In Praise of Mediation and the Perils of Litigation

Conflict within family business is inevitable and perhaps even healthy. From small misunderstandings to major disagreements, what separates the long lived family business from the casualties is not just their approach, but their response to resolving differences. In this THOUGHT LEADER interview, we will discuss the options for families in conflict with noted family business advisor and mediator, John Messervey.

In his thirty+ year career, John has resolved hundreds of disputes from the absurd to those that are life changing. Recently, one grateful family business owner shared, “In a remarkable 11th hour mission, John was able to save our family from the destruction of litigation and to bring unity in looking ahead to the future of our family business. John has extraordinary talent in working with families. He identifies with people and challenges, and inspires those around him to dig deep in order to make the right choices about the future. Thankfully, we brought John in, even when it appeared it might have been too late. Without his considerable mediation skills, there would have been a very different outcome.”

In his Lake Forest, IL (USA) office, the well-travelled family business advisor shares helpful advice for those seeking to resolve the inevitable conflicts at the confluence of family, management and ownership.

TL: You seem to have some very strong opinions about families in litigation, why?

JM: From experience, I have concluded that our legal system is deeply flawed on both sides of the conflict. If you think about it, using the billable hour, litigators have little incentive to resolve anything quickly. Have you ever seen a “motion to dismiss” actually dismiss a case? As a plaintiff, your attorney will engage in all sorts of legal wrangling, some of which is indecipherable, and you will likely roll up millions of dollars in legal fees. Many attorneys will bill you as long as they think you will pay. The attorneys representing the other side will do the same. Often they and the judge have known each other for years. Clients wonder about unspoken conflicts of interest. Your attorney will only try your case once, so your case may be stretched to maximize fees to his or her firm.

TL: That’s a very depressing summary.

JM: Sadly, those concerns are only a small piece of what family businesses who have been through litigation tell me. In family business cases and particularly divorce, each side is “amped up” so that emotion, not logic or any semblance of reason prevails. Some cases resemble a bad divorce on steroids. Once you begin to litigate, your options narrow quickly, positions are hardened and no real chance of a solution emerges. That realization likely occurs after 3-4-5 years of emotionally draining meetings on legal “strategy,” depositions, interrogatories, inconsequential decisions, delays and frustration. As one client shared, “you know you have reached a breaking point when you begin to hate your attorney.”

TL: You sound particularly harsh toward litigation attorneys.

JM: I have had the privilege of working with many outstanding, dare I say, brilliant attorneys. Like any profession there are good and bad apples. This is beyond the question of good or bad. The economics of providing legal services, specifically during litigation, make little business sense. So, the real problem is the legal system… it doesn’t work for families in business.

TL: Do you see this often?

JM: Unfortunately, yes. Do you know anyone who ever said they truly “won” their family business case? Or, if they had the chance, they would litigate again? Recently, once client came to me with this story:

Sally rather reluctantly admitted she had reached a painful conclusion. Her efforts to litigate control and ownership away from her insufferable brother was mired in a no-win stalemate. After years of sleepless nights, depositions, legal wrangling and a million dollars in legal fees, she wanted off the runaway train of litigation. But how?

This client had every reason to seek mediation. Unfortunately, she feared that the other side would perceive her mediation request as weakness, so she rode the litigation train to the end. Whenever her attorneys heard her doubts, they pressed on, “You have a good case.” Then, “You’re going to win.” And finally, “You’re going to win big!”

Of course, attorneys have little certainty about the outcome of any trial. In litigation, you are in the land of guesses, hunches and speculation. After all you have been through, your attorney is unlikely to tell you that only 2% of all cases actually go to either a judge or jury trial. Ninety-eight percent are settled out of court, dismissed or mediated to a settlement.

TL: What about the role of judges?

JM: Most judges love mediation. Several have told me, “John, I have a choice, either we mediate this or I have to read and ponder 35,000 pages of documents.” Of course, they want mediation. It lightens their load and eases their docket.

TL: What about the non-family managers, employees, and communities?

JM: Of course, they are concerned. Family litigation has very unpredictable outcomes. Lenders and other stakeholders are particularly worried. In the community, disputes among rich families make for great headlines, but few are sympathetic to their plight, including juries.

“All wars are popular for the first thirty days”

TL: So how are you advising families in business to settle deep rooted differences?

JM: So much conflict is rooted years before litigation is ever filed. Families in business would be better served by numerous small skirmishes rather than a DEFCON – 5 thermonuclear “take no prisoners” war of litigation. Some families are so bent on avoiding conflict that they wait too long to address the “elephant in the room” conflicts. Many times, I am asked to facilitate those especially difficult family and wealth discussions.

I suggest regular family meetings specific to the issues at hand. To start, many family business managers need a “Mayor Koch” communication style. The New York City mayor was famous for asking his constituents, “How am I doing?” Instead, I might ask fathers and sons or siblings to ask each other, “How are we doing?”

An important document that I often prepare with each client is called “Written Understandings of the Smith/Jones Family.” This is a unique, organic document that covers everything from rules of entry/exit, stock ownership, compensation, care of aging parents, estate planning, dispute resolution and more – anything that a family needs to codify. I should add that mandatory mediation agreements are increasingly included in family documents, including wills, estate plans and stock ownership agreements.

TL: Tell us more about avoiding the early stages of conflict.

JM: Too often, I see agreements that are driven around how you get into a deal, investment, or partnership. Although most of these agreements include a dissolution clause, they often fail to deal with conflict resolution or how one gets out of a deal or partnership. Fifty-fifty partnerships are particularly rife with conflict. Someone has to lead, someone has to follow and both sides have to compromise.

TL: You have frequently commented on the role of trust in the family business.

JM: I am glad you brought that up. Maintaining trust is the #1 issue within family business. Without it, conflict is inevitable and litigation often follows. When I look at the origins of family legal disputes, someone engaged in some impropriety or the appearance of impropriety. From there, the spiral of mistrust begins, and the war begins. Litigation is almost never about the facts of a case. The seeds of most family disagreements were sown long ago and fester at some deeper level. Our system of justice only handles some of the superficial, surface issues. Even after a series of court rulings, the legal drama continues. The deeper currents that drive family distrust, disharmony and dysfunction are not a part of the legal process.

TL: That is really what drives family litigation?

JM: Yes, precisely. Getting to the “deeper currents” is really what resolving conflict is all about. Many times, I see litigation as a last gasp effort to end the family enmeshment drama. Family members are so fused together, that “I can’t be me.” In an effort to separate, one party sues the other ensuring that some sort of partitioning will occur. Or, conversely, family litigation is a strong message to “pay attention to me!” It is a rare attorney that understands these concepts. Tangled in years of legal maneuvering, the real sources of conflict are not addressed.

“I often ask, who gets something back by keeping the conflict going?”

TL: What other family disputes have you seen in litigation?

JM: Most family disputes are about timeless power and control issues—who calls the shots. Some litigation accelerators are about performance; I work harder (or am smarter) than you, I therefore deserve more. Far too many conflicts are centered on this nebulous concept of “fairness.” Parents, in an effort to be “fair,” may divide their estates, wealth, and stock ownership equally without considering what is truly best for the long term survival and growth of the family business.

TL: So, how does a family jump off the runaway?

JM: They may want to take a page from business or commercial litigation, which often looks at the legal process as a business proposition. What are my expenditures, downside risk and options for a reasonable settlement? In family litigation, I almost never see that equation. At some point, family members ask, “Is all of this really worth it?” It is very difficult for families to define “winning.” Mediation gets each side to resolution faster, cheaper and often begins the healing process.

TL: Tell us more about post mediation, in your words, “healing”.

JM: A painful result of family litigation is the silence that follows. For generations, litigious families do not speak to each other. Sides are taken by family members, friends and associates, stories are spun, reputations are ruined and the family is fractured for generations. The long term collateral damage of family litigation is profound.

Whether we like it or not, family members remain family members. Amid the fractured relationships, you simply can’t unload your family. You might not speak, or pretend some family members do not exist, but the scar of litigation will always be there. The story surrounding the dispute will be edited, retold and recast for years. Many clients in the years following litigation, can no longer define the parameters of their former case—usually some vague mumblings about, “who did what to whom.” Ironically, in an effort to preserve family harmony and purity, lawyers, judges and other non-family individuals are often blamed post settlement. Some have even forgotten what they fought about.

The healing begins when each side realizes that they “own” some responsibility for the events that led to litigation. “Two people, over time, act toward each other with each other’s permission” is an old behavioral axiom that comes to mind. In a productive mediation process, the seeds are set for the family to move past their dispute and return to a harmonious and productive life.

TL: Any closing thoughts?

JM: Not unlike a marriage, family business is a confluence of love, intimacy, power, control, wealth, and compromise. So, a simple response is, “just run the family business like a business.” Good thought, but almost impossible over time. Like a marriage, most family businesses have the same 4- 5 disagreements over time. In any business, the critical skill is the ability to create and sustain relationships over time. Jumping on the runaway train of family litigation is an admission that your relationship skills have failed. The legal system attempts to address the surface issues, not the root causes of the family conflict—that is where my work begins