From an employee perspective, the study examines the intra-firm role of ethical values in four cases where Swedish firms are acquired by or merge with foreign comptetitors. This is done by using the conceptual tool of internal legitimacy, adding up to the research question on what grounds internal legitimacy is created for changes regarding work content, work routines, and organization in the Swedish firms under study.
A model for understanding internal legitimation in an organizational context is developed, defining internal legitimacy as an internal license to operate, understood in relational terms, given by the employees on the basis of common values, meaningfulness, self-interest, and emotional grounds. Different forms of internal legitimacy are identified. Moral (normative) legitimacy rests upon common (ethical) values, cognitive legitimacy builds on meaningfulness, pragmatic legitimacy has its roots in self-interest, while the emotional context warrants its own form of legitimacy that can be understood in identificational terms.
The four cases differ in substance from each other. The first case concerns an Internet firm taken over by a German competitor. The second case is about a consultancy firm that is acquired by a British multinational. The third case describes an American acquisition of an industrial firm, while the fourth case focuses on a merger of equals between a Swedish and a Finnish firm within raw material extraction and manufacturing.
Changes in work content are found to be more detrimental to internal legitimacy than changes in work routines and organization. This is due to the challenge that externally imposed changes in work content pose to the basic meaning of work as understood by the employees.
Five factors, understood as facilitators for internal legitimacy, are identified. The autonomy factor, the competence factor, the identification factor, the market logic factor, and the instrumental factor. These factors have a strong bearing on the creation of internal legitimacy in the examined firms.
The autonomy factor signifies a claim for relative organizational autonomy and independence from the new owners and respect for the individual need for self-realization at work. In ethical terms, both these aspects build on elements of freedom, equality, tolerance, diversity, and co-determination, ethical concepts that are closely knit together in the minds of Swedish employees and provide the basis for how they want to be treated by the new owners.
The competence factor refers to employee expectations on the new owners' knowledge and competence. This factor can be understood as instrumental, building on self-interest, in the way that there is a strong expectation that the new owners contribute with knowledge that is good for business. But it can also be understood in value terms, signifying a respect for professional knowledge as a value, shared for example in technically oriented engineering cultures.
The identification factor has to do with what the employees are, want to be, and to what extent the new owners facilitate their endeavor to become this. This factor is multi-faceted. Elements of narcissicstic self-interest, correspondence between employee values and the perceived values of the new owners, and emotional factors all contribute to identification, not the least in terms of status.
The market logic factor refers to the fact that acceptance of evolutionary market logic warrants legitimacy for relatively harsh measures in terms of, for example, downsizing. The degree to which the employees consider evolutionary market logic to be valid in a functional sense is crucial since it implies the level of cognitive acceptance of the rules of the game of the market and, also, their natural consequences on a micro-level.
The instrumental factor builds on self-interest and has to do with the degree to which personal interests, for example career interests, are furthered by the order established by the new owners.
Ethical values play an important role in the sense that they are fundamental to trust, which must be enjoyed by a foreign owner to gain acceptance from an internal Swedish employee force. Trust is manifested in the autonomy factor and the identification factor. Knowledge can also be seen as a value, however not an ethical one, that is also vital to trust and is manifested in the competence factor.
One important finding is that there seems to be a common Swedish understanding of the ethical values at stake. Autonomy, expressed as freedom, is linked to participation, equality, and respect for the individual. Another important finding is that, contrary to intuitive expectations, there is no connection between conventionally understood macro-level national cultural similarity and micro-level internal legitimacy for changes in terms of work content, work routines, and organization. Internal legitimacy is virtually absent in the German-Swedish case and relatively low in the Finnish-Swedish case. To some degree it exists within the British-Swedish case while it is high in the U.S.-Swedish case. This shows that assumptions of macro-level cultural similarity are not good predictors when it comes to micro-level outcomes concerning the human side of mergers and acquisitions. Rather, the five factors mentioned above have more significance in terms of internal legitimacy creation.
Stockholm: Ekonomiska forskningsinstitutet vid Handelshögskolan (EFI) , 2006. , 262 p.