Family businesses enjoy dynamics that don’t exist in other businesses. While there are numerous benefits to a family business, close familial ties can sometimes mean disagreements feel more personal. Familial issues may also arise outside the business that can lead to internal disagreements within the business that can adversely affect the company. Think Yoko Ono.
This blog provides you with some ideas on how to resolve issues that arise in a family business in a cooperative fashion. While these conflict resolution techniques are not unique to family businesses, the nature of a family business often begs for solutions to conflicts that exist far outside traditional legal proceedings. They can help preserve both the business and the family.
Benefits of Alternative Dispute Resolution (ADR)
ADR refers to any method of conflict resolution that takes place outside of the courtroom. It involves conflict resolution techniques that avoid litigation and empower the parties to work together to try to amicably settle complex issues. The most common ADR methods are negotiation, mediation, conciliation, arbitration and private judging.
Negotiation
Negotiation is usually the first approach you should take before you resort to other ADR methods. It’s more informal and affords the parties greater flexibility. Essentially, negotiation is simply parties identifying an issue and meeting around a table to try to fix it. They control the process and the solution.
This may seem obvious because negotiating relationships and disagreements with customers, employees and vendors is something that business owners do all day, every day. When a problem gets serious, however, among the owners of the business it may be helpful to recognize and use an informal negotiation process as the first stage in a potential ADR process.
One of the fundamental rules of a successful negotiation is transparency. Family relationships can cause tensions that cloud negotiations. It’s essential to be clear about the potential challenges and problems that might come up during the negotiations. It’s important to identify the 800 pound gorilla in the room. Ignoring it guarantees the problem will not be solved. Addressing intense family tensions might feel overwhelming, but if you can identify the problem and put it on the table for everyone to see, it’ll prevent you from feeling stuck during the process, and engender honesty and goodwill.
Mediation
Mediation is assisted negotiation. During mediation, the parties obtain the help of a neutral third party – the mediator – to help them identify the problem and take steps to resolve the dispute that has arisen. Mediation requires a lot of involvement from all sides.
Mediation can be informal, where the mediator is a friend, family member or trusted advisor. In the case of an informal mediation, it’s important to select a person who all parties can agree on and who brings some expertise to bear on the problem that requires resolving. Mediation can also be somewhat formal, where the parties hire a professional, neutral third party with a demonstrated expertise in the area that is in dispute. Formal mediators are trained in negotiations and help parties solve the issue to satisfy all sides.
In either case, the purpose of a mediator is not to decide whether a party is wrong or right. The goal is to help the parties find a mutually acceptable solution. While conversations during mediation should be confidential, it’s usually possible for a written agreement that may result from mediation to be made legally binding. But all parties must agree to do so. Mediation is particularly useful if the parties believe they cannot resolve a dispute on their own.
Conciliation
Conciliation, like mediation, is confidential, voluntary and flexible. It’s also facilitated by a neutral third party – a conciliator – and focuses on resolving the dispute in a manner that all parties consider satisfactory.
Unlike in mediation, however, a conciliator provides the parties with a proposal to help them resolve the issue, and the parties work from there to try to reach a mutually agreeable solution. The presented proposal is non-binding. It’s up to the parties, with the assistance and creativity of the conciliator, to find an agreement. And, like in mediation, any formal agreements struck after a conciliation can be made legally binding.
Arbitration
Arbitration is more formal than negotiation, mediation or conciliation, and can look more like litigation. Parties give up control by submitting their dispute to an arbitrator who after receiving evidence from all parties renders a decision following the process. The decision can be binding or non-binding at the parties’ choosing. The parties can agree to arbitrate before or after a conflict occurs.
The real benefit or arbitration over formal litigation – in addition to minimizing costs and maximizing efficiency – is that the parties have the freedom to set the rules of arbitration, which can be much more flexible than the formal civil procedure and rules of court required in a judicial proceeding. For example, parties can select the number of arbitrators, the forum, and fees. They can also place limits on discovery, witnesses and evidence, if they so choose.
Arbitrators also have a great deal of flexibility to work with the parties in front of them in a way even a judge may not. An arbitrator can switch back and forth between refereeing settlement discussions, and taking evidence and testimony that will lead to a formal written decision whether binding or not. This type of process can help parties save time and expense associated with judicial litigation.
Private Judging
In private judging, parties authorize an expert in their legal dispute to resolve the issue. The parties hire a private judge, often a former judge or an attorney. The parties take turns presenting their case to the judge, after which the judge issues a legally binding decision. When a dispute reaches a judicial court, that court may appoint a private expert judge to resolve the dispute. A private judge can help move the case along faster than the court can, and enable the parties to avoid airing their family business matters in a public forum.
Conclusion
Parties involved in a family business have at their disposal multiple ADR methods to meet their needs. The methods can be more efficient and less expensive than litigation. In addition to the economic benefits of ADR, it can help family members who are deeply invested in the issue find solutions amicably so they can preserve the business and the family. That being said, ADR still requires parties to voluntarily identify and examine the issues in disputem and work together to arrive at a solution.
Contact Finkel Law Group for Assistance With Your Family Business
Finkel Law Group, with offices in San Francisco and Oakland, has provided business counsel to many different types of business enterprises, including family businesses, in many different types of industries for more than 25 years. We have the knowledge and experience to help your company navigate the delicate legal and family issues associated with starting and growing a family owned business, and ensuring it succeeds from one generation to the next. When you need intelligent, insightful, conscientious and cost-effective legal counsel to assist you with managing and planning for the future of your business enterprise, please contact us at (415) 252-9600, (510) 344-6601, or info@finkellawgroup.com to speak with one of our attorneys about your matter.