Psychological ownership, a lever for continuity in the family business
In this article, originally published in French in Harvard Business Review France, Rania Labaki, Associate Professor at EDHEC and Director of the Family Business Chair, looks at ‘psychological ownership’ in these companies, a crucial factor in their continuity.
Recognised for their longevity and resilience, family businesses draw their strengths from the ownership structure held by family members, which is both long-term oriented and rich in a history of strong values.
However, family ownership, which falls within the legal framework, is not the only component in the continuity equation for these companies. Psychological ownership, which refers to a form of ‘ownership’ of the company that transcends the simple holding of shares, takes on its full meaning in these companies. It makes it possible to go beyond the circle of legal ownership as well as the classic framework of shareholders‘ financial expectations ('Toward a theory of psychological ownership in organizations’, by J. L. Pierce, T. Kostova, and K. T. Dirks, Academy of Management Review, 2001).
Understanding psychological property
Whereas organisational identification answers the question ‘Who am I?’, psychological ownership provides an answer to the question ‘What do I feel is mine?’ (’Psychological ownership in heterogeneous family firms: A promising path and a call for further investigation’, by M. Mustafa, R. Labaki and B. Henssen, Entrepreneurship Research Journal, 2022).
It stems from a psychological experience through which an individual develops feelings of ownership towards a target. When the family business becomes this "target", the ‘holders’ of psychological ownership can be internal and external stakeholders, with no legal implications in terms of rights of control, information or dividends. They may be non-family members, such as employees and managers, or members of the next generation of the family, even if they are not yet formal owners ('Are We Family and Are We Treated as Family? Nonfamily Employees' Perceptions of Justice in the Family Firm’, by T. Barnett and F. W. Kellermanns, Entrepreneurship: Theory & Practice, 2006).
Shareholders may also develop feelings of psychological ownership of the family business; the two forms of ownership are not mutually exclusive. When a stakeholder in a family business feels it to be ‘theirs’, they perceive this psychological ownership as an extension of themselves. This leads them to act as if the company really belonged to them (‘Psychological ownership in small family firms: Family and non-family employees’ work attitudes and behaviours’, by H. M. Ramos, T. W. Y. Man, M. Mustafa and Z. Z. Ng, , Journal of Family Business Strategy, 2014).
So how does psychological ownership influence the behaviour of stakeholders towards what they consider to be their property?
Recognising positive impacts: from motivation to behaviour
Psychological ownership of the family firm leads to significant changes in family and non-family members. It favours the motivation of non-family managers and the state of mind, attitudes and behaviour of employees with regard to the family business (’Psychological ownership in family firms: a perspective article’, by A. L. Caicedo-Leitón, L. Garcés-Galdeano and Larraza-Kintana, M., Journal of Family Business Management, 2024).
➤ Motivation through pride and responsibility
Psychological ownership can generate a sense of pride and responsibility, acting as a source of stimulation for individuals associated with the family business (’F-CPO: A collective psychological ownership approach to capturing realized family influence on business’, by N. Rantanen and I. Jussila, Journal of Family Business Strategy, 2011).
➤ Organisational and pro-social behaviour
Non-family members experiencing psychological ownership are more likely to be committed, satisfied and loyal to the family business (’Affective commitment and job satisfaction among non-family employees: Investigating the roles of justice perceptions and psychological owners’, by N. Rantanen and I. Jussila, Journal of Family Business Strategy, 2011).
In particular, they tend to be more attentive, work longer and go further (’Psychological Ownership’, by F. Bernhard, Elgar Encyclopedia of Family Business, 2024).
Psychological ownership is also a significant predictor of prosocial organisational behaviours, particularly off-role, among both family and non-family employees.
➤ Passing on to the next generation
The psychological ownership felt by the new generation and non-family employees has the potential to encourage the intergenerational transmission of ownership. This is because it can boost their commitment by capitalising on the emotional aspects that are at the heart of the process, in addition to the purely legal aspects (’Intergenerational ownership succession: Shifting the focus from outcome measurements to preparatory requirements’, by L.-G. Sund, L. Melin and K. Haag, Journal of Family Business Strategy, 2015)...
To read this article in full (in French), visit hbrfrance.fr
Photo by Ivan Samkov
