ARTICLES

Family Business Mediation: A Conflict Resolution Model Russ Alan Prince Mediation is finding greater use as an alternative to litigation or arbitration in the resolution of conflict within family businesses. This article describes the philosophy of mediation, the$nctions of the mediator, and the stages through which mediation typically proceeds. Case studies are used to illustrate the mediation process. Mediation is a method of conflict resolution whereby an objective third party, the mediator, assists the disputing parties to negotiate the issues that divide them. There are many ways to resolve disputes, but mediation is viewed more and more as the approach best suited to the resolution or mitigation of interpersonal conflicts within family businesses. A review of the litigation practices of eighteen law firms involved in handling mid-size family firms has found that they are turning to mediation more often than litigation to resolve conflicts. These law firms were examined because they actively seek ways to serve their clients better and thus represent a selfselected sample of law firms looking for alternatives to litigation. In 1985 these eighteen firms were involved in fifty-six cases of conflict within family businesses, all of which resulted in protracted litigation. The following year three of the eighteen law firms, handling a total of forty-eight cases, provided mediation services in four cases at the request of their clients instead of going to court. In 1987, eight law firms offered such services to twenty-one clients. By 1988, eleven of the firms provided mediation for thirty-eight clients. In 1989, all eighteen offered mediation services to their family business clientele: twenty-two cases were litigated and twenty-nine cases were mediated. Although on statistical grounds these data cannot be generalized, they do suggest that there may be a trend toward mediation in contrast to litigation. Family businesses may be recognizing that mediation works because it is less destructive to the business. Litigation tends to set the family members against each other and thus severely damages the business. Mediation works to bring the family together and often strengthens the business. At FAMILY BUSINESS REVIEW, vol. 111, no. 3, Fall 1990 Q J o s s e y - B a s s Inc., Publishers

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the same time, mediation can be more profitable to the law firms. Litigation may generate substantial one-time fees but result in the loss of the business as a client. On the other hand, mediation, by maintaining the integrity of the family business, enables the law firm to continue a profitable relationship. Experience has shown that family businesses that choose mediation tend to rate the law firms that manage the process as extremely expert. This perspective extends to other areas in which the law firm is working for the family. In effect, the relationship between the law firm and the family business is strengthened. Once the conflicts have been resolved, family members have consistently approached the lawyers requesting advice about how to avoid such problems in the future. The law firms have responded by providing estate planning and trust services. While litigation may produce larger short-term profits, a long-term view shows that mediation assists in the production of annuity revenue. According to some of the firms sampled in our study, clients were very responsive to mediation as a form of dispute resolution when it was proposed by the attorney. Clients that chose mediation expressed satisfaction with the outcomes. Although mediation may take months, litigation often takes years. A handful of accountants and financial service providers have also begun to recommend the mediation of disputes for some of their clients. Like the law firms, these advisers see the long-term financial benefits of ensuring that the family business continues to thrive, and they are perfectly positioned to recognize clients who can benefit from mediation. As objective advisers intimately involved in the business and routinely working with the family members, they can readily identify disputes amenable to mediation. Lawyers and accountants can play critical roles in resolving family business disputes, for they can provide advice about the feasibility of proposed solutions, present alternatives that the parties might not have considered, and then assist in implementing the agreed-on solutions. Mediation is increasingly perceived as a constructive alternative to arbitration, as well. Arbitration is a process in which conflict is resolved by having a third party hear all sides of the dispute and make a ruling that decides the outcome of the conflict (Prasow and Peters, 1983). In family business situations, arbitration has two key drawbacks. First, it is unlikely that the parties will agree to binding arbitration. No matter what the arbitrator decides, a disenchanted party can simply ignore him or her. Second, arbitration imposes what is generally seen as a simple solution on a complex situation. Within a family business, an imposed solution often generates animosity from the parties who feel shortchanged. This problem does not arise when mediation is used. Family businesses are vulnerable not only to the whole spectrum of organizational conflicts that plague all businesses but also to family disputes. Family businesses must contend with different systems that both

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overlap and interact (Lansberg, 1983). One is a task system that concerns the workings of the business itself and encompasses the day-to-day functioning of the firm as well as its strategic positioning. Another is the sentient system, which centers on the family relationships: it is the way in which family members interact with one another. Many of the goals, norms, and rules that maintain the sentient system overlap the task system (Miller and Rice, 1988). This overlap shapes the manner in which decisions concerning the business are made. On occasion, decisions must be made to establish priorities between the two systems. Does the business or the family take precedence? This issue becomes urgent when financial choices are confronted and there are not enough resources to manage both to everyone’s satisfaction (Ward, 1988). One transcendent concern is who will succeed the current chief executive officer (CEO). Lack of planning for succession has been shown to be a primary reason that many family firms do not survive their founders (Lansberg, 1988). Mediation has been demonstrated to be effective in helping family firms to deal with the critical problem of succession. Because family members want to manage and minimize the problem, they are open to suggestion; and because they usually prefer to avoid open hostility, a positive outcome is possible for all involved. In many family businesses, the CEO, who is often the founder, is also the primary decision maker. Family members in the organization clearly understand the hierarchy and may expect (or hope) that their time will come. When the founder dies, if a clear successor has not been named, family members must jockey for position. The battle for control shifts from a latent to an emerging conflict (Deutsch, 1973). At the same time, other latent conflicts tend to come to the surface and exacerbate differences among family members. It becomes clear to all that some form of action is necessary to prevent things from going completely out of control. A related concern is responsibility, especially the responsibility for supervising family members. When employees are family members, the tensions that often develop over issues of supervision become even more complex and volatile (Rosenblatt, de Mik, Anderson, and Johnson, 1985). The situation is not improved by differences over who is to manage the firm. Another issue is the ownedmanager’s responsibility to balance the needs of the family with those of the business and make preparations to ensure that such obligations will be met in the future, after resignation or death. In effect, a succession plan must include not only a management plan but an estate plan to ensure that sufficient funds exist to cover estate taxes as well as provide for loved ones. Nevertheless, a large percentage of owner/managers do not have estate plans (Prince and Schutz, 1989). In such cases conflicts among family members which are detrimental to the business arise at a time when the business is most vulnerable.

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To recapitulate, in order for a family business to be successful, it must adroitly manage the disputes that could cripple the firm. The psychological and emotional relationships among the family members as well as between family members and other key players in the business are as important to the success of the firm as, for example, financial and market factors. Disputes centering on control and responsibility can bring about the dissolution of the business, to the chagrin of all involved, unless a viable approach to resolving disputes is found. Mediation is one such approach.

Philosophy of Mediation Mediation, in any environment, is characterized by four basic propositions: (1) the mediator is impartial, (2) the mediation process is voluntary, (3) confidentiality is maintained when appropriate, and (4) the mediator has considerable procedural flexibility (McCory, 1981). Let us consider each of these propositions as they refer to mediation in family firms. The mediator takes a central role in the family business dispute but must always remain neutral toward the matters being disputed. The parties must believe that the mediator is not taking sides; if faith in the mediator’s impartiality is ever lost, so also is the possibility of amicable resolution. Mediation is a completely voluntary process. At any time, the disputing parties may choose not to participate. The mediation process can produce long-lasting results precisely because the family members volunteer to negotiate a solution to the dispute. Participants must have evinced a willingness to negotiate and a desire to solve their disputes fairly (Walton, 1969). These attitudes translate into compromises and concessions that the participants can support, as indeed they must if the actions they agree to take are to be carried out. Throughout the mediation process, information of a highly personal nature is commonly confided to the mediator to help him or her understand and respond to the motivations of the family members. The mediator must always make it explicitly clear that any confidences entrusted to him or her will remain confidential and will be divulged only with the express consent of the confiding party. Otherwise the mediator will lose credibility and generate new conflicts between the family members. Procedural flexibility is gained because the disputing family members themselves-with the assistance of the mediator-determine many of the parameters of the process. There are no rules that must be followed unconditionally. On the other hand, the mediator provides a framework for resolving the dispute-the structure of the mediation process. In some cases, for example, the framework precludes direct contact between the parties in conflict. Instead, the mediator shuttles back and forth between them to negotiate an agreement. However, the evolutionary nature of mediation permits the framework to be redefined as the process unfolds, modified to fit

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the needs and personalities of the family members and, indeed, the nature and level of the conflict. Although the mediator may begin the process by shuttling between the parties, it may prove advantageous later for the parties to negotiate face to face to bring about a lasting resolution. In addition to the four basic propositions, mediation is characterized by its orientation to the present and the future. For the most part, the past provides only background material. Family business disputes generate understandably intense emotional reactions. Although these conflicts often have deep and tangled psychological roots, the goal of mediation is not to provide therapy but to enable the participants to manage their difficulties and to ensure that the family, as well as the business, is well served. Thus the importance of concentrating on the immediate issues generating the conflict cannot be overstated. By focusing on the present, the parties are less likely to lapse into potentially destructive exchanges, usually provoked by a divergence of perspective over past events. With a view to the here and now, family business mediation strives to produce an agreement that all parties can live with. Mediation is also characterized by the modest goal of resolving the specific substantive issues being disputed. Again, the objective is not to offer therapy to alleviate deep-seated psychological conflicts, but to defuse conflicts that directly affect the performance of the business. Ideally, mediation would be utilized when family disputes that adversely affect the business first arise. If the mediation process is begun before the conflicts escalate, an equitable resolution is made considerably easier. Experience shows, however, that family business mediation is the last resort before the parties plunge into the abyss of expensive protracted litigation. Often such litigation tears the business apart by intensifying disputes and polarizing the family members. Family members themselves are seldom familiar with mediation as a method of resolving conflicts. They usually seek to resolve the disputes in traditional ways. One family, for example, deferred a decision to the elder statesman-the grandfather. Unfortunately, this practice only angered the younger members. They would not question the decision openly, but they admitted to sabotaging the proposed solution in order to prove it was not workable. Another family typically handled conflict by ignoring one another. They were polite but distant when working in the business but did not speak to each other outside the business. Though the CEO acted the same way, he conceded that such behavior was not productive: it conveyed the wrong message to the employees and damaged the business. In another case, after the death of their father, who was the founder of the company, two sons were ready to sue each other over the management of the firm. Their mother, who owned 51 percent of the stock, told them that if they took such action, she would sell her stock to someone outside the family. As she put it, “I don’t want my kids hating each other over some damned

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company.” Mediation was employed, and the sons split the company into

two firms. Each became CEO of a new company and also owned nonvoting

minority stakes in the business he was not running.

Mediator At present anyone can identify himself or herself as a mediator. There is

no accepted credentialing process, nor are there generally accepted standards in the field. Although mediators have no doubt been around as long as there have been human conflicts, mediation as a professional field is relatively recent. Research into the field is intensifying, as evidenced by the moneys being directed to the study of mediation by such organizations as the National Institute for Dispute Resolution. The areas in which mediation occurs also help explain why anyone can be called a mediator. A person involved in divorce and custody mediation possesses different expertise from one engaged in labor mediation. Both will adapt the philosophy of mediation to the context in which they work. Nonetheless, the dramatically different situations make it impossible for them to switch cases. Thus mediators are often specialists in particular types of situations. Functions of the Mediator. A mediator functions primarily as a facilitator and a catalyst. Structuring the communication process, the mediator facilitates the resolution of the family conflicts and acts as a conduit for information, ensuring that all concerns are voiced and integrated into the negotiations in appropriate sequence. The mediator also provides a reality test. If, as all too often happens, the family members’ agendas and bargaining positions are unrealistic, the mediator must help them realize that their expectations may not be reasonable. The more each party understands another’s predicament and the limitations of the situation, the more likely it is that an agreement can be reached; and it is the mediator who must make these points known. Case Study: The Mediator as a Facilitator. Each party to a conflict views it as a problem with the other party. Disputants also view the problem in the context of the task system. The mediator’s job includes educating family members about the impact of the sentient system and showing them how this system may exacerbate the dispute. The following example demonstrates the mediator’s role as a facilitator. A conflict between a brother and a sister over who should manage the firm centered on which of them was more capable of dealing with the financial issues. Their father, the founder, died without designating a successor. He had managed, and always stressed the importance of, the financial affairs of the firm. Both children had MBAs from top business schools, where they had majored in finance. It became evident after several mediation sessions that some members of the family did not believe that a

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woman was really capable of running the firm, even though she had a better knowledge of the business. Consequently, the negotiations over who should be CEO revolved around the family’s feelings about having a woman run the company, not around which sibling was better at finance. The negative stereotypes surrounding a woman CEO were discussed. Over several meetings the family agreed that it was important to have the best person in the job even if that person happened to be a woman. Mediation resulted in the sister’s becoming CEO because of her superior knowledge of the industry as well as of the workings of the firm. The brother agreed to leave the business and a generous settlement was reached. As a catalyst, the mediator brings about a structured negotiation process that otherwise would not be possible. Members of family businesses do not like to admit openly to the existence of conflicts. Through the services of a mediator the parties can acknowledge the existence of conflicts in a relatively safe environment. The presence of the mediator makes the conflicts legitimate topics of discussion and, at the same time, fosters an environment of compromise and purpose (Rubin and Brown, 1975; Pruitt, 1981). Mediators, as catalysts, “facilitate concession-taking without loss of face by the parties, and thereby promote more rapid and effective conflict resolution than would otherwise occur” (Rubin, 1981, p. 380). With the presence of a mediator the family members are more willing to adjust their positions because they do not feel that they are giving in. All parties can seek solutions to their problems without taking-or assigning-blame for them. The decision to mediate can thus serve as a face-saving approach to dealing with the conflicts, The mediator serves as a catalyst nearly every time a novel idea needs to be presented. As a neutral party, the mediator can present ideas for consideration that might be disregarded if they came from one side or the other. When one party has a workable idea, the mediator, with that party’s permission, can present the idea as his or her own and it will often have a fair hearing. To accomplish his or her objectives, the mediator must be creative and resourceful, as well as possess expertise in analysis, critical discussion, and problem-solving methodologies, which include an understanding of conflict theory. Arguments often revolve around aspects of managing the business, and to work out a viable solution the mediator must understand the potential impact of different courses of action on the business as well as the parties. The ability to evaluate these alternatives in turn requires analytical proficiency. The mediator must also be familiar with financial services, for they are often instrumental in resolving family business conflicts. Valuation of the firm, leveraged recapitalization, private placements, and financing by employee stock option plan (ESOP) are all examples of financial services useful in resolving disputes, just as estate planning and trust services are important in resolving the issue of succession. The use of financial services

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is demonstrated in the following example, in which a law firm acted as mediator. An electronics company with approximately $250 million in annual sales was being torn apart by feuding among the three children of the founder who had recently died without clearly designating a successor. Two of the children were fighting for control of the firm, while the third wanted to sell it and get out with his third of the profits and equity. Two other family members who were not involved in the business had claims to the assets of the deceased owner. All five parties participated in the mediation. The solutions included establishing trust funds for the two family members who were not involved in the business. The company was then restructured. A leveraged capitalization was used to buy out the son who was not interested in the firm. Two separate companies were established, as well as a holding firm, each company to be independently managed by one of the two brothers in the area for which he had previously been responsible. The brothers had equal status within the holding company. All parties were satisfied with the results of the mediation. When applying the mediation process to family businesses it is essential to recognize how decisions are made within the family and to understand how personal relationships among members affect the decisionmaking process. Because the disputes are emotion-laden, the parties build arguments that may not be objectively valid or even plausible. Still, parties may be able to make a persuasive argument if they have the rhetorical skills. It is the responsibility of the mediator to ensure that the mediation process is characterized by reasoned dialogue. Case Study: The Slippery Slope Argument. When a proposition is criticized without sufficient evidence on the grounds that it will inevitably lead to a catastrophic end, a slippery slope argument has been made. It centers on creating an inextricable relationship between two concepts or events where no such relationship exists. In one case, the thirty-two-yearold youngest son of the founder, who had died without identifying a successor, argued that he should take charge of the business rather than either of his older brothers, who were fifty-six and fifty-seven. The board of directors agreed that a new course of action must be taken to reverse the company’s downward trend. The strategy conceived and followed by the father was proving unprofitable, and a new direction was needed. The youngest son argued that the strategic thinking of his two brothers was aligned with their departed father’s, as they had worked closely with him in managing all aspects of the firm; he insisted also that his brothers’ ideas could not be differentiated. If the board of directors selected either of his older brothers, he asserted, it would condemn the firm to the precipitous demise the father had unintentionally initiated. Because of his training as a lawyer his rhetorical skills were excellent and he was extremely persuasive. In fact, even though he had no managerial experi-

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ence and was unfamiliar with the workings of the firm, the board began to consider him an appropriate successor. A mediator was able to bring out the fact that the older brothers had consistently disagreed with their father about how to position the business but were forced to accede to his wishes because he owned the firm. Not until the mediator dissected the arguments was the validity of the youngest son’s proposition questioned. Under clearer scrutiny, his contention collapsed. The solution was for the two older brothers to divide up the firm, each taking responsibility for different business units. Mediator (zs Problem Solver. The mediator must also be adept at implementing problem-solving methodologies, including such approaches as the use of nominal groups, surveys, and brainstorming. In the nominal-group approach each of the parties individually defines the problem and then prepares a list of possible solutions. These solutions can then be reviewed by all the parties and efforts can be made to combine ideas and eliminate unacceptable choices. Surveys are intended to solicit possible options from interested parties other than the disputing family members, such as key corporate personnel and family members who are financially tied to the firm but not involved in running it. The goal here is to obtain perspectives on the problems that may not be considered by the disputing parties. In brainstorming, the parties are requested to generate as many possible solutions to the problem as they can without censoring or criticizing any. Brainstorming permits a great many ideas to surface. When possible solutions are evaluated and combined, the parties are enabled to view the conflict in new ways. Clearly, mediation centers on people. The mediator must therefore also have strong interpersonal skills, such as attending, active listening, responding, using probes, confrontation, and immediacy. Mediators demonstrate attending skills by their posture and attitude. Good eye contact, for instance, is critical. At the same time, the mediator must avoid distracting behaviors. Active listening means being attentive to both the verbal and nonverbal messages that the parties communicate by tone of voice, silences, gestures, expressions, as well as words. Attending and active listening allow the mediator to understand the world of the disputing parties. The mediator must also communicate this understanding. Responding is the skill of conveying to the parties that he or she truly understands what is important to them and why; it does not mean that the mediator agrees with a particular view. All too often conflicts are presented in vague, nebulous terms by the disputing parties. The mediator must help them articulate the arguments more clearly in order to arrive at solutions that are viabl: and specific to the particular circumstances. At times confrontation is ixcessary to challenge discrepancies, distortion, and the game playing the parties engage

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in. In the case of the three brothers used to describe the slippery slope fallacy, the mediator was able to challenge the argument being made by the youngest brother. Timing, however, is critical; if confrontation is premature, the family members are likely to be antagonistic and defensive, and to sabotage the mediation process. The mediator must always have the trust of the disputing parties, even when conflict arises between the mediator and the family. Although these abilities are essential for all mediators, those working with family businesses need additional expertise or access to experts. Mediators working with family businesses must understand the complex dynamics of family businesses, including the interrelations of the sentient and task systems. As previously noted, advisers to family businesses have frequently employed the services of such experts as family therapists or tax and estate planners to assist in the mediation process. The need to understand family dynamics is illustrated by the case of a lawyer engaged in the mediation of a family business dispute who identified all the parties involved in the business but inadvertently neglected to include the family matriarch. The wife of the founder did not have a formal role in the business, but was nonetheless influential in the decision-making process. Unless she believed that the resolution of the dispute conformed to the vision of the founder, the firm’s policies and administrative mechanisms were not going to change. The family members running the firm wanted to restructure the business to permit the different members to have more operational control over specific business units while moving the company into profitable new markets. The sources of the conflicts were questions about what specific strategic direction the firm should take and who should be responsible for particular business units. Mediation efforts among the disputing parties produced a solution that the matriarch found unacceptable, primarily because she had not been involved in the decisionmaking process. A different acceptable restructuring of the business was found and agreed to. Without question, family businesses are unique entities. Any intervention that fails to take this fact into account will produce results that are at best weak and at worst adverse.

Stages of the Mediation Process The mediation process is the application of the socio-psychological principles and dispute-resolution techniques that enable the mediator to guide the family members through a series of stages. The socio-psychological principles center on building rapport (Prince, 1988), defined as the degree of positive interaction between the mediator and the family members. The greater the rapport, the more effective the mediator will be. Mediators must also be expert with the whole range of dispute-resolution techniques. It is

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important to note that use of these techniques is not simply a question of the mechanical application of formulas. Nor is there a limited set of approaches or techniques: research in the field suggests a wide array of possible alternatives (Walton, 1969; Wall, 1981; Brown, 1983). From a functional perspective, there are techniques for mitigating tension, controlling the number of issues under consideration, balancing perspectives, enhancing communications, establishing a common ground, and identifying decision options. Stage 1: Issue Identification. There are three principal stages in the family business mediation process (Wall, 1981). In Stage 1, issue identification, the mediator adopts a passive stance in which he or she simply solicits information without attempting to bring about any change. As information is collected and presented, the parties have an opportunity to air their views about the conflict and vent their feelings. The first task of the mediator is to gain an understanding of the dispute from the perspective of those involved. The mediator must be able to sort out the facts from the rhetoric. A family business in one case was composed of five large retail stores, and family members were apparently fighting over where to establish more stores. The situation became so extreme that the company’s law firm was called in by one party to sue other family members. Mediation was proposed by the law firm and was accepted by the family. The family members originally claimed that the problem was to select sites for new stores; the real issue concerned who was going to be in charge once the founder died. The founder was still active in the business even though he had incurable cancer. The family members all believed that the person who came out on top in this fight would run the business. They decided in mediation that each family member should manage a different business unit, and the best manager, as determined by a number of objective measures, would become CEO of the firm. This example demonstrates the importance of ensuring that the real issues in a family business dispute be identified. As in an earlier case, in which brother and sister argued over who was more adept at financial manipulations, the task system-selecting new sites for storeswas the original focus of the negotiations. In reality, the sentient system was the basis of the conflict. Once the issues have been specified, the parties must agree on an agenda. Issues that can be easily and quickly resolved should head the agenda. By dealing with the most manageable issues first, the mediator gets a foot in the door. It has been empirically demonstrated that compliance with an initial small request can dramatically increase the likelihood of compliance with a more demanding request in the future (Freedman and Fraser, 1966). By helping the family members to resolve a minor issue of contention, the mediator promotes the idea of negotiation and increases his or her own credibility.

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At this early stage the mediator must identify the many parties who influence the decision-making process and include them in the negotiations. A useful instrument in identifymg the intricacies of the process is the family business sociogram, which enables the mediator to be aware of all the direct and indirect influences on each party. In the sociogram, the family relationships and the business relationships are specified, together with the ways in which the family members interact. The sociogram is created by taking the organizational chart of the family business and identifying the family members. Then the principal directions of influence between family members, as well as key business personnel, are specified. It is important to note that although all relationships are to some degree complementary, the sociogram highlights the most influential. The impact of family members who are not directly involved in the business is also identified on the sociogram to help the mediator understand the potential direct and indirect influences of the parties on the decision-making process. If the sociogram becomes too cluttered, however, it is unproductive. An alternative method, applicable no matter how many parties are involved, is the use of a relational data base. The data base not only gives the mediator a better understanding of the direct and indirect influences of the parties on the decision-making process, but also tracks the issues under discussion, the perspectives of the parties, and other aspects of the negotiations. The advantage of the sociogram over the data base is that the former is easy to comprehend, whereas the data base requires an understanding of how information can be manipulated. Stage 2: Negotiations. Once the mediator understands the nature of the dispute and the position of the parties, and an agenda has been established, it is time to proceed to the second stage. Stage 2, negotiations, begins with the exchange of proposals and counterproposals, as the mediator searches for areas in which compromise is possible. As the mediation proceeds the mediator becomes more assertive, perhaps bringing the parties together into structured negotiations, or pressing the parties to make realistic concessions. Throughout the negotiations, gains are consolidated and used to promote the mediation process. In stage 2 the mediator contributes to resolution of the conflicts not only by fostering negotiation, but by opening up new perspectives. Often the mediator encourages the parties to consider their common interests as the core of the solution, thereby creating a foundation for the rest of the process. At the same time, the mediator should look for alternative solutions. The family members are so intimately involved and so concerned for their separate vested interests that each of them sees only one way out of the problem-his or her own way. One family, for example, could not agree about who should manage a new division. The business was a jewelry company that was expanding its line. One side of the family backed the

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oldest family member who was not a member of the board of directors to run the new division. The other side’s candidate for the position was the most educated: he had a doctoral degree in Greek literature. The family members had not considered the possibility of a compromise candidate. The mediator must position the family members to consider alternative solutions. The best method is perhaps the Socratic: the mediator questions the parties about the issues and their views about resolving them, all the while providing them with another perspective. In this example, the mediator first had the family members identify the qualities of the ideal manager for the position. He then asked each family member, “If your choice for the position didn’t want it, who do you think would do the best job?” A family member who was not the first choice of either side was almost unanimously identified and was chosen to run the new division. Stage 3: Formulization of the Agreement. A successful mediation concludes when the mediator brings the parties together to endorse the agreement. The mediator must ensure that when an agreement is reached, its details are extensively reviewed and fully comprehended by the family members. Clarity of wording and meaning is a prime concern, so the conditions of the agreement must be unambiguous and explicit. If the details of implementation are not delineated, new disputes will result. Mediation was employed, for example, with a family firm that owned six successful fast food outlets to decide how best to deal with family members who were not interested in working in the business. The founder/ father wanted to ensure their financial well-being without putting undue pressure on the business. It was decided that they would receive an appropriate portion of the business’s profits annually. The apportionment was determined by the founder of the firm, who was the CEO at the time of the mediation. He developed a mathematical model for dividing up the profits, but the use of this model was not explicitly specified in the agreement. The founder just assumed it would always be used: he sincerely believed that his children loved one another and that each wanted the others to be happy. The model was dropped, however, by the new CEO, his eldest son, who was more interested in expanding the business than providing for those he viewed as “worthless, lazy parasites.” The result was a flurry of lawsuits that forced the sale of the firm. Unquestionably, the agreement must include a detailed explanation of how the resolution of the dispute is to be enacted.

Conclusion Mediation is employed in a wide array of conflict situations, ranging from divorce and corporate labor disputes to community conflicts and international confrontations. It is being employed, for example, as part of environmental planning, to mitigate conflicts between corporations and

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environmental groups, and in the development of governmental regulations to mitigate conflicts between governmental agencies and different interest groups. Mediation is also effective in managing disputes within familyowned and -managed businesses. Without question, mediation as a method for resolving disputes has many advantages over approaches such as litigation or arbitration. The crises that precipitate conflicts produce tension that prevent family members from seeing beyond their individual perspectives. Mediation opens the channels of communication and enhances the parties’ abilities to understand other points of view. The results of mediation are solutions to which all parties have agreed. Because agreements have been made by those who must live with them, the parties maintain their dignity and feel better about the outcome. They are therefore more likely to adhere to the agreement than if it had been imposed on them by an outsider. Although the parties may originally want to sue, as demonstrated by these examples, the attorneys can present mediation as a less drastic and more constructive strategy for resolving the conflicts. Other advisers such as accountants, if properly trained, are also positioned to recommend and provide mediation to mitigate the conflicts with the family firm. Mediation is focused on the resolution of specific identifiable disputes, but it is also a learning experience. The parties learn how to identify core issues of a dispute, how to manage conflict constructively-in effect, how to negotiate. These skills can be employed later if any similar conflicts arise or applied in different conflict situations. The promise of family business mediation is great, but a great deal of work must be done to achieve optimal results. The case studies discussed support the proficiency of this method of conflict resolution. Empirical studies are called for that evaluate conditions under which mediation is most appropriate. Similarly, we need to determine precisely what facets of the process actually result in resolution of the problem. Mediation as a process of conflict resolution has been examined by various disciplines. Anthropologists, for example, look at mediation as part of an overall examination of the legal process within a cultural context (Gulliver, 1979). Economists have also sought to explain conflict resolution through research on game theory. The disputing parties are presumed to be rational actors seeking to maximize their outcomes in an environment in which all information is available. Mediators therefore assist in the problem-solving process by analyzing alternative courses of action (Raiffa, 1982). Management theory as it applies to mediation looks at the process within the context of a hierarchical organization (Ury, Brett, and Goldberg, 1988). Psychological analyses of mediation center on the viability of the strategies and tactics employed (Rubin and Brown, 1975). Mediators, as part of their training, learn how these various disciplines inform the process of mediation. The eclectic approach, which draws on whatever theory

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and techniques appear useful, is one of the valuable contributions mediators can make to family business disputes. Mediation in family businesses is just coming into its own. What is required is an integration of the extensive research and theory that characterizes the field of mediation with the work being done in the field of family businesses. Part of this integration will be a greater understanding of the genesis and impact of conflict within a family business. The result will be a system of intervention that employs the concepts, techniques, and logic of mediation that apply to the unique aspects of family businesses. References Brown, L. D. Managing Conflict at Organizational Interfaces. Reading, Mass.: AddisonWesley, 1983. Deutsch, M. The Resolution ofconflict. New Haven, Conn.: Yale University Press, 1973. Freedman, J. L., and Fraser, S. “Compliance Without Pressure.”Journal of Personality and Social Psychology, 1966, 4, 195-202. Gulliver, P. H. Dispute and Negotiations. New York: Academic Press, 1979. Lansberg, I. “Managing Human Resources in Family Firms: The Problem of Institutional Overlap.” Organizational Dynamics, 1983, 12, 39-46. Lansberg, I. “The Succession Conspiracy.” Family Business Review, 1988, 1, 119-143. McCory, J. P. “Environmental Mediation-Another Piece of the Puzzle.” Vermont Law Review, 1981, 6 (1). Miller, E. F., and Rice, A. K. “The Family Business in Contemporary Society.”Family Business Review, 1988, 1, 191-210. Prasow, P., and Peters, E. Arbitration and Collective Bargaining. New York: McGrawHill, 1983. Prince, R. A. “Integrated Approach to Sales.” Bank Marketing, 1988, 20, 22, 24-27. Prince, R. A,, and Schutz, A. “Marketing Estate Planning to Small Business Owners.” Trusts G Estates, 1989, 128, 47-50, 54-56, 66. Pruitt, D. G. Negotiation Behaviour. New York Academic Press, 1981. Raiffa, H. The Art and Science of Negotiation. Cambridge, Mass.: Harvard University Press, 1982. Rosenblatt, P. C., de Mik, L., Anderson, R. M., and Johnson, P. A. The Family in Business: Understanding and Dealing with the Challenges Entrepreneurial Families Face. San Francisco: Jossey-Bass, 1985. Rubin, J. Z. Dynamics of Third Party Intervention. New York Praeger, 1981. Rubin, J. Z., and Brown, B. R. The Social Psychology of Bargaining and Negotiation. New York Academic Press, 1975. Ury, W. L., Brett, J. M., and Goldberg, S. B. Getting Disputes Resolved: Designing Systems to Cut the Costs of Conflict. San Francisco: Jossey-Bass, 1988. Wall, J. A. “Mediation: An Analysis, Review, and Proposed Research.” Journal of Conflict Resolution, 1981, 25, 157-180. Walton, R. Interpersonal Personal Peace Making. Reading, Mass.: Addison-Wesley, 1969. Ward, J. L. Keeping the Family Business Healthy: How to Plan for Continuing Growth, Profitability, and Family Leadership. San Francisco: Jossey-Bass, 1988.

Russ Alan Prince is a principal of CSSP Technologies, a market research and consulting firm specializing in small and medium enterprises.