The Reasons Why Mediation is Preferred for Business Disputes
It's fast, cheap and in your control
on January 20, 2023
Mediation is a relatively simple and straightforward process for resolving business disputes—and that’s precisely the point. More often than not, according to attorneys who practice this type of law, it’s the best option.
“A successful mediation is one where the parties select a mediator, the parties follow the mediation rules, the counsels show up and do their part, and the representatives of the disputing parties show up and do what they’re supposed to do,” says Mary Patricia Benz, a Chicago-based attorney who has done business mediation since 2011. “Everyone participates, and at the end of the day or two days or whatever they’ve scheduled, they reach an agreement in principle. Then they write it down, do a term sheet. They may not like all the terms that are part of the agreement, but they are happy because there’s finality to it. It’s a win-win.”
This is especially true because the parties have avoided the potentially damaging, expensive and adversarial experience of litigation, all while feeling as if they have had control over the outcome.
“People want to create their own terms of settlement,” says Jerald A. Kessler, an attorney in Libertyville who has mediated more than 2,500 disputes. “They don’t like having the terms imposed on them by a third party, which is, of course, what happens in the court. There has been research done that says people care as much about the process as the outcome of a conflict. So if they perceive the process was fair and reasonable, they’re willing to accept an outcome they might not have otherwise been all that enthused about.”
The Types of Business Mediation
Mediation is favorable in many types of business disputes:
- with suppliers, over timeliness, quantity, quality and price
- in family-owned businesses, over work responsibilities, compensation and succession
- regarding shareholder derivatives
“Sometimes the parties just need someone to facilitate a conversation rather than a back-and-forth of, ‘Yes, we will,’ ‘No, we won’t,’” Kessler says. “Mediation keeps it at a conversation level rather than an argument.”
The Advantages of Mediation
In addition to being less adversarial, mediation has several advantages over litigation:
- It’s quick, often taking no more than a day or two. Litigation, in contrast, can last months or even years.
- It’s cost-effective. “In litigation, people wear each other down financially until they throw in the towel,” Kessler says. “Even if you go to court and win, people are still unhappy because they had to go through so much to get there. And if they don’t prevail, they’re even more upset.”
- It’s educational, providing information that might show a party why avoiding litigation is the smart play. “Mediation is often the only opportunity to meet face-to-face with the decision-makers on the other side,” Benz says. “They see how the decision-maker is talking and thinking. Do they know what they’re talking about? Are they prepared? Are they taking a hard line? Do they have some obvious places where they’re not taking a hard line? All that information is very available, sometimes for the only time in the dispute process.”
- It’s individualized. “The parties decide the terms, not the mediator,” Kessler says. “Often the parties are seeking specific solutions [that might not be possible in litigation].”
It helps maintain relationships, partially because it’s confidential but also because of the lower-key format. Additionally, says Kessler, mediation “preserves reputations and business-to-business relationships because some companies don’t want to go on record as being an entity that will go to court if there’s a problem.”
There are, however, instances where mediation isn’t ideal. Unlike litigation and even arbitration, mediation isn’t legally binding. Consequently, if there isn’t trust and commitment among both parties—say, one side is negotiating in bad faith—a lasting outcome can be put in doubt. But Kessler notes that parties typically “abide by the terms they’ve reached in mediation because they created the terms themselves.”
What to Look for in a Mediator
Not all mediators are created equal. The best ones have a gift for being unobtrusive and subtle in guiding the parties to an amicable solution.
“They’re good listeners and very creative and quick,” Benz says. “A good mediator will keep the process going. Sometimes if you’ve planned out a path and it goes a different way, you have to be able to switch and see another path.”
Adds Kessler, “You have to be able to figure out what is motivating the different parties and help them identify what their interests really are. Parties often come into a dispute with a big demand, but it might not be what their interest really is. There might be other options that they’re overlooking.”