Recently I had the privilege of joining a colleague of mine, Michelle Dommisse, in assisting mediation between two parties whose business affiliation has utterly disintegrated. Michelle is a qualified mediator, having completed a course from the Family Mediators’ Association of the Cape (“FAMAC”), and she has extensive experience in mediating all kinds of disputes. You may be wondering how a FAMAC course would be relevant to mediating a commercial dispute. I wondered the same thing myself! Surely the concept of commerciality finds little relevance in a family dispute? If this assumption is correct then how would a mediator, trained in family disputes, have any relevance to settling a commercial matter between business partners? The answer, quite simply, is that the art of mediation lies in one’s ability to facilitate an environment for open dialogue regardless of the subject-matter to which the dispute relates.
With this mind the mediation began and my appreciation of the art of mediation sky-rocketed. The gist of the commercial matter was as follows: Jack and Jill have been in business with one another for over a decade and both own 50% of the company. The company has grown immeasurably and taken on a life of its own and new systems and process have been put in place to manage and lead this growth. Regrettably, the expansion of the company is rather bittersweet as there is no longer a meaningful role in the company for Jill. Jack, on the other hand, has embraced the idea of relinquishing the centralized management control of the business and, whether by fate or by design, Jack has landed with his derriere in the Managing Director’s butter. Jill, however, seems to have resisted this decentralization and consequently she holds a position in title but not in fact. She has, in essence, become redundant. A culmination of two years worth of bickering and power struggle has led to a sheer and seemingly irreconcilable breakdown of the trust relationship between Jack and Jill. Both members agree that the future of the company is reliant upon one of them relinquishing absolute control and ownership of the business. This is the only thing that they agree on. Therein lies the dilemma.
Take cognizance of the fact that selling a 50% share in a private company hot on the heels of the global economic meltdown is nigh impossible. It is especially so when the sale is contingent upon the buyer being content to finance the company but remain rather silent in the daily management and control of the company. Indeed, there simply is not enough butter for two Managing Directors. So how then do you broker a ceasefire between Jack Jill whilst at the same time making sure that both get what is due to them and recognition of the fact that both built the company to what it is today?
Option 1 would be to dilute the shares of both individuals by bringing in a third party. Option 2 encompasses empowering a board to vote in the event of disagreement between Jack and Jill and option 3 foresees an exit strategy for one of them. At this point your natural inclination as an attorney may be to litigate this deadlock. Let’s call in the big guns, warm-up the keyboards, get deposits and begin drafting well-worded but essentially acrimonious letters and the lawyers can play email ping-pong for a while. Wrong! You see the company is currently hamstrung. It cannot move forward as no internal process exists for dealing with this deadlock and it cannot revert because bygones are bygones.
A strategy document is in place and this document allows a board to be approached in the event of deadlock. The document has not been executed by one of the parties. As a result, although the board is constituted, it remains impotent. A further problem is that Jill believes that the board will side with Jack for fear of reprisal whereas Jack believes that Jill is being paranoid. And so we have a situation of an immovable force coming up against a rock-solid mountain and herein lies the value of mediation.
Mediation is a process of facilitating open dialogue between parties to a dispute where the dispute is grey and the parties are unable to agree on a way forward. The process is run according to an ethos of respect, due consideration and deference to the other’s right to be heard. A mediator is not present to proffer solutions nor to side with either party. The mediator is rather the referee in a sometimes heated debate. Such impartiality is kept by vigorously refusing to meet with either party alone and refusing to be drawn into a discussion with either party on the merits of the dispute. All parties must agree to mediation and be fully aware of the fact that the mediator will not permit grandstanding, soap-boxing or name-calling to occur.
The value of this course of action is that it allows issues to be canvassed in a civilized and much less expensive manner than litigation. Issues that were ill-defined become clear and the quagmire of emotions and years worth of quarreling between or amongst the parties take a back seat. In the result, by the end of our two hour session Jack and Jill had agreed to sign the strategy document and Jill had finally conceded to Jack that she ultimately wants to leave the company. Two years worth of acrimony leads me to believe that it is unlikely that their relationship as friends or as business partners will ever reignite. Sadly they have built a successful company together and both have bled for this. However assuming, without confirming, that the vision that they had in the beginning was to build such a company and grow same they have achieved their purpose, albeit at personal loss to their relationship. Mediation in two hours allowed then to take a step forward – the same step that they have been robustly refusing to take for two years. Jill concedes that she lacks the skills set to be Managing Director of the company and Jack has conceded that it took two of them to break this tango. The beginnings of an exit plan for Jill are being thought out and finally the impasse seems to be lifting.
In conclusion although I was interested in the concept of mediation I am now utterly convinced that the commercial value of this tool cannot be over-emphasized. Many disputes can be likened to family disputes. Mom and Dad cannot agree on a course of action to follow with regards to little Johnny and thus a power struggle develops – Johnny suffers. Let the power struggle go on long enough and Johnny becomes a completely peripheral issue whilst Mom and Dad viciously canvass all the shortcomings that they have ever felt about one another and resentment builds. At this point Johnny has lost faith in both parents and his development become stagnant. This is so easily likened to a commercial conflict between partners, shareholders, directors and the like. The growth of a company is a fluid motion and dissention within the ranks breaks the movement. Employees lose faith and often head for the hills in order to find dependable consistency. Shareholders, financiers and so forth begin to doubt the stability of the company and commence planning their own exit strategy and, in the event of tedious and timely litigation, personal and corporate coffers are reduced to fund the ongoing dispute.
In the circumstances I would propose that the next time you are faced with a client with a dispute of a commercial nature think seriously about mediation as an alternative. It is less daunting and expensive than litigation and may be more financially and emotionally valuable for all the parties concerned. Trained mediators can be of invaluable assistance to commercial disputes and may be able to broker a ceasefire that saves the commercial and personal relationship between the parties.
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