Procedural justice theory and entrepreneurship
Procedural Justice Theory: Why "Fair Process" Matters More Than the Outcome
Why do employees accept a decision that negatively affects their pay? Why do investors stick with a founder even when returns are low? The answer often lies in Procedural Justice Theory.
Introduced by Thibaut and Walker (1975), this theory proposes a counter-intuitive idea: People care more about the fairness of the process used to make a decision than they do about the actual outcome of that decision.
The Core Distinction: Process vs. Result
To understand this theory, you must distinguish between two types of justice:
- Distributive Justice: Focuses on the outcome. (e.g., "Did I get the bonus I wanted?")
- Procedural Justice: Focuses on the process. (e.g., "Was the criteria for the bonus applied fairly to everyone?")
The theory argues that processes are often more important in the evaluations of participants than the actual results. People will accept a negative result if they believe the process used to reach it was fair.
Application to Strategy
Kim and Mauborgne (1991)—famous for developing Blue Ocean Strategy—applied this concept to global management. They argued that when implementing strategies, "Fair Process" is the key to execution.
If a decision-making process is deemed fair to stakeholders (employees, partners, subsidiaries), an outcome is likely to be accepted as just, even if that outcome is not distributively advantageous to them.
Application to Entrepreneurship
Procedural justice is particularly critical in the high-stakes world of Entrepreneur-Investor Relations.
According to Sapienza and Korsgaard (1996), entrepreneurs face a dilemma regarding information:
- Sharing Information: Builds trust but gives up leverage.
- Withholding Information: Increases relative power but erodes trust.
They found that Procedural Justice is the solution. By ensuring the process of communication and decision-making is fair (timely, transparent, and consistent), entrepreneurs optimize information flows. This allows them to gain investor trust and growth financing without necessarily giving up control.
Implications for Founders
The broader implication is that entrepreneurs should aim for procedural justice in all stakeholder relationships. Trying to guarantee "fair outcomes" (Distributive Justice) for everyone is impossible—someone will always get a smaller slice of the pie. However, ensuring a "fair process" is entirely within the founder's control.
Video: Procedural Justice in Management
References
Kim, W. C., & Mauborgne, R. A. (1991). Implementing global strategies: The role of procedural justice. Strategic Management Journal, 12(S1), 125-143.
Sapienza, H. J., & Korsgaard, M. A. (1996). Procedural justice in entrepreneur-investor relations. Academy of Management Journal, 39(3), 544-574.
Thibaut, J. W., & Walker, L. (1975). Procedural Justice: A Psychological Perspective. Lawrence Erlbaum Associates.
