Say you and your family own a business together, and you’re trying to make a major decision. You agree to take a vote. That’s fair, right?
When it comes to fairness in decision-making, it’s a two-part analysis: For a decision to be considered fair, the participants must believe that both the outcome of the vote and the process by which it was conducted are fair.
How can a vote be unfair?
The Family Firm Institute (FFI) recently published a fascinating short article, “Decision Making Processes in Family Businesses in Latin America” by Mexican attorney and professor Luis Medina. In that article, Medina shows how cultural patterns affect how participants vote. Sometimes, cultural norms cause participants to vote in alignment with a powerful and revered family member, even if that vote is counter to their own wishes or interests. Such a vote fails the first prong of the analysis—the outcome is unfair, even though the process itself is fair.
Medina’s point is that fair process alone won’t guarantee that voters will perceive outcomes as fair. He is not referring to “sore losers”—those who are simply unhappy about being on the losing side—but rather to “sore winners”—those who feel that they “had to” vote a certain way, and don’t like the outcome, even if the decision that passed was the one they voted for.
It seems likely that the “sore winners” problem exists in some capacity in cultures and systems far beyond Latin America. When a leader wishes to influence an outcome and leans on participants to vote with them, the risk rises that the participants will consider the outcome to be unfair. The same thing can happen when a leader purposefully opts not to provide full information and an opportunity for discussion, and then pushes through the vote. In systems in which voters regularly consider either outcomes or processes to be unfair, we’ve observed a decline in participation over time, along with the occurrence of side-deals and even outright obstruction.
We’ve also found that what style of decision-making is considered fair depends in part on the stage of the family business. In a controlling owner or founder-led business, the founder will make most major decisions. This sets a precedent, and if ownership passes to next generation family members, the individual who leads the business may assume that they control most of the decisions. But the rest of the owners may feel that it would be fairer for decision-making should be more widely shared, particularly for ownership-level issues. Together, they may purposefully adopt a more matrixed allocation of power—one which carefully allocates decision-making authority among owners, board, management, and family. This process might include granting individuals or groups the right to be consulted, to observe, or to veto.
What can be done?
Good decision-making processes can also increase the sense of fairness and avoid the “sore winners” problem:
- Providing a written agenda, in advance
- Utilizing Robert’s Rules of Order, or a similarly thorough procedural process
- Educating members of the group about the topic for decision-making
- Encouraging thoughtful discussion and debate, to clarify the issues involved
- When risk of undue pressure is high, voting by secret ballot
For those working to develop and implement an effective governance system for a family business, whether they be family leaders, legal counsel, or independent advisors, understanding and accounting for the unique potential pressures within that specific family business system will help bolster the decision-making process of the system, and reduce the cries of “that’s not fair!”