Fair Process for Decision Making in Family Businesses

Dear Richard,

I have enjoyed reading your blog posts over the years. My parents are in the process of transitioning the ownership and management of our family’s business to my brother, sister, and me. All three of us are in our mid to late thirties and have worked our way up in the business for many years now. However, our father continues to hold an almost iron grip on the business, including areas that he really has no business being involved in because they are small potatoes.

He refuses to discuss the transition openly and just says, “It will all be fair.” Well, forgive me, but I’m not willing to let my life be dictated by our “My Way or the Highway,” father! How on earth can he just expect us to sit here hoping he will make decisions that we think are fair, and why does he continue to treat us like we are children?

Signed,

Resigned in Rohnert Park

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Dear Resigned,

Business transitions are never easy for any of the parties involved, and when the parties are related, the shift from parental ownership and control to the next generation can often be much more highly charged.

My first suggestion is to try your best to have empathy for your father. How might you be feeling if you were in his shoes and was turning over your “baby” to someone else’s control? What challenges and fears do you imagine he might be feeling, not the least of which may be what will happen to his identity when he is no longer Master of the Universe in the firm he created?

In his book, The Hero’s Farewell: What Happens When CEOs Retire, author Jeffrey Sonnenfeld introduced four archetypes or styles that describe how family business leaders exit their positions. The first two – the Monarch and the General – are forced out but try to regain their lost power. The second two – the Ambassador and the Governor – leave their leadership positions in the company of their own choice and move on psychologically as well. The Ambassador stays on, working behind the scenes to help the company succeed, while the Governor moves on to pursue other interests. Which do you imagine best describes how your father sees himself? Understanding how he’s feeling will dramatically improve the odds of coming up with a more productive relationship between you three and your father, and will provide clues about how best to steer the transition process toward a path that provides everyone with confidence and greater security.

When it comes to fairness, most people typically think of fair outcomes, but the reality is that coming up with an outcome that seems fair to everyone in a family is just about impossible, since perceptions of fairness and justice differ across every person, family, and firm. For example, one person’s perception of fairness means everyone gets the same amount of money in an estate plan. Another person may feel that it is more fair to distribute assets based on the specific needs of each person. Which person is right? It depends on your perspective.

What has instead proven to be very satisfying for families is to focus on coming up with a fair process for making important decisions. When individual family members believe that decisions were reached as a result of a fair process, they are most likely to trust and cooperate freely, regardless of whether they themselves win or lose by participating. Think about that—isn’t that an astonishing statement?

Disillusioned family members frequently express a desire for a greater degree of fairness in the way their family makes decisions, and once a fair process is put into action, we see rapid gains in satisfaction and performance throughout the family system.

So what is a fair process? The model we use, described by Heyden, Blondel, and Carlock in their paper, Fair Process: Striving for Justice in Family Business, describes a five-step process:

  1. Framing and Engaging: Is the issue well understood? What is most important and what criteria should be used to decide on an ideal outcome? Have we involved everyone who is affected in the decision making process, and allowed them to challenge us and suggest alternate ways of viewing and solving the problem?
  2. Exploring and Eliminating: Have we creatively come up with a list of available options and considered how they would affect the different constituencies involved? Have we taken into consideration all relevant facts and how any uncertainties might affect the decision outcome? Exploring and evaluating the options narrows the list of viable options during this step.
  3. Deciding and Explaining: Decision time. Once the decision is made, explain it and continue to keep all stakeholders informed. Furthermore, this is the time to set expectations about how the decision will be executed.
  4. Implementing and Executing: One of the keys to successful decision making is how decisions are implemented. Fairness implies that people should do what they say, and say what they do. In this step it is important to skillfully shift any lingering debate from decision making to a framework for implementation.
  5. Evaluating and Learning: Evaluation and reflection are vital parts of the decision making process. Without them, improvement tends to be limited and mistakes are often repeated. Over time, a well-formulated decision making process will produce better results than a poorly formulated one.

Wherever fair process prevails, trust, commitment, and harmony soon follow.

Let me know how you’re all doing.

Richard

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