As companies look to reframe their future in the post-pandemic era, many are seeking to consolidate in the form of mergers and acquisitions. EY research on the outlook for global M&A trends shows that, since July 2020, there has been a strong rebound in global M&A value, with this trend set to continue in 2021, as the strong snap up the weak in sectors as varied as tech and consumer retail.1
While M&A deals may be an appealing option in the new normal, they are also notoriously hard to pull off. Naturally, incompatibility in organizational culture can be a stumbling block for merging companies. Cultural differences may contribute to misunderstandings between the involved workforces, leading to us-versus-them conflicts and eventually attrition.2 Real-life examples of culture clashes in M&As abound, from this classic case study on the merger between two savings banks to the more recent case of Amazon and Whole Foods, where problems stemmed from a lack of negotiation on organizational culture from the start.
Get Updates on Transformative Leadership
Evidence-based resources that can help you lead your team more effectively, delivered to your inbox monthly.
Please enter a valid email address
Thank you for signing up
However, one area of organizational behavior and culture that has been studied far less in the literature, but has increasing relevance in the modern workforce, is the issue of political ideology. In recent research, we’ve examined the influence of political ideology on M&A success and retention, finding that (1) when managers were more aware that employees drew upon political ideology to identify with their organization, this increased the probability of acquiring an organization with similar political ideology; and (2) that compatible political ideologies were even more important for mergers involving a higher human capital element.3
Our research, conducted on a U.S. sample of 479 M&As, found a positive relationship between the similarity of political ideologies in merging companies with the likelihood of an M&A announcement. Using this sample, which included over 1 million data points based on the political donations of employees, we found that a one-unit increase in similarity of political ideology increases employee retention by nearly 13%. Overall, our data reveals that compatibility in political ideology really matters for employee retention.
Employee retention numbers are especially critical for companies today for a number of reasons. One important reason is that retention supports knowledge transfer — a key resource which contributes to corporate renewal and competitive advantage.
1. K. Makrygiannis, “Conditions Ripe for Already Resilient M&A Activity to Accelerate in 2021 and Beyond,” EY, Dec. 14, 2020, https://www.ey.com.
2. R. Larsson and S. Finkelstein, “Integrating Strategic, Organizational, and Human Resource Perspectives on Mergers and Acquisitions: A Case Survey of Synergy Realization,” Organization Science 10, no. 1 (1999): 1-26, and S. Cartwright and C.L. Cooper, “The Impact of Mergers and Acquisitions on People at Work: Existing Research and Issues,” British Journal of Management 1, no. 2 (July 1990): 65-76.
3. D.Y.L. Chow, C. Louca, A.P. Petrou, et al., “Marriage to the Same Kind: Organizational Political Ideology and Mergers and Acquisitions,” Organization Studies (February 2021).
4. R. Sarala and E. Vaara, “Cultural Differences, Convergence, and Crossvergence as Explanations of Knowledge Transfer in International Acquisitions,” Journal of International Business Studies 41 (2010): 1365-1390.
5. B. Cho, D. Lee, and K. Kim, “How Does Relative Deprivation Influence Employee Intention to Leave a Merged Company? The Role of Organizational Identification,” Human Resource Management 53, no. 3 (May-June 2014): 421-443.
6. J.A. Chatman and S.E. Cha, “Leading by Leveraging Culture,” California Management Review 45, no. 4 (summer 2003): 20-34.
7. M.L. Marks and P.H Mirvis, “A Framework for the Human Resources Role in Managing Culture in Mergers and Acquisitions,” Human Resource Management 50, no. 6 (November-December 2011): 859-877.
8. Y.S. Bermiss and R. McDonald, “Ideological Misfit? Political Affiliation and Employee Departure in the Private-Equity Industry,” Academy of Management Journal 61, no. 6 (December 2018): 2182-2209.
9. M.K. Chin, D.C. Hambrick, and L.K. Treviño, “Political Ideologies of CEOs: The Influence of Executives’ Values on Corporate Social Responsibility,” Administrative Science Quarterly 58, no. 2 (June 2013): 197–232.
10. Bermiss and McDonald, “Ideological Misfit?”
11. “1 in 4 Employees Negatively Affected by Political Talk at Work This Election Season, Finds New Survey,” American Psychological Association, Sept. 14, 2016, www.apa.org.
12. P.F. Hewlin, “It’s Difficult to Breathe Behind a Facade, but Psychological Safety Is the Antidote,” Delve, Oct. 27, 2020, https://delve.mcgill.ca.
13. K.L. Swigart, A. Anantharaman, J.A. Williamson, et al., “Working While Liberal/Conservative: A Review of Political Ideology in Organizations,” Journal of Management 46, no. 6 (July 2020): 1063-1091.
14. A. Gupta, F. Briscoe, and D.C. Hambrick, “Red, Blue, and Purple Firms: Organizational Political Ideology and Corporate Social Responsibility,” Strategic Management Journal 38, no. 5 (May 2017): 1018-1040.
15. J. Lees and M. Cikara, “Understanding and Combating Misperceived Polarization,” Philosophical Transactions of the Royal Society B 376, no. 1822 (April 12, 2021): 20200143.
16. D.Y.L Chow, X.W. Chan, and E. Micelotta, “Cross-Border M&As: Theorizing the Negative Effect of Political Ideology Mismatch With Host Country Labor Institutional Context on Employee Outcomes,” Journal of Business Research 128 (May 2021): 164-173.
17. M.S. Officer, “Termination Fees in Mergers and Acquisitions,” Journal of Financial Economics 69, no. 3 (September 2003): 431-467.
18. R.W. Coff, “How Buyers Cope With Uncertainty When Acquiring Firms in Knowledge-Intensive Industries: Caveat Emptor,” Organization Science 10, no. 2 (March-April 1999): 144-161.
19. K.A. Younge, T.W. Tong, and L. Fleming, “How Anticipated Employee Mobility Affects Acquisition Likelihood: Evidence From a Natural Experiment,” Strategic Management Journal 36, no. 5 (May 2015): 686-708.
20. “What Is an Organizational Ombudsman?” National Institutes of Health (2021), https://ombudsman.nih.gov.
21. Marks and Mirvis, “A Framework for the Human Resources Role.”
22. S. Shankland, “James Damore’s Diversity Lawsuit Against Google comes to Quiet End,” CNET (May 9, 2020), https://www.cnet.com.
23. C.M. Fiol, M.G. Pratt, and E.J. O'Connor, “Managing Intractable Identity Conflicts,” The Academy of Management Review 34, no. 1 (January 2009): 32-55.
24. F. Shi, M. Teplitskiy, E. Duede, et al., “The Wisdom of Polarized Crowds,” Nature Human Behavior 3, no. 3 (March 2019): 329-336.
25. E. Kubin, C. Puryear, C. Schein, et al., “Personal Experiences Bridge Moral and Political Divides Better Than Facts,” Proceedings of the National Academy of Sciences 118, no. 6 (Feb. 9, 2021): 2008389118.
26. R. Eldridge, “Is Democracy Still Possible?” Los Angeles Review of Books, March 21, 2021, www.lareviewofbooks.org.
27. Hewlin, “It's Difficult to Breathe.”