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The Partnership charter

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Avoiding Costly Legal Battles Through Mediation

Management Productivity Review

by David Gage
Management Productivity Review
April 1990

Each year more business partnerships than marriages end up on the rocks. In family businesses, succession represents a major life transition and stirs up all kinds of latent rivalries, so it comes as little surprise that 50% never survive the transition to the second generation and 90% never successfully reach the third. But the deleterious effects of conflict are felt long before the selling of a company or dissolving of a partnership. Conflict at the highest level of any business or corporation almost always demoralizes people at lower levels and saps the energy necessary for the efficient operation of the business.

Most family business and partnership disputes involve either business or personal issues–not legal ones. Business partnerships and family businesses are created to enhance financial and personal power, and perhaps achieve some “safety in numbers.” People join together to beat the competition, but before long their very partners can begin to feel like the competition. Perhaps this should come as little surprise since our first “partners” in life are our siblings and it is with our siblings that we sharpen our competitive teeth. We learn at a tender young age that it is the family against the world, but within the family, it’s “Who’s the top dog?”

When this early competitive “training” comes into contact with our intensely competitive business environment, it is no surprise that conflict surfaces. The usual company consultants–lawyers, accountants, etc.–are either not appropriate or lack the experience to deal effectively with the interpersonal dynamics in these conflicts. And without knowing about alternatives, owners frequently wind up in protracted legal battles.

The most appropriate avenue for resolving disputes among business owners is mediation. Business mediation is a voluntary dispute resolution process in which owners or principals agree to discuss their conflict with a third-party neutral. The goal is to achieve a mutually acceptable settlement which resolves the current problem and decreases the likelihood of future conflict.

Mediation is based on the principles of negotiation and problem solving. Mediation can be initiated at any time during the development, or settlement, of a conflict and can be terminated at any time by either party. The process is flexible and allows the parties to decide for themselves what information to reveal, how much to reveal, and when to reveal it. Information can be conveyed confidentially to the mediator in individual caucus sessions, and the entire mediation process can be private and off the public record.

Of the various ways to resolve disputes, mediation allows the parties involved to maintain the most control over the process. With mediation there is no forced judgment from an arbitrator or judge. Settlement evolves from the owners themselves, with the help of the mediator.

The mediator’s role is to be an impartial and neutral third party. The mediator assesses the dispute and helps define the issues, eliminates the obstacles to communication and the barriers to settlement, assists in exploring alternative solutions, and guides the parties to a satisfactory resolution of their differences.

The focus in mediation is on substantive issues, but the process is informal and designed to deal constructively with the many relevant factors which would not be considered in a court proceeding. What appear to be straightforward business disputes often drag on interminably because of underlying issues. Mediation is ideally suited to deal directly with the misperceptions, misunderstandings, and hidden agendas which sometimes derail settlements or lead to enormous expense.

Mediation helps minimize the polarization and alienation that can develop in these types of disputes. Rather than court awarded judgments based on points of law, mediation attempts to generate creative solutions based upon the genuine interests and long-term needs of both parties. Mediated solutions usually involve win-win results and some sort of continuing relationship rather that total victory on one side. Typical estimates of the success rate of mediation in business disputes is about 80 percent, according to an article in the June, 1989 issue of The ABA Journal (p.74). It states that more and more corporations are routinely adopting a policy, “of trying mediation before other procedures because it’s the fastest, cheapest, most flexible, least threatening of dispute resolution alternatives. Its whole aim is to solve problems, not find fault.”

David Gage, Ph.D. is a consulting psychologist specializing in in mediation services for family businesses, partnerships, and corporations.