"It's not personal, it's just business."
Whoever invented this oft-repeated cliché must not have
worked for a family business. In fact, when owners or employees of
a business are part of the same family, conflict resolution is
almost always personal. As a result, many family business disputes
can prove to be extremely difficult to resolve short of expensive
litigation.
The good news is that with a little bit of planning, most family
businesses can avoid costly public disputes by using Alternative
Dispute Resolution, or ADR. ADR is a procedure for settling a
dispute by means other than litigation. The most common forms of
ADR are mediation and arbitration.
Mediation involves an impartial third person, often a neutral
lawyer or retired judge, who facilitates discussion and negotiation
between the parties and makes suggestions about how to resolve the
dispute. The mediator, however, does not impose any decision upon
the parties. The goal of successful mediation is for the parties to
reach a mutually agreeable solution to their dispute. However,
there is no requirement that the parties reach a mediated
agreement.
Mediation is often used as a first step in conflict resolution. If
a family business dispute cannot be resolved through mediation,
parties can submit unresolved disputes to arbitration.
Arbitration is a process where the parties present evidence and
argument to an impartial arbitrator or panel of arbitrators. Unlike
the process of mediation, an arbitrator makes a final and binding
determination of the dispute. In many ways, an arbitration is like
a "mini-trial." However, the arbitration process is far
more streamlined than litigation, and is generally conducted in a
confidential manner.
Family businesses generally prefer ADR to litigation. Although each
business and each dispute is different, ADR is usually quicker,
cheaper, and more private than litigation in court. It allows for
creative solutions to be mediated, or if mediation is unsuccessful,
binding decisions to be reached quickly and relatively
inexpensively.
In order to be effective, though, it is important for businesses to
establish a clear ADR plan before a dispute arises. First,
businesses should have each employee, owner, or other interested
party execute a formal agreement to mediate and/or arbitrate. This
can be done when an employee is hired, an owner acquires an
interest in the business, or a vendor relationship is started. The
key is for an ADR agreement to be executed before a conflict
arises.
Second, the ADR agreement should establish a procedure for choosing
a mediator or arbitrator, dividing costs, and selecting a venue.
Many businesses elect to use a third party (such as the American
Arbitration Association) to manage the ADR process. In that
situation, AAA can provide the parties with a list of available
arbitrators, rules of procedure, and a timeline in which to resolve
the dispute. But while these services are helpful, they are not
free - AAA's administrative fees can be quite expensive.
Finally, the ADR agreement should require that any mediation or
arbitration be conducted confidentially and any negotiated
agreement or arbitration decision be final and binding.
Legal disputes are never pleasant, and there is often more at stake
than mere dollars and cents with a family owned business. However,
a well-crafted ADR plan can help most businesses minimize long,
expensive, and yes, "personal" litigation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
