Deploying Fairness as a Competitive Advantage

A feeling of justice reassures and motivates the members of any working collective, just as it does any human society. But what arrangements should be put in place within a company to guarantee fairness and regulate inevitable conflicts? That is another story...

Raphaël H. Cohen, professor, author and business leader, is a consultant and co-director of the HEC Geneva diploma in Entrepreneurship and Business Development, [email protected]

Conflict prevention and management ought to be a major concern for business leaders. For those who have not yet grasped this spontaneously, the regulatory provisions recently introduced to this end should serve as a useful reminder. In Switzerland, for example, the financial regulator, Finma, stated as early as 2012 that it was perfectly possible to require a company to appoint a person of trust within the company in order to prevent internal conflicts before they arise. Since that publication, much has happened in the way of implementing it. Finma, the supervisory body for Swiss financial institutions, has now also asked banks to put in place such an arrangement, and it is clear that no company will escape a considered reflection leading to the implementation of an internal mechanism intended to ensure greater fairness. Switzerland is certainly not the only country moving in this direction, and no Western country will be able to avoid this issue.

Why is conflict management taking on such importance? The answer lies in the fact that when internal conflicts are badly handled, they can easily lead to situations that threaten the survival of the companies concerned. For those who no longer have them in mind, here are three examples showing that interpersonal conflicts are real time bombs.

Bradley Birkenfeld, UBS employee who revealed to the US tax authorities the practices of his employer likely to interest them, was in conflict with his former employer.

Hervé Falciani, who supplied the French authorities with information on Swiss HSBC account holders, was also in conflict with his employer. These two individuals played a central role in the collapse of Swiss banking secrecy.

These revelations not only enabled the American authorities to recover billions of dollars from Swiss banks, but also led to a considerable weakening of the Swiss banking sector.

- A sense of injustice undermines employees’ motivation and interpersonal conflicts are a time bomb for organisations. - The existence of an internal mediation and regulation body, guaranteeing fairness, is a virtuous condition provided it rests on a code of conduct known and accepted by all. - The taboo surrounding sanctions means that many leaders are reluctant to punish those who do not respect the rules. Even if that means letting themselves be taken for “soft touches” when they publish “codes” and “charters” in the form of pious wishes that remain a dead letter.

The third example shows that the public sector is just as vulnerable: a civil servant in the Swiss intelligence services, for example, tried to sell state secrets as a form of reprisal against his boss.

Interpersonal conflicts are not the only source of current problems. The absence of recourse in the face of aberrant instructions from the hierarchy can also generate disastrous situations. The falsification of diesel engine emissions tests at Volkswagen is, in this respect, exemplary: the employees of the prestigious carmaker were undoubtedly faced with pressure and forced to cheat. Fearing for their jobs and having no channel through which they could safely express the dilemma imposed on them, they tried to get out of it through trickery. The result was obviously catastrophic when the deception was discovered.

Human risk is the Achilles heel of organisations, the one that is both the least well managed and the most explosive. Consequently, concern with managing it should be paramount for the leader of any organisation, as is now often the case. To limit the damage, one must defuse conflicts and avoid situations in which a lack of fairness leads to toxic behaviours.

Justice is not only a matter for the courts

Many situations likely to cause damage do not fall under legal provisions. Thus, a conflict between two colleagues that does not break any law but poisons working relationships cannot be brought before the courts. The same applies to acts of nepotism or even “promotion by favour”.

These situations, though frequent, nevertheless generate a very clear feeling of injustice among employees. The absence of a legal basis on which to ground sanctions prevents those affected from prudently bringing the matter before the courts. Moreover, resorting to an external body to the organisation would be perceived as a declaration of war or a breach of trust, and no one would risk it. Since the law itself is not equipped to deal with this kind of situation, every company must cope as best it can internally. Hence the imperative need for ad hoc governance.

The choice of mechanism that ensures compliance with rules and fairness within the company also has an obvious influence on the company’s attractiveness in the labour market, particularly among generations Y and Z, who are sensitive to this type of issue and to values, therefore to fairness. By following the latest debates on this issue, one notices that the questions that invariably return eclipse the essential issue: the mechanism to put in place. Should HR be called on, an ombudsman, a coach, a mediator, an internal or external arbitrator, etc.? The emphasis is generally placed on the actor and his or her power to act, whereas the fundamental questions concerning the way of doing so are often ignored.

The need for internal governance

Even though I have thought a great deal about this question and my experience has led me to favour certain mechanisms that produce good results, I would like here to address a point that is too often forgotten: whatever the mechanism implemented or the actor called upon to intervene, it is absolutely essential to define in advance the principles that must govern his or her action. These principles must be set out in a code of conduct.

Internal justice must precisely ensure compliance with the organisation’s code of conduct, which implies having one. Many companies do not have one, and those that do do not always use it wisely: the code of conduct they display describes what is expected but says nothing about the mechanism by which respect is enforced. It merely refers to duties and no longer to rights. A code of conduct whose only beneficiaries are the leaders can hardly claim credibility and legitimacy.

As it is unfortunately extremely rare for a code of conduct to contain clear rules on how transgressions are to be managed, it is up to leaders to take responsibility for dealing with them. This arrangement is obviously unsatisfactory insofar as leaders are not only rarely trained to play this role, but are also, on top of that, often directly involved in the conflict, making their independence insufficient to guarantee fairness. Yet without fairness recognised by all the people concerned, no justice.

Managing transgressions as a guarantee of security

When fairness and justice are not assured, employees do not feel secure. It is illusory to hope that people living with insecurity will feel engaged. That reduces their level of commitment and results inevitably in a drop in performance and therefore productivity. PricewaterhouseCoopers has shown that engaged employees increase productivity and profits by up to 35%. Yet internal fairness and justice would most likely make it possible to achieve these performance gains. This is why governance capable of ensuring fairness is needed, rather than improvised recourse.

This governance must satisfy three conditions. It must be transparent. It must rest on explicit rules. Finally, the legitimacy and independence of those who ensure compliance must be accepted by those who are governed. A transparent frame of reference, known and agreed, is much easier to apply than implicit rules of the game. Everyone knows, then, not only what is expected of them — what their obligations are — but also what they may invoke — what their rights are. In civil society, the foundations of the frame of reference are set out in the Constitution. Those fundamental principles to which everyone is supposed to subscribe are not enough on their own to deal with each specific case and each individual interpretation. As principles are not enough, laws are needed to spell out their concrete application with mechanisms which, of course, sanction transgressions. This system having proved its worth for decades, it would be a pity if organisations did not draw inspiration from it to manage their internal issues.

In the world of work, every organisation would also have to spell out the guiding principles it retains and complement them with governance rules that ensure their implementation and observance. Effective governance cannot therefore be content with principles alone, without a system that ensures their fair application. That is the reason for a code of conduct in which the guiding principles are laid down, as well as the governance rules that make them applicable.

A code serving the company but also its employees

A code of conduct is a framing tool that benefits not only the company. Employees need rules to know their rights and obligations. The third actor who also urgently needs them is the person who must ensure justice at the internal level. This code of conduct not only allows him or her to know which rule has potentially been breached, but above all to legitimise his or her decisions.

Acceptance and legitimacy of the arrangement are essential to its success. Indeed, if the interested parties do not trust the mechanism supposed to protect them, they will have the same feeling as if they were in a place where justice is exercised arbitrarily. A conflict-management mechanism not accepted and recognised by all would be a remedy worse than the ill it seeks to cure. The code of conduct must therefore spell out not only the rights and obligations of each person, but also set out the recognised mechanism for all as one ensuring fair compliance.

The need for security comes second in Maslow’s hierarchy, just after the satisfaction of vital needs. Any measure making employees feel secure is therefore welcome. Security also helps to ensure employee retention. Completing the legal framework through internal governance further allows management to avoid actions incompatible with the organisation’s culture. As this also strengthens employees’ protection, trade unions or staff representatives ought also to be greatly interested in the arrangement. Moreover, when rules are explicit, they are obviously better respected than when they are implicit. The analysis above could suggest that everyone benefits from it. Yet that is not the case. Robust governance also creates losers. In this instance, those who benefit from artistic vagueness, so to speak, either to cover themselves, or to exercise their power arbitrarily and/or discretionarily.

By depriving the boss of being able, in the end, to “make the law”, the introduction of a code of conduct thus amounts to reducing managers’ discretionary power, it being understood that this reduction is accompanied by a marked improvement in collective commitment and performance.

The question, then, is whether it is necessary to privilege the interests and power of certain leaders or whether it is better to ensure fairness, security and the level of collective commitment. Having personally no interest whatsoever in defending the interests of a clique, I start from the principle that collective interest and collective success should be privileged.

A pragmatic implementation

Once the need for governance ensuring collective success has been established, the question naturally arises of what it might look like and how to put it in place. Without claiming to define a universal system, I intend here to describe the main lines of a mechanism that I have gradually developed and applied successfully, in the hope that it may inspire others to find better ones. Even if it is not perfect, this arrangement has at least the merit of producing results, in any case better than those I observe in organisations that delegate compliance with the code of conduct to management.

The proposed framework may be implemented at the level of a company or organisation as a whole, but it should above all be tried at the level of a small number of people. Doing so for the whole organisation is so delicate that it is much easier, and therefore more pragmatic, to begin with one or several small teams.

The five-stage rocket that defines the code of conduct

This approach relies on five pillars which form a whole. This is what I call the “five-stage rocket”.

- The first pillar is to formulate the mission of the unit explicitly by making it the collective purpose of the whole concerned. To define the unit’s mission properly, the collaborators themselves should ideally define it, and do so collegially. When employees themselves choose a mission that makes sense for the team, it is infinitely more motivating and effective than one defined by the boss and thrust upon it. Besides being a source of motivation, the mission may facilitate conflict management: knowing whether a challenged behaviour was intended to contribute to the mission or merely to serve the interests of some. When the mission is not spelled out, flou gives some the opportunity to justify behaviour or conduct that can be harmful to others.

- The second pillar is to choose indicators jointly which must make it possible to check to what extent that mission is properly being fulfilled. Indicators make the mission tangible and intelligible at the operational level. The value of indicators, particularly when they too are defined collegially, is that they lead all the members of a unit genuinely to understand and internalise the collective and concrete objectives of the unit. Because they make explicit the positive criteria that may measure a contribution, these indicators are also an extraordinary tool of recognition, valuing what has been accomplished. Knowing that recognition is a primary component of justice, this building block is very important in the edifice aimed at ensuring greater fairness.

- The third pillar is to agree, again collectively, the values that must govern the team’s operation. Contrary to what most organisations do when they publish values, these must be clearly distinguished from the expected behaviours that are the subject of the fourth pillar. Values are hierarchically more fundamental than expected behaviours: they determine them. To avoid any misunderstandings between the parties, values should not only be chosen collegially, but also hierarchical. In situations that bring several values into conflict, such a hierarchy makes it possible to know which one takes precedence. Making explicit, for example, that the value “the organisation’s long-term survival” takes precedence over “job security” will ensure that a reduction in headcount is not perceived as the breach of a value, but as necessary to ensure the organisation’s survival. Values being fundamental principles of which everyone may avail themselves and whose transgression is considered unacceptable by the protagonists, conflicts often result from a perception of the violation of one of them.

- The fourth pillar is the catalogue of expected behaviours. This makes it possible to guide employees’ actions, in the event of conflict, to have a reference point in order to know which expected behaviour has not been respected, and by whom. When expected behaviours are also defined collegially by the whole team, they carry much more weight and are, as a consequence, more naturally respected than when rules of the game are parachuted in by the hierarchy, without those concerned having any say.

- The fifth pillar includes the governance rules, among which are what is to happen when an expected value or behaviour is transgressed. The transgression of what is expected does indeed require sanctions, in the broad sense. It is also in the governance rules that the mechanisms for managing justice and sanctions mentioned above will appear. Governance rules do not merely address the issue of sanctions. They can clarify many other questions as well, such as the principles governing internal promotions, the arrangements for managing recognition, the criteria for assessing innovators, etc.

As it is difficult to formalise these five pillars accurately at the first attempt, I have over time relabelled this set of guiding principles the code of conduct. Only after several iterations can stable governance emerge. In the event of conflict or dispute, this code of conduct defines, moreover, HR, the mediator, the arbitrator or any other actor who has a share of the roles. In the absence of a code of conduct, any attempt to settle a conflict may be challenged. The existence of a legitimate frame of reference clarifies how to manage and above all how to settle the conflict.

A code of conduct lived because it is accepted

All five pillars correspond to the unit’s code of conduct as it is governed by the desired conditions. Experience always shows that externally facilitated codes of conduct are effective. The main value of calling on an external facilitator is that, as this person is not part of the team, he or she can address certain delicate subjects without being suspected of manipulation, as will unfailingly be the case when one of the actors plays the facilitator’s role.

For the governance of a large organisation, such as that of a company as a whole, it is indeed obviously not possible to proceed in as participative a manner as recommended if one asks entire small groups to do it. For larger organisations, other more adaptable mechanisms can be put in place to achieve a similar result.

Ultimately, making these five pillars explicit amounts to making the organisation’s culture explicit and more precisely the desired culture, as opposed to the inherited culture. This approach therefore offers the opportunity to steer an organisation’s culture in the desired direction. It also makes it possible to improve the quality of recruitment, insofar as a discussion of the five pillars, before engaging a new employee, makes it possible to verify that the selected candidate subscribes to the organisation’s code of conduct. Finally, since culture generally fosters retention, those who feel good there, and above all protected by the code, will be less inclined to leave the company.

Even though I have not been able scientifically to measure the impact of this approach, I have however empirically noted that the teams which implemented this five-stage rocket benefited from markedly better levels of engagement and effectiveness. I have also been able to observe that implementation such as recommended by a code of conduct has the effect of reducing not so much the number as the seriousness of conflicts. The same goes for absenteeism.

The obstacles to overcome

The resistance aroused by this approach is of two kinds: first, because it requires prior work of reflection before it corresponds to an investment to put solid foundations in place; second, because it leads certain leaders to have to explain the rules of the game and a reduction in their discretionary power, not to say arbitrary power. This can express the fact that the exercise of power is, for some leaders, more important than collective success. It is therefore up to those who refuse to invest in co-constructing a culture that truly federates to question their legitimacy to lead.

The turkey syndrome and the hierarchy of values

It takes a tremendous internal motivation to punish in the absence of witnesses when everyone lets themselves be seduced by the opposite. This is what I call the “turkey at Christmas” syndrome: no one wants to be the only one to follow a rule. If those who transgress it are not sanctioned, the others will not want to be left behind and will free themselves from it as well.

Children know this very well, moreover, when they invoke the privileges enjoyed by other children (why them and not me?). An essential principle is that all serious faults be sanctioned in practice (example: theft or embezzlement, whatever the amount). Its corollary, obvious and astonishingly effective if this consistency is practised, is that a minor fault should also be sanctioned. Employees are, because of this, very attentive to the reality of sanctions and not just to the existence of threats of sanctions. That allows them to know what is serious and what is not. They can thus understand the limits and standards inherent in the organisation’s culture. If a company charter puts forward, for example, honesty and integrity, but sanctions dishonesty (such as theft) very vigorously while showing a lack of equity (for example when a manager tolerates certain employees slacking off, while giving extra work to those who are efficient), it will be obvious that, in that universe, dishonesty is more serious than lack of fairness. This is how the organisation’s implicit hierarchy of values is expressed.

The taboo of sanctions

Unfortunately, sanctions are a taboo subject in management. The experts recommend incitement through motivation or, at most, reward. Even if I adhere without reservation to “positive” strategies (motivation + reward), I think they are unfortunately not enough. No organisation or company escapes it: they all need rules to ensure the functioning of the collective. Those rules, in turn, are based either on a collective morality (one does not insult one’s colleagues), respect for certain personal or collective values (professional conscience), or on rules laid down by the company (one does not drink alcohol in offices). The first two cases, very close to the measure in which motivation and internal order rely on individuals’ value systems who, by respecting them, can look themselves in the eye, can function in the long term.

The third case is more delicate insofar as the rules are imposed by the company without there necessarily being spontaneous adherence from employees. It is then a question of internal motivation. The ability to justify or convince of the usefulness of these rules has nevertheless limits, because if one managed to convince everyone, employees would then have the motivation internal to them. As is not the case, the only way to have them respected is to sanction non-compliance. To be convinced of this, one need only imagine what would happen on the roads if speeding were not sanctioned...

To remain credible and respected, leaders who publish a company charter must supplement it with a mechanism that sanctions all transgressions, including above all those of the leaders. When values and expected behaviours are concerned, exemplarity is not negotiable: there is no preaching that applies only to others. Concordia had to pay for wanting to impose truth while having no code of conduct without respecting it oneself. To publish one without having the courage to punish those who transgress it simply testifies to cowardice, which favours leadership rather than strengthening it. A leader who is not ready to show exemplarity and who lacks the courage to punish should refrain from bluffing by publishing a company charter. He too should abstain from hoping to be a leader!

Moreover, employees consider, consciously or unconsciously, the absence of sanction as amounting to a form of implicit caution in the direction concerned. Since there is no sanction, it is because the fault is not serious and therefore the value it has violated is not one of the company’s real values. In other words, displaying values and expected behaviours without ensuring that their violation will be energetically sanctioned is an excellent way for leaders to lose their credibility. In that case, the code of conduct is reduced to containing pious wishes and petitions of principle. This is aggravated by the absence of sanctions resulting from management’s lack of courage because it has not dared confront the guilty party! Once again, the credibility of taking a stand presupposes confidence in leaders who have neither the courage to have “their” own rules respected nor, above all, themselves. That obviously invites another question: would they have the courage to defend me on the day I need their support? Worse still: how could I feel safe in such an environment? What is the point of commitment when necessary sanctions are not taken? Ultimately, it is always the leader, for fear of being taken for a fool, who ends up being one.

Having empirically observed many middle managers, particularly in the leadership courses I regularly deliver, I can affirm that they unanimously favour the implementation of an applicable and applied code of conduct. They wish that one be able to make rules applicable and ensuring respect for their application through a management mechanism for transgressions accepted by all.

It only remains for there to be sufficiently enlightened leaders to authorise the implementation of governance that both secures and increases performance...

The powerlessness of the law in the face of five cases of injustice

A few examples are enough to show that current law is powerless to deal with situations that employees experience. All these resemblances to people or situations known are of course purely coincidental.

- Situation 1: management does not dare remove (after warnings) a manager who has good sales performance but poisons the lives of the members of his team and demotivates them. In employees’ minds: profit takes precedence over well-being. What is the point of pretending that people are a company’s most precious capital?

- Situation 2: management does not sanction a manager who appropriates someone else’s idea. In employees’ minds: management is incapable or lacks the courage to ensure fairness is respected. How can one hope that people feel secure in a company where justice or fairness is not a value essential to management?

- Situation 3: management still encourages innovation but sanctions not those who put sticks in the wheels by blocking every initiative to avoid taking risks. In employees’ minds: management is not coherent and does not know where it stands. Better not take initiatives if those who play it safe are more protected than those who try to innovate.

- Situation 4: management does not sanction a manager who forbids a member of his team to work with people from another division run by a manager he does not like. In employees’ minds: solidarity and the desire for success are not valued. Management does not have the courage to punish a leader who puts his ego above cooperation. How can leaders be made to respect when they privilege territorial quarrels to the detriment of the company’s success?

- Situation 5: a manager arrives late, does not meet deadlines, or worse, engages in nepotism by promoting his protégés instead of employees who are more deserving or more competent. In employees’ minds: how can one have faith in a general management that tolerates behaviours of deviants or accepts that managers do not set an example?