What does it mean to ‘own’ an organization? This question guided me in the development of the next dissertation project I want to highlight.
In most large corporations, there is a separation between ownership and control. The shareholders own the organization and the management team controls it. If unaddressed, this separation may lead managers to enrich themselves instead of behaving in the shareholders’ interests. This is the premise of Agency Theory, one of the staple theories in Corporate Governance, and part of most curricula in business education. A straightforward solution to align managerial and shareholder interests is to reward managers (partly) in shares, making them (minor) shareholders in the process.
Although receiving some ownership over their firm will likely affect CEOs, it is difficult to posit that the monetary dimension (‘formal ownership’) is the sole reason why CEOs may want to behave in the organization’s (and by extension in the interest of the shareholders’) interests. Owning anything, but especially an organization, is also about the emotional value. This is called ‘psychological ownership’. Spending most of one’s waking hours at a job and having a part in deciding the organization’s trajectory leads employees to develop feelings of ownership.
In my project, I study the relationship between formal ownership, the monetary aspect of ownership, and psychological ownership, feelings of ownership. When organizations struggle financially, we can expect that CEOs express more negative emotions, which we can understand as a proxy of how much CEOs ‘care’ for their organization. I find that both ownership types strengthen this relationship, but more importantly, that the effect of formal ownership is requires the presence of psychological ownership.
Although arguing that ownership involves both money and emotions is almost like stating the obvious, both scholars and practitioners tend to ignore the importance of how the two types are intertwined. The bottom-line is simple: ownership is not only bred through possessing equity, it is also a highly emotional experience.