by Stephen McDonough, founder and lead attorney/mediator at Next Phase Legal
No matter the size or the industry, conflicts occur in every business. Whether internally with employees or externally with customers, lawsuits can take a hefty toll on a business’s finances. On average, litigation costs Fortune 500 companies roughly a third of their after-tax profits per year and small businesses can suffer just as hard of a hit to the bank account. Some small businesses report litigation costs as high as $150,000 per case.
Taking a case to court can be a massive drain on both time and money, as well as, an intimidating and often unjust process. Court proceedings become an adversarial battle between attorneys and arriving at a fair solution is not always the end result. However, litigation isn’t the only option to resolve a business conflict. In fact there are several alternatives available to businesses that are significantly less time consuming and costly.
As the oldest form of conflict resolution, negotiation is generally more informal, but have some structure and parameters. Both parties involved in the dispute come together to try and formulate an agreement. If negotiations break down or if parties fail to reach an agreement, then another form of dispute resolution may be put into action.
Negotiation succeeds when parties maintain a positive relationship even through conflict. As an informal process, parties are free to approach negotiations in a way they feel works best for them. However, if the conflict has left parties unwilling to discuss or compromise, then negotiation will likely fail and mediation or arbitration may provide a workable solution before the parties find themselves in court.
With the addition of one or more neutral mediators, mediation often succeeds where negotiation fails. A mediator assists both parties work through their differences. Both sides engage in negotiations and discussion to reach an agreeable solution to the conflict. The mediator facilitates the discussion and helps to develop options for resolution, but the mediator has no power to order any specific outcome.
Mediation can be an effective conflict resolution method because mediators help feuding parties eliminate communication roadblocks and explore pathways to settlement that may have been overlooked by the disputants. . Both sides actively participate in the resolution process and are the only ones who can arrive at an acceptable resolution. However, mediation may become challenging in some circumstances, because in some instances opposing sides just are not willing to reach a compromised resolution.
Often referred to as ‘the businessman’s method of resolving disputes’, arbitration provides a resolution when the parties cannot reach a voluntary agreement. The process of arbitration requires the assistance of a neutral arbitrator or group of arbitrators that function much like judges without the hefty expenses accompanied by a court case.
Parties provide pertinent information on the dispute, including witness testimonies and any relevant documentation. The mechanics of the arbitration hearing are agreed upon in advance. After hearing arguments (in most cases) from both parties, it’s then the arbitrator’s responsibility to decide what relief should be awarded to the aggrieved party. Conflicting parties lose a level of control over the dispute because the arbitrator makes the final decision. An arbitrator’s decision is typically binding and enforceable, but it is possible to participate in non-binding arbitration, but this is much less common.
Which Alternative Is Best?
While all three of these dispute resolution alternatives can be effective methods for resolving conflicts, the most effective method will depend on the individuals involved and the conflict in question. If an argument isn’t heated and compromise seems attainable, then negotiation may be the best option. On the flip side, if tempers run high and relationships have been fractured, then arbitration might be the best alternative.
Stephen McDonough is the founder and lead attorney/mediator at Next Phase Legal. Stephen works closely with clients to resolve conflicts through mediation and other forms of dispute resolution.