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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

Not All Business! Mediating the Personality Differences Behind Internal Business Disputes

Dispute Resolution Magazine

by David F. Gage and John A. Gromala
American Bar Association Dispute Resolution Magazine
Summer 2001
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, and 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 or sole practitioner. They sign agreements that cover the details of accounting, finance, and law. They are wearing their rose colored glasses and have high expectations for a blissful and financially rewarding relationship.

The history of small business tells us that these expectations are elusive. We have mediated the dissolution of many partnerships and closely held corporations. There was a common thread that ran through every conflict. Although the opening positions were couched in terms of lack of profits, broken agreements, and so on, these disputes were seldom the real cause of the problem.

Management teams in larger organizations are usually put together with existing staff to achieve a specified goal. Everyone makes a commitment to cooperate. Too often the team members get mired down in turf battles. The arguments are phrased in terms of disagreements about the best plan of action. Having mediated a number of management disputes, I have found the reality is something different.

Case study

Let us give you an example of a successful business whose owners were on the verge of getting into a big brouhaha.

They had been in business for six years. Each owned one-third. They took no salary and shared the profits equally.

Bob was a golfaholic who was at the plant about 20 to 25 hours per week. He brought in most of the new business.

Jim was a workaholic. He worked 50 to 60 hours per week. He made sure everything and everyone worked.

Tom never ruffled anybody’s feathers. He went about his assigned tasks quietly and was on site about 35 to 40 hours per week.

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. We were retained. Our initial confidential interviews came up with this picture.

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 and Tom were not carrying their fair share of the load but he never told them.

He often hinted he should be entitled to a larger share of profit because he was putting in more effort than the other partners did. However, he never confronted the issue head on. He liked the others and did not want to risk a blow-up. In spite of it all, each of them was receiving around $175,000 per year from the business. He believed Tom would agree with him.

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 plant 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 that can of worms. He believed Tom would agree with him.

Tom just wanted to get along with everyone. He was happy with his share of the profits and the way business was developing. Tom could not understand why Jim and Bob kept asking him to straighten out the other guy but never talked to each other about their gripes.

He would not take the side of either Jim or Bob but he never said that to either of them. He now recognized that his silence caused both of them to look to him as an ally.

Business charters

Our function is to help people design a program that will keep them focused and working together. We guide them as they, not we, draft a “business charter.” This is the significant difference between the approach of consultants and mediators. Good 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 the participants can say that it is “my idea'”or it’s “his idea.” Mediators help people develop a solution that is their idea. Thus, the chance for successful implementation is great since everyone has a vested interest in seeing it succeed.

A business charter addresses matters that are not discussed in partnership or shareholder agreements or in management structure and job descriptions. A charter is a non-binding memorandum, which clarifies what each person expects of the others and how they will operate together.

We do not attempt to change personalities. We help people to understand their own interests, needs, and goals and the interests, needs, and goals of the others. Then, with our guidance, they work out a plan for working together.

To implement this approach, we have separate confidential interviews with each person. We cannot disclose anything they tell us unless they authorize us to do so. During the interview we show them how to air their gripes in a non-adversarial and productive manner.

When we complete the interviews, we have a complete picture of the relevant issues. We learn about each person’s perceptions and the hidden agendas that seldom surface when they meet on their own. We therefore have a picture that none of the partners have seen. Our task is to help them develop this picture for themselves during our conference.

Prior to the group meeting we give each person a set of questions, developed from what we learned in the individual interviews. We review their answers and prepare for the conference, in which we facilitate a discussion of all that was previously unspoken.

The length of the conference depends upon the number of participants and the complexity of the relationships. Notice the reference to “complexity of relationships” rather than “complexity of the problems or disputes.” Although people discuss problems in terms of financial issues, legal problems, or poor management, these disputes are seldom the real cause of friction. The real cause is the people themselves.

Communication skills

In many respects, a partnership is similar to a marriage without the benefit of the bed at night. There is very little emphasis, if any, in college or business courses on how to be a good partner. The result is that people enter into legally binding business relationships with little thought about how they will harness their differences into a positive force.

Many individuals have not thought through their own short and long-term goals. By not knowing their own foibles and ignoring their different personalities, goals, and values, they set themselves up for a lot of unnecessary grief and often failure.

In our case study, the three partners learned new things about themselves as well as each other. Bob enjoyed most of his time on the course and socializing. However, he hated to golf and socialize with some of the customers. With some it was hard work just to be around them. He did so solely to generate business.

One of the customers he disliked was also a pain-in-the-rear to everyone in the plant. This caused Jim great stress because the customer often disrupted production. He did not complain to Bob, believing the customer to be Bob’s good friend. Once this was discussed openly, an avalanche of other hidden issues among all three of them flowed onto the table.

All were addressed and resolved. More importantly, the partners learned how to communicate with each other on sensitive topics. This is the most important benefit of the charter process. The process showed them how to deal successfully with future conflict and minimized their need for future outside help. Their new charter addressed the current issues and set up a protocol for how they would interact with each other.

The issues addressed may seem mundane to an outsider looking in. They are monumental to those who are living with them. Exhibit 1 is an excerpt from a table of contents in a charter for a professional firm covering the topics raised during their retreat. Exhibit 2 is an example of how detailed personal issues were addressed.

By using two mediators with diverse but complementary expertise, the owners and managers are empowered to address issues which previously were taboo. They do it without bruising their egos. The clients receive the benefit of experienced mediators who bring to the table the ability to assist them with the myriad personality issues as well as business and law.

The charter is an important living document. The most important benefit to the people we work with is that they learn how to harness their diverse personalities into a productive force. Having learned from the process, they will review the charter at least annually and make whatever changes are appropriate.

Exhibit 1: How relationship issues might appear in the table of contents of a professional firm’s charter

1.  Expectations of the directors
A.  Expectations of each other personally
B.  Expectations for the Board as a group
C.  Expectations for the shareholders as a group
D.  The Board’s expectations for the company
2.  Values*
3.  Ownership and equity interests
4.  Directors’ interpersonal equity
5.  Employment and compensation
6.  Governance: the Board of Directors
7.  Maintaining communication and resolving disputes
8.  Guidelines for dealing with the unexpected

*Each of the numbered headings has a series of subtopics as in 1. Each charter addresses the issues raised by the participants. This exhibit should not be viewed as a recommendation for all charters.


Exhibit 2: How specific relationship issues might be drafted into the charter of a professional firm
Excerpts from a table in a charter


We are aware that each director’s unmet expectations of the other can be a source of friction. The problem often results from not knowing what each other’s expectations were in the first place. To lessen the likelihood of this problem, we are trying to be explicit about the expectations we have for ourselves and for one another.

We have discussed the expectations listed below. Each of us is committed to living up to the expectations that are marked with an asterisk. The expectations with question marks are ones that we have not taken on for ourselves, are still under consideration or require future clarification:

* — Expectation is reasonable and I will strive to achieve it
? — Is still under consideration or requires further clarification


Expectations I have for myself
* Continue the growth and profitability of my district
* Personal and professional development — get better at listening to others and having reasonable expectations
* Learn to see the company picture and my part in it
* Get better at explaining why I am for or against a proposal
* Develop more patience

Expectations I think others may have of me
* Be better at mentoring other staff

Expectations others said they have of me
* Improve interaction on joint projects between other districts and my district
* Retain key employees
* Continue to develop positive image
? More accurate communication
? More physical presence at main office


Expectations I have for myself
* Provide more mentoring in all districts
* Provide enjoyable working conditions for staff and peers
* Be responsive to co-workers and clients
* Be profitable, billable and carry my weight
* Be consistent
* Be respectful — if it’s warranted
* Don’t procrastinate
* Improve my accountability

Expectations I think others may have of me
* More marketing — less billable
? More community involvement
* Less critical of employees
? Improve communication skills
* Be open to ideas of others — flexible

Expectations others said they have of me
* Continue to learn about administrative side of company
* Be more involved in management and delegate more work
? Higher tolerance for risk (when delegating work)
? Be respectful even if it is not warranted