The impact of psychological ownership in mergers and acquisitions.
During the merger and acquisition (M&A) process, ownership is often conceived from a financial and legal orientation. This extends to how employees are considered and transitioned during an M&A event. At the same time, research has long maintained that organizations experience significantly higher turnover rates up to nine years after an M&A event, particularly within the acquired firm (Degbey et al., 2021). We also have a growing understanding that monetary incentives alone are less relevant in motivating today’s working generations, especially personnel within top management teams who are already more broadly well-compensated (Degbey et al., 2021). Less formally recognized and defined is the merit of ‘psychological ownership’, which can yield strong positive effects on employee retention during periods of significant organizational change (Degbey et al., 2021). Moreover, an operational-culture of psychological ownership in the work employees do, and its effects on their perceived autonomy and decision-making, may be consequential to the determined value and efficacy of an acquired firm (Degbey et al., 2021). As a result, psychological ownership may be conceived as a vital asset, critical to protect during an M&A event (Degbey et al., 2021). This concept further extends beyond broad strategic consideration, into how organizations view an acquired firm's executive and employees, who may often possess valuable firm and industry specific knowledge and competencies that may not be easily or cheaply replaced in the market (Degbey et al., 2021).
In understanding ‘people problems’ attribute to one-third to one-half of all M&A failures (Degbey et al., 2021), it is clear to surmise why alternative contributing perspectives in how firms approach M&As is needed. Having stewarded an organization through similarly significant periods of organizational change, I have seen how staff can be challenged to identify with new organizational ideas and directions, as well as reorient their competencies and interests to better align with developing organizational needs. In this way, many employees are being asked to envision a new role, with a new company, often with little regard or influence on what that may look like. In my experience, it is the staff who have felt some degree of involvement and decision-making in the process who most strongly commit to an organization during these uncertain periods. It is similarly these employees with a highly conceived sense of psychological ownership who are more likely to engage in work outside their normative role descriptions, which is of immense importance during trying organizational change periods.
While best practice intervention actions to minimize post-merger integration turnover remain unclear, the notion of autonomy in acquired employees has been found to be of great importance (Degbey et al., 2021). In appealing to this concept, I have conceived four preceding conditions that can help organizations better retain and engage employees prior and during M&A events: 1. Be transparent with employees, inasmuch as practical, minimizing the amount and severity of ‘surprises’ they may attribute to the M&A. 2. As M&A events are formalized, encourage employee input and knowledge validation, furthering their feeling of ownership in the decision, and individual importance to the team. 3. Set expectations for the short-term, allowing staff to mentally prepare for uncertainty ahead, while outlining more long-term opportunities to strive for post-M&A. 4. As organizations integrate, collaborate with employees around how they can individually develop their careers to meet the changing organizational needs. This may be particularly relevant to key staff and management and human resource personnel, who are more used to psychological ownership, and often represent some of the most critical resources in a firm (Degbey et al., 2021). For these staff, providing them with unique opportunities and promotions within the newly merged firm that further their involvement and autonomy, may help them in conceiving psychological ownership and positive sense of worth (Degbey et al., 2021).
Degbey, W. Y., Rodgers, P., Kromah, M. D., & Weber, Y. (2021). The impact of psychological ownership on employee retention in mergers and acquisitions. Human Resource Management Review, 31(3). https://doi-org.proxy.hil.unb.ca/10.1016/j.hrmr.2020.100745
