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The Partnership charter

The Partnership Charter by David Gage Millions of people co-own closely held companies, family businesses, and business partnerships, but establishing them and keeping them together is never easy. Here, finally, is the guide they have been waiting for.... Read More

Mediating Personality Differences Behind Internal Business Disputes

The CPA Journal

by John A. Gromala and David F. Gage
The CPA Journal
March 2002

Mediation is recognized as an excellent means to resolve disputes and pending litigation. But it is also being used to prevent disputes from arising among partners and shareholders of small businesses and professional groups, as well as among management teams.

People become co-owners of a business because they believe they will be better off with a larger entity than as a sole owner. Sometimes this is an unrealistic expectation. When expectations are not met and partnerships and closely held corporations dissolve, there tends to be a common thread. Although the opposing parties’ opening positions are often couched in terms of disappointing profits, broken agreements, and so on, these disputes are seldom the root cause of the problem.

Case Study

Consider this example of a successful business whose owners were on the verge of a brouhaha.

The two partners had been in business for six years. Each owned one-half of the company, took no salary, and shared the profits equally. Bob was a golfaholic who was at the office about 20 to 25 hours per week. He brought in most of the new business. Jim was a workaholic who spent 50 to 60 hours per week at the office. He made sure everything and everyone worked. The corporate attorney became aware of developing tensions and feared an impending explosion. He convinced the partners that disaster was around the corner if they did not get outside help. A mediator was retained and interviewed the partners confidentially.

Jim, the workaholic, complained about low profits. In business meetings he talked about the need for faster growth to increase profits and his income. He believed that he had to put in the long hours because Bob was not carrying his fair share of the workload. He often hinted he should be entitled to a larger share of profits because he was putting in more effort; however, he never confronted the issue head on. He liked Bob and did not want to risk a blowup.

Bob, the golfaholic, believed the company would die for lack of customers if he did not continue his marketing efforts on the golf course and social circuit. He believed Jim spent so much time at the office because he was henpecked at home. He also believed that the company would be better off if some of what Jim did was delegated to employees. He suspected Jim wanted a bigger slice of profits, but he was not going to open up a can of worms.

Business Charters

The mediator’s function is to help people design a program that will keep them focused and working together. Consultants will analyze the situation and present the client with a solution or a plan of action. Even if it is flawless, inevitably someone will find something to hate. The difference is whether a participant considers a solution to be “my idea” or “his idea.” Mediators help people develop a solution that is “their idea.” Thus, the prospect for successful implementation is great, since everyone has a vested interest in seeing the idea succeed.

Mediators guide the parties as they draft a “business charter,” which addresses matters not discussed in partnership or shareholder agreements, nor in a management structure and job descriptions. A charter is a nonbinding memorandum that clarifies what each person expects of the other and how they will operate together.

Mediators do not attempt to change personalities; they help people understand their own interests, needs, and goals while recognizing the interests, needs, and goals of others. Then, mediators facilitate the creation of a plan for working together.

To implement this approach, separate, confidential interviews with each person are recommended. The mediators cannot disclose anything told to them in confidence. During the interview, they explore how to air each person’s gripes in a non-adversarial and productive manner.

When the interviews are complete, the mediators should have a complete picture of the relevant issues. They should be aware of each person’s perceptions and the hidden agendas that seldom surface, which form a more complete picture that none of the partners have seen. The mediators’ task is to help them develop this picture for themselves during a group conference.

Prior to the group meeting, the mediators should give each participant a set of questions, developed from what was learned in the individual interviews. The conference should be a facilitated discussion of all the issues that were previously unspoken.

The length of the conference depends upon the number of participants and the complexity of the relationships–not the complexity of the problems or disputes. Although people discuss problems in terms of financial, legal, or management issues, these disputes are seldom the real cause of friction. The real cause is often the people themselves.

Communication Framework

There is very little, if any, emphasis in college or business courses on how to be a good partner. The result is that successful businesspeople enter into legally binding business relationships with little thought about how they will harness their personal differences into a positive force. Many individuals have not thought through their own short- and long-term goals. By not knowing their own needs, much less others’ personalities, goals, and values, they set themselves up for unnecessary grief.

In the above case study, the two partners learned new things about themselves as well as each other. Bob enjoyed most of his time on the golf course and socializing; however, he hated golfing and socializing with some of the clients and did so solely to generate business.

One of the customers he disliked was also a pain to everyone in the company. This customer caused Jim great stress, often disrupting his work schedule. Jim did not complain to Bob, believing this customer was Bob’s good friend. Once this was discussed openly, an avalanche of other hidden issues between them flowed onto the table.

In this case study all issues were addressed and resolved. More importantly, the partners learned how to communicate with each other on sensitive topics. This is the most lasting benefit of the charter process. It shows individuals how to deal successfully with future conflicts and minimizes their need for future outside help. A good charter addresses current issues and sets up a protocol for how partners will interact with each other.

The issues addressed may seem mundane to an outsider looking in, but they are monumental to those living with them. The Sidebar is an excerpt from a table of contents in a sample charter for a professional firm, covering the topics raised during that mediation.

By using mediation, owners and managers are empowered to address issues that were previously taboo, and do so without bruising their egos. Furthermore, the business charter is an important living document. The most important benefit of mediation is the discovery of how individuals can harness their diverse personalities into a productive force. Having learned from the process, they can review the charter periodically and make changes as appropriate.

A final note on mediators: Each of the authors has tried providing this service without a co-mediator. If cost is a critical factor, one mediator is better than none. However, the authors have found increased client satisfaction with the process and the resulting charter when a pair of experienced, complementary mediators work together.

John A. Gromala, J.D., is the founder of Gromala Mediation Service, Eureka, Calif. David F. Gage, Ph.D., is the founder of BMC Associates, Arlington, Va.

The CPA Journal is published by the New York State Society of CPAs. Their website is www.cpajournal.com.