Fair Process - Striving for Justice in Family Business

Concepts of "fairness" and "justice" have long been fundamentals of most legal structures and societies. More recently, these same precepts have been successfully adapted and applied to organisations. However, family firms find themselves at the crossroads of two entities: the family and the firm, and so perceptions of fairness and justice can differ across the two. In this seminal work on fair process for family businesses, INSEAD's Ludo Van der Heyden, Christine Blondel and Randel Carlock review and refocus the fair process theory and models, producing a working model for family businesses.

by Randel Carlock, Ludo Van der Heyden and Christine Blondel
Last Updated: 23 Jul 2013

Non-family firms are bound by procedures to ensure that "justice" - whether in the form of salary and promotions, within operations or for decision-making in the boardroom - is distributed fairly. Over the years, studies have proven time and again that the trust and good reputation a company enjoys are impacted by its image of being fair, both with employees and in the marketplace.

Family firms, however, present a more complex phenomenon, with close family relationships and needs constantly being factored into business operations. Such imperatives may considerably increase the difficulty of assessing the fairness of decisions: should they be based solely on merit? How will they include family needs? And how will the family business respect shareholder equality?

For instance, families sometimes struggle with the issue of the distribution of company shares. Should the family member running the business receive more than the others, given that she or he takes more responsibility and needs to take decisions swiftly? Or should all family members receive equal shares, in a desire to maintain equality within the siblings? Or should the family members needing more money due to special circumstances of life (such as physical handicaps) receive more? Arguments can be made for different ways to assess the fairness of this distribution. In this paper, the authors argue that the best way to solve such questions is to apply a "Fair Process", giving all involved a voice, and listing and evaluating as many options as possible.

Some have argued that that procedural justice is not applicable to family business, given the intricacy of relationships, perceived lack of transparency and personal interest and needs of family members. Not true, say Ludo Van der Heyden, the Solvay Chaired Professor of Technological Innovation; Wendel Centre Executive Director Christine Blondel; and Randel Carlock, the Berghmans Lhoist Chaired Professor of Entrepreneurial Leadership, all at INSEAD. In this paper, Fair Process: Striving for Justice in Family Business, published in the March 2005 Family Business Review, the INSEAD team set out quite the opposite.

Fair process is in fact well suited for the family firm and the negative trade-offs between emotions and economic rationality can be largely eliminated, or at least substantially reduced through an appropriate application of fair process.

Beginning with a thorough review of existing procedural justice literature, the authors plead their case for the application of procedural justice for family business systems and then get right to the point-mapping it out in a framework. Van der Heyden, Blondel and Carlock propose a 'dual characterisation of fair process', for family firms, clearly defining both the five steps to a decision-making process defined as fair, and the five characteristics that each of the five steps must include.

The authors argue that possible negative situations within family firm structures actually stem from a lack of fair process. They then show, through a series of case discussions, how the application of fair process turns these liabilities into positives. Demonstrating that fair process enhances commitment and performance, through examples across five areas: ownership, family membership, recruitment and career development, management transitions, and family participation, it also becomes obvious that a lack of fair process can reduce the firm's performance and satisfaction of those involved with it.

This paper and the original ongoing related research work constitute a major cornerstone of INSEAD's comprehensive set of family business research, programmes and publications.

<em>Professor Carlock and Christine Blondel are respectively Director and Executive Director of the Wendel International Centre for Family Enterprise (WICFE), and Professor Van der Hayden is a member of the Centre's core team.</em>

Family Business Review, March 2005

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