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Fair process

Christine Blondel is Senior Research Programme Manager, INSEAD Initiative for Family Enterprise.

Justice and fair process in practice: a case study

The concept of fair process and its relevance and application to family firms, was introduced in our article in the previous issue of Families in Business. While the concept can easily be understood, its implementation in practice is less obvious. In this article, we will share the story of a family who had a strong tradition of very limited communication on succession issues. We will see how the concepts of procedural and distributive justice can be applied to analyse their story and how, ultimately, the family was triggered to develop communication and fair process. But first, a quick review of justice and fair process is in order.

Fair process in family firms
Questions pertaining to justice are of particular acuteness in the context of family firms. In most young families, children fight for their parents' affection, and scrutinise their decisions to check whether 'the others' get more – cake, time or hugs. In a family business, many decisions have the potential to trigger feelings of injustice, starting with the key questions regarding the distribution of shares or positions. There is seldom one 'right' way to do things, and the justice of the distribution is particularly difficult to assess. However, family members will live with the outcome of the decisions for life, which they can reflect on for years if not satisfied. Our recommendation to families is to focus their efforts on the fairness of the process (procedural justice), even before the fairness of the outcome (distributive justice). Working on the fairness of the process is more easily achieved and, importantly, leads to a higher motivation and commitment of people involved. This ultimately results in better decisions and implementation, hence in effect a better outcome. Even those not favoured by the decision will better accept it, because they took part in the process and had an opportunity to express their position.

Our research with long-lasting family firms and next generation members led us to suggest four key components of fair process in family firms: communication, clarity, consistency and changeability. Communication implies in particular that all concerned are given a voice. Clarity speaks for itself: it is about clarity of positions and the 'rules of the game'. Consistency is ensuring that all are treated using the same rules. Changeability means that nothing is set in stone for ever, that changing times and needs may result in changing policies, and that decisions can be challenged. These four key elements need to be supported by a true commitment to fairness, for instance a real motivation to listening to those offered a voice. Finally, 'rules of the game' are needed as reference, and hence family policies or charters can be viewed as elements of fair process.

Understanding the case from a justice perspective
The fact that Charles gave equal shares to his children could be viewed as fair: they all received the same amount. The distribution was based on equality. However, the eldest son was expecting to receive more, on the basis that he hoped to run the business. He was counting on another form of distributive justice, based on needs ("if I run the business, I need to have control"), or on equity ("I deserve to run the business"). Thus, it is clear that distributive justice is not an absolute notion and that there are several ways to assess the fairness of a given distribution. Which one should be applied? Unfortunately, there is no simple answer.

In fact, what probably contributed most to the perception of unfairness in the Bolles family was the fact that the distribution of shares was unexpected and had not been discussed. In that sense, there was insufficient procedural justice or fair process. A fairer process would have been for Charles to discuss his decision to give equal shares to all his children prior to death. If all children had been given the opportunity to discuss his decision, they would be more likely to have accepted the decision.

The main issue underlining the distribution of shares was the lack of clarity regarding future leadership of the business. Three of the four children expected to succeed their father, but no discussion ever took place on the issue. It must be underlined that these kinds of discussions are difficult ones and not easily initiated. Rules and outsiders can help tremendously in the process. For instance, many families have a more or less formalised rule that family members must work outside the family business for a number of years, and have been promoted there. Some families ask non-family board members to help assess the competencies and readiness of family members for promotion. Other families set up committees to advise family members on their careers and evaluate them. All these arrangements increase clarity and ensure that all members are treated with consistency. They relieve parents from the burden and difficulty of evaluating their own children.

Stopping the pattern
The Bolles children finally broke the pattern of a lack of communication when their mother expressed her wish to sell the business. They refused to support the sale. They went so far as telling their mother that they would not be part of her family any more, was she to pursue this idea without consulting them. They called for a family meeting with all family members and hired a moderator to facilitate the discussions. By doing so, it meant that all members of the family had the opportunity to voice their opinion. This showed that the family could change past habits and start communicating better. The family started discussing all their options regarding the business and ultimately ended up as a "better family", to use their own words.

Change seldom occurs by chance and usually needs a trigger to instigate it. In the case of the Bolles family, the triggering event was quite dramatic, with an offer being made to buy their beautiful hotel. But less dramatic events can also trigger family discussions: a seminar, a conference, a course project. Our experience with MBA participants revealed how commonly family members have a misperception of expectations and of other family members' positions. Working on a course project proved, in many instances, an opportunity to rectify this. One striking example is Louis, a young MBA student, whose brother, David, had taken over the business from their father. Louis felt that he now had nothing to do with the business – the succession was settled and he had no role in the business. However, when David was interviewed for the class project, it appeared that he felt the burden of his responsibilities and would have loved to have received some help from Louis! Just initiating communication opened a whole new set of possibilities and this is what we hope to see happening in many families.

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