When Company A had to downsize, it spent considerable amounts of money providing a safety net for its laid-off workers. The severance package consisted of many weeks of pay, extensive outplacement counselling, and the continuation of health insurance for up to one year. But senior managers never explained to their staff why these layoffs were necessary or how they chose which jobs to eliminate. What's more, the mid-level line managers who delivered the news to terminated employees did so awkwardly, mumbling a few perfunctory words about "not wanting to do this" and then handing them off to the human resources department.
Even the people who kept their jobs were less than thrilled about the way things were handled. Many of them heard the news while driving home on Friday and had to wait until Monday to learn their jobs were secure. Nine months later, the company continued to sputter. Not only did it have to absorb enormous legal costs defending against wrongful termination suits, but it also had to make another round of layoffs, in large part because employee productivity and morale plummeted after the first round was mishandled.
When Company B downsized, by contrast, it didn't offer nearly as generous a severance package. But senior managers there explained the strategic purpose of the layoffs multiple times before they were implemented, and executives and middle managers alike made themselves available to answer questions and express regret both to those who lost their jobs and to those who remained.
Line managers worked with HR to tell people their jobs were being eliminated, and they expressed genuine concern while doing so. As a result, virtually none of the laid-off employees filed a wrongful termination lawsuit.
Workers took some time to adjust to the loss of their former colleagues, but they understood why the layoffs had happened. And within nine months, Company B's performance was better than it had been before the layoffs occurred.
Although Company A spent much more money during its restructuring, Company B exhibited much greater process fairness. In other words, employees at Company B believed they had been treated justly.
From minimising costs to strengthening performance, process fairness pays enormous dividends in a wide variety of organisational and people-related challenges.
Studies show when managers practice process fairness, their employees respond in ways that bolster the organisation's bottom line both directly and indirectly. Process fairness is more likely to generate support for a new strategy, for instance, and to foster a culture that promotes innovation. What's more, it costs little financially to implement.
In short, fair process makes great business sense. So why don't more companies practice it consistently? This article examines that paradox and offers advice on how to promote greater process fairness in your organisation.
The business case for fair process
Ultimately, each employee decides for him or herself whether a decision has been made fairly. But broadly speaking, there are three drivers of process fairness. One is how much input employees believe they have in the decision-making process: Are their opinions requested and given serious consideration? Another is how employees believe decisions are made and implemented: Are they consistent? Are they based on accurate information? Can mistakes be corrected? Are the personal biases of the decision maker minimised? Is ample advance notice given? Is the decision process transparent? The third factor is how managers behave: Do they explain why a decision was made? Do they treat employees respectfully, actively listening to their concerns and empathising with their points of view?
It's worth noting process fairness is distinct from outcome fairness, which refers to employees' judgments of the bottom-line results of their exchanges with their employers. Process fairness doesn't ensure employees will always get what they want; but it does mean they will have a chance to be heard. Take the case of an individual who was passed over for a promotion.
If he believes the chosen candidate was qualified, and if his manager has had a candid discussion with him about how he can be better prepared for the next opportunity, chances are he'll be a lot more productive and engaged than if he believes the person who got the job was the boss' pet, or if he received no guidance on how to move forward.
When people feel hurt by their companies, they tend to retaliate. And when they do, it can have grave consequences. A study of nearly 1000 people in the mid-1990s, led by Duke's Allan Lind and Ohio State's Jerald Greenberg, found a major determinant of whether employees sue for wrongful termination is their perception of how fairly the termination process was carried out.
Only 1 per cent of ex-employees who felt they were treated with a high degree of process fairness filed a wrongful termination lawsuit versus 17 per cent of those who believed they were treated with a low degree of process fairness. To put that in monetary terms, the expected cost savings of practicing process fairness is US$1.28 million for every 100 employees dismissed.
That figure which was calculated using the 1988 rate of US$80,000 as the cost of legal defence is a conservative estimate, since inflation alone has caused legal fees to swell to more than US$120,000 today. So, although we can't calculate the precise financial cost of practicing fair process, it's safe to say expressing genuine concern and treating dismissed employees with dignity is a good deal more affordable than not doing so.
In addition to reducing legal costs, fair process cuts down on employee theft and turnover. A study by management and human resources professor Greenberg examined how pay cuts were handled at two manufacturing plants. At one, a vice president called a meeting at the end of the workweek and announced the company would implement a 15 per cent pay cut, across the board, for 10 weeks. He very briefly explained why, thanked employees, and answered a few questions.
The whole thing was over in 15 minutes. The other plant implemented an identical pay cut, but the company president made the announcement to the employees. He told them other cost-saving options, like layoffs, had been considered but that the pay cuts seemed to be the least unpalatable choice. The president took an hour and a half to address employees' questions and concerns, and he repeatedly expressed regret about having to take this step. Greenberg found during the 10-week period, employee theft was nearly 80 per cent lower at the second plant than at the first, and employees were 15 times less likely to resign.
Many executives turn to money first to solve problems. But my research shows companies can reduce expenses by routinely practicing process fairness.
Think about it: Asking employees for their opinions on a new initiative or explaining to someone why you're giving a choice assignment to her colleague doesn't cost much money. Of course, companies should continue to offer tangible assistance to employees as well. Using process fairness, however, companies could spend a lot less money and still have more satisfied employees.
A performance booster
Process fairness can not only minimise costs but can also help to increase value, inspiring operational managers to carry out a well-founded strategic plan eagerly or embrace, rather than sabotage, an organisational change. This form of value is less tangible than direct reduction of expenses, but it affects the bottom line nonetheless.
The fact is, most strategic and organisational change initiatives fail in their implementation, not in their conception. Several years ago, I worked with the CEO of a financial services institution that needed a major restructuring.
The bank's operational managers, however, were showing signs of resistance that threatened to stop the process dead in its tracks. I advised the CEO and his senior management team to conduct several town hall-type meetings and to hold informal focus groups with the operational managers.
During those talks, it became clear the managers felt the CEO and senior executives failed to appreciate the magnitude of the change they were asking for. Interestingly, the managers didn't request additional resources; they simply wanted those at the top to recognise their difficult plight. By expressing authentic interest, senior executives created a trusting environment in which managers felt they could safely voice their true objections to the change effort. That enabled senior managers to respond to the root problem. Moreover, since the operational managers felt respected, they showed a similar level of process fairness with their direct reports during the actual restructuring, making the change go more smoothly.
Michael Beer, of Harvard Business School, and Russell Eisenstat, president of the Center for Organisational Fitness, recently provided evidence of how systematically practiced process fairness (embedded in an action-learning methodology known as the strategic fitness process or SFP) has helped numerous organisations capture value by getting employees to buy in to strategies.
A critical element of SFP is the appointment of a task force consisting of eight well-respected managers from one or two levels below senior management. Their job is to interview roughly 100 employees from different parts of the company to learn about the organisational strengths that are apt to facilitate strategy implementation as well as the shortcomings that could hinder it. Task force members distil the information they gain from these interviews into major themes and feed them back to senior management. Then they discuss how the strategy could be rolled out most effectively.
SFP is a model for process fairness: More than 25 companies including Becton, Dickinson; Honeywell; JP Morgan Chase; Hewlett-Packard; and Merck have used it with great success to hone the substance of their strategic initiatives and, probably more important, to gain employees' commitment to making those initiatives happen.
Most companies say they want to promote creativity and innovation, but few use process fairness to achieve those ends. They're missing out on a great opportunity to create value. Harvard Business School professor Teresa Amabile has conducted extensive research on employees working in creative endeavours in order to understand how work environments foster or impede creativity and innovation. She has consistently found work environments in which employees have a high degree of operational autonomy lead to the highest degree of creativity and innovation. Operational autonomy, of course, can be seen as the extreme version of process fairness.
The nature of organisations, though, means few (if any) employees can have complete operational autonomy - just about everyone has a boss.
Creativity and innovation tend to suffer in work environments characterised by low levels of process fairness, such as when employees believe the organisation is strictly controlled by upper management or when they believe their ideas will be summarily dismissed. When employees believe that their supervisor is open to new ideas and that he or she values their contributions to projects, however, creativity and innovation are more likely to flourish.
The CEO of a renowned electrical-engineering firm, for instance, wanted to change the corporate culture to be more receptive to new ideas, so he separated a large group of workers into teams of 10, asking each team to come up with 10 ideas for improving the business. Then the team leaders were brought into a room where the company's executives were gathered and were asked to "sell" as many of their team's ideas as possible. The executives, for their part, had been instructed to "buy" as many ideas as possible.
The team leaders swarmed like bees to honey to the few executives who had reputations for being good listeners and open to new ideas. The other executives stood by idly because team leaders assumed from past experience they wouldn't listen.
Unfortunately, many (if not most) don't. They'd do well to follow the example of Winston Churchill, who keenly understood the cost-effectiveness of process fairness. On the day after the bombing of Pearl Harbor, Churchill wrote a declaration of war to the Japanese, ending it as follows: "I have the honour to be, with high consideration, Sir, Your obedient servant, Winston S. Churchill." After being castigated by his countrymen for the letter's deferential tone, Churchill is said to have retorted, "When you have to kill a man, it costs nothing to be polite."
In a change management seminar I've taught to more than 400 managers, I ask participants to rate themselves on how well they plan and implement organisational change. I also ask the managers' bosses, peers, direct reports, and customers to rate them. The measure contains more than 30 items, and managers consistently give themselves the highest marks on the item that measures process fairness: "When managing change, I make extra efforts to treat people with dignity and respect." Those rating them, however, are not nearly as positive. In fact, this is the only item in which managers' self-assessments are significantly higher than the ratings they receive from each of their groups. It's not entirely clear why this perceptual gap exists.
Perhaps managers are tuned in to their intentions to treat others respectfully, but they aren't as good at reading how those intentions come across to others. Or maybe it's just wishful and self-serving thinking.
Some managers wrongly believe tangible resources are always more meaningful to employees than being treated decently. At a cocktail party, the CEO of a major international bank proudly told me about the hefty severance pay his company gave to its laid-off employees.
I expressed admiration for his organisation's show of concern toward the people who lost their jobs and then asked what had been done for those who remained. Somewhat defensively, he said it was only necessary to do something for the employees who were "affected" by the layoffs. The others were "lucky enough to still have their jobs". But economically supporting those who lost their jobs doesn't cancel out the need to show process fairness to those affected by the change which, incidentally, includes everyone.
Ironically, the fact that process fairness is relatively inexpensive financially may be why this numbers-oriented executive undervalued it.
Sometimes corporate policies hinder fair process. The legal department may discourage managers from explaining their decisions, for instance, on the grounds that disclosure of information could make the company vulnerable to lawsuits. Better not to say anything at all, the thinking goes, than to risk having the information come back to haunt the organisation in the courtroom. Clearly, legal considerations about what to communicate are important, but they should not be taken to unnecessary extremes. All too often organisations withhold information (such as the alternatives to downsizing that have been considered) when revealing it would have done far more good.
Managers who unwaveringly believe knowledge is power may fear that engaging in process fairness will weaken their power. After all, if employees have a voice in deciding how things should be run, who needs a manager? Managers sometimes do run the risk of losing power when they involve others in decision making. But usually the practice of process fairness increases power and influence. When employees feel they are heard in the decision-making process, they are more likely to support rather than merely comply with those decisions, their bosses, and the organisation as a whole.
The desire to avoid uncomfortable situations is another reason managers fail to practice process fairness. As Robert Folger of the University of Central Florida has suggested, managers who plan and implement tough decisions often experience conflicting emotions. They might want to approach the affected parties out of sympathy and to explain the thinking behind a decision, but the desire to avoid them is also strong.
Andy Molinsky at Brandeis University and Harvard Business School's Joshua Margolis analysed why managers find it so hard to perform necessary evils (such as laying off employees and delivering other bad news) with interpersonal sensitivity, which is an important element of process fairness.
Leaders in this situation have to manage their own internal dramas, including feelings of guilt (for, say, making poor strategic decisions that led to the downsizing) and anxiety (about having sufficient interpersonal sensitivity to accomplish the task gracefully). Instead of wrestling with those uncomfortable emotions, many managers find it easier to sidestep the issue and the people affected by it altogether.
"Emotional contagion" also comes into play in these situations. Just as we tend to laugh when we see others laugh, even when we don't know why, we also involuntarily feel anxious or sad when those around us feel that way and that's uncomfortable. No wonder so many managers avoid people in emotional pain. Unfortunately, such avoidance makes it very unlikely that they will practice process fairness.
I can understand how managers feel. Several years ago, I was working with a telecommunications organisation after the first layoffs in the company's history. The CEO and his senior management team wanted me to talk to the mid-level managers about how the layoffs would affect the people who remained and what they could do to help their direct reports "get over it".
Feeling betrayed and fearful, however, the mid-level managers were in no mood to help others return to business as usual. They identified me with the problem and implied that I was partly responsible for the decision to downsize. That was a moment of real insight for me: Trying to counsel this unhappy and suspicious group, I completely understood the discomfort that managers experience when they're called on to act compassionately toward people who feel aggrieved.
It was much harder than I expected.
The senior managers of the company admitted to me they were tempted to avoid the rank and file partly out of guilt and partly because they doubted whether they would be able to keep a cool enough head to practice process fairness. That's a natural response, but ignoring negative emotions only keeps them swirling around longer. When senior managers made themselves more accessible to their workforce, employees reacted positively, and the organisation developed a renewed sense of purpose.
Towards process fairness
Companies can take several steps to make fair process the norm.
Address the knowledge gaps: Managers need to be warned about the negative emotions they might experience when practicing fair process. Merely acknowledging it is legitimate to feel like fleeing the scene can help managers withstand the impulse to do so. Studies have shown people can tolerate negative experiences more easily when they expect them. Just as forewarned surgical patients have been found to experience less post-operative pain, forewarned managers may be better able to cope with (and hence not act on) their negative emotions.
Furthermore, managers are more likely to endure a difficult process when they know that the effort will have a tangible payoff. But it's not enough for managers to be vaguely aware that process fairness is cost effective. Corporate executives should educate them about all the financial benefits, using charts and figures, just as they would when making a business case for other important organisational initiatives.
Invest in training: Study after study has shown fair-process training can make a big difference. Subordinates of the trained managers, for instance, are not only significantly less likely to steal or to resign from the organisation, but they are also more likely to go the extra mile aiding co-workers who have been absent, helping orient new employees, assisting supervisors with their duties, and working overtime. Several studies by Jerald Greenberg have even found employees whose managers underwent process fairness training suffered significantly less insomnia when coping with stressful work conditions.
Like most managerial behaviours, the practice of process fairness must begin at the top. When senior managers explain why they have made certain strategic decisions, make themselves available for honest two-way communication with the rank and file, involve employees in decision making, provide ample advance notice of change, and treat people's concerns with respect, the practice of process fairness is likely to spread like wildfire throughout the rest of the organisation.
Recent corporate scandals show giving workforces outcome-only directives ("I don't care how you get there, just get there") can be disastrous. Forward-thinking organisations care not only about the outcomes their managers produce but also about the fairness of the process they use to achieve them. This is not a call for micromanagement. Just as there is usually more than one way to produce financial results, there is more than one way to involve people in decision making, to communicate why certain actions are being undertaken, and to express thoughtfulness and concern.
There is a moral imperative for companies to practice process fairness. It is, simply put, the right thing to do. As such, process fairness is the responsibility of all executives, at all levels, and in all functions; it cannot be delegated to HR. But with that moral responsibility comes business opportunity.
An executive must minimise the costs of decisions that might threaten employees and maximise the benefits of decisions that may be sources of opportunity for them. In both instances, practicing process fairness will help get you there. The sooner you realise it, the better off you and your company will be.
Harvard Business Review
Jeannie Bathgate, an advisory board member for Women in Technology and Collaborative Health Informatics and Knowledge in Sydney, Australia, explains why she chose this article from the Harvard Business Review: "In the IS world we've all heard the terms restructure,
downsize, 'rightsize' and others of which I'm sure you'd think back and shudder. The stakes are high if you do not use fair process.
Consider these: Ruined organisa-tional reputation - who will want to work for you in the future, if you treat your people like that? Your customers, hearing of the process unfairness, will choose not to deal with an unprofessional organisation like yours. What about the people that are left in the organisation, how are they going to feel seeing their close workmates dealt with in an unfair way? Loyalty, morale and productivity go out the window. What about the impact of laid-off workers who then take their cases to the employment court around unfair process?
Fair process can have a totally different outcome for the future of your organisation. What does fair process cost financially? Not much. But if not practised, it could potentially bring your organisation to its knees."
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