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)ORULGD6WDWH8QLYHUVLW\/LEUDULHV 2019 Deadly sins and corporate acquisitions Svante Schriber, David R King and Florian Bauer Follow this and additional works at DigiNole: FSU's Digital Repository. For more information, please contact lib-support@fsu.edu
Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
Deadly Sins and Corporate Acquisitions
Svante Schriber
Stockholm Business School
Stockholm University
106 91 Stockholm, Sweden
E-mail: svante.schriber@sbs.su.se
David R. King
Florida State University
College of Business
821 Academic Way, RBA 305
Tallahassee, FL 32306-1110
E-mail: drking@fsu.edu
Florian Bauer
Lancaster University
Department of Entrepreneurship, Strategy and Innovation
Lancaster LA1 4YW, UK
E-mail: f.bauer@lancaster.ac.uk
1Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
Deadly Sins and Corporate Acquisitions
Abstract. Although having grown significantly to constitute a strong influence in
several fields of business research, research on corporate acquisitions still needs fresh
voices. Research on acquisitions is dominated by functionalist studies searching for
ways to improve financial outcomes. In contrast, this paper draws on a narrative
approach to provide a new perspective to corporate acquisitions. We focus on
decision-makers and how a metaphor that highlights human foibles connected to sins
can offer a new understanding of corporate acquisitions. Engaging with acquisition
literature and underpinning our argument with examples from well-known
acquisitions, provides a new way of understanding commonly identified but socially
unaccepted outcomes from acquisitions generally described as unintended and
unwanted.
Keywords: Acquisitions, Decision-makers, Corporeality, Narrative, Metaphor
2Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
Introduction
Corporate acquisitions – when one firm buys another – are the result of
organizational decisions with substantial consequences that take place at increasing
numbers and financial values across the globe. Corporate acquisitions offer a rich soil
for organizational research, and this growing research has covered different process
phases (Haspeslagh and Jemison 1991), and benefited from a variety of theoretical
perspectives, methods, and concepts (Graebner et al. 2017; Haleblian et al. 2009).
Interestingly, a growing body of research illuminates hidden aspects of acquisitions,
including forced identity transformation (Ernst and Schleiter 2018) or experiences of
injustice (Melkonian, Monin, and Noorderhaven 2011). Despite a growing stream of
insights, research into acquisitions can be enriched with new voices. Specifically,
mainstream acquisition research focuses on improving financial performance by
predicting value potential (Capron 1998; Makri, Hitt, and Lane 2010), how gains are
realized during integration (Bauer and Matzler 2014; Larsson and Finkelstein 1999),
and financial outcomes (King et al. 2004). To complement this research, we attempt
to recast acquisition research by considering decision-makers and their motivations
using narratives (Czarniawska 2004; Riad 2011; Riad, Vaara, and Zhang 2012).
Narrative approaches have provided insightful into multiple organizational
aspects of acquisitions, including employee integration (Almor, Tarba, and Benjamini
2009; Rouzies, Colman and Angwin 2019) and sensemaking in international
acquisitions (Søderberg 2006). By relaxing essentialist assumptions, narrative
approaches can provide new accounts of familiar or unfamiliar phenomena using
objective facts (Czarniawska 1998). Current acquisition research largely views that
acquisitions result from deliberate, socially accepted, and legal behavior (Trautwein
1990). Consistent with advice for a rejuvenation of acquisition research (Meglio and
3Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
Risberg 2010), we draw on a narrative approach (Czarniawska 2004; 2011) that we
believe identifies understudied aspects of acquisitions.
We develop a narrative of acquisitions using insights of ‘sins’, or enduring
human shortcomings to gain a richer understanding of acquisitions. We build on a
selective review of acquisition research with analytical focus on top management
decision-makers behind acquisitions. In developing an alternative story, our narrative
benefits from metaphor centering on sin, or darker sides of humanity, including
unconscious, socially questionable, or forbidden behavior.
Providing a different way of understanding corporate acquisitions contributes to
the growing research that complements the dominant performance-oriented research
perspective. Specifically, our story centers on decision-maker urges and wants that are
generally toned down in functionalist accounts of acquisitions. As a result, our
narrative approach adds important insights by focusing on decision-makers, and thus
places the findings from this study alongside the results of narrative research on
employees in the integration process (e.g. Ernst and Schleiter 2018). Taken together,
our study provides a new narrative key for understanding corporate acquisitions
through the metaphor of seemingly eternal human foibles recognized in classic
literature.
Our manuscript develops in multiple steps. We first develop our narrative
approach to illuminate decision-makers in acquisitions combined with a metaphor of
sin. We then outline how our conceptual development grew out of and in combination
with a selective review of acquisition research before presenting a new narrative key
for how acquisitions can be understood as emerging out of deadly sins and conclude
by discussing the implications of our study for acquisition research.
Building a Narrative of Acquisition Sins
4Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
A broad research tradition centers on individuals interpreting their situation
using stories, or a narrative (e.g. Boje 1991; Feldman et al. 2004; Gabriel 2004).
Applying a narrative is not new in acquisition research and, much like the wider
organizational narrative research (Rhodes and Brown 2005), associated research
spans different forms of data and approaches to mixing theoretical and
methodological features (Riad 2011). Several studies have demonstrated the benefits
of regarding employee stories in efforts to better manage integration efforts (e.g.
Almor et al. 2009; Colman and Lunnan 2011). Narratives have also been used in
studies concerned with improving financial outcome of acquisitions. For instance,
Vaara (2002) explored how central concepts shape our understanding of acquisitions,
such as success and failure are constructed discursively. Similarly, Riad (2005),
elaborates how certain discourses can become dominating and raise resistance. In a
more recent study, Riad (2011) explores contradictive elements in narratives of
acquisition integration processes that highlight the ongoing and developing relation
between metaphor and narrative, see also Ernst and Schleiter (2018). While
demonstrating the potential in paying attention to narratives, these efforts mainly have
focused on post-acquisition processes, and left open the application of narrative to
enrich understanding of the overall acquisition process.
Specifically, we see potential in a narrative approach to provide an alternative
story of the decisions leading to an acquisition, or what is in traditional acquisition
research considered the pre-acquisition phase, typically involving the decision to
acquire and select a target (Haspeslagh and Jemison 1991). We build on Czarniawska
(2004) who relates the narrative way of knowing to the logico-scientific mode. While
sometimes juxtaposed as ends at a spectrum, the approaches are in fact related in
more complex ways. For instance, narrative is part conveying insights, including
5Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
traditional ‘scientific’ accounts. Still, compared to traditional empirical research, a
narrative can offer new ways of seeing and interpreting since all social experience
takes the form of narratives (Bruner 1986). By unshackling some of the traditional
notions of how research should be presented, deliberate attention to narratives can
liberate the medium through which ideas are conveyed. In this context, Polkinghorne
(1987) emphasizes the concept of plot, or the creating of a meaningful whole from
otherwise separate events. This means that new ways of learning emerge. Expressed
in the words of Bruner (1986, p. 8), ideas can also emanate when they are “informal
and ‘literary’ rather than ‘systematic’ in form.”
Importantly, rather than following a set, hegemonic plot, narrative approaches
encourage and enable alternatives to traditional ways of knowing and a more
liberating style to convey ideas. As summarized by Czarniawska (2004), a virtue of
narrative is that it enables competing interpretations. Leaving aside the idea of perfect
representation of any objective reality, narrative approaches can be said to move
attention to the reality of conversation, while leaving other aspects open to negotiation
between the text, the narrator, and the reader to place importance on the coherence
and credibility of theoretical interpretation (Czarniawska 1993; Fisher 1985).
Traditional acquisition research on decision-making and cognitive processes
largely rely on rationality (Amburgey and Miner 1992; Baker, Pan and Wurgler 2012;
Haunschild, Davis-Blake, and Fichman 1994; Kumar, Dixit, and Francis 2015; Matta
and Beamish 2008; Roll 1986). In contrast, we weave our narrative plot around
decision-makers in acquisitions. Inspired by Riad (2011), we combine a narrative
approach with attention to metaphor. Metaphors are commonly used in organization
and business research to capture notions beyond what may be immediately associated
with a term. For example, scholars often draw on a metaphor of marriage to depict
6Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
acquisitions (Al-Laham, Schweizer, and Amburgey 2010; Cartwright and Cooper
1993). We extend the application of narrative and metaphor in acquisition research to
engage with the concept of sin.
Research Process
Drawing on the metaphor of sin enables a narrative that makes humanity a
central arena for understanding organizational decisions. It provides a relevant focus
for discussing the hidden wants, unarticulated perhaps even to oneself, relevant to
explaining the tendency that a majority of human decision-making during corporate
acquisitions cause unwanted effects. This leads us to consider more corporeal urges
and needs often associated with shame and guilt that we find bears potential to be
enriching acquisition research as such urges are less likely to be disclosed in
interviews because managers are reluctant to talk about failed acquisitions (Lant,
Milliken, and Batra 1992), and fall outside of the dominant functionalist theorizing
from anonymous quantitative data. We take an additional step to connect a framework
that depicts tendencies for immoral behavior, as emotional, dynamic, and
multidimensional aspects of management are too often ignored (Huy 2012).
Emerging from an idea of ‘acquisition gluttony’ as a metaphor relating to the
concept of ‘acquisition indigestion’ that represents an inability to integrate an
acquired firm (Kusewitt 1985; Laamanen and Keil 2008), inspiration grew to consider
how acquisition research could be retold with specific attention to the idea of timeless
human frailties, or sins. Inspired by the well-known seven deadly sins, emerging both
in ancient philosophical and theological writing but also remaining relevant through
modern literature and popular culture (as in Anthony Powell’s novel cycle A Dance to
the Music of Time or, more graphically, the film Seven), we considered sins as a well-
known and useful metaphor for recasting motivations behind acquisitions.
7Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
With this metaphor in mind, we then engaged with influential contributions in
research on corporate acquisitions. We benefit from and build on exhaustive reviews
of associated research (cf. Graebner et al. 2017; Haleblian et al. 2009; King, Bauer,
and Schriber 2018; Steigenberger 2016), as well as our own personal experience from
within this research field. Following the examples of prior selective reviews focusing
on the broad, underlying arguments (e.g. Armenakis and Bedeian 1999; Mosakowski
and Earley 2000), we recast prior research and illustrate our argument with real
acquisitions by paying attention to timeless human frailties.
We actively searched for and found support for the use of deadly sins in
research; in brand management, marketing (e.g. Balmer 2001; Kotler 2004), and some
writing using the term sins specifically in relation to lists of various mistakes in
acquisitions (e.g. Feldman 2000; Tanner 1991). To make use of the metaphors of sin
in relation to decision-makers, we reviewed acquisition research for aspects in
acquisitions that exemplified the deadly sins. In line with a narrative approach, our
plot emphasizes elaborating the narrative using colorful instances of sins rather than
conceptually or empirically distinguishing potential overlaps between sins.
Our process also involved probing our own experiences from interviews or
media examples illustrating sins. Concretely, this involved encountering data in light
of existing theory complemented with our understanding of the seven sins, while also
questioning our assumptions (Alvesson and Kärreman 2007) by matching and re-
matching acquisition research with sins to strengthen the narrative plot. In this way,
our process resembled what Mantere and Ketokivi (2013, p. 82) described as reflexive
narrative “where researchers seek—through a dialogue between their own
preunderstanding and the empirical data—a new understanding of theory through an
evolution of their own understanding.”
8Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
Seven Sins of Acquisitions
Several shortcomings appear deeply rooted in humankind, and relate to well-
known advice on how to avoid temptation. For instance, Italian medieval writer Dante
Alighieri drew on ancient wisdom to list “seven sins” – Lust, Gluttony, Greed, Sloth,
Wrath, Envy, and Pride – to guide people away from deadly vices. These sins
reflected eternal aspects to explain why people often want what is not good either for
themselves or for others. The “seven sins” offers an alluring metaphor to discuss
negative outcomes of human behavior in organization research (Garden 2017).
Our insight that the seven deadly sins overlap with important findings make
them useful for recasting acquisition research. Business research suggests concepts
depicting less desirable or accepted traits, including Machiavellianism (Christie and
Geis 1970) and narcissism (Campbell, Goodie, and Foster 2004). Still, the seven sins
can complement ‘dirty’ personality traits (Jonason and Webster 2010). Simply, a
narrative approach that considers decision-makers as the locus of “seven sins” offers a
new research perspective that focuses on the decisions leading to and shaping
acquisitions.
Lust
Lust denotes intense longing or desire. It can be lust for wealth, recognition or
power, and some of its more colorful connotations that are not far away from a
metaphor of merging. Simply, executives are susceptible to a lust to acquire. In
acquisition research, this is termed deal momentum or an escalation of commitment
(Amburgey and Miner 1992; Cullinan, Le Roux, and Weddigen 2004; Pablo, Sitkin,
and Jemison 1996). Research shows that firms taking the first steps toward acquiring
may find it difficult to stop an initiated acquisition process in spite of new information
indicating an acquisition is not prudent. For example, Hewlett Packard bought
9Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
Autonomy, in 2011, and then later wrote off $8.8 billion dollars from due diligence
missing multiple red flags (Cohan 2012). Further, share overpricing, goodwill write-
offs, and subsequent acquisition intensity are closely related to each other (Gu and
Lev 2011).
The risks from this sin are obvious. Acquisitions are usually leaps of faith with
substantial financial and managerial resource investments that offer an uncertain
future reward. Uncertainty is both fundamental and the result of negotiation tactics
(Graebner 2009). Acquirers are therefore typically advised to proceed carefully and
consider relevant information before finalizing a transaction. As the due diligence
process evolves, firms typically find more information that may indicate the
acquisition cannot create value.
Still, managers often experience an increasing momentum to close a deal from
the excitement of the process, secrecy, and a “hunting instinct” to control new
resources (Jemison and Sitkin 1986). This results in overenthusiasm in acquisition
plans (Seth, Song, and Pettit 2002) or entrenched managers that overpay even for low
synergy targets (Harford, Humphery-Jenner, and Powell 2012). Managerial over
commitment to a deal increases after publicly speaking in favor of the acquisition, and
under competition for the target (Haunschild et al. 1994). Dissenting voices may be
considered incompetent or disloyal, and they can be ignored or actively scorned (Janis
1972). In 2009, Swedish state-owned utility Vattenfall’s acquired Dutch Nuon for
13.3 billion USD, making Sweden’s largest acquisition to date, as part of a northern
European growth strategy (Hornby and Webb 2009). Public concerns of the risk of
overpayment were voiced by Elsa Widding, an analyst at the Ministry of Enterprise
and Innovation, but they were swept aside. Hence, rather than lack of information,
10Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
what was later labeled a “catastrophe” (Öhrn 2014) appears driven by a lust to
acquire.
Gluttony
Gluttony involves overindulgence and overconsumption. While a potential fast
track to growth, market entry, and new capabilities, too many acquisitions or too large
an acquisition can exceed what can be digested or overtax an acquirer’s managerial
capacity (Lamont et al. 2018; Zorn et al. 2017). For example, IBM’s acquisition of
Red Hat for $33 billion equals the combined value of all the deals completed by IBM
for 15 years, and it represents roughly 30 percent of IBM’s total value (Greene 2018).
Problems result when acquisitions exceed resources for due diligence and integration
that contribute to less desirable acquisition outcomes (Lamont et al. 2018). Further,
frequent acquirers are more likely to overpay in subsequent deals (Kim, Haleblian,
and Finkelstein 2011). Even though target size seems to lower the overpayment risk
(Alexandridis et al. 2013), the real problem often starts with integration demands
overwhelming managers, as executives that lapse into gluttony conduct deals that are
too big or too frequent (Krug et al. 2014; Laamanen and Keil 2008). This is in line
with studies showing that large deals destroy more financial value compared to
smaller ones (Alexandridis et al. 2013). In the end, executives and their organizations
end up with indigestion resulting in a muddy and uncontrollable organization. This
problem also exists when acquiring a firm that recently made an acquisition (Zorn et
al. 2017).
The reasons for gluttonous acquisitions are the same as with other
transactions—market share, technology or patents, and the difference lies in their
frequency or size. Otherwise suitable targets can become burdens, if acquisitions take
place in too short a timeframe. Similarly, research shows that mergers of equals
11Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
consistently perform badly in financial terms, and one reason is they are too large
(Alexanridis et al., 2013; Campbell, Sirmon, and Schijven 2016; Moeller,
Schlingemann, and Stulz 2005). For example, the combination of AOL and Time
Warner in 2000 in a $350 billion combination ranks among the worst mergers of all
time. The deal followed the CEOs meeting in China in 1999, and it was a shock to
employees, exhibited clashing cultures and lost a single investor, Ted Turner, an
estimated $8 billion (Arango 2010). Impossible to digest, the merger was split up ten
years later (Telegraph 2009), arguably earning the transaction the position as the
single most famous example of acquisition gluttony.
Greed
In most societies, striving for wealth is legitimate, and top managers are often
rewarded handsomely. In itself, greed has been proposed as an important driver of
accepted or even wanted behavior. For instance, rather than wishing to tone down
managers wanting wealth, agency theory commonly suggests aligning monetary
ambitions for managers with shareholder returns (e.g. Kesner, Shapiro, and Sharma
1994). Still, striving for wealth can become excessive (Rippin 2007). When desire for
wealth turns into a willingness to enrich oneself at the expense of others, the result is
greed, or a harmful desire for material wealth (Hambrick and Finkelstein 1995). This
is especially provocative as a 2016 study by MSCI, a corporate-governance firm,
finds the best-paid CEOs run some of the worst performing companies (MSCI 2016).
Interestingly, CEO compensation changes can be explained by changes in firm size
due to acquisitions in cases of passive monitors (Wright, Kroll, and Elenkov 2002).
In the context of acquisitions, greed has been found to drive acquisitions with
a varying degree of benefits attributed to managers (Mueller 1969). For instance,
managing a larger firm correlates with higher manager pay and prestige (Hambrick
12Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
and Finkelstein 1995). While corporate governance systems work to align manager
and owner interests, there is evidence CEOs talk about acquisition value creation to
only exercise stock options with the implication they do not expect long-term value
creation (Devers et al. 2013). The movie Barbarians at the Gate depicting RJR
Nabisco illustrates a lifestyle available to few, but possibly tempting too many. For
example, Tyco CEO Dennis Kozlowski, used company funds to pay for his wife’s
birthday party in Greece as part of a corruption scandal estimated to total $600
million (Fuchs 2014). In contrast, family owned firms tend to conduct fewer and
smaller acquisitions, equal to a less carefree spending behavior (Miller, Breton-Miller,
and Lester 2010), suggesting greed – at the expense of customers, competitors, or
owners – is a managerial motive behind acquisitions consistent with an agency
problem (Fama and Jensen 1983). For example, Elon Musk’s acquisition of SolarCity
by Tesla may be self-serving (Tobak 2016). Simply, it used Tesla’s higher stock
price, but criticism of the combination was associated with shares in both companies
falling (Lienert and Baker 2016). Interestingly, while some display their wealth
publicly, media coverage of executive excessive behavior offers a form of corporate
governance (Liu and McConnell 2013) that may mitigate this problem.
Sloth
If increased desire is a source of problems, a lack of desire can also result in
problems. Sloth refers to a range of conditions centering on lack of enthusiasm, effort,
and interest. Again, the complexity of acquisitions makes early mistakes easy to
make, but expensive to correct (Jemison and Sitkin 1986). Consistent with the
aphorism “the chase is better than the catch”, the work that follows acquisitions often
surprises acquiring firm managers (Gomes et al. 2013). Even if managers perceive
13Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
that the battle is over with deal closing, “the battle has just begun […] and won´t
come without a lot of blood, sweat, and tears” (Welch 2005, p. 218).
Ultimately, poor planning (Noble, Gustafson, and Hergert 1988) and lack of
enthusiasm will create less beneficial conditions during integration, including fewer
synergies, and more resistance (Meyer 2008). This is in line with research finding that
quick human integration increases internal reorganization goal achievement and
acquisition performance (Bauer, King, and Matzler 2016). Compounding additional
workload that comes with integration, job cuts can lead to employee burnout and
turnover that leaves work half-finished and no clear path forward. Acquisition
research has identified resulting problems as merger syndrome (Sarala, Vaara, and
Junni 2017). For example, problems following the combination of United and
Continental airlines led to months of passenger disruptions from a botched integration
of reservation systems that, in 2012, led to a public apology placed in full-page ads in
major newspapers by United’s CEO Oscar Munoz (Kieler 2015). In a later interview,
he stated in an interview the larger problem was United’s 85,000 employees were
“disengaged, disenchanted, disenfranchised” (Pontefract 2015).
These challenges can be mitigated through more careful integration planning
that considers human issues (Meglio, King, and Risberg 2015). Human issues
resulting from acquisitions are often a secondary consideration in traditional research
(Sarala et al. 2017). The oversight is noteworthy as target firm employees experience
three times higher turnover following an acquisition, and higher turnover rates can
persist for as long as 10 years after an acquisition (Krug and Shill 2008; Krug, Wright
and Kroll 2014). Trauma associated with acquisitions impacts employees, and it can
lead to suicide (Auster and Sirower 2002; Covin et al. 1996; Buono and Bowditch
2003).
14Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
Wrath
Strong emotions are often part of acquisitions (Haleblian et al. 2009; Kiefer
2002; Kusstatscher and Cooper 2005). Wrath is associated with anger, especially
when it is unmotivated or directed against innocent people without deliberate control.
Managerial rage can take control during acquisitions and leave little room for rational
analysis leading to internally presenting and punishing a scapegoat or an
externalization of the concept of the enemy (Kilduff, Elfenbein, and Staw 2010) that
contributes to increased political behavior inside combining firms (Clougherty and
Duso 2011) or to cutthroat rivalry with other firms in an industry (Nalebuff and
Brandenburger 2011).
Between combining firms, acquisitions that are hostile also risk organizational
resistance by presenting people with “us versus them” situations that hinder
coordination and reaching operational goals (Sinkovics, Zagelmeyer, and
Kusstatscher 2011). Even employees that previously welcomed an acquisition often
engage in political behavior that increases conflict (Dao et al. 2016; Vaara 2003).
Internal conflict is a major source of acquisition failure (Jandik and Makhija 2005).
Once begun, political behavior and internal conflict are difficult to overcome (Krug et
al. 2014), as each perceived slight leads to escalation over the desire to get even. For
example, over a decade Citigroup’s share price fell $10 following multiple
management shake-ups following the creation of Citigroup from Travelers and
Citicorp in 1998 (Dash 2008), illustrating the influence of wrath in acquisitions.
Additionally, a final acquisition decision we are familiar with was made in wrath
when a CEO screamed in a taxi “Let’s get those b******s!” While emotions are part
of constructing meaning during acquisitions (Kiefer 2002), a consideration of
emotions is not consistently considered by acquisition research (Huy 2012).
15Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
With rival firms, overly aggressive behavior including responding to
acquisitions with another acquisition can be a poor strategy (McNamara, Haleblian,
and Dykes 2008; Laamanen and Keil 2008). Resulting rivalry can drive acquisition
prices above rational levels (Varaiya and Ferris 1987), or drive counterproductive
pricing to poach customers (Krüger and Müller-Stewens 1984). The impact of
emotions and rivalry is well known by sellers who prefer auctions to sequential
processes because it increases the price (Bulow and Klemperer 2009), where wrath
appears a common but underestimated emotion in acquisitions.
Envy
Envy is the wish to have something that belongs to someone else whether
possessions, talents, or status. It is distinct from the wish to join in with someone else,
and instead has an element of wanting something at the expense of others. In
acquisitions, CEO envy of peers with higher compensation from performing
acquisitions can drive acquisition activity (Goel and Thakor 2009). Additionally,
managers may simply imitate the strategy of other firms. This phenomenon can result
in bandwagon behavior from mimetic isomorphism, and it has been detected among
competing entry strategies (Xia, Tan, and Tan 2008) or acquirers (Moatti 2009; Yang
and Hyland 2012; Tseng and Chou 2011). Possible reasons for these observations
relate to envy driving managers to seek: 1) legitimacy, 2) media coverage, or 3)
higher prestige and pay from managing a larger firm. However, imitating acquisitions
are associated with lower performance (Haleblian, McNamara, and Kolev 2012). For
example, when not driven by strategic considerations, acquisitions often provide
insufficient consideration of associated costs (Clougherty and Duso 2011). In other
words, envy can lead decision-makers astray by leading them to make irrational
acquisitions.
16Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
Pride
While pride can take the form of positive identification with an organization
(Dutton, Dukerich, and Harquail 1994), the final deadly sin of pride relates to hubris,
or an overestimation of one’s ability. Essentially, every acquisition involves pride, as
making an acquisition inherently assumes acquiring firm managers can run a target
firm better. However, a positive pride in one’s own abilities is different from
overestimating them, or a systematic inability to recognize own inabilities, and
therefore assuming performing above average, sometimes labelled the “Dunning-
Kruger effect” (Kruger and Dunning, 1991; Dunning 2011). CEO overconfidence is
associated with higher number of acquisitions – but worse outcomes (Liu, Taffler, and
John 2009). This is related to the fact that acquirers typically pay a premium ranging
between 30 and 50 percent above the share price before the acquisition (Laamanen
2007). For example, IBM is paying a 63 percent premium for Red Hat (Witkowski
2018). In other words, improved the financial performance requires IBM achieve over
a 63 percent increase in efficiency (cost reduction) or revenues above what Red Hat
was able to achieve alone. The single most credible explanation for high premiums
are not expected synergies, but overly positive assumptions about the values the
acquirer can create, or managerial hubris (Roll 1986). Research has associated
overpayment as a consistent way to lose money on acquisitions (Sirower 1997).
Proud executives also create social distance and display moral superiority by
ignoring or overruling opinions, advices, and feelings of others. Resulting wounded
pride of target managers and employees can lead to their marginalization, political
behavior, open resistance, or personnel turnover that limits benefits from an
acquisition (Chreim and Tafaghod 2012; Paruchuri, Nerkar, and Hambrick 2006). For
example, ThyssenKrupp’s expansion from Germany into Brazil displayed the
17Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
negative consequences of pride, and the executives’ feeling of superiority contributed
to losses that exceed $5 billion (Economist 2013). As a result, pride on the part of an
acquirer may help to explain problems in cross-border acquisitions.
Discussion
Managers are human, and to err is human. We recast existing research to
consider the dark side of human nature (sin) and broaden traditional perspectives
using narrative and metaphor (e.g. Riad 2011) to develop how managers err during
acquisitions. We set our study in the context of corporate acquisitions, and provide a
new narrative key for decision-making in acquisitions. In Table 1, we summarize how
considering sins relates to existing acquisition research, as well as symptoms and
insights from our resulting narrative.
--- Insert Table 1 about here ---
We review and integrate acquisition research that is often dominated by
concerns over improving financial performance. Decades of acquisition research
suggests that on average acquisitions fail to improve acquiring firm performance
(King et al. 2004), or even create huge financial losses (Moeller, Schlingemann and
Stulz 2005). This research in itself is a narrative (Czarniawska 2004) that works to
perpetuate certain stories about acquisitions, and what aims and effects are legitimate,
at the expense of others. For instance, despite layoffs being a common result
(Krishnan, Hitt and Park 2007), employee concerns are overshadowed by research on
shareholder wealth (Spraggon and Bodolica 2011). In contrast, we argue that a
narrative based on human shortcomings offers insights associated with unwanted
acquisition outcomes. Using sin as a metaphor, we are able to recast the reasons
behind unwanted acquisition outcomes. Our focus on human sins complements earlier
18Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
efforts to balance a predominant research focus on empirical examination on ever-
finer measures of financial outcomes (Meglio and Risberg 2011).
Moreover, our study assists in redirecting acquisition research. Our specific
focus has been on decision-makers rather than decision-making. There is a rich
literature on how different cognitive dispositions affect strategic decision-making in
the context of acquisitions (e.g. Baker et al. 2012; Haunschild et al. 1994) or the
influence of personality traits such as narcissism on decision (Chatterjee and
Hambrick 2007). Relatively less attention is given to decision-makers in acquisitions
and less still on the corporeal aspects and the roles these may play.
In this context, our study complements the perspective inherent in recent
efforts to delve deeper into decision-makers’ neural processes during decision-making
(Laureiro-Martinez et al. 2015). The value of drawing on ancient insights developed
outside of the traditional business sphere has been shown earlier in business research
(Rousseau 2009; Strati 2007). By centering on aspects on the dark side of human
decision making, our study outlines a new plot or meaningful whole (Polkinghorne
1987) for reasons brought forward in research addressing poor acquisition decisions.
Our narrative on sins complements prior research by moving focus from the
integration to include also the pre-acquisition phase. While vivid accounts exit of how
employees are affected by acquisition integration creating stress and anxiety
(Schweiger, Ivancevich, and Power 1987; Seo and Hill 2005) may explain over one-
third of all employee turnover (Breinlich and Niemann 2011), there is more to gain
from considering human aspects of acquisitions. By integrating problems from
acquisitions using a narrative, voice is given to how research and managers can better
understand and manage employee reactions (Almor et al. 2009; Soderberg 2006). For
instance, our research contextualizes and extends narratives of how middle managers
19Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
experience selling their souls in a Faustian contract with Satan (Ford and Harding
2003).
Taken together, this study has provided a new narrative key regarding
acquisitions. A narrative approach recognizes that essentially, knowledge is conveyed
through stories, and plots combining earlier recognized aspects in new ways allow
weaving new narrative providing new understanding. Inspired by the combination of
narrative and metaphor in the context of acquisitions (Riad 2011), our focus on sin in
decision-makers behind acquisitions combines insights from established acquisition
research that, we hope, offer new insights.
Conclusion and Future Research
Our study contributes in several ways to scholarly work on corporate
acquisitions. First, research on acquisitions is still dominated by a focus on improving
financial outcomes. Our study joins and contributes to a growing stream of research
delving into alternative views of acquisitions. Second, drawing on the metaphors of
sin, our narrative is woven around the decision-makers behind acquisitions and
thereby complements research on ways to improve decision-making in acquisitions.
Third, although not often recognized as such in current acquisition research, our focus
on sin highlights how humans often suffer during acquisitions. Still, this research has
been limited mainly to the post-acquisition phases. Our study contributes by
elaborating the consequences of regarding sin with decision-makers during the period
before acquisitions. Fourth, our overall and primary contribution is to develop a new
perspective of acquisitions. This allows recasting acquisition research around a
narrative where human shortcomings play a part in acquisitions, thus answering to
calls pursue more fundamental insights on acquisitions (Alvesson 2013; Vermeulen
2018).
20Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
Our study is not without limitations, and several relate to potential for future
research. One limitation is that our approach has been limited to decision-makers.
While our narrative also highlights the impact on employees and resulting emotions,
how to mitigate negative impacts of acquisitions on employees deserves additional
research attention. We have been touched in interviews for instance by a manager
who provided a poignant response about telling employees that they would lose their
jobs following their bakery being acquired: “There was one guy, he only worked part-
time, he had worked in a bakery before, got stuck with his arm in a machine
somewhere, so he could only use one arm. He said, tears in his eyes: ‘I’ll never find
another job.’ He was 51, part-time pensioner, and with one healthy arm…” Beyond
the employee losing his job, the manager also suffered from the experience,
exemplifying why research into the human effects are tellingly labeled ‘impact
studies’ (Schweiger and Walsh 1990), and more narratives to understand these
impacts are needed.
Our study focuses on what is generally seen as negative, and highlighting sin
enables directing attention to a new perspective of acquisitions. However, it needs
said that not all human actions are sinful. Moreover, consideration of acquisition sins
also risks research on human shortcomings legitimizing them (Ghoshal 2005), and
good intentions of counteracting sins may play out in complex ways. For instance,
excessive control may actually counteract reaching strategic goals as performance of
intrinsically motivated may punish principals when they perceive excessive control as
signs of lack of trust, or greed (Falk and Kosfeld 2006, Goranova et al., 2017). While
this must be taken seriously and a paradigmatic neglect of self-interest may leave
acquisition theory unable to understand certain behaviors, we also believe there are
21Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
benefits to address more positive human traits, and we hope our study can inspire
more research along the lines outlined here.
Lastly, the negative connotations of ‘sins’ may be overly simplistic, and a more
nuanced view holds that negative traits may still provide positive outcomes. For
instance, above average confidence has been associated with an ability to lead, accept
risk, and take on challenges (Shipman and Mumford 2011, p. 649). Additionally,
recent CSR research suggests acquisitions can be employed to further societal values
(Park, Meglio and Schriber 2019). In itself, future acquisition research can benefit
from addressing the nuances of different outcomes. However, this does not deny that
overly confident decision-makers can have negative outcomes and our developed
narrative complements traditional, empirical accounts of acquisitions. The striking
effects of acquisitions can be illustrated by a well-known example. The
DaimlerChrysler merger; later called a “poster-child of failed mergers” (CNN Money
2007), meant over 35,000 employees lost their livelihood and suffered associated
trauma. This underscores that searching for new understanding of corporate
acquisitions is a worthy cause.
22Schriber, S., King, D.R., Bauer, F. (2021). Deadly sins and corporate acquisitions.
Culture and Organization, 27(1): 1-15.
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