Fairness in Family Business Decision Making

DETERMINING WHAT IS FAIR

In our post entitled, Decision Making in Your Family Business: A Guide for Owners, we shared how requiring consensus in family decision making led to the most positive and unifying results. Our topic this time is fairness. When we ask family members and their advisors about fairness in family decision making, they almost universally think of fair outcomes.  Yet, who’s to say what is “fair?” Each family member affected will almost certainly believe that they themselves need to benefit, or each will at least have a different version of what a fair outcome should look like. Some people believe that fair means equal, as in equal pay, or equal inheritances. Others believe that fairness is based on the needs of each person involved. Understandably, this can lead to a great deal of frustration, discord, and disillusionment among family members.

FAIR PROCESS

The solution is to shift the family’s focus from fair outcomes, to using a fair process to make decisions. Fair process is essential to establishing trust, commitment, and harmony in families who are in business together. In families that put fair process into action, rapid gains in individual satisfaction and system performance are seen.

In a fabulous March, 2005 Family Business Review article entitled “Fair Process: Striving for Justice in Family Business,” authors Van der Hayden, Blondel, and Carlock describe a five step framework for a process that is seen as fair by families.

STAGE 1: FRAMING AND ENGAGING

The first step consists of framing the issue the team is facing. Is it well understood, what aspects are important, and what criteria should be used to guide the selection of the ‘optimal’ outcome?  The viewpoints of those who have a stake in the issue, as well as those who have specific expertise in the area, are important to capture in this stage. Also, understanding the major uncertainties that could affect the outcome, as well as the various ways that outcomes can be measured, are important considerations here.

It’s also critical to engage everyone concerned in an active way, allowing them to challenge each other, the assumptions held, and the data surrounding the decision, and encouraging them to suggest alternative ways to view (and solve) the problem. This needs to be done early in the process in order to properly frame the decision and commit people to stay engaged all the way to the resolution or implementation of the outcome.

STAGE 2: EXPLORING AND ELIMINATING

This step involves creatively generating a list of available options and evaluating their impact on all parties who will be affected. Relevant facts and uncertainties—and their likely effects on the decision outcome—are also considered at this point, according to the authors. As this process moves forward, the list of desirable choices are gradually winnowed down.

STAGE 3: DECIDING AND EXPLAINING

After having examined the pros and cons of the various options, the group now needs to close the exploration stage by selecting a decision to implement. It is also important to explain the decision to all affected parties. When stakeholders are kept informed, they are more likely to be satisfied.[1] Also, this process allows the family leaders to receive validation of their decision, sort of like a cross check. In practice, the leader(s) present the option selected, offer additional support information, and answer any questions. The family members have the opportunity to confirm their support and agreement with the decision.

Finally, at this stage it is important to set and manage stakeholder expectations regarding how the decision reached will be executed.

STAGE 4: IMPLEMENTING AND EXECUTING

The way decisions are executed and implemented is critical to both family members and managers. It is especially important in the context of fairness, which implies that people ought to do what they say, and also ought to say what they do. People want to see the execution matching what they expect to see, and if they were properly prepared in Stage 3, this creates a positive feedback loop.

In this step it is also important to elevate the debate from decision making to a full framework for action in implementing the decision. This helps assure that any team members who may still be emotionally anchored in the previous stage will move forward with the rest of the group, sort of like mopping up.

STAGE 5: EVALUATING AND LEARNING

Because most issues that require decisions tend to reoccur, evaluation of the process and the parties involved is an essential part of the decision making process. If this step isn’t taken, there can be no learning over time, improvement will be limited, and mistakes may be repeated. It also ensures that today’s decisions will benefit from the lessons of past decisions. For example, one lesson learned previously might be that more attention needs to be paid to the framing step, and to gaining greater agreement from everyone involved about exactly what the criteria ought to be for the selection of a “best” option or decision.

CONCLUSION

Over time, a well-formulated decision making process will be more effective in producing good decisions than a poorly formulated one. For this reason, all five steps described are essential and deserve the family’s full attention.

Sadly, the importance of having an effective decision making process is rarely recognized, and this is why so many families find themselves frustrated, unhappy, and feeling “stuck” in their business and personal relationships.

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[1] Kim, W.C. & Mauborgne. R.A. (1997) Fair process: Managing in the Knowledge Economy

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