Who Owns Client-Professional Relationships-the Merging Firm or the Merged Firm?: Post-Merger Integration through Client Sharing Between Audit Firms

Friday, 3 July 2015: 4:00 PM-5:30 PM
CLM.3.05 (Clement House)
Masaru Karube, Hitotsubashi University, Tokyo, Japan
Hironori Fukukawa, Hitotsubashi University, Tokyo, Japan
Israel Drori, College of management Academic Studies, Rishon LeZion, Israel
A firm is often assumed to own all its business, and regard professionals as employees. Many professionals believe, however, that they own part of the business because they brought the clients to the firm. Strong ties between clients and professionals are considered a symptom of "relational inertia" in the literature on social capital (Gargiulo & Benassi, 2009). In order to overcome relational inertia between clients and professionals, a firm has to reconcile the client-professional relationship with a firm-professional relationship through a firm strategy (client-firm relationship). However, the issues of how, why and under what conditions such tension could be resolved have not been fully investigated in the literature.
        To fill the void, we explore the micro mechanism of collaboration between professionals inside firms by shedding light on the stability and change of client-professional relationships and their collaboration after their merger experience. Based on recent findings on client–professional relationships in US law firms from relational perspectives (Briscoe & Tsai, 2011), we would expect the merger experience to serve as an opportunity to overcome relational inertia because the initial goal of a merger is to realize organizational integration through collaboration between organizational members of the merging firms with those of the merged firms. Focusing on the evolution of the client-professional relationship and firm-professional relationship respectively before and after the merger experience, we investigate client-sharing behaviors between members of merging firms and those of merged firms after the mergers. While Briscoe & Tsai (2011) only focus on the differences between "inter-unit collaboration (sharing old clients with new colleagues in the formerly separate firm)" and "intra-unit collaboration (sharing old clients with old colleagues in the formerly same firm)," we further examine the effect of "inter-generational collaboration (sharing clients with new colleagues hired after the mergers)" and the effect of any type of collaboration for newly acquired clients after the merger.
        Our analysis uses data on Japanese audit firm partners who experienced three large merger cases among audit firms in the 1980s, later emerging as the Japanese Big Four audit firms. The partner data was manually collected from the audit reports issued every fiscal year from each of the firms listed in the several stock markets in Japan, including "who audits whom and when" information from 1980 through 1999. Based on the examination of collaborations among 2990 individual partners who used to be affiliated with each of the six audit firms consisting of the three pairs of merging firms and merged firms, our findings are as follows: 1) inter-unit collaboration as a driver of organizational integration is not symmetrically observed between merging firms and merged firms.; 2) the role of inter-generational collaboration becomes larger over time.; 3) inter-unit collaboration and inter-generational collaboration are more frequently observed for the newly acquired clients rather than the old clients before the merger, suggesting that the success of mergers through organization integration depends on the distribution of initial memberships between merging and merged firms, membership turnover and how many new clients are acquired after the merger.