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 Ten Minute Guide to Commercial Mediation

For Business Managers

By Dale E. Kleber     

Copyright © 2007 by Accord ADR Services .  All rights reserved.

 

            While mediation and arbitration are commonly used forms of ADR, or alternative dispute resolution, many business managers (and even some lawyers) are not fully aware of the significant differences between mediation and arbitration.  This article explains how mediation differs from arbitration and offers many advantages over costly litigation.   For the reasons explained below, mediation is emerging as the ADR method of choice for resolving business disputes and many other conflicts.  Mediation truly returns control of the business dispute to business managers.

Overview of the Mediation Process

             Mediation is an informal, voluntary, non-binding process in which a third party neutral, trained in facilitation and negotiation techniques, helps the parties reach a mutually acceptable resolution to their dispute. The actual process of mediation varies from case to case depending largely on the parties' needs and the mediator's style.

             What distinguishes mediation from other forms of dispute resolution—principally, arbitration and litigation—is that the mediator does not impose a solution upon the parties.  The mediator assists the parties in creating their own solutions.  It is often said that the mediator controls the process of mediation, while the parties determine the results of that process.

             Typically the mediation process begins with a joint session where the parties explain their issues to one another face-to-face as the mediator moderates the discussion.  The mediator helps the parties remain focused and communicate productively. Then, the mediator usually holds private caucuses with each party separately. 

             While the parties are in private session, their communications with the mediator are confidential unless they expressly authorize the mediator to share specific information with the other party.  The mediator then carries messages—clarifications, questions, proposals, offers, and counter offers—back and forth between the parties, and may even bring the parties back together again for additional direct discussions. The mediator employs a variety of proven techniques to facilitate the negotiation, find common ground, narrow differences, suggest creative settlement options and guide the parties toward an agreement.

             If they cannot agree, the parties may undertake binding arbitration or simply return to the court system.    However, if the parties cannot negotiate an acceptable settlement, they may still benefit from mediation by narrowing scope of the issues to be arbitrated or litigated.    

            But as noted below, in the overwhelming majority of cases, mediation succeeds because it allows business managers to negotiate a pragmatic solution that may not be possible to achieve in litigation or arbitration.

 Role of the Mediator

            The mediator’s role is to facilitate discussion and negotiation between the parties so that they may formulate their own agreement. The mediator helps the parties to (1) clarify all pertinent information, (2) define their respective issues and interests -- which rarely are only financial in nature, (3) develop options and alternatives to realize such interests, (4) express their interests and concerns directly to the opposing party, (5) hear and understand the other party’s concerns, (6) arrive at a mutually satisfactory negotiated solution and (7) enter into an enforceable memorandum of understanding to capture the terms of parties’ agreement.

 

              Through a variety of techniques, including active listening, objective questioning, reality checking and BATNA analysis (“best alternative to a negotiated agreement), the trained mediator helps each party to analyze their respective interests -- not just their negotiating positions -- and develop options to achieve those interests.  Through the mediator, the each party can assess any weaknesses in its own case and recognize the potential strengths of the other side.  The mediator can also defuse hostile attitudes and remedy misunderstandings and otherwise serve as a mirror of reality, which can help soften or eliminate extreme negotiating positions.  

 The Two Big Problems with Litigation 

            The two most dominate elements of litigation - uncontrollable expense and excessive risk – are precisely what skilled managers strive to eliminate from their business model.  Every business manager is familiar with the drawbacks of litigation:  It is extremely costly and the total expense of a lawsuit cannot be budgeted with any real certainty.  The expenses of a relatively straight forward commercial lawsuit can easily exceed six figures, and the costs of more complicated cases regularly exceed seven figures.  Litigation is painfully slow and inefficient; it diverts a business organization and its key members of management from the core mission; and the outcome in litigation is highly unpredictable. Judges are of varying quality and two different juries hearing exactly the same evidence can reach totally different results. 

            In addition very few cases are actually tried to a conclusion.  Based on recent studies, over 98% of all cases filed in Federal District Court ultimately settle – i.e., they do not achieve a finally-adjudicated result.  The question is obvious:  if almost all cases settle anyway, isn’t it prudent to take proactive steps to resolve lawsuits through mediation sooner rather than later – before dollars have been sunk (dollars that could have been used to fund a settlement) and parties’ positions have hardened?

 Mediation Contrasted to Litigation and Arbitration

             Mediation is far more cost-effective than litigation; it is quicker; it is confidential; and the parties control their own destiny (as opposed to relinquishing control of the outcome to a judge, a jury or an arbitrator).  Mediation offers far more flexible remedies than litigation and arbitration, which are limited to determining legal rights.  Mediation allows two or more parties to directly negotiate creative solutions to their dispute, driven by their prospective business interests.  A skilled third-party neutral, however, is essential to facilitate and orchestrate that process of negotiation.

              Mediation does not “split the baby,” a common criticism of arbitration.  Mediation allows rational parties to negotiate their own solutions, and they are in complete control of the outcome.   The parties can negotiate over much more than just dollar damages -- contracts can be reformulated; terms can be renegotiated; credits or debits can be granted; payments can be accelerated, deferred or discounted; products can be re-worked, services can be restructured;  deliverables can be redefined; intellectual property rights, royalties and territories can be modified; post-sale covenants can be restructured; and employees can be transferred to more productive positions or their exit package can be restructured.  Mediation can do things that litigation and arbitration simply cannot.

              Is compromise an element of mediation?  Of course, compromise is a necessary part of settling any business dispute that is less than “black and white” – and virtually all disputes involve varying shades of gray.   But in mediation, the parties choose the compromises that they are willing to make, consistent with their respective business interests.  They are never forced to accept a “baby” that has been “split” according to the dictates of a third party.

             Another difference is that arbitration and litigation are limited to deciding legal rights (where a winner and loser are determined) and usually the focus is on past breaches of such legal rights.  In mediation, however, the parties focus on how to achieve their respective business objectives with a future-oriented perspective.  While obviously quantification of damages is an extremely important issue in any dispute, mediated solutions are frequently driven by ways to achieve key business objectives going forward.  Creative solutions in mediation often yield a result in which no party emerges as the legal loser.

 Is Mediation Effective?      

             Many parties fear that suggesting mediation will be interpreted as a sign of weakness; when in fact it is a very savvy decision for two rational parties to sit down face-to-face, hear each other out, and take control of negotiating their own resolution of their dispute.

             Mediation has proven to be highly effective.  Many of the better mediators report success rates in excess of 90%.  Overall statistics show that mediation works approximately 80-85% for parties who initiate the process themselves and about 55-60% of the time when the parties are compelled to mediate by the court prior to obtaining a trial date.  In addition, academic research has shown a significantly higher compliance rate with mediated agreements than with court judgments.  It is believed that this occurs because parties are more likely to adhere to the terms of a settlement when they have participated in structuring it.

            Mediation is also very cost effective.  While each commercial dispute is unique, many two- party business disputes are resolved with a day-long mediation session at a total cost of less than $10,000, split between the parties -- a fraction of the expense of litigating the same dispute.

A Personal Perspective on Mediation

            My experience as the General Counsel of a Fortune 500 company convinced me that mediation, if used proactively by business managers and corporate counsel, can significantly reduce a corporation’s litigation expenses, and its broader “cost of conflict.”  The problem is that all too often the parties, who are either engaged in, or trending toward, litigation cannot or do not initiate attempts to mediate their disputes.

            My business background, my expertise as a “deal attorney,” and my experience in actively managing hundreds of litigated, arbitrated and mediated disputes has helped me develop a unique skill set – negotiating instincts, legal knowledge and practical understanding – which allows me to be particularly effective as a neutral party who can facilitate the critical negotiation dynamic that lies at the heart of the mediation process.  (There are many retired judges and part-time litigators who mediate, and some are excellent mediators, but most lack hands-on transactional or business experience.) 

             My personal pledge to any party considering mediation is to bring my preparation, creativity, energy and practical judgment to the mediation process and to offer my persistent best efforts to assist them in discovering a path to common ground and eventual agreement.

 

                                                Dale E. Kleber

                                                Mediator, Attorney, Principal

                                                ACCORD ADR Services

 

About the Author

 

Dale E. Kleber is a certified mediator and the principal of Accord ADR Services which is based in the Chicago area.   He has participated in the mediation, arbitration or adjudication of nearly 1000 disputes.  He practiced corporate law for over 20 years, beginning his career with one of Chicago’s largest law firms, eventually moving in-house where he practiced for two publicly-held corporations.  He served as Vice President, Secretary and General Counsel of a $4.5 billion food processing conglomerate and as a member of the company’s Operating Committee.  Prior to attending Vanderbilt Law School, Mr. Kleber, worked in Washington, D.C. as the Press Secretary and Chief Legislative Aide, respectively, for two U.S. Congressman.  He has also been involved in several entrepreneurial ventures including serving as the Chairman of a start-up dental device company and as the owner and general contractor of a small real estate development company specializing in the construction of award-winning, upscale custom homes.

 

Copyright © 2007 by Accord ADR Services .  All rights reserved.  "ACCORD" is a service mark of Accord ADR Services.

 


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