Business disputes are inevitable when interacting regularly with customers, suppliers, vendors, staff and others. While routine disputes may be readily sorted out, sometimes the conflict grows contentious and threatens serious harm to the business — not to mention the ongoing stress and upset to all involved. Accusations and threats of litigation may be hurled, lawyers called. Communication – along with business – between the parties frequently ends.
How the dispute is addressed can have a significant impact on the bottom line. Litigation is usually an ongoing drain of resources as well as the attention of key business people. Worse, a bad outcome can devastate a business and its reputation and may spur similar challenges from others.
Here’s a sample scenario:
Barbara is the owner of a mid-sized door company. She has been purchasing custom doors from Steve, the manager of her account at a big-name supplier. When Barbara’s client made a last-minute change in finish on the doors for a large job, she called in the change to Steve — as she had always done in the past — but somehow the doors arrived without the proper finish and Barbara’s customer is unhappy. Worse, Steve says his company won’t pay the shipping charges to return the erroneous doors or waive the rush charges to expedite the correct doors because the change was not made “in writing” as required by the fine print on the sales form. When Barbara refuses to pay the extra shipping and rush charges, interest accrues and Steve threatens to stop all future shipments, including orders in the pipeline. Barbara is scrambling for alternate suppliers, but is very concerned about her clients who prefer Steve’s brand-name company. When Steve last called about lack of full payment, strong words were exchanged, and before hanging up Steve said he is referring Barbara’s file to “Legal.”
In the past, once a dispute arose the lawyers would be called in, and a long and expensive legal process would begin. This process would routinely result in litigation where a judge would pick a winner and a loser, and the parties’ ability to work together in the future is destroyed. Between the loss of relationships and high costs of litigation, often not even the “winner” would be satisfied with the outcome.
Happily, over the last 30 years, mediation has matured as a better option. More and more business people and savvy counsel are regularly using mediation and finding it to be a preferable means of resolving disputes. Mediation can yield much more creative and positive outcomes that work for everyone involved, as well as being notably quicker and cheaper. Importantly, mediation makes it much more likely that important business relationships will not be lost.
So how does mediation work?
In mediation, a trained, neutral facilitator helps the parties come together to reach a voluntary, mutually agreeable resolution to a dispute. The mediator is not a decision-maker and does not hear evidence in order to render a decision, as would a judge or arbitrator. Instead, the mediator focuses on the business interests and concerns of each side and helps the disputants see where their interests converge and where they can find common ground. There is no binding agreement until the parties reach an outcome that is satisfactory to both of them, ensuring that both parties will be happy with the result. Mediation is frequently referred to as Alternative Dispute Resolution (ADR), but it should not be confused with arbitration (in which the arbitrator actually makes the decision for the parties and picks winners and losers).
Most business disputes can be resolved through mediation to reach preferable outcomes for all parties. Sometimes the conflict is merely the presenting symptom of deeper concerns. Mediation can get to underlying issues that may be at the root of the problem. Whenever possible, good mediation seeks to avoid zero-sum outcomes – where any gain by one side is a loss to the other – by helping examine alternatives and seeking avenues to add value in ways that allow a satisfactory outcome for all.
What are the benefits of mediation?
Saves Time and Money The most well-known benefits of mediation are saving time and saving money, both of which can be considerable:
Barbara briefly consults her attorney and, given her degree of experience, decides to go to mediation without even having her counsel present, knowing that she can always call to get advice if needed during the mediation. The mediation is held within weeks and the matter resolved for a fraction of the costs of going to court.
Parties Control Outcome. Business disputes often present significant risks, for individuals professionally and for their businesses. Mediation keeps the parties in control of their own destiny, rather than giving all the power to judges or arbitrators. With mediation there need not be fear of a “bad” decision by a third party who may not adequately understand the situation. However, if a satisfactory outcome cannot be achieved for both (or all) sides through mediation, the parties have the same options as before mediation and can carry on with formal processes:
In mediation, Barbara and Steve will be able to decide themselves (with or without counsel present) what a satisfactory outcome is for them. They can work on finding practical business solutions that go beyond the dispute, such as an agreement covering future supply arrangements, which a judge or arbitrator could never order.
Restores Relationships. Mediation can help parties sort out their underlying problems in a way that permits them to work together in the future. This can be critical in disputes between companies that have depended on each other in the marketplace, since litigation “wins” are a very unlikely way to restore business relations. The mediator can help defuse animosity or frustrations that may have built up during unsuccessful negotiations between the parties, and avoid the hostility that usually results from litigation or arbitration. Moreover, resolving disputes to restore relationships may allow damages to be addressed more successfully through ongoing business arrangements.
In mediation, once Steve and Barbara work past some of their initial frustrations, Steve would have the safety to disclose to Barbara that he knows it probably was a quality-control issue at his company that caused the problem. Further, while internal politics require him to stand on the contract terms on this job, he can be flexible on finding other ways to make it up to Barbara. Once Barbara understands the backstory, she is willing to help problem solve ways of saving face for Steve’s company, while cementing a longer-term relationship that will serve her well over time.
Provides Confidentiality. Business disputes often involve sensitive issues that parties prefer to keep private. Generally, mediation is confidential and information is not revealed to outsiders:
Barbara would not want her customers hearing that she is being sued for not paying her bills and might be blacklisted by a big supplier. Nor would Steve want his company’s internal quality-control issues to become public.
Superior Outcome Likely. The biggest benefit of mediation is the likelihood of a better outcome. Mediation works to find solutions that satisfy the interests of the parties to the greatest extent possible, rather than determining a winner and a loser based on the positions presented. The mediator works with the parties to help them focus on their critical interests, which may be only loosely connected to the initial claims. The issues are often stated in monetary terms, but the parties’ deeper interests often lie in being treated properly in a business relationship or maintaining an ongoing business interest.
Once Barbara realizes that Steve’s hard -line approach was never about her communication, she can move into problem solving mode with Steve to figure out how to help save an important supplier relationship while avoiding a financial hit. Having a judge or arbitrator make a decision on the legal requirements of the contract would have missed the point and not had a happy ending.
Sounds great! Are there downsides to mediation?
If the parties are not able to reach agreement in the mediation, they may continue on with other legal options, but may feel that the mediation was not worth the effort (although issues may be narrowed or clarified). However, statistically, most business mediations do reach successful settlements.
While mediation is confidential, as a practical matter parties sometimes learn about avenues to pursue in formal proceedings that they may not have otherwise uncovered. Of course, generally the areas in issue are apparent, and in any case, the parties control how much to disclose in mediation.
Parties sometimes are concerned that showing interest or seeking to initiate mediation may indicate weakness, rather than simply an effort to find an outcome that works for both sides. But as courts increasingly require parties to try mediation first and as legal culture shifts, mediation is becoming more mainstream.
Difficult disputes require skilled mediators, and mediators vary widely in experience and approach, making careful selection important.
Conclusion
Mediation is not magic, but its potential benefits make it desirable to consider in every serious dispute. Mediation takes real work, and some conflicts are simply unsuitable or may be resolved only in part. But the great majority of business cases are good candidates for successful mediation. Once you try it, mediation may well become your preferred solution for serious business disputes.
Keith L. Seat , J.D., is a full-time mediator, facilitator and arbitrator, with extensive experience mediating business, commercial and workplace disputes. He is also an adjunct professor of alternative dispute resolution at the University of Maryland Law School, editor of the bimonthly publication, "Mediation News for the 21st Century," a fellow of the International Academy of Mediators and active in other mediation organizations. Seat was previously in-house counsel at a major corporation, general counsel for a subcommittee of the U.S. Senate Judiciary Committee and a litigator at a large Washington, D.C., law firm. He can be reached at KSeat@KeithSeat.com or 301.681.7450. Additional information is available at www.KeithSeat.com.