Mediation: Your Solution to Business Conflicts

Business disputes are inevitable when interacting regularly with customers, suppliers, vendors, staff and others. While routine disputes readily can be sorted out, some conflicts grow contentious and threaten serious harm to a business and ongoing stress and upset to all involved. Accusations and threats of litigation may be hurled, lawyers called, and communication — not to mention business — between the parties often ends. How the parties address the dispute can have a significant impact on the bottom line. Litigation is usually an ongoing drain on resources, as well as the attention of key businesspeople. Worse, a bad outcome can devastate a business and its reputation and may spur similar challenges from others.

Imagine this scenario: Sara owns a large distributorship. Bill regularly purchases from Sara, but said he was unhappy with his company's last order. Bill flatly stated that his company won’t pay, even though Sara knows the final product looks very close to the artwork Bill provided. Sara tries to talk to Bill about how the artwork didn’t look professional, but he won’t take Sara’s calls. Bill does let her know of his upset when Sara calls his boss about nonpayment. The situation just gets worse when Sara’s billing system sends out ever larger bills, adding late fees and interest. Sara doesn’t want to sue one of her biggest customers, but can’t afford the loss and doesn’t want other customers to get the idea they can refuse to pay. What to do?

In the past, disputes led to lawyers and long, expensive legal processes. Routinely, the result was litigation in which a judge would choose the winner and loser, often destroying the parties’ ability to work together. Between the lost relationship 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 businesspeople and savvy counsel are using mediation and finding it a preferable means of dispute resolution. Mediation can yield much more creative and positive outcomes that work for everyone, and it can be notably quicker and cheaper. Perhaps the most important benefit is that mediation makes it much more likely that business relationships will be saved.

How mediation works

In mediation, a trained neutral facilitator helps the parties come together to reach a voluntary, mutually agreeable resolution. 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 them, which ensures that the parties can live with the result. Although often lumped together as “alternative dispute resolution” (ADR), mediation should not be confused with arbitration in which the arbitrator makes the decision for the parties and picks winners and losers.

Most business disputes can be resolved through mediation. 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.

Benefits of mediation

• Save time and money. The most well-known benefits of mediation are time and monetary savings, which can be considerable. In our scenario, Sara 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 for advice, if needed, during the mediation. The mediation is held within weeks, and the matter may be resolved for a fraction of the costs of going to court.

• Parties control outcome. Business disputes often present significant risks, both for individuals professionally and 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, the parties have the same options as before mediation and can pursue formal processes. In mediation, Sara and Bill 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 orders, which a judge or arbitrator couldn’t 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 very unlikely to restore business relations. The mediator can help defuse animosity or frustrations that may have built up during past unsuccessful negotiations 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, Bill is safe to disclose to Sara that he knows it was his company’s artwork that was the real problem, but that internal politics (due to the boss’s daughter having created it) necessitates finding another way to compensate Sara. Once Sara understands the back-story, she is willing to help problem solve ways of saving face for Bill’s boss, while cementing a longer-term relationship that will be lucrative 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. Sara would not want other customers getting any ideas from hearing that she’s having trouble collecting from a large customer. Nor would Bill want his company’s internal issues about his boss 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. 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 Sara realizes that Bill’s rejected order was never about the product she supplied, she can move into problem-solving mode with Bill to figure out how to help a valued customer while avoiding a financial hit. Having a judge or arbitrator make a decision on the legal issues 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 an agreement in mediation, they may continue 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 occasionally wouldn’t have otherwise uncovered. Of course, the areas in issue are generally 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 legal culture shifts, the process 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 a desirable consideration in every serious dispute. It takes real work, and some conflicts are simply unsuitable or may be resolved only in part. For example, mediation may not be successful where one party has every incentive to delay or “win” through a war of attrition that imposes high litigation costs. Still, 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 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 “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. For more information, visit www.keithseat.com.