Achieving Fairness In The Family Business

Tuesday 5 June, 2001

by George Tanewski

Should the shares of the company be equally divided among the owner manager’s heirs? Do passive owners have the same rights and privileges as managing owners? Is it fair to treat siblings equally regardless of their contributions to the family business?

Should the parents give a substantial portion of their estate to charity or should they give it to the kids? Is it just to leverage the business in order to treat siblings equally in the allocation of the estate? Decisions about ownership and control are inextricably linked to issues of justice. When conflicts in family companies fall within the realm of what is fair and just, they usually take on a level of intensity that makes them difficult to resolve.

Justice and Entitlements

Perceptions of fairness are not random but are determined by discernible psychological and social processes. Thus, in a given family business, the members’ perceptions of justice will depend on the degree to which they are treated and rewarded according to their perceptions of entitlements.

Entitlement in this context refers to the expectations people have about the rewards, opportunities and resources that they believe they should receive for their membership in the family and their contributions to the business. If members of a family business feel they are being rewarded in accordance with what they feel entitled to, the system will be perceived as just. If on the other hand, people are not treated in accordance with what they feel they are entitled to they will consider themselves to be the victims of unjust policies and practices. The central question is, of course, how do people form perceptions of what they are entitled to receive?

Boundaries

This question underscores the importance of clear boundaries for perpetuating functional relationships among members of a system. Unless boundaries are clear, people will make inappropriate social comparisons. Family businesses are particularly vulnerable to conflicts that stem from feelings of injustice. A major reason for this is that overlapping management, ownership and family functions frequently blur the boundaries among sub-groups. For example, if the boundaries between the company and the family are not clear, family members who are not employed in the business will inappropriately compare themselves with those who are and feel entitled to an equal amount of rewards. These comparisons may be exacerbated by the fact that these individuals are frequently siblings and, as such, feel entitled to equal treatment even though some work in the business while others do not.

Conclusion

A consultant could help a family clarify the boundaries of the various sub-groups that make up the family business system. This can go a long way towards facilitating conflicts that stem from perceived injustices.

This article has been partly extracted and modified from Lansberg, I. (1989). Achieving Fairness in the Family Business. Proceedings of the 1989 Family Firm Institute Conference, October 4-7, Davis, California, USA. 

Source:ceoonline.com