Family Constitution Practices: what can we learn from the STEP cases Family Constitution Practices: what can we learn from the STEP cases? Ilse Matser

agenda Introduction Theoretical framework: Justice Theory Family governance as instrument to achieve fair process Best practice: Case of NNZ Discussion in groups Wrap up – next steps

Justice theory I Organizational justice is a subjective and descriptive concept that captures what individuals believe to be right (Cropanzano et al., 2007; Lerner, 1980). Perceived justice is positively related to various aspects such as greater trust and commitment, more helpful citizenship behavior and diminished conflict (Cropanzano et al., 2007; Cropanzano et al., 2001) Distinction between: distributive justice (Adams, 1965) and procedural justice (Leventhal, 1980; Thibault & Walker, 1975) Distributive justice (Adams, 1965; Olsen & Osborn, 2006) rules Equity : individuals assess their own input (e.g. education, intelligence and effort) to one’s outcome and compare that ratio with that of a comparable other person. Equality: rewards or benefits should be divided equally among the participants regardless of their individual contributions Human-needs based: focus is on the needs of the individual whom it concerns and where personal motives like altruistic arguments or self-interest arguments play a role

Justice theory II the importance of process to the literature of justice (Thibault and Walker, 1975; Leventhal et.al, 1980). six criteria for fair process (Leventhal, 1980), procedures should be (a) applied consistently (b) be free from bias (c) ensure accurate information (d) have some correction mechanisms (e) conform to ethical standards (f) ensure that all opinions of the actors involved are taken into account Colquitt et al. (2001) revealed the strong interaction effect between the two constructs

Justice theory & the business family Van der Heyden et al. (2005): ownership, family and business, each of these subsystems has a different principle as a main guidance to establish what a fair distribution of outcomes or allocation is: need-based rules inside the family sphere, meritocracies among managers in the business sphere equality among shareholders in the ownership sphere Family, managers and shareholders will judge the fairness of particular outcomes with different criteria Family members are at the same time manager, employee and shareholder, they can feel torn between the different rules Therefore: focus on fair process

Family governance - fair process Relational governance (Mustakallio et al., 2002; Uhlaner et al., 2007) During the life cycle of the family firm, the relationships between family members change which could imply that a more formal governance system becomes necessary (Steier, 2001; Sundaramurthy, 2008) The family constitution is embedded in the broader family governance package and it relates to the business governance installed The process of forging a family agreement is just as or even more important than the content of the document itself, the process builds family problem- solving and decision-making skills (Botero et al., 2015; Montermerlo and Ward, 2011) Samara and Arenas (2017) draw the attention towards practicing fairness towards employees in the workplace of the family business

Key facts Since 1922 200 employees International company Family Boot: 3th generation: 3 brothers and a sister & 4th generation: 8 cousins Ownership and management is separated (2 brothers work in the business, one is the CEO) Governance: board of directors, supervisory board and STAK board (comparable to a family council) S

The family constitution of family Boot Since 1993 – transistion from the 2th to 3th generation Purpose: the family wants to be clear how to act in situations where different interests come together/overlap Chapters: family goals & values; governance structure; family members working for the NNZ; succession process; ownership and control (voting rights; role of the supervisory board); communication practices Every year the constitution is being discussed in the annual family meeting. As a family member you’re allowed to join this meeting and the shareholder meeting when you turn 18.

data STEP framework 6 Interviews Transcriptions Additional information Position in the business family 1 CEO Family 3th gen 2 Chief Commercial officer Non-family 3 Chair person supervisory board 4 Chair person STAK board 5 sales Family 4th gen 6 Not involved

Analysis using the fair process criteria of Ven der Heyden et al. 2005 Clarification: clarity of information, process and expectations Communication and voice Consistency across people, over time and with agreed values and norms Changeability of decisions, process, goals and principles Commitment to fairness

discussion Start with one example - explain briefly the situation Apply the criteria of Van der Heyden Clarification: clarity of information, process and expectations Communication and voice Consistency across people, over time and with agreed values and norms Changeability of decisions, process, goals and principles Commitment to fairness Overall assessment of this example – what could other families learn from this? Same process for another example

Wrap up Findings so far? Special issue in JFBM on responsible ownership Contibution to a new book