Ethical Leadership And Its Effectiveness Mechanism Under Post-merger Integration

In the context of rapid economic development and global financial crisis, mergers and acquisitions (M&A) have been widely performed by Chinese firms. It is commonly understood that competitive advantages can be achieved through M&A events. However, the cost of managerial failures in M&A process has dramatically increased in last several decades, part of which has been linked with issues intersecting organizational ethics and ethical leadership. Therefore, scholars demonstrated that ethical perspectives should be introduced by leadership in developing harmonious business relationships in industrial transformation and upgrading processes in post merger cultural integration processes. Thus emphasis has been given to a range of issues, such as how to maintain core employees from the merged firm in the new formed organization, rather than redistributing competitive assets in the post-merger integration process.On the basis of previous research on ethical leadership, a dual-effect framework (based on social exchange theory and social identity theory) was introduced. With this framework, I discuss how ethical leadership and organizational reputation in the merging firm influence ethical cooperative behavior and post-merger satisfaction in the merged firm. Three theoretical issues were identified:(1) developing and validating the multi-dimensional construct of ethical leadership behavior in the organizational change context, i.e. M&A (study1&study2);(2) examining the interactive effect of ethical leadership and organizational reputation on ethical cooperative behavior by the merged firm during post-merger integration process (study3);(3) exploring the dual-effect mechanism of ethical leadership and organizational reputation under M&A contexts with different characteristics (study4). In response to the issues above, four studies were conducted.Study1developed the construct framework of ethical leadership in the context of post-merger integration. Applying qualitative cross-case study method, I explored specific ethical leadership behaviors in the post-merger integration process. These are initiated by new department (group) leaders appointed by the merging firms. Four different types of M&A cases were selected. Adopting a three-dimensional social exchange framework, three behavioral dimensions of ethical leadership were identified, being commitment fulfillment, collaborative equality and adaptive guidance.Study2tested empirically the construct of ethical leadership in the post-merger integration context. In this study, interview and empirical questionnaire methods were combined. Based on previous literature review and qualitative results from Study1, a16-item ethical leadership scale with three dimensions (i.e. commitment fulfillment, collaborative equality and adaptive guidance) was developed and validated. All of these three dimensions had significant impact on merged group's ethical cooperative behavior.Study3examined the interactive mechanism between two elements of organizational ethics-ethical leadership and organizational reputation-in the post-merger integration process. Based on a social exchange framework, results of experiments and scenario simulations showed that the interaction between a leader's ethical behavior and perceived organizational reputation of the merging firm had significant impact on ethical behavior in the merged department's (group's). Specifically, merged groups would perform ethically, adopting cooperative behaviors, only when high level of ethical leadership and organizational reputation were perceived in the merging firm. Also, the ethical reciprocity in the merged group mediated the focal interaction effect. In addition, the effect of ethical leadership and organizational reputation was more salient when there was minor change in terms of group composition during the M&A process.Study4demonstrated the dual-effect mechanism of ethical leadership and organizational reputation on cooperative behavior in the merged firm and the post-merger satisfaction under M&A contexts with different characteristics. Applying social exchange theory and social identity theory as a dual-effect framework, the mediating roles of both ethical reciprocity and ethical identification were examined. Empirical results showed that, in a social identity theory frame, the merged group members tended to cooperate with the merging group ones when they ethically identified with organizational reputation rather than specific ethical leadership behavior in the merging firm during the integration process. On the other hand, in the social exchange frame, the merged group was strongly influenced by the new group leader's issue-relevant moral behaviors. The merged groups only performed ethical behaviors when they had an intention of ethical reciprocity with the merging group. It is argued that these two leadership processes exist simultaneously, with two different mediating mechanisms, i.e. ethical identification and ethical reciprocity. Based on these results, the effectiveness of two leadership processes under M&A contexts with different characteristics were further discussed. Empirical results revealed that the interactive effect of ethical leadership and organizational reputation was more salient when there was minor change in terms of group composition during the M&A process. Besides, the effects of ethical leadership processes in the merging firm were significantly impacted by perceived level of conflict of interest in the M&A process. Specifically, when low level of conflict of interest was perceived, the effectiveness approach in a social exchange frame emphasizing group leader's ethical behaviors was more salient. When high level of conflict of interest was perceived, the effectiveness approach in a social identity frame emphasizing emotional identification with the merging firm was more salient in the post-merger integration.Based on the results above, key theoretical contribution is summarized in this paper in regards to how to promote post-merger integration applying an ethical perspective. Finally, managerial implications as well as limitations and future research directions are discussed.