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Using Mediation To Resolve Partnership Disputes

Mediation is recognized as an excellent means to resolve disputes and pending litigation. Mediation is a confidential process. It is an effective, inexpensive, informal way to resolve a dispute quickly. The mediator helps people generate options for a mutually satisfactory solution. All decisions are made by the people involved, not by the mediator. This article addresses how mediation can be used to prevent disputes among owners of small businesses, professional groups and among members of management teams.

The term ‘business’ is used to include all forms of private and public corporations, management teams, partnerships and professional groups. When reference is made to partners that includes partners, shareholder/directors of closely owned corporations and members of management teams.

People become co-owners of a business because they believe they will be better off with a larger entity than as a sole owner or sole practitioner. They sign agreements that cover the details of accounting, finance and law. They are wearing their rose colored glasses and have high expectations for a blissful and financially rewarding relationship.

The history of small business tells us that these expectations are elusive. I have mediated the dissolution of many partnerships and closely held corporations. There was a common thread that ran through every conflict. Although the opening positions were couched in terms of lack of profits, broken agreements etc. that was seldom the real cause of the problem.

Management teams in larger organizations are usually put together with existing staff to achieve a specified goal. Everyone makes a commitment to cooperate. Too often the team members get mired down in turf battles. The arguments are phrased in terms what is the best plan of action. Having mediated a number of management disputes I found the reality is something different.

Let me give you an example of a successful business whose owners were on the verge getting into a big brouhaha.

They were in business for six years. Each owned 1/3. They took no salary and shared the profits equally. Bob was a golfaholic who was at the plant about 20 – 25 hours per week. He brought in most of the new business. Jim was a workaholic. He worked 50 – 60 hours per week. He made sure everything and everyone worked. Tom never ruffled anybody’s feathers. He went about his assigned tasks quietly and was on site about 35 – 40 hours per week.

The corporate attorney became aware of developing tensions and feared an impending explosion. He convinced them disaster was around the corner if they did not get outside help. We were retained. Our initial confidential interviews came up with this picture.

Jim, the workaholic, complained about low profits. In their meetings he complained about the need for faster growth to increase profits and his income. He believed that he had to put in the long hours because Bob and Tom were not carrying their fair share of the load; but he never told them. He often hinted he should be entitled to a larger share of profit because he was putting in more effort than they did. However he never confronted the issue head on. He liked the others and did not want to risk a blow-up. In spite of it all, each of them was getting around $175,000 per year. He believed Tom would agree with him.

Bob, the golfaholic, believed the company would die for lack of customers if he did not continue his marketing efforts on the golf course and social circuit. He believed Jim spent so much time at the plant because he was henpecked at home. He also believed that the company would be better off if some of what Jim did was delegated to employees. He suspected Jim wanted a bigger slice of profits but he was not going to open that can of worms. He believed Tom would agree with him.

Tom just wanted to get along with everyone. He was happy with his share of the profits and the way business was developing. Tom could not understand why Jim and Bob kept asking him to straighten out the other guy but never talked to each other about their gripes. He would not take the side of either Jim or Bob, but he never said that to either of them. He now recognized that his silence caused both them to look to him as an ally.

Our function is to help people design a program that will keep them focused and working together. We guide them as they, not we, draft a ‘Business Charter’. This is the significant difference between the approach of consultants and mediators. Good consultants will analyze the situation and present the client with a solution or a plan of action. Even if it is flawless, inevitably everyone can find something to hate. The difference is whether it is ‘my idea’ or ‘his idea’. Mediators assist the people involved to develop a solution that is their idea. Thus, the chance for successful implementation is great, since everyone has a vested interest in seeing it succeed.

A Business Charter addresses those matters that are not discussed in partnership or shareholder agreements or in management structure and job descriptions. A Charter is a non-binding memorandum that clarifies what each person expects of each other and how to operate together. We do not attempt to change personalities. We help people to understand their own interests, needs and goals and the interests, needs and goals of the others. Then, with our guidance, they work out a plan for working together.

We have separate confidential interviews with each person. We cannot disclose anything they tell us unless they authorize us to do so. During the interview we show them how to air their gripes in a non-adversarial and productive manner. On completing the interviews we have ‘the whole story’. We learn about each person’s perceptions and hidden agenda that seldom surface when they meet on their own. We have a picture that none of the partners have seen. Our task is to help them develop this picture during our conference.

Prior to the group meeting we submit to each person a set of questions, developed from what we learned in the individual interviews. We review their answers and prepare for the conference where we facilitate a discussion of all that was previously unspoken.

The length of the conference depends upon the number of participants and the complexity of the relationships. Notice I said ‘relationships’. I did not say the complexity of the problems or disputes. Although the people discuss problems in terms of financial, legal or poor management, they are seldom the real cause of friction. The real cause is the people themselves.

In many respects, a partnership is similar to a marriage without the benefit of the bed at night. There is very little emphasis, if any, in college or business courses on how to be a good partner. The result is that people enter into legally binding business relationships with little thought as to how they will harness their differences into a positive force. Many individuals have not thought through their own short and long-term goals. By not knowing their own foibles and ignoring their different personalities, goals and values — they set themselves up for a lot of unnecessary grief and often, failure.

The three partners learned new things about themselves as well as each other. Bob enjoyed most of his time on the course and socializing. However he hated to golf and socialize with some of the customers. With them it was hard work just to be around them. He did so solely to generate business. One of the customers he disliked was also a pain-in-the rear to everyone in the plant. This caused Jim great stress because it often disrupted production. He did not complain to Bob, believing the customer to be Bob’s good friend. Once this was discussed openly, an avalanche of other hidden issues among all three of them flowed onto the table.

All were addressed and resolved. More importantly, they learned how to communicate with each other on sensitive topics. This is the most important benefit of the Charter Process. The Process showed them how to deal successfully with future conflict. The Process minimized their need for future outside help. Their Charter addressed the current issues and set up a protocol for how they would interact with each other. One Charter provision, — they agreed to review Jim’s workload to determine what could be delegated so he could cut his hours to 40 without hurting productivity. Until that was accomplished, Jim would be paid a salary for his additional work.

The issues addressed may seem mundane to an outsider looking in. They are monumental to those who are living with them.

The same concepts and principals apply to management teams but with other nuances, such as salary instead of share of profits, chain of command, promotions etc.

By using two mediators with diverse but complementing expertise, the owners and mangers are empowered to address that which previously was taboo. They do it without bruising their egos. At first I did this by myself. Now I co-mediate with a colleague who is a psychologist. The clients receive the benefit of experienced mediators who bring to the table the ability to assist them with the myriad issues involved with personalities as well as business and law.

The Charter is an important living document. However, the most important benefit to the people is that they have learned how to harness their diverse personalities into a productive force. Our greatest success occurs when they no longer need us.


John Gromala

John A. Gromala, J.D., has more than 30 years of experience in transactional law and estate planning. He practices exclusively as a mediator in all aspects of trusts, wills, and conservatorship disputes ( He has given seminars for attorneys, business people, and mediators in the United States and Europe. His… MORE >

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