Mediation is a good way to prevent lawyers getting rich at YOUR expense!

Mediation.

Ask most people and they’ll tell you it’s for family situations – the divorce stuff.

They are unlikely to suggest that mediation it has much to do with the world of business, and certainly not in the boardroom between director when they have a dispute and fall out.

The reality is that mediation a word which you will hear with increasing frequency in the years ahead. Why so?

Firstly, because the courts are encouraging it more and more.

Secondly, because it is creeping into contracts more frequently, funnily enough at the suggestion of lawyers – no doubt looking for a slice of action further down the line.

Thirdly, because people like me are pushing mediation more and more.

In my case it is in the field of boardroom mediation. Disputes between directors themselves or shareholders. It can also encompass disputes between directors and managers or staff.

Ultimately, people in all walks of life now ‘get it’ that there are ways of settling disputes that don’t involve making lawyers rich. And the ‘make a lawyer rich’ form of resolving disputes often doesn’t resolve the real problem at the heart of the dispute. Let me explain.

Here is a real-life story – the names have been changed and the facts tweaked a little:

He and She, let’s call them Jack and Jill, fell in love, but there is no fairy-tale ending as you will see.

They then made the even bigger mistake of getting into business together.

It was a good business model, which Jack had successfully operated in a different location. Jack invested 30% of the cash, Jill put up 70%, total investment: £500k. Jack gave the know-how and expertise in setting up and operating the business. They are both 50% shareholders, and Directors of the company.

After the business was up and running, Jill fell out of love and threw Jack out. Of the house, not the business.

So now Jack and Jill are equal shareholders and directors of a business.

They cannot agree on either one buying the shares of the other. In fact, they cannot agree on anything.

Jack then presents Jill with a list of demands, or he will walk away from the company and it will likely fail. Some of the demands are reasonable, but others are outrageous, such as him insisting that his original know-how and expertise be recognised as a loan to the company with a value of £150,000, to be repaid in cash.

It is clear to all neutral observers that the real problem here is not a point of law or of contractual obligations, but of a romantic relationship that has gone badly wrong. If both sides would involve the law, they would only be exacerbating the problem, because the lawyers would be arguing about phantom issues that are disguising the real ones.

Does this story sound familiar? The circumstance may be different, but the basic scenario is repeated almost daily up and down the country.

Something like this:

Well-meaning individuals have a good business idea, and so they set up a company and start working. At this stage in the game, they are full of enthusiasm, optimism, and goodwill, and they think that this state will last happily ever after. Until, as it invariably happens, things start to go wrong. One thinks they are working more than the other; they start disagreeing on the direction and development of the company; they don’t see eye to eye on remuneration; one partner decides to pull out and they need to value the business and shares.

These problems, and myriad others, afflict almost all partnerships, shareholders and boardrooms.

So, when is the law the correct option?

I don’t have a hard and fast rule, but the general scenario would be where Party A has a claim or demand against Party B, and Party B rejects or denies the claim. In this scenario, there is no ‘dispute’, as there is only one party at the table.

In such circumstances, it may well take a letter from our learned friends to bring the other party to the table. However, even in this situation, once battle has commenced it is still not too late to mediate. In all likelihood, when the Party B sees that Party A is serious about their grievance, they will more than likely want to mediate to find a resolution. The law is expensive. Very. And open-ended. Very. Think blank cheque!

However, in most situations in the SME world, the law should be the last option not the first one. Life is not like an American movie or soap opera. Not just because the real issues are deflected into legal arguments, but because of the time and cost implications of the legal process. The law is ponderous and expensive.

Many businesses leave serious problems to fester because they can’t afford the costs associated with saying ‘Good morning, how do you do?’ to a lawyer. And no business can really afford the distraction and disturbance of dealing with legal proceedings. In one mediation, which ironically was between the partners of a law firm who had fallen out, I asked each party how much the dispute had cost in cash terms. I then asked them how many hours they had spent on the dispute. When they added the cost of their charge out rate for the hours spent on the dispute rather than with paying clients, the true cost of the dispute quadrupled.

Boardroom mediation is quick and cost effective. A mediation can be booked within days of the initial inquiry, and the overwhelming majority of mediations result in a successful outcome within 1 working day spent mediating.

Post-Covid they even take place virtually, although mothing quite beats a face to face and the “fell of the room”.

Mediation is also entirely risk free.

To explain: In both litigation and arbitration, the final award / decision is made entirely by the judge / arbitrator, with the parties having no control over that decision.

In a mediation, the parties themselves design a tailor-made solution to their dispute. This always involves compromise and sacrifice on both sides, but it has the advantage of both parties being in control of the outcome and negotiating a settlement that they can both move forward with.

And that is why mediation is a growth industry, particularly in SME’s and in the boardroom, although it does not have to be restricted to the boardroom. Even suppliers and customers can mediate a dispute.

For an accountant it’s a great way to prove their mettle and value added by getting a chunk of the action. In almost all cases, any accountant worth their salt would know early on that there is a problem brewing. And the accountant is one of the primary sources of trusted business advice and guidance.

As an accountant myself I know just how much they can add value to a client’s business by bringing insight into dispute resolution, whether it’s between directors and shareholders or anybody else.

If an accountant suggests bringing in a mediator they will save their clients a lot of headache and frustration, as well as earning themselves kudos and credit in the process.

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