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Resolving Disputes Among Business Partners and Owners

by David Gage, Ph.D. and John Gromala, J.D.
California Psychologist
October 1999

When business partners find themselves at an impasse in their relationships, they have several options for resolving their predicament: litigation, arbitration, consultation, facilitation, therapy, and mediation. In modern American business practice, litigation is typically the first recourse toward resolution when serious conflict arises between business owners. The once-compatible “partners” nearly always resort to their most trusted advisors for assistance: their lawyers and accountants. Inasmuch as lawyers cannot, ethically and legally, provide counsel to both individuals who have different interests, each partner is forced to obtain his or her own legal counsel. If and when their respective attorneys become zealous advocates, complications and additional problems can quickly intensify. Lawsuits then become the vehicle for resolving differences.

Arbitration was once heralded as a faster, more cost-effective alternative to litigation: The parties in a dispute submit their differences to an impartial third party (e.g., a judge) whom both sides have mutually agreed on or who was identified by statutory provision. While arbitration does not entail waiting periods lasting months or years for cases to wind their way through a court system, many arbitration cases can still entail a lengthy wait: As the process plays itself out, months or years can pass before the arbitrator renders a judgment. A Harvard Business Review article (May-June, 1994) described arbitration in this manner: “The bad news is that [arbitration] too often mutates into a private judicial system that looks and costs like the litigation it is supposed to prevent.”

Partners in conflict will sometimes turn to business consultants, organizational consultants, and other business advisors who are sought out as experts to perform an assessment and make recommendations toward problem resolution. If the partners have agreed to abide by the recommendations of the consultant, the solution(s) may work. Without such an ironclad agreement, though, any expert guidance may simply become fodder to feed the ongoing battle. One frustrated third-generation resort owner described his experience with the consulting process in this way, “I can’t tell you how many advisors we’ve hired over the years to resolve this. Every time we get their recommendation, there’s someone who doesn’t like them so the recommendations just sit there and we hire another advisor.”

Partners sometimes look for a neutral facilitator to assist them. In his book, The Skilled Facilitator, Roger Schwartz opined that “The facilitator’s main task is to help the group increase its effectiveness by improving its process.” (1994, p. 4). By “improving” process, facilitation may seem indirect because the partners’ main goals of resolving the current dispute(s) and preventing future conflicts have been set aside.

In businesses owned, managed, controlled, and partnered by family members, conflicting parties may seek out a therapist’s help, but consulting with a therapist is rare. Therapy is similar to facilitation in that it, too, is an indirect process used to resolve partner disputes. We have seen such cases, and in the process, we may refer individual partners to therapists when such needs arise and when the individual seems amenable. It should be noted that, more often than not, partners in conflict define their dilemmas as “business related” problems and seek out “business related” solutions.

Growing numbers of business owners and partners now use mediation when they are in serious conflict. Mediators assist partners to become more effective negotiators and help maintain the normal processes in which partners negotiate their issues. Hence mediation has been called “assisted negotiation.” Mediation contains several key features:

  • It respects the parties’ ability to come up with their own solutions;
  • Partners remain in charge of the outcome(s);
  • Consensus underlies all agreements which are always well documented; and
  • Mediators freely “assist” in developing creative solutions that the partners themselves might have overlooked, had not thought about, or had not recognized.

In an ideal mediation, the process offers several positive benefits: Mediation does not have the destructive side effects or adversarial outcomes that often accompany litigation. Mediation keeps the focus squarely on the present and future; it does not dwell on who did what to whom in the past. By overtly diminishing antagonism, mediators assist partners in collaborating with each other and in repairing or strengthening relationships even if the eventual outcome entails someone leaving the business. Finally, much like the therapy process, mediation works best when it offers the partners privacy guarantees so that important and crucial relations with creditors, suppliers, customers, and employees are maintained.

In our work with family-owned businesses, we maintain the basic premise that partner disputes invariably contain a complex mixture of financial, legal, and business factors. To best handle this complexity, we use two-person teams in a “co-mediation” process in which team members possess a demonstrated ability to grasp the intricacies of issues quickly and the ability to assist others with creative problem solving. A “co-mediator team” includes a psychologist or an organization development specialist, a lawyer, a financial specialist, a business consultant, and one other individual who has specific talents or professional expertise relevant to the mediation case. Team members are specifically selected based on the needs and circumstances of the particular business problem.

There are definite advantages to using co-mediator teams: Mediating itself is emotionally draining work; doing mediation solo for extended periods is nearly impossible. The use of co-mediators address human fatigue factors when our mediations typically last half-days, full-days, or can run for two or three days at a time. Additionally, as part of a multidisciplinary team, co-mediators can learn a great deal from one another, and offer different perspectives to the business consultation.

Psychologists offer exceptional potential as business mediators because of their (our) skills in handling emotionally charged interpersonal conflicts, of their awareness and understanding of multiple nuances in the mediation process, and having knowledge of abnormal behavior and personality styles. Further, psychologists appreciate the difficulties in facilitating important changes in individuals or in groups of people. Finally, just as skilled psychologists work effectively with their (our) patients, highly skilled mediators can move partners from positions of combat to positions of cooperation. The mediator’s strengths come from his or her ability to manage powerful negative emotions, to control game playing, and to keep energy moving constructively toward settlement. Psychologists have been known to have the same strengths!

References

Alternative dispute resolution: Why it doesn’t work and why it does (1994, May-June). Harvard Business Review.

Schwartz, Roger (1994). The skilled facilitator: Practical wisdom for developing effective groups. San Francisco, CA: Jossey-Bass.

 
David Gage, Ph.D. is a psychologist, mediator, and Founder/Director of BMC Associates in Washington, D.C. BMC specializes in the prevention and resolution of disputes among principals in business. BMC is a multidisciplinary organization with associates in psychology, law, finance, and business. Dr. Gage is author of The Partnership Charter: How to Start Out Right With Your New Business Partnership (or Fix the One You’re In).

John Gromala, J.D., a California attorney and mediator, is an Associate of BMC. He founded the Gromala Mediation Service, resolving disputes without litigation.