The old saying that culture eats strategy for breakfast needs updating. Politics has eaten culture for lunch—and the implications of this for strategy are still being digested.
A study published in 2017 found that the political ideology of CEOs is strongly correlated with decisions about mergers and acquisitions, as well as the long-term success of those decisions. But it’s not just the political leanings of the C-suite that matter: Recently published research from a team of economists at the University of Washington used the campaign contributions of all employees to derive a measure of the so-called political distance between firms. Their analysis of 2,103 mergers from 1980 to 2018 found that the larger the political distance, the less likely firms were to merge, and when such mergers did occur, the less likely the merged company was to succeed.
But the impact of politics on business is not clear-cut. Another study looked at 686 mergers from 1993 to 2010 involving S&P 1500 firms and found that close ideological alignment leads to worse performance, not better. Whether it’s for better or worse, though, the takeaway is the same—politics has a measurable impact on performance.
Every ideology comes with a distinctive vocabulary, a particular perspective and a core set of assumptions about behavior. Politics is a lens through which business leaders make sense of world events and what they entail for business. Politics may lead to divisive clashes or to timorous groupthink, but either way, politics molds corporate culture, which in turn affects decisions and actions. With politics more divisive than ever, such effects will only grow larger and more consequential.
Questions related to politics and business are usually framed in terms of advertising or purpose, but these business concerns are the least of it. The bigger impact is that politics is reshaping the basic contours of the commercial landscape by changing the culture that determines and manages strategy. This leaves management in an almost untenable position: Employment must never be a matter of politics, yet the politics of employees matter to the bottom line. Perhaps the upside is that business leaders might come to see that it’s in their self-interest to help tamp down the political polarization now fracturing society at large.
In the meantime, companies must recognize that the politics of employees can make or break the best-laid business plans. Politics is now an organizational issue, not just a marketing issue. These are uncharted waters for most companies, but it can no longer be presumed that people leave their politics at the door when they come to work. Instead, the new reality facing business leaders—as well as the new dynamic defining the future of commerce—is that the business of politics now includes business.
Image by Bill Murphy.