Family businesses are full of dynamics that are not present in other business types. 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 stem from outside of the business can lead to internal disagreements.
This article is the first in our "Dispute Resolution Methods" series, an introduction on how to resolve issues that arise in a family business setting. 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 begin by giving an overview of the benefits of Alternative Dispute Resolution (ADR). ADR refers to any method of conflict resolution that takes place outside of the courtroom. It involves processes and techniques of conflict resolution without litigation and empowers parties to work together using a framework to amicably settle complex issues. The most common ADR methods are negotiation, mediation, conciliation, arbitration, and private judging.
Negotiation is usually the first approach to take before resorting to other ADR methods. It is more informal and affords the parties flexibility. Essentially, negotiation is simply parties identifying an issue and meeting to fix it—they control the process and the solution.
This may seem obvious, as negotiating relationships and disagreements is something that business owners do all day, every day. However, when a problem gets serious enough, it can sometimes be helpful to recognize an informal negotiation as the first stage in a potential ADR process.
One of the fundamental aspects of a successful negotiation is transparency. Personal or relational family tensions can cloud the negotiations. It is essential to be clear about the potential challenges and problems that might come up during the negotiations. Addressing the intense family tensions might feel overwhelming, but it will prevent you from feeling stuck during the process.
Mediation is a type of assisted negotiation. During mediation, parties obtain the help of a neutral third party (the mediator) to help them resolve the dispute. Importantly, mediation requires a lot of involvement from both sides.
Mediation can be informal, where the mediator is a friend, family member, or trusted advisor. In the case of an informal mediation, it is key to select a person who both parties can agree on and who brings some form of expertise to bear on the situation.
The process can also be formal, where the parties hire a professional, neutral third party. Formal mediators are trained in negotiations and help parties solve the issue to satisfy both 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 resolution.
While conversations during mediation are confidential, it is usually possible for the written agreement that results from mediation to be made legally binding. Mediation is particularly useful if parties believe that they cannot resolve a dispute on their own.
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.
Unlike in mediation, the conciliator provides parties with a proposal to resolve the issue, and the parties work from there. The presented proposal is non-binding—although, like in mediation, any formal agreements struck after conciliation can be made legally binding.
Arbitration is more formal than negotiation, mediation, or conciliation, and can look more like litigation. 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.
The real benefit over formal litigation (in addition to cost and efficiency) is that the parties in an arbitration have the freedom to set the rules of arbitration, which can be much more flexible than formal civil procedure required in court. For example, parties can select the number of arbitrators, the forum, and fees.
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. This type of process can help parties save time and expense associated with litigation.
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.
The court appoints a private judge. A private judge can help move the case along faster and enable parties to avoid airing their family business matters publicly.
Parties often use multiple ADR methods to meet their needs, and 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. That being said, ADR still requires parties to voluntarily examine the disputes and work together to arrive at a solution.