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The Hafts and Mediation: Lessons for Businesses

Washington Business Journal

by David Gage
Washington Business Journal, Commentary
Volume 13, Number 5
June 17-23, 1994

Many people were surprised and disappointed when the Hafts settled their differences privately in mediation instead of battling publicly in courts. Press previews had whetted appetites for titillating personal dramas and revelations of closely guarded business secrets of Herbert Haft.

Judge Rufus King III told the Hafts and their attorneys too mediate; then Judge King checked in on them over a weekend of marathon mediation, making sure they were progressing toward a settlement. The Hafts did reach an agreement and narrowly averted what was undoubtedly going to be a very messy, expensive and nationally reported courtroom brawl.

It speaks volumes when a judge expends that much energy to keep such a large, complicated case out of his courtroom. Judge King forcefully prodded the Hafts and their attorneys to use mediation because of its many advantages in any closely held business, whether family or not.

While Judge King declined to go on record about the Haft case, he was very willing to discuss his views on resolving conflicts in business partnerships.

King believes that mediation is much more appropriate than litigation in most business partner conflicts because, he says, “Even a ‘win’ in court can be a loss for everybody involved.”

But litigation is still the method of choice of many feuding partners despite its drawbacks, and arbitration is its number one alternative. The major drawback to litigation and arbitration is that control of the outcome passes from the business partners to someone else. Even judges or arbitrators with the best intentions, King notes, “won’t be humanly capable of understanding the nuances of the business the way the owners do.”

That shortcoming is partly due to the limited time to devote to any given case, and partly because the mandate of judges and arbitrators is to determine what happened and apply remedies, not to make sound business and personal decisions. Turning over the decision-making power to a third party is risky because the outcome is unpredictable and the decision may not be the best for the business.

Mediation is different. It is an assisted negotiation process, whereas litigation and arbitration are judicial processes. While mediation also uses a neutral third party, the business partners retain control. Mediators simply control the process by the partners control the outcome.

Therefore, the partners are never forced to live with something they didn’t agree to. This should allay the fears of those who see themselves inn more powerful positions that their partners and as a result may feel reluctant to mediate.

Sitting down to mediate may feel like giving up power, but if a person has real power, e.g., holding 51 percent of the business, this power is not relinquished when mediating. And it remains even if the mediation doesn’t work.

Agreements that would change such things as ownership structure, roles, or titles happen only with the consensus of all disputants. Also, anyone can terminate mediation if he or she dislikes how it’s going. At that time, if an agreement is not reached, the partners can opt for more formal judicial procedures.

Another benefit of mediation is privacy. Judge King explained that public knowledge of a dispute can wreak havoc on a business. Critical relations with creditors, suppliers, customers, and even employees can become strained when private conflict becomes public knowledge. The effects of conflict between partners can be unpredictable, far reaching, and long lasting.

Compared to litigation, mediation is relatively fast and economical. While mediation may take weeks or months, litigation often drags on for years. Arbitration or litigation typically take longer because their decisions are meant to withstand the threat of appeals. Mediation, however, keeps the focus squarely on the present and future, not mired in the past. Not swelling on who did what to whom makes its easier to sustain relationships. The spirit of litigation and arbitration is antagonistic; the parties know the goal is to win. As a result, these processes rapidly make adversaries out of partners.

Relationships that have existed for decades can be completely destroyed. Innocent bystanders in and outside the business are often caught up in the maelstrom of conflict. In the case of family businesses, these conflicts often reemerge years later when the next generation becomes involved.

By contrast, mediation focuses on what can be changed now to resolve the conflict and to minimize future problems. In fact, the real strength of mediation comes from mediator’s ability to manage powerful negative emotions, control game playing, and keep the energy moving constructively toward settlement. The best mediators move partners from positions of combat to positions of cooperation.

When to begin mediation? Ideally, mediation can be used as an important tool when establishing a partnership or during business or ownership transitions to minimize the likelihood of future problems. However when disagreements to arise, partners should talk to each other. Logical as it sounds, this often doesn’t happen. If such a dialogue fails, then ask a trusted person who is a neutral in the eyes of all partners to act as a facilitator. If no such person exists, look for a professional business mediator.

Finding the right mediator can take time. Since mediators are not licensed by any state or professional organization, first check education, training, and experience in similar cases. In partnership disputes, mediators often will work in a two-person team. Given the complexity and intensity of these situations, this can be advantageous.

Second, interview the person with all the partners present. Everyone involved in the case should be reasonably comfortable with him or her. Remember, the mediator’s client is all of the partners, not any subset.

Ideally, mediation should begin before partners become embroiled in conflict. But as the Hafts have shown, mediation can be an excellent way to get adversaries working together even at the eleventh hour to create a solution that is best for the partners as well as for the business.