BUSINESS DIVORCES:  Choice of Forum — Mediation and Negotiation

Last week’s blog post looked at concerns with using court or arbitration to resolve a business divorce.

In this blog post, we will look at the very different resolution models of mediation and negotiation.

Mediation

Mediation is a close relative to, but distinct from, negotiation.  It is essentially indirect negotiation through a knowledgeable and impartial facilitator acting as an “honest broker.” 

Unlike a judge or arbitrator, a mediator does not have the power to decide a dispute between parties.  The mediator’s role is to assist the parties in discovering whether there is a resolution the parties can find mutually acceptable.  Reaching a decision is up to the parties themselves.

Like a judge or arbitrator, the mediator controls the procedural dimension of this forum.  That can be critical when the parties are unable to engage in direct discussions in a civil manner.  A skilled mediator who has industry-specific knowledge in the subject matter of the dispute can be especially beneficial to all parties.  Using those talents,  a mediator helps each party recognize vulnerabilities in its position, strengths in its opponent’s position, and consequences of compromising or failing to compromise. A good mediator can also assist the parties in imagining and developing a range of settlement options.

Mediation can progress much faster than a court trial or arbitration and with far less expense.  Like arbitration, mediation carries the advantage of being private.

Negotiation

“Court, arbitration, and mediation: the places you go to settle business quarrels.  Negotiation: what you do to start a business or commercial relationship.”

Those two statements express the attitude of some business owners and attorneys.  Accordingly, those individuals believe that negotiation is the wrong approach to take to a potential business divorce situation.

The contrary is true.  Direct negotiation between the parties is usually the best plan to try to resolve a significant business dispute.  It is almost always the best initial approach to follow.

Negotiation:

    • Has the lowest upfront cost and, if successful, is most likely to yield the best value for the cost incurred.
    • Does not preclude the parties from shifting to court,  arbitration or mediation if negotiation cannot produce a complete resolution. Committing to trial, arbitration or even mediation without first attempting negotiation can make it difficult to step back to the more conciliatory tone of negotiation. 
    • Keeps control of both dimensions of conflict resolution — substantive and procedural — in the parties’ hands.
    • Allows the parties unrestricted opportunity to directly correct misunderstandings and miscommunications, so they can determine relatively quickly the scope of their real disputes instead of talking past each other through court pleadings or arbitration briefs or by limited communications made through an intermediary in mediation 
    • Is a private exercise.
    • Encourages creative thinking about options for resolving conflicts.
    • Is not subject to the time constraints imposed by trial, arbitration or mediation.
    • Can conclude in a definitive agreement created and accepted by all sides.  People are more likely to comply with the contract they make willingly than an order imposed upon them. 

Fundamental Hurdles to Negotiation

Negotiation requires the parties and their attorneys to accept complete responsibility for the success or failure of the process.   There is no third party referee — a judge, an arbitrator or a mediator — to impose or enforce procedural behavior standards.

If one party refuses to shoulder that responsibility or to abide by the procedural conventions shared by the other parties, negotiations may fall apart.

In a situation like that, negotiation is not an available option.  However, there might be an arbitrator or mediator to turn to, and there’s always the courthouse.

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