You're Fired! Self-Organized Criticality in Post-M&A Executive Turnover Rates

Mergers and acquisitions (M&A), top management teams (TMT) and "hiring and firing" reflect different but related facets of organizational life. M&A activity occurs in cyclical non-periodic waves (Barkoulas et al. 2001). During these waves, the historical decision-making information stored in TMTs (Hambrick and Mason 1984) is either upended or retained. This is achieved by recruiting new managers and letting go of incumbent ones, which can either create or destroy competitive advantage. Thus, post-M&A executive turnover is a specific episode of hiring and firing when organizational memory (Walsh and Ungson 1991) either persists or decays in response to revolutionary strategic change (Miller and Friesen 1980). This is important because knowledge retention and transfer within and across firm boundaries affect performance (Argote et al. 2003). Furthermore, the dramatic upheaval of M&A for firms and subsequent trauma of turnover for employees are commonplace in modern corporate life, rendering incomplete any account of organizations and managers without these aspects of their existence. In this proposal, we first examine the distribution of the rate of target firm executive turnover in a sample of M&A from the height of the 1990s M&A wave, to ascertain the rate’s statistical properties. Then on a subset of this sample, we correlate this rate with subsequent acquiring firm Return on Assets (ROA), to see if the rate directly relates to firm performance. Our subsequent observations imply a lack of economic optimization and little knowledge retention or transfer, from which we infer a behavioral explanation and the primacy of knowledge creation. We then interpret post-M&A executive turnover rates as emergent (Lovejoy 1927) expressions of a self-organized critical (SOC) (Bak 1996) ecology of managers conceptualized as a complex adaptive system (CAS) following an evolutionary dynamic of punctuated equilibrium (Eldredge and Gould 1972).