-M&A integration. Task-focused leaders identify and retain strategically important
positions that contribute to the competitive advantage of the firm. Moreover, task-focused
leaders tend to differentiate talent based on performance, thereby exerting a positive
influence on talent retention. However, our findings suggest that performance appraisal
should be moderate in order to avoid unnecessary pressure on employees, and the outcome
of the review should be communicated to employees directly and not made public. Making
performance reviews public can result in deep injury to the employees mianzi or pride.
Employees performing below the expected standards should not be dismissed
immediately. Rather, the employees contribution should be assessed comprehensively;
many respondents emphasized especially the employees honesty and loyalty to the
company. Furthermore, poor performers should be given a second opportunity.
Leaders who adopt a relationship-focused leadership style tend to use the guanxi
network as a strategy for identifying and retaining talented people. Consistent with earlier
research (e.g. Wong and Leung 2001), the guanxi network or employee relationships with
customers, distributors and suppliers are crucial resources in China. Therefore, employees
with a guanxi network should be identified and retained. In this study, however,
relationship or guanxi with government at various levels was not found to be important.
Contrary to prior research (e.g. Chen and Tjosvold 2006), we found guanxi with
government to be insignificant if the operation of the acquired Chinese company is not
directly affected by the government or if the acquired firm is located in an economically
developed area of China.
Relationship-focused leaders also communicate privately with employees whom they
decided to retain. Consistent with prior research (e.g. Wong and Leung 2001), private
communication was found be important for talent retention in China. Furthermore, leaders
practicing a relationship-focused leadership style tend to provide incentives in the form of
improved welfare such as paid holidays, medical care and a care system for the employees
family. These incentives, inherited from the parent company and implemented in the
acquired Chinese firm, exerted a positive influence on talent retention.
Consistent with Hodges (2008), authoritative leaders tend to communicate with
talented employees about company goals and strategies when they decide to retain these
employees, thereby exerting a positive influence on successful talent retention. We found
that if the leaders decide to retain an employee, they keep him/her informed about changes
expected in the firm after acquisition. Communication of this type motivates employees
and reduces employee turnover.
Leaders who adopt a coaching leadership style tend to attach importance to incentives
in the form of employee development, such as training programs, thereby exerting a
positive influence on successful talent retention. Employees valued highly the incentives
in the area of personal career development, such as comprehensive training, which
increased their motivation to stay with company. To maintain the trust between the
company and employees, the personal development plan should be implemented within
two or three years of promising such incentives.
Conclusion
It is noteworthy that the success of post-merger integration is one of the key measures of
success because this is critical to the enhancement of overall M&A performance (Almor
1044 J. Zhang et al.
et al. 2009; Sarala 2009; Weber, Tarba and Reichel 2009, 2011; Sarala and Vaara 2010;
Ahammad and Glaister 2011; Lakshman 2011; Weber, Tarba and Rozen-Bachar 2011).
The leadership and talent retention are critical people-related themes in post-M&A
integration, but the extent to which these factors interact with each other and contribute to
the success of post-M&A integration is under-researched.
The aim of our paper was to explore the effect of leadership styles on talent retention
strategies and on the effectiveness of post-merger integration in China. The findings of our
study show that authoritative, coaching, task-focused and relationship-focused leadership
styles are appropriate for accomplishing an effective post-merger integration in Chinese
context. Specifically, autocratic, empowering, democratic and pacesetting leadership
styles have been found to be unsuitable during post-merger integration in China. As far
as talent retention strategies are concerned, authoritative leaders use communication,
whereas leaders adopting a coaching style use an incentive structure to positively influence
talent retention. Furthermore, task-focused leaders use position and performance in order
to identify and retain talented employees. By contrast, relationship-focused leaders
emphasize the guanxi network, communication and an incentive structure in their
strategies of talent retention.
As is typical of the case study approach, the generalizability of the findings in this
study may be limited because the study involved only one M&A case. Also, because of the
specific corporate cultures of FA and FB the findings may not be generalizable to other
M&A cases. Future empirical studies applying statistical tests to a large sample of M&A
deals could further investigate the aspects of Chinese M&As that have been examined in
this study and in particular it would be beneficial to empirically test the propositions
developed in this paper.
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