Family businesses and perceptions of justice

Respect for justice in family businesses is particularly important to reduce the risk of disagreement and conflict.  Perceptions of injustice simmering below the surface may contribute to the intensity of conflict over other matters when those later matters arise.  What is just in family terms may not be fair in a business context, making respect for justice tricky to manage.  Even solely within the business setting and the family setting there can be difficult challenges in applying justice.  Typically issues relating to justice arise during family business succession, although they can arise in other settings.

Fairness in a business context equates individual input with output.  It relates to efficiency and success.  Valuing the input can sometimes cause disputes.  How do you compare formal training with practical experience?  How do you compare a financial contribution with the contribution through labour? How do you value business relationships with any of the above?

Equality has prominence as a family value.  The family share a resource. Yet people have different needs and preferences.  This do not always equate to equal division of a resource.  Therefore need is also a consideration in family values. 

People are also concerned about how they are treated, so procedural justice is important as well as the outcome of the issue in question.  Process is often accepted if participants can air their views and feelings and perceive that these are taken on board by the decision makers.  People expect a decision to be an impartial one based on correct information.  It also needs to be a decision in a wider context that is a consistent one; if the same or similar scenario arose again it would be predictable that the same or similar decision would be made.

Procedural justice managed with sensitivity is particularly effective.  It enables relative losers in a decision to retain dignity and respect whilst accepting the decision because they appreciate procedural justice has occurred.  The conduct of all parties to a dispute is relevant to this, not just the decision maker but also the other parties that are subject to the decision being made.  Hurtful comments by a party risks eroding that sense of procedural justice on the part of a losing party in a decision.  Full explanations for decisions by decision makers, which is part of procedural justice, is made more effective if the explanations are presented with tact and diplomacy to allow parties to more easily accept less than favourable decisions.

All this has relevance in discussing, deciding and explaining a succession plan within a family business.  The business is a large part of the family wealth.  Fragmented ownership by people of varying levels of commitment to the business is probably undesirable for the future ownership and management of the business.  Yet there is a family expectation of equality and of satisfying family members’ needs.

The succession plan probably focuses most or all the ownership in one or a few hands.  Not all family members will get senior management roles in the business. Either.  The plan may not be as pure and extreme as it could be.  It probably has compromises in it to demonstrate adherence to substantive justice. The plan may well have been produced after procedural justice efforts have been made to ensure all parties feel heard and respected, so they accept the plan’s content.  A fair/reasonable, but accepted, plan is better for implementation than a conceptually perfect, but not accepted, plan.

Failure to consider substantive and procedural fairness in making decisions about family businesses risks creating hostility, anger, distrust and a lack of cooperation.  This is an environment of low cohesion which will have an impact on business performance in some way.

Decisions perceived as unfair can have long term consequences.  The memories last.  They can even cross generations in long established businesses.  Whilst someone might feel under rewarded in an adverse decision, another person in the same decision may suffer guilt. This is an issue in itself, but may also cause over work in them as a consequent issue as they try to justify the situation they find themselves in.  The under rewarded person is likely to reduce their efforts so they ‘work to rule’ or do even less.  Their motivation has been deflated.  Adhering to concepts of justice in decision making reduce the prospects of such outcomes.  As a consequence, satisfying a sense of fairness avoids creating the negative emotions in family members which usually creates a degree of family dysfunction.  These family issues in turn hinder the performance of the family business.

My colleagues and I at Nexa have expertise in corporate matters and disputes.  As business aware professionals and dispute resolution professionals we are able to assist family businesses with their succession plans from corporate, employment and dispute angles with the principles and issues set out above in mind.  Contact us to let us assist your family business.

For more information please contact Henry Clarke using henry.clarke@nexa.law