How Political Ideology Can Impact the Success of M&As

Workforce political ideology is often underestimated as an indicator of cultural compatibility in mergers and acquisitions.

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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.

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.

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References

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.

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