Family enterprises possess unique dynamics not found in other business categories. While there are many benefits to the familial relationships present in family businesses, it can also mean that disagreements can feel more personal and issues that originate from outside of the business can contribute to internal disagreements.
This is the first article in our Alternative Dispute Resolution Methods series, which provides an introduction to resolving family business disputes. While these conflict resolution processes and techniques are not unique to family business environments, the nature of a family business lends itself strongly to the need to find solutions to conflicts outside of traditional legal proceedings.
Here we commence by giving an overview of the benefits of Alternative Dispute Resolution (ADR). Alternative Dispute Resolution refers to any method of resolving conflicts outside of court. It entails processes and techniques of conflict resolution without litigation and enables parties to collaborate using a framework to amicably resolve complex issues. The most prevalent methods of alternative dispute resolution are negotiation, mediation, conciliation, arbitration, and private judging.
Negotiation is typically the first approach to take before resorting to other Alternative Dispute Resolution methods. It is less formal and provides flexibility to the parties. In essence, negotiation consists of parties identifying a problem and meeting to resolve it; they control both the process and the outcome.
This may seem apparent, as negotiating relationships and disagreements is something that business proprietors do all day, every day. However, when a problem reaches a certain level of severity, it can be advantageous to recognize informal negotiation as the initial phase of a potential Alternative Dispute Resolution process.
Transparency is a fundamental aspect of any successful negotiation. Personal or familial tensions can complicate negotiations. It is essential to have a clear understanding of the potential obstacles and problems that may arise during the negotiations. It may feel overwhelming to address the intense family tensions, but doing so will prevent you from becoming trapped in the process.
Mediation of Alternative Dispute Resolution
Mediation is a form of assisted negotiation. During mediation, parties receive assistance from a neutral third party (the mediator) in resolving their dispute. Importantly, mediation requires substantial participation from both parties.
In informal mediation, the mediator may be a friend, family member, or trusted advisor. In the case of an informal mediation, it is crucial to select a person who both parties can concur on and who brings some form of expertise to bear on the situation.
The procedure may also be formal, in which case the parties may employ a professional, impartial third party. Formal mediators are trained in negotiations and help parties solve the issue to appease both factions. In either instance, the mediator’s purpose is to assist the parties in reaching a mutually acceptable resolution, not to determine who is right or incorrect.
While conversations during mediation are confidential, it is typically possible to make a written agreement resulting from mediation legally enforceable. If parties believe they are unable to resolve a dispute on their own, mediation is especially beneficial.
Conciliation, like mediation, is confidential, voluntary, and flexible. It is also facilitated by a neutral third party (a conciliator) and focused on reaching a dispute resolution that both parties consider satisfactory.
In contrast to mediation, the conciliator provides the parties with a resolution proposal, and the parties work from there. Similar to mediation, any formal agreements reached after conciliation can be made legally enforceable.
Arbitration can resemble litigation more than negotiation, mediation, or conciliation. Parties submit their dispute to an arbitrator who renders a decision following the process. Parties can agree to arbitrate before or after a conflict occurs.
In addition to cost and efficiency, the true advantage of arbitration over formal litigation is that the parties are free to determine the norms of arbitration, which can be much more flexible than the formal civil procedure required by the court. For example, parties can select the number of arbitrators, the forum, and fees.
Furthermore, arbitrators have a great deal of flexibility to work with the parties in front of them, unlike judges. This type of procedure can assist parties in reducing the time and cost associated with litigation.
In private judgment, the parties appoint an expert in their legal dispute to decide the matter. Typically, the litigants employ a former judge or an attorney as a private judge. After each party has presented its case to the judge, the judge renders a legally binding decision.
The court appoints a private justice. A private judge can help advance the case along quicker and enable parties to avoid airing their family business matters publicly.
Parties frequently employ multiple Alternative Dispute Resolution methods to meet their requirements, which can be more efficient and less costly than litigation. In addition to its economic benefits, ADR can assist family members with vested interests in the dispute to find amicable solutions. That being said, Alternative Dispute Resolution still requires parties to voluntarily investigate the disputes and work together to arrive at a solution.