SUO FEIYA / The University of Queensland

MANAGING ORGANISATIONAL BEHABIOUR：The Analysis of AOL & Time Warner merger

SUO FEIYA / The University of Queensland

【Executive summaryWith】the massive job loss in the intervening year of the newly merged company and being desperation on falling stock prize. More important, as a frequent top manager turnover and a continuing dramatic capital and shareholder value loss (Klein,2003). Finally, in December 2009, Time Warner spin-off AOL entirely (Time Warner, 2009), the mega-merge between Time Warner and AOL announced their failure. To counter this severe situation, the AOL Time Warner indeed took a lot of measures, such as shipped off its co-chief operating officer and reduced its valuable assets (Peers & Angwin, 2003). However, with the manifestation of continuing and irretrievable loss, the fortune of the merger was doomed to end. As the universal statement for the main reason of this historic catastrophe, the merger was due to synergistic failure (Arango, 2010), which mainly due to inappropriate leadership approaches and lack of value congruence. The inappropriate leadership approaches can be classified into two categories- competencies perspective of leadership and contingency perspective of leadership. The value incongruence can be understanded in terms of organisational conflicts.

This report will primarily focus on the fundamental organisational contributions that how the executives of this newly merged company moving forward in a different direction and the culture conflicts within two firms result in this unprecedented stumble.

merger;organisational behaviour;organisational culture;leadership

1.Identification of leading causes of merger failure

1.1 Inappropriate leadership approaches

1.1.1 Lack of competencies perspective of leadership

As the definition of leadership competencies, that is the abilities, skills, knowledge, intelligence and personal traits that a leader required to lead prominent performance across their organisation (McShane, Travaglione & Olekalns,2012). Precisely, according to Simonet and Tett (2013) described the core competencies include the high level of extroverted and conscientious personal characteristics, clear selfconcept, high need for achievement, integrated words and actions, leadership motivation, substantial business knowledge, cognitive intelligence and emotional intelligence. Similarly, respect to AOL & Time Warner case, within the rapid changing business arena, to actually adapt the challenging environment, fulfill the obligation of guide right direction and make good decisions to achieve common goals. It is imperative to the top executives notice which competencies they have to obtain (Gentry, & Sparks, 2012). Unfortunately, the AOL & Time Warner top managers obviously did not aware of the skills that they request can lead successful merger. Especially, regarding personality and integrity.

●Poor personality

As many scholars indicated, the personality of a CEO can be a vital predictor of corporation success (Katz & Kahn, 1978; Colbert, Barrick & Bradley, 2014). Moreover, as the different personalities perceive things differently, it can enormously influence on firm strategy, firm decision and business direction (Hambrick, 2007). Also, as McShane, Travaglione and Olekalns (2012) mentioned a real leadership personality always scored on high extroversion and high conscientiousness. However, when it comes to AOL & Time Warner case, according to Klein (2003), not too long after the merger, Levin isolated Case and further he made decisions without consideration of Case. Overtly, it adequately showed the poor leadership personality of Levin; he made a decision without discreetness. No surprisingly, his unconscientiousness exacerbated the server situation.

●Poor integrity

Except imprudent personality trait, the absence of integrity also showed by the executives of AOL & Time Warner-they made to much promise to the Wall Street (Klein, 2003), even though that was not achievable at that circumstance.

As many scholars indicated that integrity can be seen as a comprehension of core value and ethics (Goldman Schuyler,2010; McShane, Travaglione & Olekalns, 2012). What is more important is that as McCann& Holt (2013) asserted that leadership integrity as a basic contribution of organisational success, it requires a leader keeping promise, trustworthiness and consistency with words and actions. However, obviously, the executives did not show the consistency between their promise and effort.

1.1.2 Lack of contingency leadership perception

The scholar described the contingency theory of leadership as an effective leadership approach, which the determination of leadership style based on business context, and the theory suggest effective leaders should be both insightful and flexible (Tannenbaum & Schmidt, 2008). Thus, primarily to diagnose the particular situation and accordingly match their leadership style, it requires leaders have high emotional intelligence (McShane, Travaglione & Olekalns, 2012). However, in the AOL & Time Warner case, under the severe circumstance, the executives of the firm not only emotionally disengaged in remedy implementation but also rarely

accept others suggestions (Klein, 2003). Clearly, this all manifested the main leaders of AOL & Time Warner presented an ineffective leadership style, and eventually it delayed the remedy of the loss. As a result, lead the company to a death direction. To be more specifically, the autocratic leadership approach the company followed was the significant contribution to exacerbating the situation.

●Autocratic leadership style

The autocratic leaders always described as closed-minded, sole decision maker, authority-oriented and arbitrary (Bass, 2009). As Klein (2003) mentioned both AOL and Time Warner executives wanted absolute control within the new firm. Moreover, Levin made the decision without consulting Case or rarely consider the opinion of other fellows. All this manifested an autocratic leadership approach that AOL & Time Warner presented. As a result, the autocratic leadership style not only positively effect on job dissatisfaction and burnout but also negatively correlated with motivation and loyalty (Lopez & Ensari, 2014).

2. Comprehension &Evaluations for Post Failure Actions

The first step that the company made was the replacement of Levin to Dick Parsons, who was a co-chief operating officer from former Timer Warner (Klein 2003). However, the situation still went worse. Because Parsons leadership approach same as Levin, he alienated Pittman, who was a co-chief operating officer from former AOL side, the decision made also without consulting Pittman (Klein 2003). Apparently, the conflicts between the executives still ongoing. As a result, changing the leader just helped the company into deeper troubles. Moreover, it not only result in the continuing loss of valuable assets, it also exacerbated the relationship between the employees form AOL and Time Warner side.

Regarding culture conflicts, during that hard time, there was no any proposed solution for the problems. More ironically, according toKlein (2003), the two companies as a joint venture, they prioritize their own interest rather than put their effort to achieve the common interest. Furthermore, the resentment that AOL raised was that they switched their all employees over to the AOL email system facilitated

the conflict between two firms. Especially, the employee grievance from Time Warner side is much stronger, because they resented to use to the AOL email system. Thus, as the cohesiveness is a fundamental contribution to firm success, there is no excuse for the failure of AOL & Time Warner (Lamm, Gordon & Purser, 2010).

3. Recommendations for AOL & Time Warner like M&A

As analyzed above, in order to make sure a success merger, it is imperative to introduce the correct suggestions when the merged company confront problems such as inappropriate leadership style and value incongruence. Therefore, respect to the problems that within AOL & Time Warner, the adoption of following recommendation is essential for M&A procedure.

3.1 Matching effective Leadership style

As scholar indicated that as the occurrence of merger, it may company issues such as uncertainty, dissatisfaction and stress within employees, and it will directly impact on employee loyalty and the perception of organisational trustworthiness. Thus, an effective leadership approach is necessary (Nguyen & Kleiner,2003).

Be specific, respect to the problem of autocratic leader approach in AOL & Time Warner, the path-goal leadership theory suggested two out of four leadership styles, which has been defined as supportive and participative leadership styles. The supportive style can help the employees during the stressful situation, and the

participative leadership style allows the involvement of employees when making a decision.

Respect to the problems of poor personality and poor integrity, according to Schuler and Jackson (2001), a situational leader should be introduced. It requires different cultural sensitivity, understands both merger companies’ strengths and weaknesses, open-minded set, willingness to listen, information sensitivity and long-term interest orientation (McShane, Travaglione & Olekalns,2012).

4. Conclusion

To sum up, the case study of the failure of AOL & Time Warner merger clarified the problems of its executives and inner culture conflicts. As discussed above, during the pre-merger period and post-merger period, the executives of AOL & Time Warner present their inappropriate autocratic leadership approach. Meanwhile, the lack of leadership competencies and contingency leadership shortage also contribute to the fate of the two organisational merger. Moreover, the cultural conflicts showed across the new company had made sure the inevitable failure of this merger. Actually, there were some remedies had been proposed after its first loss such as replacement the top executive. However, it exacerbated the situation more server. Respect to each specific problem, this report made some recommendations to help AOL & Time Warner like M&A company to address the problems.

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