Effect of transformational leadership on employees’ shared goals during merger and acquisition: moderating roles of organizational support and participative decision-making

Abstract

PurposeDespite the benefits that firms obtain from merger and acquisition (M&A), this strategy frequently poses a significant challenge for management in encouraging employees of the acquired firm to develop shared goals with the new organization. This research analyzes the effect of transformational leadership by department managers in the acquiring firm on the degree to which employees in the acquired firm develop shared goals. We also examine whether the effect of transformational leadership on shared goals could be moderated by organizational support and employee participation in decision-making.Design/methodology/approachThis research was conducted using the case of a firm in the power and energy sector that was undergoing M&A. Survey data were obtained from 203 employees and their department managers to avoid common method bias. The data were analyzed using partial least squares structural equation modeling.FindingsWe found that employees in the acquired firm who worked for the department managers of the acquiring firms who demonstrated transformational leadership were more likely to adopt shared goals than those who did not. Moreover, the moderating effect analysis shows that transformational leadership had a greater effect on shared goals when employees perceived that they received a high level of organizational support. On the contrary, transformational leadership had a weaker effect on shared goals when employees actively participated in decision-making.Practical implicationsTransformational leadership is the leadership practice that the management of the acquiring firm needs to apply to employees, who are a critical part of the firm’s human capital, when they manage the M&A activities. The management also needs to demonstrate to the employees that the acquiring firm cares about the employees’ well-being and has sincere concern for them throughout and after the M&A process. Despite the transformational leadership practice’s essential role, participative decision-making is another management practice that should be implemented to reduce employees’ reliance on the management’s transformational leadership to persuade them to adopt shared goals, which might be essential when the transformational leadership practice cannot be effectively implemented.Originality/valueOur results regarding the moderating effects of perceived organizational support and participative decision-making add some new knowledge to the theory by showing that the management’s implementation of transformational leadership during M&A will need to consider other management practices that may either intensify or weaken the benefit that employees may gain from the management’s transformational leadership.