How to make business life fairer
What is the essence of fairness in business? The question is at the heart of many debates ranging from climate change to Trump’s and the Republican Party’s attacks on democracy and, closer to us, the war waged by Russia on Ukraine, and more broadly, on democracy as well.
Ludo Van der Heyden, INSEAD Chaired Professor Emeritus in Corporate Governance and long-time friend of ILA, gave a typically interesting and engaging take on this question in the first presentation of the afternoon entitled “On Fairness”.
“Boards are the key fairness instrument for corporations and for business in their relations with their multiple stakeholders,” said Ludo who then gave his take on how directors might tackle the question. But his first point was the recognition of this.
He started his explanation by looking into how classical scholars viewed the concept. Plato had conceptualised this through the interplay of three elements: the soul, reason, and appetite. “In this framework, fairness is when reason dominates appetite and the soul, and I think that's not a bad definition,” Ludo said. Civilisation is built cumulatively, and not retaining the lessons of the past is unbuilding the human trajectory, and not fair, as it leads to repeat past errors.
More recently, he suggested the notions of liberty, equality, or fraternity have been put forward as a trinity of values that contribute to fairness as fair share or fair division. But there is a big catch. “If you only pursue liberty, fraternity breaks down and social disruption results; if you try to make everybody equal, that creates the new elites running communist systems,” he said. “These three criteria are important, but they are contradictory, so it is a question of finding the correct balance, and also recognizing that distributional fairness will be a never-ending quest, where the three distinct criteria will receive different weights over time” he said.
Ludo also drew a distinction between fairness to the present and the past. “Policies of affirmative action seek to address unfairness of the past, and risk of being and often are unfair to the present,” he said. So affirmative action policies bear unfairness in the present but are a redress of the past, and are especially meant to recognize the past, and correct it to some extent. They therefore should be stated as limited in time, with the aim to make them redundant as soon as possible. This has relevance implications for organisations which are established in an historical context that no longer has contemporary relevance. He mentioned the five permanent member of the UN Security Council, which although they were the winners of the Second World War, are no longer the five preeminent powers in global politics today. This aristocratic and most unfair privilege should be corrected as soon as possible.
All organisations are vulnerable to such unfairness dynamics. “Boards should be built for the future. Many boards act as forces for inertia, and it is unfair when the key governance instrument anchors the organisation in its past,” Ludo said.
“A key fairness is compliance, but that's a very limited notion,” he added. “If you talk about fairness in business schools, it can be reduced to the idea of ‘don't get in trouble’. But that's far from enough.” He said that often businesses do bad things, without a sanction. Actually, except for cases of fraud, few if any board members have ever been sanctioned for negligence or crookedness. There is no fairness without sanctions, as any statue of justice reminds us of (which always is a woman, which cannot be a chance outcome).
Fair-share and fair-play are a fundamental dichotomy. The interplay of merit, equality, and need should be set in the right context, and managing this interplay is the key challenge. “Life is unfair, we do not choose our parents (who determine us), and beyond this, everybody is biased, seeing the world as we are, or even further, as we wish it was, and not quite as it is.” This is the foundation for independence, which greatly helps judge where fairness ends, and unfairness begins.
One of Ludo’s discoveries is that the powerful French motto, Liberté, Égalité, Fraternité ought to apply more to the process than to defining the outcome, as it is usually done. There needs to be the liberty for stakeholders to speak their minds without fear of retaliation. Equality ensures that everyone has an equal voice and equal opportunity in a process (as in a board), as fraternal ideas about the public good (the corporation, or the wider society) are articulated. This process needs to be more transparent to minimise the risk of unconscious bias playing too great a role, and one of these three fundamental aspirations to be violated.
“Most important is being willing to change your mind and be open to others,” said Ludo. This means: “listening, allowing people to say strange things, talk about emotions, and then reasoning if these are justified, even if they are true. And then finally, having the courage to do the right thing, which is very close to doing the fair thing” he added. To carry this out requires, as Plato stated, the right soul, courage (an instance of Plato’s appetite), and reason (which is a competence). That led to Ludo’s main point: board members ought to be trained in the various dimensions and subtleties of fairness, for they are instruments of justice.
He concluded his address with a YouTube clip of Darrell Davis, an African American activist who got to engage members of the Ku Klux Klan on their unfairness. By entering into these relationships, he has encouraged, directly and indirectly, close to 200 people to leave the white supremacist organisation. It is a superb example of fair process leadership that motivates us all to take fairness seriously and start turning our world into a fairer one.
How to make business life fairer