Final Report Summary - BET-ORG-OWN (Towards A Behavioral Theory of Organizational Ownership: A Comparative Study in Shareholder Behavior)
This project was destined at providing novel insights into the notion of ownership of large publicly listed corporations. Formally, shareholders as capital providers are the designated 'owners' of corporations who provide the organisation with capital in exchange of a well defined set of property rights. However, shareholders are a highly heterogeneous group of individuals and institutions with varying interests, concerns and levels of attachment to the organisation. The notion of shareholder and the property rights approach, therefore, don't do justice to the idea of organisational ownership. The main objective, therefore, was to investigate the cognitive, emotional and social aspects that go along with 'owning' an organisation.
As a first step a distinction is made between inside and outside shareholders. Inside shareholders frequently develop a sense of psychological ownership for 'their' organisation. Thus beyond the formally defined set of property rights these owners think and feel that the organisation is 'theirs'. We termed these owners 'share owners' or 'patron owners' in contrast to stock renters and stock investors who do not develop a sense of attachment to the organisation and who likely define themselves as capital providers or simply investors (Sikavica & Hillman, 2011). Owners and investors differ in that the former develop self-concepts that may have both beneficial and detrimental effects. For one thing, a self-concept as 'organisational owner' goes along with organisational commitment, stewardship and extra-role behavior; for another, it is also associated with reluctance to share and resistance to other-initiated change. Ultimately, psychological owners are prone to enlarging their sphere of rights and responsibilities beyond what it desirable for other organisational members.
In order to explore insiders' psychological ownership we conducted a series of qualitative interviews with directors of German listed companies. This unique dataset largely confirms that executives often perceive themselves as psychological owners and view the companies to be 'theirs'. Moreover, they make differing attributions to outside shareholder depending on the identity of these outside shareholders and the goals, investment horizons and levels of attachment of outside shareholders. These findings bear important consequences for corporate strategy and governance: the effectiveness of incentive systems, for example, destined at steering the level and direction of executives' effort will vary depending on executives' self-concepts and the purpose of incentive systems as perceived by executives (Sikavica, Tuschke, & Hillman, 2011 ). Similarly, interest alignment with outside shareholders in terms of strategic directions will largely depend on the extent to which executives view investors and capital providers to be the constituency entitled to determine the organisation's course of action (Sikavica, Tuschke, & Hillman, 2010).
Beyond the self-concept as 'owner', psychological ownership goes along with an identity as owner (Sikavica & Hillman, 2008). In a separate study, we were able to show that small shareholders can become serious sparring partners for managers once they start perceiving themselves as one psychological group who is manifestly distinct from members of the corporate and financial elite (Sikavica & Tuschke, 2011). A distinct and shared social identity as minority shareholder and the associated processes of social competition are an important trigger of shareholder activism. However, beside empowering shareholders there are also dangers associated with excessive shareholder activism: Once small shareholders start engaging in social competition with the corporate and financial elite, shareholder activism may become an end itself much at the expense of the organisation, its members, and the society at large.
As a first step a distinction is made between inside and outside shareholders. Inside shareholders frequently develop a sense of psychological ownership for 'their' organisation. Thus beyond the formally defined set of property rights these owners think and feel that the organisation is 'theirs'. We termed these owners 'share owners' or 'patron owners' in contrast to stock renters and stock investors who do not develop a sense of attachment to the organisation and who likely define themselves as capital providers or simply investors (Sikavica & Hillman, 2011). Owners and investors differ in that the former develop self-concepts that may have both beneficial and detrimental effects. For one thing, a self-concept as 'organisational owner' goes along with organisational commitment, stewardship and extra-role behavior; for another, it is also associated with reluctance to share and resistance to other-initiated change. Ultimately, psychological owners are prone to enlarging their sphere of rights and responsibilities beyond what it desirable for other organisational members.
In order to explore insiders' psychological ownership we conducted a series of qualitative interviews with directors of German listed companies. This unique dataset largely confirms that executives often perceive themselves as psychological owners and view the companies to be 'theirs'. Moreover, they make differing attributions to outside shareholder depending on the identity of these outside shareholders and the goals, investment horizons and levels of attachment of outside shareholders. These findings bear important consequences for corporate strategy and governance: the effectiveness of incentive systems, for example, destined at steering the level and direction of executives' effort will vary depending on executives' self-concepts and the purpose of incentive systems as perceived by executives (Sikavica, Tuschke, & Hillman, 2011 ). Similarly, interest alignment with outside shareholders in terms of strategic directions will largely depend on the extent to which executives view investors and capital providers to be the constituency entitled to determine the organisation's course of action (Sikavica, Tuschke, & Hillman, 2010).
Beyond the self-concept as 'owner', psychological ownership goes along with an identity as owner (Sikavica & Hillman, 2008). In a separate study, we were able to show that small shareholders can become serious sparring partners for managers once they start perceiving themselves as one psychological group who is manifestly distinct from members of the corporate and financial elite (Sikavica & Tuschke, 2011). A distinct and shared social identity as minority shareholder and the associated processes of social competition are an important trigger of shareholder activism. However, beside empowering shareholders there are also dangers associated with excessive shareholder activism: Once small shareholders start engaging in social competition with the corporate and financial elite, shareholder activism may become an end itself much at the expense of the organisation, its members, and the society at large.