european management journal vol. 16, no. 2, pp. 136–150 ... files/the dark...renault’s truck...

European Management Journal Vol. 16, No. 2, pp. 136–150, 1998 1998 Published by Elsevier Science Ltd. All rights reservedPergamon

Printed in Great Britain0263-2373/98 $19.00 + 0.00PII: S0263-2373(97)00083-2

The Dark Side ofAlliances:Lessons from Volvo–RenaultROBERT BRUNER, Darden Graduate School of Business, University of VirginiaROBERT SPEKMAN, Darden Graduate School of Business, University of Virginia

This article explores sources of failure in strategicalliances drawing on field research into one of themost prominent alliance collapses in recent years.The alliance of Volvo and Renault married the twolargest enterprises in their respective countries foreconomic objectives that virtually all industryexperts applauded. Three years after its founding,the allies split apart in a bruising argument that leftobservers reassessing the future of alliances and ofEuropean integration. We believe that an expla-nation of the paradox of ‘good motive–unhappyoutcome’ here is to be found in the ‘dark side’ ofalliances that invites managers to make fatal errors.We identify six factors that undermined the Volvo–Renault alliance: misalignment of senior andoperating managers, path dependence, alliancerecontracting, leadership style, cultural differences,and time. Alliances are vulnerable to these andother errors. Lessons about them are relevant to all

European Management Journal Vol 16 No 2 April 1998136

alliance managers and senior executives of corpor-ate allies. 1998 Published by Elsevier Science Ltd.All rights reserved

The strategic alliance towers over the corporate land-scape of the mid-1990s. These innovative organiza-tional structures stretch our vision for inter-firm col-laboration. In the view of Quinn (1992) and Gomes-Casseres (1994), alliances herald the arrival of the net-worked or ‘intelligent’ enterprise, a disaggregatedorganization concentrated around a core set ofknowledge or skills. The rising tide of alliances1

announced each year suggests a boom in organiza-tional invention and experimentation. The motivesand high expectations for alliances form a steadymantra: to gain production efficiencies and the result-ant lower costs; to expedite access to technology,markets, and/or customers; to promote organiza-tional learning; to expand strategic competencies;

THE DARK SIDE OF ALLIANCES: LESSONS FROM VOLVO–RENAULT

and to launch a strategic response to a much larger,or more nimble, competitor (see, for example, Powell,1987 and Lorange and Roos, 1993) These and othermotives represent the bright side of alliances.

In the midst of this euphoria it is stunning to findthat the track record for alliance success is rather low,with some estimates stating that more than 60% ofall alliances fail.2 Some executives explain that manyalliances are formed to promote corporate develop-ment and that what is nominally a failed alliance isreally a very valuable acquisition of knowledge orexpertise. Others argue that alliances are similar totaking options on the future. Like an R & D project,failure is inherently part of the process and shouldbe expected.

To be sure, alliance success is often tough to measure.Organizations learn at different rates and one partnermight be a slow learner. Certainly, this is the case atNUMMI; GM has not learned as quickly as Toyotahas. Or, the intended goal of the alliance is not achi-eved but one partner reaps windfall profits by virtueof its brief, albeit profitable, association. For example,executives at AT&T point to the millions gained intheir sale of Olivetti stock and their subsequent orderfor telecommunications equipment from the ItalianPTT as measures of alliance success, although by allexternal accounts the AT&T–Olivetti alliance neveraccomplished its intended goals. For many morefirms, the gains are illusory and such education canbe quite expensive. Executives who wish to avoid thedustbin of failed alliances must begin by understand-ing the causes of failure and their possible remedies.

Our own research highlights six key points of vulner-ability for alliances which should be the focus for spe-cial attention by executives of corporations and man-agers of alliances. We illustrate these vulnerabilitiesthrough an in-depth case study of the failed strategicalliance between AB Volvo and Renault S.A. Ourstudy draws on 20 interviews in Europe and theUnited States of senior executives at Volvo andRenault, as well as knowledgeable observers in fin-ance and business journalism who followed thealliance closely.

The Volvo–Renault alliance is an exemplar for seniorexecutives. First, it was one of the largest and mostprominent alliances in Europe. The two companieswere the largest enterprises in their respective home-lands. The combination of Swedish and French giantsseemed to model the future of European businessintegration and could have symbolized the bestintentions of pan-European cooperation. The alliancepromised to shift the strategic paradigm in Europe,creating a muscular world-class competitor out oftwo smaller producers. For Volvo particularly thealliance was seen as its key to survival. Auto industryexperts questioned Volvo’s go-it-alone strategy. Theindustrial motives for the alliance were impeccable:indeed, to this day they remain unchallenged. And

European Management Journal Vol 16 No 2 April 1998 137

finally, the alliance consummated the efforts and out-look of two business leaders who were praised in thehighest terms: ‘visionary,’ ‘charismatic,’ and ‘deeplyrespected.’ The ultimate demise of this alliancestarkly illuminates the darker side of these combi-nations, embracing special issues of strategy, leader-ship, culture and control.

Founding the Alliance

In 1990 Volvo and Renault agreed to establish a stra-tegic alliance through a complicated scheme of cross-share holdings, joint production and R&D agree-ments, and supervisory boards. The allies knew eachother well through 20 years of industrial cooperation.In 1971 they initiated a cross-supply agreementinvolving the swapping of gasoline engines for gear-boxes. Renault invested in Volvo shares in 1980 (andsold them in 1985, during Renault’s close-call withbankruptcy). Volvo’s Executive Chairman, Pehr Gyl-lenhammar, approached Renault’s CEO, RaymondLevy, in 1986 with a proposal for Volvo to purchaseRenault’s truck manufacturing business. The pur-chase would have solidified Volvo’s lead in the Euro-pean truck market. Levy demurred then, but in 1989opened discussions with Gyllenhammar for a morefar-ranging alliance. Levy drew a parallel betweenthe Volvo–Renault partnership and the founding ofthe Royal Dutch Shell Group: as the Dutch and Brit-ish organizations came together in a marriage ofequals, so would Volvo and Renault. The timing ofthese discussions was important: both allies werefinancially healthy. By the end of 1989, Renault couldsolidly assert that it had recovered from its distressof the mid-1980s, and could point to its successfulnew products, Clio, Espace, and Renault 25 as indi-cators of a promising future. Volvo, too, could lookback on several years of dramatic prosperity, fueledlargely by its sales growth in North America.

The strategic alliance founded in 1990 was motivatedby two primary considerations. First was the desireto exploit sizable potential synergies in joint productdevelopment, purchasing, quality and manufactur-ing. Volvo and Renault estimated that the undis-counted value of scale economies available throughthe alliance would amount to Swedish Kronor (SEK)14 billion between the years 1991 and 2000. Thesecond was to combine complementary firms inorder to ‘create a firm of sufficient size, breadth anddepth as to be able to compete effectively in the glo-bal industry.’ As Figure 1 shows, a fusion of Volvoand Renault was part of a longer-term process con-solidation in the automobile industry within Europe.Finally, the sharing of key competencies of each firmmight lead to other, less tangible, benefits. The twofirms had complementary competencies in marketpositions, geographic regions, and core com-petencies, as illustrated in Table 1. However, that


Figure 1 Changing Competitive Structure of Industry.

Table 1 Elements of Difference and Complementarity between Volvo and Renault

Volvo Renault

Home country/region Swedish; Scandinavian; Anglo-Saxon French; Latin; Continental EuropeanLanguage Swedish; (English dominant second French

language)Ownership Investor-owned State-ownedSize/position Small niche-player in cars. Dominant in Large, broad product line player. Weak in

heavy trucks heavy trucksCore values and competencies Safety Styling

Engineering Cost managementManagement structure Decentralized; easy flow of information Centralized; formal flow of informationMarket orientation Scandinavia, North America, Asia Continental Europe



table also shows the huge challenge facing the part-ners: bridging the cultural gulf between both firms.

A schematic diagram of the alliance is given in Figure2. Key features of the alliance terms were:

❖ Substantial cross-share holdings by each firm inthe other, and a poison pill to discourage anyattempt to unwind the alliance. Renault and Volvowould hold shares in each other’s parent com-pany, thus permitting their CEOs to sit on eachother’s board of directors. Though cross-sharehol-dings are unusual in alliances within North Amer-ica, they are relatively common in ContinentalEurope. Cross shareholdings were expressions ofstrategic intent of Renault and Volvo to co-mingletheir automotive businesses. At one level, onemight view this cross shareholding as an‘exchange of hostages’ to signal also the joint andmutual commitment of both partners to the futuresuccess of their business venture. Through thesecross-sharing holdings the ability to untangle thetwo businesses became quite cumbersome. Giventhis, one might expect that both sides would workdoubly hard to sustain the alliance. The poison pillis not shown in Figure 2, but its terms were com-plicated, and its impact material. The pill was toimpose sizable costs on either party seeking to ter-

Figure 2 Structure of Strategic Alliance and Cross-share Holdings as of September 1993.


minate the alliance. Three years later, Volvo paidRenault SEK 5.2 billion under the terms of the pill.The ownership and control aspects of the alliancecreated a path dependency for the two partners thatlater would narrow the range of possibleresponses to unanticipated problems.

❖ Equality. This was evident in the equal division ofmanagement appointments to the joint operatingcommittees, the creation of two alliance head-quarters (Paris and Gothenburg), and in the choiceof neither company’s native language as theofficial tongue of the alliance (English was to bethe official language). This equality is remarkablein view of the fact that Renault was several timeslarger than Volvo in cars, and somewhat smallerin trucks. It is important to note that in the alliancerelative size matters little — partners retained anequal voice in the management of the alliance.

❖ Comprehensiveness. Management of the allianceentailed a structure of 21 committees. In order torealize the anticipated alliance synergies it wouldbe necessary to engage each organization manylayers deep. While parallel organizations and ste-ering committees are common in Europe andNorth America, such complexity tends to be a Eur-opean phenomenon. Again, such complex struc-tures contribute to increasing the switching costs


and can lead to a heightened sense of joint com-mitment. It is not clear that there was any alterna-tive: unlike an acquisition of Volvo by Renault, thelarger firm could not simply appoint middle- andjunior-level managers in Volvo and commandthem to change the organization. Volvo andRenault needed to engage each other and jointlyrealize the synergies. Such engagement requiredtight coordination as well as a joint vision of thefuture. These committees were viewed as thevehicle by which coordination, and cooperation,could be enhanced.

❖ Brand integrity, operational focus. The alliancewould not entail a combination of the brandnames and dealer networks. Rather, it was mainlya creature of the operational side of the two firms:purchasing, manufacturing, and componentsdevelopment. Both firms would gain from theupstream synergies of the alliance but would befree to pursue their downstream options separ-ately. Other alliance research (Doz, 1988) suggeststhat conflicts tend to arise when partners whocooperate upstream then compete downstream.Yet, Table 1 demonstrates the complementary nat-ure of the partners’ markets and products; therebyminimizing potential conflict.

In February 1991 Gyllenhammar asserted that thefocus of the alliance was ‘cooperation,’ not owner-ship. He said, ‘the hierarchical structure will becomeoutdated’ in the future, as more firms adopt the coop-erative structure typified by this alliance. The allianceafforded a less structured set of linkages between thetwo firms, at a number of different levels and across anumber of different functions. Management believedthat such flexibility was needed to ensure mutualgrowth and heightened cooperation. However,flexibility suffered under the complex committeestructure and the cooperation between equals sloweddecision making and subtly contributed to a growingsense of frustration at the operational level.

Health of the Alliance, 1991–93

Our interviews revealed a remarkable split in percep-tions on the success of the alliance: along Swedish–French lines, and within Volvo, between head-quarters and operational executives. Senior execu-tives of both Volvo and Renault indicated that thealliance was healthy and successful. In 1993, Gyllen-hammar said, ‘When the alliance was made, we hadmany observers who thought it was complicated, dif-ficult, heavy, and how could it work with a commit-tee structure between two major manufacturers? Wecan safely say today the alliance has been a success.It developed much better than skeptics thought andbetter than we had hoped.’

By 1993, the components exchange had worked well.


Yet, this exchange had a long history of success. Pur-chasing had begun to realize economies, but wouldtake more time to achieve full potential. However,these economies were never fully quantified and theamount of the full financial benefits remained rathervague. This lack of specificity can be compared toother alliances in which partners are quick to docu-ment the gains made and the savings achieved. Forexample, early in their alliance, KLM and Northwestairlines were able to point to $23 million in savingsattributed to economies in purchasing and mainte-nance. Such gains are often viewed as the ‘low hang-ing fruit’ of the alliance. Quality efforts betweenVolvo and Renault had made some headway. Thetwo firms could look to successes such as the devel-opment of a new family of rear-axle drives, and theestablishment of a joint venture for manufacturingbuses in France. The language difference was still aconcern, though the French had made strides in mas-tering English. However, some newspaper accountsreported that Renault engineers reverted to speakingFrench in moments of conflict, and that some Swedesperceived that as a means of excluding them.

Many observers believed that by 1993 the alliancehad exploited the easy gains, and that more difficultchallenges lay ahead. Operational executives atVolvo expressed dissatisfaction with the alliance. Ourinterviews revealed two projects that exemplifiedthese challenges:

❖ P4 Project. The effort to develop a new commonplatform for a high-end executive car occupied200–300 engineers. For the French and the Swedes,the design of a flagship-model car summonedforth the greatest skills and strongest feelings.Among car people, emotions run high when newmodels are conceived and designed. The Frenchwere proud of styling and cost containment skillsbehind the successful new models introduced inrecent years. The Swedes were especially proud ofthe engineering and safety embedded in the Volvocars — indeed, engineering was the ‘real heart ofVolvo,’ as one executive told us. Volvo’s newestmodel, the 850, had taken eight years and SEK7 billion to launch. Renault worried that Volvo’sengineering gains came at great expense. Cer-tainly, the delays and cost over-runs are far inexcess of the Japanese auto makers who represent‘best in class.’ Models built on the P4 platformwere to be launched in 1997. The French proposedthat the P4 be a front-wheel drive car; the Swedishengineers strongly wanted it to be rear-wheeldrive, similar to the Mercedes-Benz S-class, andthe BMW 500 and 700 series cars. A front-wheeldrive design would require the engine to be trans-verse-mounted which raised other problems. Forinstance, Volvo produced a modern six-cylinderin-line engine, powerful enough to drive an execu-tive car, and which met both European and Amer-ican emission standards. But it was too long to bemounted transversely. Renault could supply its

The suspicion among the

Swedes was that the French

fought because of power-

seeking


own V6 engine, which was short enough to bemounted transversely, but could not meet Amer-ican emission standards, where Volvo had amaterial market presence. One solution was tobuy a V6 engine from Mitsubishi with whomVolvo already had a joint venture, but this wasunpopular with the French. Finally, computer-simulated crash tests revealed the platform to betoo light: the engine could be pushed into thepassenger compartment. The safety-consciousVolvo engineers insisted on strengthening (i.e.,increasing the weight of) theplatform; Renault engineerswere concerned aboutweight, cost, and develop-ment time. With a launchplanned for 1997, the finalcommitment on the plat-form would be needed insix months.

❖ Truck production. Ques-tions about truck production illustrated the needfor making hard decisions to rationalize the effortsof the two firms. Truck buyers were much moresophisticated than car buyers and perceivedVolvo engines as being higher quality thanRenault engines. Since the price of Volvo truckswas higher than comparable Renault trucks, itmight be possible to acquire a Volvo engine andengineering for less money, by buying a Renaulttruck. Volvo’s solution was to propose that Volvoassume responsibility for all production in heavytrucks — where Volvo ranked second in worldproduction — and that Renault assume responsi-bility for production of medium and light truckswhere it had good volume. Renault resisted,pointing out that it had a very strong heavy truckposition in France. Observers sensed thatRenault’s truck operation was afraid of beingswallowed by Volvo, and that Volvo feared los-ing, or diluting, both its brand identity and con-sumer franchise.

A leading business journalist in Sweden, Sven-IvanSundqvist, told us, ‘They would have fights on thesecommittees that were technically about someoperating matter. But the suspicion among theSwedes was that the French fought because of power-seeking.’ Michel de Virville, Executive Vice Presidentof Renault said, ‘To run an alliance by committeestakes time, and time as everyone knows, is money.’

With a 50:50 control arrangement, both sides had thepower to veto decisions. There was concern that withan equal voice decision making would stall and timewould be wasted as the partners attempted to reachconsensus on key business issues. Many of thesedecisions were very sensitive. On the industrial side,they could affect the allocation of production, andjobs, between Sweden and France. Renault, a state-owned enterprise, was especially sensitive to the lossof jobs. In the area of new model development, the


two firms were protective of their respective brandidentities. But real cost savings lay with both elimin-ating redundancy and replacing a product com-pletely; it would be difficult to obtain large savingswith old products in the system. Compromises onproduct design would tend to erode savings. Withouta dominant partner, it was believed that compromisewould result in sub-optimal decisions and a potentialloss in agility. In contrast with this view, Corning, arecognized alliance expert, views equal control as apositive force since partners are compelled to work

harder to achieve theirespoused mutual gains.Corning appears to be drivenless by issues of power andcontrol, and is more focused onfostering commitment andtrust. Equal commitment acts tolessen the likelihood that onepartner will act in his own self-interest to the detriment of his

partner. Commitment holds opportunistic behaviorin check.

Gyllenhammar and Louis Schweitzer (Renault’s CEObeginning in 1992) believed that the first two yearsof the alliance had proved its wisdom, but wereimpatient with the pace of joint work and integration.He and Gyllenhammar viewed merger as one obvi-ous solution. Other research (Chesbrough and Teece,1996 and Deeds and Hill, 1996) suggests that whenone is concerned about speed and control an alliancemight not be the most efficient organizational mech-anism and that a merger might prove more effective.It appears that the term ‘effective’ is used to meancontrol in that in a merger one partner typicallyretains a dominant position.

Transforming the Alliance Through FullMerger

Gyllenhammar and Schweitzer claimed that mergerhad always been the ultimate aim of the strategicalliance established between Volvo and Renault.Other interviewees disagreed on this point. For anon-trivial segment of Volvo employees, the notionthat the alliance was merely the first step towardmerger may have come as a surprise. Almost concur-rent with the merger talks, the French conservativeparty gained power in March 1993, the new Ministerof Industry told Schweitzer and his senior manage-ment team to prepare for privatization. Renaultwould probably be privatized late in 1994. Privatiz-ation would have an immediate effect on the valueof Renault’s market value which determines theexchange value of stock upon which the merger isbased.

Gyllenhammar and Schweitzer believed that it was


now or never: if the two firms were to wait until theprivatization process were complete, the economicopportunity might have passed. If it is true that pro-gress within the alliance was beginning to stall, thenthe solution to merge would have assumed someurgency and dictated a consummation before Renaultwas privatized, rather than in 18–21 months. SeniorManagement’s belief was that through a mergercooperative sentiments give way to a more hier-archical structure — decision making can move fas-ter. Although a merger appeared to be the obvioussolution, management’s obsession with time and theneed to move fast presented a number of unforeseenproblems. Nonetheless, serious merger talks betweenVolvo and Renault began3 in April 1993.

In August, the press published surprising financialresults for the two firms. Volvo’s second-quarterearnings surged fourfold in the second quarter, andthe firm reported a return to profitability for the firsthalf. This dramatic turnaround reflected a resurgenceof the North American auto market. In contrast,Renault reported pretax profit in the first half of 1993,down 87% from the previous year. The firm blamedthe earnings decline on lower sales in anaemic Euro-pean car markets. As the economic fortunes of thepartners reversed, the question of privatization tookon even greater importance for Volvo share hold-ers — their concern for the market value of Renault’sshares became paramount.

On September 6, 1993, the Chairmen of Volvo andRenault announced the terms by which their autoand truck manufacturing businesses would merge.Schweitzer said, ‘To achieve economies you needspeed and determination. This is easier to achievethrough single management than through partnerswho are in complete agreement.’ It is important tonote that neither Schweitzer nor Gyllenhammaracknowledged the symptoms of a serious illness thatsurfaced at the alliance’s operational levels.

Gyllenhammar called a special meeting of the share-holders for November 6, 1993 to obtain theirapproval. He was confident that approval would beobtained. Viewing this as mainly a discussionbetween Volvo’s shareholders and board of directors,Schweitzer declined to take an active role unlessasked. Following the announcement, the two leaderscommenced a ‘road show’ to present the proposal tothe financial community in Europe and North Amer-ica, and to their respective organizations. Blinded byhis vision of the future, Gyllenhammar woefullyunderestimated the resistance that sprung for a num-ber of key stakeholders.

The proposed merger would create Renault–VolvoRVA to be owned 65% by the French Government,and 35% by AB Volvo. The pro forma 1992 sales ofthis group would have ranked the firm sixth in sizein the worldwide auto industry. The firm wouldemploy 200,000 persons, and be headquartered in


Boulogne-Billancourt, a suburb of Paris, and thelocation of Renault headquarters. Figure 3 gives adiagram of the ownership and governance structureof Renault–Volvo RVA.

RVA would be directed by a Management Boardunder the supervision of a Supervisory Board. TheSupervisory Board would have extended powers andwould be called upon to decide on major financialissues. To be nominated Chairman of the SupervisoryBoard would be Pehr Gyllenhammar. The Manage-ment Board would be responsible for the operation ofRenault–Volvo RVA. The French Government wouldnominate Louis Schweitzer as the Chairman of theManagement Board and CEO of RVA.

The Government announced that it intended to priv-atize Renault in 1994, and that it would sell its sharesprincipally to a noyaux durs (literally, ‘hard nuts,’ i.e.,a hard core) of investors. Leading candidates for thishard core included Matra (a French industrial andautomotive manufacturer), and French financialgroups with ties to the French Government, such asSociete Generale, Groupe Suez, and Credit Agricole.

Gyllenhammar and Schweitzer pointed to three mainreasons for the merger. The first was competitiveadvantage. The combined firm would rank second inworld production of trucks after Daimler-Benz, andsixth in world production of passenger cars.

Second, the CEOs sought to exploit operatingefficiencies in procurement, research and develop-ment, and production. Volvo explained that theseeconomies would amount to an additional4 SEK16.4 billion (FF12 billion) on an undiscounted basisbetween 1994 and 2000. However, these figures werenot substantiated by public announcements of spe-cific savings achieved during the time of the alliance.Moreover, it wasn’t clear that these two gains could

Figure 3 Proposed Structure of Ownership of Renault–Volvo RVA, Post-merger.

If you want to win, you

must go faster. The advantage

of a complete merger is

simplicity and speed.


not have been achieved through the alliance. In fact,these reasons were stated previously as rationale forthe alliance in 1991.

Third, Gyllenhammar and Schweitzer wanted to ach-ieve substantial financial strength to meet futurecapital requirements, estimated in Volvo’s case toamount to between SEK 5 and eight billion. TheRenault truck operation would require substantialadditional capital as well. Soren Gyll, Volvo’s presi-dent and CEO, wrote, ‘Without the merger withRenault, securing the long-term survival of Volvowould have required major infusions of capital. Com-bined with Renault, a large, sound and financiallysustainable automotive operation is created, whichbecomes an important cornerstone in the newVolvo.’5 Volvo’s car operations, which reported sub-stantial profits in the 1980s, have lost money since1990 mainly due to lower sales volume in NorthAmerica. This resulted in increasing debt.

The support in Sweden for theproposed merger evaporatedbetween September 6 andDecember 1,6 1993. The pro-posal touched a nationalisticnerve, just at a time when a sev-ere recession and the inte-gration of Sweden into the Eur-opean Community wereprominent issues — a recentpoll had revealed that only 30% of the populationsupported Swedish membership in the EC. Interest-ingly, neither the 50% purchase of Saab by GM northe mergers between Nobel and Akzo, the Dutchchemical giant, and Asea AB and the Swiss companyBrown Boveri created the same excitement andnationalistic feelings. However, to a large degree,Volvo is the national symbol of Sweden.

In addition, some observers believed that mediaopposition (and opposition by other groups) maskedhostility to Pehr Gyllenhammar. Gyllenhammar wasperceived as a flamboyant personality, given to mak-ing complex merger proposals that were politi-cally — but not always economically — advan-tageous. Finally, the investment community voiceddoubts about the projected merger synergies, fearsabout handing control to the government of France,and eventually optimism about Volvo’s ability to sur-vive on its own.7 The most prominent index of theerosion of support for the combination was the dra-matic fall in Volvo’s share price.

Other stakeholders in Volvo rebelled as well. OnOctober 26, a committee representing 5000 white col-lar workers announced that its members would votetheir shares against the merger proposal. Also, 900civil engineers within the company called for themerger to be postponed. This opposition was signifi-cant for two reasons. First, the traditional implicitcontract between management and workers in Swed-


ish business society gave workers considerableinfluence. Second, the workers’ opposition shed lighton rumors that alliance projects between Volvo andRenault had not gone smoothly. The rumors sug-gested that alliance coordinating teams had reachedan impasse on important decisions (e.g., truck pro-duction and the P4 projects).

Opposition among the media, investors, and Volvounions seemed to legitimize a skeptical reconsider-ation of the merger within Volvo’s managerial ranks.The disarray fanned fears of domination by Renault.For instance, Volvo dealers in North Americaexpressed strong concerns that the merger woulddilute Volvo’s strong brand franchise there, whereRenault was viewed comparatively poorly. Under thealliance, control of the joint activities had been 50:50;managers believed that with the merger, controlwould tilt 65:35 to Renault and the French govern-ment. Given France’s recent handling of strikes at Air

France, fears surfaced regard-ing France’s possible lack ofconcern for Volvo and itsSwedish work force.8 At thesame time, Volvo’s dramaticprofit improvement in late 1993prompted some executives toconclude that Volvo did notnecessarily need a merger tosurvive. Others agreed that theprivatization and golden share

issues created too much uncertainty about the controlof RVA.

On the evening of November 30, Soren Gyll con-vened at his home a special meeting of Volvo’s seniordivisional managers to discuss the merger. The nextday, 25 managers signed a letter to Gyll urging theboard of directors to drop the merger proposal. Gyllmet with Gyllenhammar, who had just returned froma business trip out of the country, to say that hewould recommend to the board of directors meetingthe next day that the merger proposal be withdrawn.

In a stunning reversal on December 2, 1993, the direc-tors of AB Volvo withdrew their recommendation ofa merger between Renault and Volvo’s automotivebusinesses. Gyllenhammar later said that the boardresponded to pressure that was ‘intense and comingfrom all sides....it was natural to cave in.’ He and fourother directors resigned immediately. The next day,Gyllenhammar sold his family’s share holdings inVolvo, and charged that the opponents to the mergerhad turned their backs on Europe, that the alliancewould dissolve, and that Volvo was a ‘woundedcompany.’

At a special meeting in January 1994, the share-holders elected a new board of directors. At that time,Soren Gyll announced a change in strategy for thefirm, toward refocusing on the core automotive busi-nesses. The new strategy entailed a commitment to


sell all non-core assets by 1996. With the expectedcapital gains on these sales plus a possible shareoffering the company would reduce its debt out-standing. Gyll alluded to the possibility for newalliances in the future, but said that these would benarrowly-focused cooperative ventures in a widerange of areas.

On February 17, 1994, Renault and Volvo announcedthe dissolution of the strategic alliance. This wasexpensive for Volvo as it entailed a payment toRenault under the poison pill, a partial repurchase ofRenault’s interest in Volvo, and a write-off of good-will. All joint projects were terminated, except for anagreement to exchange engines and gearboxesbetween the two firms (the same arrangement inforce since 1971).

The CEO’s letter to the shareholders in the VolvoAnnual Report for 1993 (published March 9, 1994) ispoignant:

‘The automotive operations must have our full attention...the inner stability of the group must now be restored. It isimportant to convey knowledge and understanding of thecompany’s current orientation and status to all interestedparties. Candidness and clarity must characterize our oper-ations.’

Looking back on the series of events, Raymond H.Levy, an architect of the Renault–Volvo alliance,quoted Shakespeare’s Julius Caesar to describe hissense of the opportunity that had passed when themerger proposal was defeated:

There is a tide in the affairs of menWhich, taken at the flood, leads onto fortune;Omitted, all the voyage of their lifeIs bound in shallows and in miseries.On such a full sea are we now afloat,And we must take the current when it serves,Or lose our ventures.

Some Lessons

Alliances generate adversity. The relevant focus forsenior managers should be how to respond. Carryingforward the P4 project, and resolving the difficultquestions surrounding integration of the two truckbusinesses have numerous analogies in otheralliances. (One need only look to British Airways–USAir, British Telecom–MCI, and Global One, tomention a few, for other recent alliances.) But inattempting to make sense of the Volvo–Renault col-lapse our interviewees repeatedly referred to processerrors. These errors arose from the failure to under-stand six classic points of vulnerability which canundermine well-intentioned management efforts.These points represent the ‘dark side’ of alliances


which we believe warrant careful attention by bothalliance managers and senior managers.

Lesson 1: Alliances Demand Alignment, ButBreed Misalignment.

Alliances depend crucially upon common agreementabout mission, ideals, economics, and even culture.This common agreement should be actionable: asproblems arise, players in the alliance should sharea common point of view on remedies. Alignment isneeded at both the strategic and operational levels.Volvo and Renault appeared to be aligned only at themost senior levels of both organizations. Our inter-views reveal a fundamental lack of alignment betweenthe French and Swedes, senior and middle-manage-ment, and senior management versus other stake-holders such as investors. To achieve alignmentbetween separate and distinct organizations chal-lenges even the most accomplished managers; tooperate blindly under an assumption of alignment isto court disaster.

To illustrate the action implications of alignment, wedistinguish between the core business and the relation-ship among the allies. Either or both can be strong orweak. As problems arise in the alliance, the actionsan executive takes should depend on the locus of theproblem. Table 2 illustrates that the action one couldtake to resolve alliance problems differs substantiallyin focus, depending on the perceived challenge.

Our interviews revealed a significant misalignment onthe nature of the problems facing the alliance. As aresult of the misalignment, agreement about action-taking dissolved, as did the alliance. Again, referringto the Table, Pehr Gyllenhammar and the managersof Renault were in the ‘fix the business’ cell. Publicspeeches, our interviews, and the merger prospectusemphasized that the alliance was well, but that theautomotive industry was generally in such turmoilthat a radical redesign of the Volvo–Renault relation-ship was required. Louis Schweitzer said, ‘If youwant to win, you must go faster. The advantage of acomplete merger is simplicity and speed. Agreementbetween the two companies does not go as fast asmanaging a single group. Speed is of the essence. Wemust go beyond the limits of cooperation to date.’(Done, 1993).

For example, it was Gyllenhammar’s view, statedpublicly at the time, and privately with us in an inter-view, that the alliance was operating satisfactorily,but that Volvo’s car business was doomed in the longrun without a sizable partner. Gyllenhammar dis-counted the severity of alliance problems in the P4project, in the trucks segment, and generally in thelanguage and cultural differences between the twoallies. Instead, he asserted that changes in the stra-tegic environment in automobiles would adverselyaffect the company. Focusing on macro events, Gyl-


Table 2 Tailor the Management Approach to the Condition of Alliance and Business

Business is...

Strong Weak

Alliance relationship is...... Strong Continue to manage Fix the businessLook for additional Focus on strategy, profitability,

opportunities value creation, timing andagility. Emphasize control,speed and determination.

Pehr GyllenhammarLouis Schweitzer

Weak Fix the relationship. ExitFocus on organization, culture

and leadership. Take time.Emphasize teamwork and

cooperation.Volvo operating managers

Source: AB Volvo, information prior to extraordinary general meeting of shareholders in AB Volvo, November 9, 1993, p. 43.

lenhammar was in the northeast quadrant of ourtable, ‘fix the business.’ The merger was aimed at justthat: enhancing the strategic and operational stand-ing of the alliance’s automotive business.

Ironically, Gyllenhammar emphasized in his publicpresentations that ‘the whole [Volvo] organization isbehind this merger.’ In reality, Volvo operationalmanagers, white-collar workers, and stockholderswere in the ‘fix the relationship’ camp. As Volvobegan to recover financially from the effects of therecession in North America, it became increasinglyapparent that the tiny automotive manufacturercould not only survive but prosper. The basic busi-ness was healthy; the alliance, not the business,needed fixing. Raymond Levy appeared to acknowl-edge this when he alluded to the timing of a mergerproposal: in 1992, Volvo was at the nadir of its busi-ness cycle. Certainly ‘fix the business’ would havebeen an appropriate response at that time. But by1993 conditions had changed. The misalignment inperceiving the nature of the problems facing thealliance led to very different agendas for action. Gyl-lenhammar favored a speedy, decisive transform-ation of the alliance, casting it along Continental Eur-opean lines.9 This error in judgment led to a singularfocus on fixing the business while ignoring a funda-mental flaw in the alliance — the strained relation-ships among managers who resided outside of theexecutive suite.

Evidence supporting the explanation of misalign-ment was given by several interviewees. RaymondLevy told us that ‘neither Volvo nor Renault manage-ment tried hard enough to penetrate the minds ofthe Volvo shareholders to explain why Volvo alonewould not be happy forever, and why Volvo withRenault could be happy in some equitable relation-ship.’ Francois Schwartz, Deputy Chief FinancialOfficer at Renault said, ‘Rather than shareholders, wewere not able to explain to management their interest


in the merger.’ It is essential to bring the reality ofthese opportunities and challenges to the middlemanagers who are responsible for implementation(Yoshino and Rangan, 1995). Gyllenhammar wasreferred to as aloof, a hard manager, almost regal inhis dealings with lower level managers. Such a per-sonality does not naturally attend to, nor readilyacknowledge, the process skills needed to fix therelationship. Such a personality might ignore a keyalliance tenet: people are key to the alliance process!One must attend to relationship issues from the out-set as they become the safety net that protects thealliances through the rough times.

Lesson 2: Beware of Path Dependency

Alliances create path dependency, both real andimagined. This raises switching costs and can inviteirrational behavior. Path dependence is commitmentto a stream of decisions and outcomes. For instance,to travel from New York to Boston, one choosesamong flying, driving, or taking the train — onceembarked on the trip, it is costly to change: one ispath dependent. Path dependence may amplifypotentially-dangerous kinds of behavior that arewell-known to managers, and are the focus ofincreasing interest in academia. These behaviorsinclude:

Endowment effect or status quo bias. Decision mak-ers often prefer to stick to the current strategyrather than switch to a more attractive alternative.Thaler (1992) describes the common manifestationof this in laboratory experiments: people demandmuch more to part with an object than they wouldbe willing to pay to buy it.Escalation of commitments. Northcraft and Wolf(1984) suggest that ‘The decision maker may, inthe face of negative feedback, feel the need to


reaffirm the wisdom of the time and moneyalready sunk in the project. Further commitmentof resources somehow “justifies” the initialdecision, or at least provides further opportunitiesfor it to be proven correct.’ (p. 226)

The difficulty of departing from the path of allianceis implied in the article by Bleeke and Ernst (1995)who warn that alliances are often only preludes toa sale.

The rigid structure of the alliance (including cross-shareholdings and a poison pill) increased Volvo’sdependence on the path of strategic alliance andmade escalation of Volvo’s commitment (i.e., throughmerger) a more tractable solution to the challengesencountered in the alliance. In retrospect, merger wasnot the natural course to pursue given the problemsthat surfaced during the alliances. Logic would dic-tate that one would address, and hopefully resolve,the relationship-related problems. Rather, momen-tum carried senior management forward to a merger.It is interesting to note that a merger could not ‘fix’the emergent, relationship problems. The symptomsmight vanish but the underlying illness wouldremain.

Lesson 3: Tinkering with the Alliance Contract isTempting, But Highly Risky

Because alliances are founded on cooperation and col-laboration, they are formed with difficulty, and areeasily strained. As conditions change, the alliancemust adapt. This may prompt the allies to tinker withtheir cooperative agreement. But tinkering risks shat-tering the fragile (and often unwritten) terms of thealliance. Where the contract is revised at stress-pointsin the alliance’s existence, the risk of collapse riseshigher. To understand why this is, consider thatalliances are learning organizations and that theytend to amplify the learning disabilities of therespective allies. Revising the contract of cooperationsharpens these disabilities. The objective of alliancemanagers should be to protect the spirit and visionof the alliance while, at the same time, adjusting the

Table 3 How the Proposed Merger would change the ‘Contract’ between the Two Strategic Allies

Alliance Merger

Brands and dealer networks Separate SeparateHeadquarters Paris and Gothenburg ParisLanguage English ?Ownership 50:50 Control. Cross share holdings of 65% France

minority interests 35% VolvoSpecial control features Poison pill held by both allies Held by France only:

Golden ShareNoyau DurPrivatization

Internal governance 21 Committees Management Board. Supervisory Board

Source: AB Volvo, information prior to extraordinary general meeting of shareholders in AB Volvo, November 9, 1993, p. 43.


scope of the ‘contract’ to reflect the changing environ-ment. Simply, alliances cannot be fixed at one pointin time. The agreement that ties the partners must beviewed as a living document that adapts to changewhile maintaining the core ideals upon which thealliance was first conceived. To tamper at the corerisks damaging the central premise of the alliance,calling into question its reason for being, and ques-tioning the foundation upon which the initial agree-ment was built. One should not attempt to changethe fundamental rules of engagement — i.e., thealliance spirit.

Regardless of the disagreement about problems andsolutions, Gyllenhammar’s merger proposal prom-ised turmoil within Volvo because it would dramati-cally alter the nature of a relationship among part-ners who had been equal allies. Elements of thechange are apparent in Table 3. As the exhibit sug-gests, the merger proposal was a radical revision ofthe terms by which the Swedes and French wouldcollaborate — virtually all interviewees acknowl-edged that the complexity of the proposal made itdifficult to understand and easy to fear. Volvodealers (particularly those in North America)doubted that the brands would remain separate inthe minds of the consumers, and worried that theVolvo brand would become tainted by the memoryof Renault’s retreat from North America in 1986. Ourinterviews with Volvo executives and large investorsrevealed that the proposal undermined the appear-ance of partnership and created an appearance ofdomination and submission. Executives andemployees resented the shift in power. Volvo’s ownboard required several weeks to absorb fully theimplications of the golden share, hard core investors,and privatization — all of these tilted the controltoward France even more than the 35/65 division ofshares suggested. Volvo’s large shareholders fearedthe power balance: Renault’s owner, the governmentof France, was one of the most interventionist in Eur-ope. It must be underscored that Volvo is viewed asone of the crown jewels of Swedish industry and forit to fall into French hands alarmed the Stockholmcommunity.


Bleeke and Ernst argue that asymmetry in bargainingpower is a major destabilizing force in alliances.These asymmetries may stem from differences ininitial strengths and weaknesses, from conflict inoverlapping products and markets, and fromchanges in strengths over time. Stability is probablygreatest in alliances among complementary equals. Tochange the fundamental terms of the alliance agree-ment in which partners were accorded equal voiceseriously altered the alliance dynamics. The shift incontrol embedded in the merger terms was destabil-izing. Several interviewees agreed that the mergerproposal provoked a reconsideration of Volvo’sfuture by Volvo employees. Sundqvist told us, ‘Asopposition to the merger mounted, inner feelingswere allowed to grow among Volvo managers. Whenformer managers expressed their opposition, the cur-rent managers’ feelings emerged too.’

Asymmetry in this alliance relates also to the ques-tion of equity and trust. Blau (1984) cautions thatwhile fair rates of exchange for costs and benefits areimportant, equity is necessary for establishing a normof fair dealing. Beyond the golden share, the changein ownership percentages raised questions in theSwedish press about control over one of its nationaltreasures and whether the merger was fair to Swed-ish people. Gyllenhammar plainly miscalculated thereaction to the proposed merger. He sought to createno buy-in to the concept of merger before heannounced it. And following the announcement hepresented it as a fait accompli.

Lesson 4: Alliances Invite Leadership by Fiat; ButThey need a Coach, Guide and Visionary

What could explain the misalignment of perceptionsand the miscalculation about recontracting? Manyobservers believed that Gyllenhammar had grownremoved from his own organization and its alliancewith Renault. Raymond Levy told us,

‘When we were working on the alliance proposal, we hada meeting of 200 of the top managers of Volvo and Renault.At the close of that meeting, Pehr Gyllenhammar said tohis managers, ‘Those who aren’t in agreement with thisplan have one thing to do: jump ship.’ I thought that waswonderful. It indicated that Volvo had a powerful, strongman at its helm. I found later that this was deeply resentedat Volvo as an expression of dictatorship.’

The business journalist, Sundqvist, said,

‘He was an emperor. What does it mean to be an emperor?It means somebody who does not listen. [Gyllenhammar]built an ivory tower. Vicious is too strong a word, butpeople around him did not want to oppose him... Watchout for leaders who grow out of proportion to their compa-nies.’

Lars-Erik Forsgårdh, President of the Swedish SmallShareholders’ Association, and a leader in the oppo-


sition to the merger, told us, ‘[Gyllenhammar] hadtoo many admirers in the board [of directors].’ Theirony is that our interviews also revealed that Gyllen-hammar is an exceptionally visionary, charismatic,and intelligent individual.

Research suggests that alliances require a special kindof leadership, perhaps different from the kind requiredto lead large corporations — indeed, each of the cellsin the matrix described above requires a differentkind of manager. Modern theory (see, for instance,Kotter, 1988 and Bennis and Nanus, 1985) on leader-ship holds that the tasks of the leader are to createvision and to create agreement between the internalorganization and external stakeholders. Virtually every-one agreed that Gyllenhammar was a visionary CEO.But vision alone is not sufficient for leaders of corpor-ate transformation. Increasingly we see that the othernecessary attribute is the ability to build buy-in,involvement, and participation. Other research(Spekman et al., 1996a) shows that trust, credibilityand honesty are key alliance management skills.These alliance management skills make it easy for theleader to mingle with his or her organization. If doneright, the momentum for organizational transform-ation wells up from within the organization itself,rather than being handed-down by an autocrat. Inthis sense, the effective leader is a follower, a listener,a coach, and a cheerleader. As Lao Tzu said, ‘To lead,one must follow.’ It is evident that Gyllenhammarwas never comfortable in these roles; often he wasdescribed as elitist and aloof. Indeed, he may neverhave had to learn followership, since at a young agehe was appointed CEO of Skandia Insurance by hisfather, and then of Volvo by his father-in-law. Gyl-lenhammar’s aloofness was perhaps his fatal flaw.Rather than distancing himself from his own man-agers, he needed to immerse himself.10 We observethat in corporate transformations leaders must beprepared to transform themselves just as they aretransforming their institutions.

A team of Darden researchers (Spekman et al., 1996b)have examined the role requirements of alliance man-agers as the alliance progresses through its life cycle.Early stage alliance skills that help create and set thevision for the alliance are often different from theskills needed to transform that vision to a viable andtangible alliance strategy that attempts to blend thepartners. The research suggests that strong alliancemanagement skills must exist simultaneously at thestrategic, operational, and interpersonal level. Also,Kanter has highlighted the need for senior managersto translate the potential benefits of the partnershipinto reality (Moss Kanter, 1994). She warns that oftenthey worry more about controlling the relationshipthan about nurturing it. Strategic advantage just doesnot happen because senior managers say it exists, itmust be managed proactively.

The orientation of Gyllenhammar and Schweitzer onhigh level strategy, rather than to process related


issues directly contributed to the failure of thealliance and then the proposed merger. Althoughboth senior managers had a shared vision of what thenew auto giant could accomplish, the benefits weredeveloped at a very abstract level. One example ofthe degree of abstraction was Gyllenhammar’s visionthat the merger would help integrate Sweden into thelarger European community, creating a united Eur-ope. A second example is the vision that Volvo andRenault would complement each other’s marketcoverage. But in North America, this complementar-ity might work against the combined businesses: theUS Volvo dealer network was very concerned withRenault’s reputation for poor quality and its impacton Volvo’s brand image there.

In communicating with markets and investors, theCEO should assume that he is dealing with sophisti-cates. Gyllenhammar vastly underestimated hisinvestors, and paid a severe penalty for doing so. Thenegative reaction of investors was not random viol-ence, but rather the inexorable justice that financialmarkets exact for the destruction of market value.Markets have long memories. Sooner or later inves-tors settle their scores. A good business leaderattends to relations with investors and other externalstakeholders as carefully as he or she attends tointernal relations.

The two leaders plainly failed in speaking to con-cerns of key stakeholders: risks were not fullyacknowledged, nor were the expected gains fullyexplained. Open communication is a hallmark of suc-cessful alliances. One must be sensitive to the infor-mation needs of key constituents and must attemptto craft a response that addresses these concerns.Clearly, neither leader understood fully the extent towhich key stakeholders from all quarters had funda-mental concerns about all aspects of the merger.

Lesson 5: Blending Businesses Might AppearEasy, Blending Cultures is Not.

In the first quarter of 1996, the value of mergeractivity in Europe jumped 22% from a year ago to$71 billion (Javetski, 1996). We are witnessing con-solidation across all business sectors with a greatflurry of activity among airline, banking, telecom-munications, and pharmaceutical companies. We caneasily understand the business rationale for thesemergers as a response to global competitive forces.However, based on our observations from the failedmerger between Renault and Volvo caution isadvised. One must attend to differences in culture(language, values, customs, and national traditions)on both a corporate and a country level. The Frenchand the Swedes were highly conscious of their differ-ences: attitudes towards work, behavior at lunch andbreaks, working hours and the like. Interestingly,earlier research conducted at the University ofUppsala in Sweden reported that Swedish managers


were more comfortable working with Germans andBritish than they were with the French and managersfrom southern Europe (Håkansson and Wootz, 1975).Although Mr. Gyllenhammar was frequentlydescribed as a Francophile, it was clear that his easewith the French was shared by many of the Volvomanagers, and might have both limited his ability tosense the tension that was building at the operationallevel during the alliance and led him to discount theopposition that was building in Sweden.

It would appear that executives at both Volvo andRenault were open to learning that was task relatedbut had thought little about the perceptions andstereotypes that each held about the other or aboutmanaging cultural diversity and establishing a set ofalliance values that placed currency in the culturaldifferences of the two partners. Alliances consist ofpeople working together, finding a common groundon which to build the value that first brought thefirms together. Cultural differences matter; inatten-tion to the importance of cultural differences willonly accelerate problems.

Lesson 6: Time is a Double-Edged Sword

During our interviews, executives on both sidesviewed time as the enemy and spoke of the impor-tance of moving quickly to the merger. Yet, in com-plex alliances that cross national boundaries longer,rather than shorter, periods of time might be neededto establish a web of interpersonal ties among keymanagers, to build a more accepting environment forcultural differences, and to nurture the trust andcommitment that are essential alliance ingredients.Had the merger moved quickly, we believe thatmany fundamental flaws would have remained. AsEurope moves to consolidate its industries inresponse to global threats, some nationalisticresponse by governments is expected; however, wehave shown that cultural differences must beacknowledged, managed, and hopefully leveraged.

Research (Spekman et al., 1996b) has shown thatlarge, very complex alliances take time for trust toemerge. Often three to four years pass before thealliance is ‘up and running.’ Here, waiting mighthave provided time to remediate operational tensionsand resolve relationship problems. However, waitingalso allowed resistance to build and provided anopportunity for those opposed to the deal to solidifytheir positions. To a great extent, senior managementwas damned for waiting and would have beendamned had they not.

Conclusion: the ‘Dark Side’ and itsImplications for Senior Managers

The ‘dark side’ of strategic alliances may be summedup in three sayings well-known to gamblers and cyn-ics:


You can’t win. The odds of the game seem to bestacked: something like 60% of alliances fail.

You can’t break even. Endowment effects, the tendencyto escalate commitments, costs of organizational inte-gration, imply that the investment of time and moneywill be greater than anticipated.

You can’t get out of the game. Alliances create pathdependency. The risks and costs of adjusting thealliance contract discourage making creative modifi-cations that solve fundamental problems. DennisOverbye (1991) has used the same metaphor to arguethe difficulty of proving scientific results in physicsand astronomy.

This downbeat assessment of alliances should serveas a cautionary warning to the casual architects andmanagers of alliances. In studying the failure of theVolvo–Renault strategic alliance, one is struck byhow much of it is explained at the interfaces of humanbehavior: nations, cultures, allies, owners vs man-agers, and senior managers vs operating managers.The irony is that the trend of organizational designin corporations is toward the networked or ‘bound-aryless’ firm-designs which will serve to heighten thesignificance of these interfaces.

We remain optimistic, however, that thoughtful man-agers can create successful alliances through carefulattention to the elements highlighted in the case ofVolvo and Renault. Remembering that failure is builtinto the alliance process, we have attempted topresent an argument that highlights problems thatcan be solved. There is no magic formula, the suc-cessful management of alliances takes time andeffort. They take considerably more time than onecan imagine. If one begins with the premise thatalliance management deals with both the manage-ment of the business and the relationship, we haveshown through the Volvo–Renault alliance severalareas of concern. Through a comprehensive expo-sition of their failure we have presented the opport-unity for others to learn. Success comes to thosewho learn!

Acknowledgements

This research is based upon 20 field interviews with individ-uals at both Volvo and Renault, as well as knowledgeablejournalists and finance professionals. Some of these haverequested anonymity, a request respected herein. Others werewilling to speak for the record and are identified in the textof the article. To all, we extend our deep thanks for their timeand candor in illuminating the case. Also, we gratefullyacknowledge the financial assistance of the Darden Partner-ship Program, and the University of Virginia Darden SchoolFoundation.

Notes

1. Securities Data Company (Newark, NJ) estimates theannual growth rate in number of alliances at 25%.


2. Failure rates of 60–70% are cited in various studies. SeeHarrigan (1988), Levine and Byrne (1986), and Savona(1992).

3. Actually, merger discussions had been held in 1992. Butaction on those discussions had been tabled in the absenceof a privatization bill from the French parliament.

4. Gyllenhammar announced that the projected merger syn-ergies were over and above projected alliance synergiesof SEK 41 billion for the years 1994–2000.

5. Information Prior to Extraordinary General Meeting ofShareholders in AB Volvo, November 9, 1993, AB Volvo,p. 6.

6. Volvo share prices declined 22 per cent against the Swed-ish Stock Market average between the announcement andearly November. For a detailed analysis of the financialaspects of the merger, see Bruner (1998).

7. In early November, Volvo inadvertently reported buoyant9-month profitability. The news helped galvanize theopposition: Volvo could survive on its own. Renault,more heavily positioned in Europe than in North Amer-ica, was still reporting deepening losses as the recessionworsened in the European automotive industry.

8. Air France, a state-owned enterprise, had lost money con-sistently during the 1980s, and was kept afloat by largesubsidies from the French government. When the Euro-pean Commission insisted that the subsidies end, BernardAttali was appointed chairman of Air France with themandate to cut costs, restructure the firm, and restore itto profitability. Employees resisted Attali’s restructuringprogram, ultimately striking for two weeks to protest.Attali was fired by the government for his handling of theunions and his tough-minded restructuring program.

9. The classic model toward which several intervieweespointed was the combination of Asea (Swedish) andBrown-Boverie (Swiss) into a single global engineeringfirm managed through a holding company owned by itsSwedish and Swiss parents. Also, Daimler-Benz has atwo-tier structure of management and supervisoryboards, consistent with those outlined in the proposedmerger.

10. Indeed, his mode of departure, the coup d’etat, is charac-teristic of the exit of departures. See Sonnenfeld (1988).

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ROBERT BRUNER, ROBERT SPEKMAN,Darden Graduate School Darden Graduate Schoolof Business Adminis- of Business Adminis-tration, University of Vir- tration, University of Vir-ginia, P.O. Box 6550, ginia, P.O. Box 6550,Charlottesville, Virginia Charlottesville, Virginia22906-6550, USA. 22906-6550, USA.

Robert F. Bruner is Dis- Robert E. Spekman is thetinguished Professor of Tayloe Murphy ProfessorBusiness Administration of Business Adminis-at the Darden School of tration at the Darden

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