Business Mediation: Hitting Reset

In these initial 15 months since I began mediating full time, most of my cases have been about settling legal claims. However, I’ve also mediated cases where the objective was not just to settle legal claims but also, or sometimes exclusively, to reach business agreements with prospects for future profits. These cases present engaging challenges and in this article I share a few observations about them.

First, some background about these business cases. Sometimes there are lawyers involved, sometimes not. There may be legal claims pending or impending, but there also may be zero prospect of any lawsuit whatsoever. Sometimes they take place over one day like a typical mediation, but other times they are spread over a longer period. Examples of these cases include:

·       Disagreements among business owners

·       Organizations seeking to negotiate joint ventures with one another

·       Breaches of agreements between investors and entrepreneurs

I’ve noticed a pattern with these cases. Time after time the parties have come to me frustrated by their negotiation history. They have typically already tried their utmost to negotiate directly with the other side, and they have thrown their hands up. Sometimes they are on the fence over whether to try mediation because they doubt whether a deal is even possible. On one recent project where I was engaged to help two entities negotiate a merger of part of their operations, the leader of one entity told me early on that his wife thought he was wasting his time given how many times they had already tried to negotiate this. On another case — one where we had reached an agreement in principle by mid-afternoon and then spent a few hours negotiating the details —  a party told me after the mediation that she still couldn’t believe it when she saw the other side’s signatures.

To be sure, the same can be true for any mediation. No matter the type of case, it is common for parties to have made some attempts to negotiate before coming to mediation. But there are a couple of reasons why business negotiation cases tend to have thorny negotiation histories. First, in my experience, these negotiations tend to have more moving parts. Reaching a resolution is not just about agreeing on a dollar amount — far from it. For example, in that same merger case, the deal needed to cover, among other things:

·       The allocation of future profits (or losses) from the combined operations

·       How to calculate net profits (i.e., defining the categories of revenue and expenses to be included/excluded from the calculation)

·       How to staff the combined operations

·       How future decisions would be made regarding the combined business

More moving parts means added complexity and more terms over which negotiations can stall or fall apart.

Second, these cases tend to come to mediation relatively late. Hiring a neutral is not a standard avenue for these types of cases. Parties and their attorneys often do not think of mediation until things get pretty grim. Contrast that with many areas of civil litigation where mediation has become so standard that parties may not even begin negotiating before engaging a neutral.

So, given that these cases often arrive with discouraged parties, a key part of my role is to help reset the discussions. Accomplishing that usually involves some combination of the following:

1.     Helping each party understand and focus on what is most important to them now (versus what may have been important in the past)

2.     Helping each party understand what is most important to the other party now

3.     Addressing any distrust or resentment

4.     Encouraging the parties to not feel constrained by the way they have tried to negotiate in the past

Helping each side understand their own priorities and those of the other side is usually straightforward. How to address distrust and resentment is another article in itself, but suffice it to say here that there is no formula. As neutrals we have near infinite flexibility in how we convey messages and proposals. What we say depends entirely on our read of the room. This is why I sometimes struggle to write about mediation strategy. You can’t discuss a strategy without discussing the dynamic in the mediation room. And that dynamic is always an amalgamation and interplay of the temperament, viewpoints, feelings, and level of sophistication of each and every person on each side. Given that I might have five or more people on each side, I find it near impossible to reduce that dynamic to writing.          

The fourth strategy above — encouraging the parties to feel free to depart from the way they have negotiated in the past — can work wonders. It is common for parties to come to mediation expecting to continue fighting over the same things they’ve spent months fighting over. It can be enormously productive to find a way to change the conversation. Sometimes that can be done by finding ways to streamline the deal they’ve been trying to negotiate (for example by reducing the number of moving parts to focus only on current priorities). Other times it happens merely by virtue of negotiating through me rather than directly with the other side. Negotiating through me doesn’t just mean using me as messenger. It means much more, which gets into the power of mediation, but that’s also the topic for another article (no, wait, a book. Maybe a series of books?). To give it very short treatment here, negotiating through a neutral means adding a filter, a gatekeeper, a translator, a buffer, a salesperson, an ally (who is also the other side’s ally), and a sounding board, among other things. A neutral doing their job properly will inherently change the conversation from the get-go.

To illustrate some of this: I mediated a business dispute over the summer in a relatively young industry here in Massachusetts. On one side were a few entrepreneurs who had started a business a few years ago with big ambitions and loads of energy to realize those ambitions. Those entrepreneurs had met a group of experienced investors along the way. The entrepreneurs and investors began entering into a series of agreements over time that culminated into a dizzyingly complex deal. I am accustomed to complex deals but this one stood out, partly because some components were heavily documented but others were oral. The entrepreneurs did not start generating revenue as quickly as they expected, which caused them to default on loans from the investors. Under the loan agreements, those defaults gave the investors powerful remedies they hadn’t exercised yet. The entrepreneurs, on their side, were claiming breaches by the investors of certain oral agreements. From a practical standpoint, both sides recognized that they needed to cooperate to begin generating revenue, but there was bad blood and distrust. Candidly, it was a mess, and they had spent months trading proposals to try to clean it up. Each of those proposals had followed the framework of the mosaic of agreements in place.

Once I understood their existing deal and learned each side’s priorities, I recommended they take a step back. I encouraged them to not feel constrained by their existing agreements (many of which were either in default or disputed anyway) and to instead use our process to reset the deal. I suggested this for a few reasons. First, their deal had reached its level of complexity because it was a patchwork of agreements. There was the potential for streamlining, and a streamlined agreement would be easier to adhere to going forward. Indeed, during the mediation, it became clear that some participants were confused by parts of the deal. Second, by changing the framework of the deal they were trying to negotiate, it would allow them to have a new conversation. They liked the idea, and the proposals began to get creative. That shift in the conversation was a key driver (among others) in ultimately reaching an agreement.

All mediations are engaging, but these business cases are particularly so. They tend to present the triple threat of complex facts, complex relationship dynamics, and thorny negotiation histories. The parties often believe that an agreement would be to their mutual benefit, but there are substantial roadblocks and they haven’t been able to get far out of the gate on their own. Each side typically has multiple people who need to be on board with an agreement, so I often need to mediate not only between each side but within each side. Sometimes it becomes clear along the way that there is one key person within one of the entities that is holding everything up. My challenge then becomes bringing that person into the conversations if they aren’t in already and understanding their reluctance. These cases are complex puzzles, and I feel privileged to be brought in to try to help. It feels darn good for everyone when we solve the puzzle.

(This article will also appear in the upcoming November/December issue of the Massachusetts Bar Association’s Section Review.)