Adjunct Professor of Law, Georgetown University Law Center What ADR/mediation procedures and techniques could be used for corporate governance disputes and conflicts? Lukasz Rozdeiczer Adjunct Professor of Law, Georgetown University Law Center Paris February 12, 2007 Introduction. L. R. (book) So what is worst than having a presentation after a lunch? A good lunch. For sake of the discussion I will try to be provoking. Corporate governance is based on conflict. Inherent conflict of interest between shareholders, officers, investors etc. One of the definitions of mediation: "Corporate governance...refers to...institutions that take care of the conflict between the interest of investors to get the "warranted" return on their invested funds and the interest of "managers" to exert control over the use of those funds with as little interference from investors as possible." Barca Fabrizio., Some Views on U.S. Corporate Governance, mimeo 1997

Dispute Resolution Continuum ADR Non-binding (interests) & confidential Binding (rights) Negotiation Mediation Arbitration Liti gation Why is it on the continuum? BC because certain consequences for the parties. Time and resources Party control What determines what procedure to choose? Sander Rozdeiczer HNLR Goals of the parties (time, cost, continue the realtionship!!!, improve internal mechanism to prevent conflict in the future, LEARNING PROCESS) Impediments to effective resolution Facilitating features (e.g. Low-level officers involved – invite a higher level A lot of light green! Why? BC mediaiton, mediative processes have so many variations from third party neutral arranging for a hotel room for parties to meet. Greens are very different than red and pink. So let’s see what are some examples of other mediation like procedures hidden under the green. here are 10 examples of different ADR procedures Time and Resources Party control, flexibility Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Procedures to choose from: (Negotiation) Facilitation Mediation(s) Conciliation Ombuds Consensus building Fact-finding Evaluation(s) Mini-trial Med-arb Non-binding Arbitration (Arbitration) non-binding, facilitative binding, evaluative All processes based on mediation (broadly defined) or processes that at some stage mediator may use. FLEXIBILITY OF MEDIATION. (Binding) arbitration is a "private adversarial process in which the disputing parties choose a neutral person or a panel of three neutrals to hear their dispute and to render a final and binding decision or award. The process is less formal than litigation; the parties can craft their own procedures and determine if any formal rules of evidence will apply. Unless there has been fraud or some other defect in the arbitration procedure, binding arbitration awards typically are enforceable by courts and not subject to appellate review." Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Global Corporate Governance Forum, Paris Mediation Facilitated negotiation. A flexible process conducted confidentially in which a neutral person assists parties in working towards a negotiated agreement of a dispute or difference, with the parties in ultimate control of the decision to settle and the terms of resolution (CEDR). You don’t have to call it mediation. „Naming is framing”. Negotiation frame, divorce, enemies, war in middle east..... Facilitated discussion, looking for the best solution for everybody... With many stakeholders we usually talk about facilitated discussion or consensus building. Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Global Corporate Governance Forum, Paris Conciliation Many meanings = VERY confusing. Don’t use it, if you don’t have to, or Make sure you define it. Shuttle diplomacy. Conciliation is usually understood as a type of mediation usually whereby the parties to a dispute use a neutral third party (a conciliator), who meets with the parties separately in an attempt to resolve their differences. Conciliation differs from arbitration in that the conciliation process, in itself, has no legal standing, and the conciliator usually has no authority to seek evidence or call witnesses, usually writes no decision, and makes no award. Conciliation differs from mediation in that the main goal is to conciliate, most of the time by seeking concessions. In mediation, the mediator tries to guide the discussion in a way that optimizes parties’ needs, takes feelings into account and reframes representations. In conciliation the parties seldom, if ever, actually face each other across the table in the presence of the conciliator, instead a conciliator meets with the parties separately ("caucusing"). Such form of conciliation that relies exclusively on caucusing is called “shuttle diplomacy”. Since conciliation means different processes in various countries and many people use it interchangeably with mediation, the project manager should generally avoid using this term as it may be confusing for other stakeholders and the parties. Because of the lack of consistency in the usage of the term “conciliation”, “mediation” has emerged as a more generic term to refer to assisted negotiations where the role of the third party can take a variety of forms with a view to helping the parties reach an agreement. Unless, there are important reasons to distinguish conciliation from mediation, we recommend the use of the term “mediation” instead of “conciliation”. In the course of mediation training, mediators will learn different forms of mediation (including conciliation) and will be able to apply it depending on circumstances. Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Global Corporate Governance Forum, Paris Ombuds Organizational dispute resolution tool. The ombudsperson is appointed by a corporation or other institution to investigate complaints within the institution and either prevent disputes or facilitate their resolution. Permanent mediation within an organization. May use various ADR mechanisms such as fact-finding or mediation in the process of resolving disputes brought to his or her attention. Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Global Corporate Governance Forum, Paris Consensus building A facilitated conversation of many stakeholders seeking Unanimous Agreement; Involving a Good Faith Effort to meet the Interests of all Stakeholders; Settling for overwhelming majority. This is a situation where, although law requires only majority we want to have everybody on board in some decision. Larry Susskind guru, COnsensus building handbook. Braking Roberts Rules. Must read for all involved in facilitating multiparty discussions. Summarizes the basic principles of consensus building, including: convening groups, conducting conflict assessments, establishing ground rules and agendas, using single text procedures, creating joint fact-finding and other subcommittees, and so on. Looks at these principles from the standpoint of both ad-hoc groups and permanent groups and outlines some basic process designs for both. Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Global Corporate Governance Forum, Paris Fact-finding A process by which facts relevant to a controversy are determined in a binding or advisory form. May take a number of forms: (i) in neutral fact-finding, the parties appoint a neutral third party to give their opitnion on factual, technical, scientific or legal question; (ii) in expert fact-finding, the parties privately employ neutrals to render expert opinions; and (iii) in joint fact-finding, the parties designate representatives to work together to develop responses to factual questions. Just to show you a couple of variations of that procedure. Neural/expert/joint fact finding. May be just a component of other ADR procedures, particulalry mediation. Sometime Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Global Corporate Governance Forum, Paris Mini-Trial A Mini—trial is a private, consensual process where the representatives for each party (and their attorneys) make a brief presentation of the case as if at a trial. The presentations are observed and „mendated” by a neutral advisor and by representatives (usually high—level business executives) from each side who have authority and settle the dispute. There is a powerful change from the frame of mediation to Mini_trial for these executives and the representatives of the parties Partisan advocacy vs. Joint problem solving. Partial picture vs, whole picture. Zealous advocacy vs. Rational advocacy. 1977 TRW?Telecredit Eric Green. Started as mediation. At the end of the presentations, the representatives attempt to settle the dispute. If the representatives fail to settle the dispute, the neutral advisor, at the request of the parties, may serve as a mediator or may issue a non—binding opinion as to the likely outcome in court. Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Global Corporate Governance Forum, Paris Med-Arb Med-Arb, or Mediation-Arbitration: An example of multi-step ADR, parties agree to mediate their dispute with the understanding that any issues not settled by mediation will be resolved by arbitration, using the same individual to act as both mediator and arbitrator. Variations: Co-Med-Arb, Arb-Med The parties may, however, be unwilling to speak candidly during the mediation when they know the neutral may ultimately become a decision maker. They might believe that the arbitrator will not be able to set aside unfavorable information learned during the previous mediation. Additional related methods have evolved to address this problem. In Co-Med-Arb, different individuals serve as neutrals in the arbitration and mediation sessions, although they both may participate in the parties’ initial exchange of information. In Arb-Med, the neutral first acts as arbitrator, writing up an award and placing it in a sealed envelope. The neutral then proceeds to a mediation stage, and if the case is settled in mediation, the envelope is never opened. Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Non-binding Arbitration Isn’t that the most evaluative mediation? Can a mediator do that? Yes! If: He tried facilitative mediation, and didn’t work. Both parties explicitly want him to give his opinion. He is an expert in the field in quesion. Anchor point for further discussion. Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Procedures to choose from: (Negotiation) Facilitation Mediation(s) Conciliation Ombuds Consensus building Fact-finding Evaluation(s) Mini-trial Med-arb Non-binding Arbitration (Arbitration) non-binding, facilitative binding, evaluative All processes based on mediation (broadly defined) or processes that at some stage mediator may use. FLEXIBILITY OF MEDIATION. (Binding) arbitration is a "private adversarial process in which the disputing parties choose a neutral person or a panel of three neutrals to hear their dispute and to render a final and binding decision or award. The process is less formal than litigation; the parties can craft their own procedures and determine if any formal rules of evidence will apply. Unless there has been fraud or some other defect in the arbitration procedure, binding arbitration awards typically are enforceable by courts and not subject to appellate review." Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Global Corporate Governance Forum, Paris Assume mediation Contraindications to mediation : A party’s need to attain a goal that only a court or an aribtrator can provide such as A precedent valid beyond immediate parties Maximizing or minimizing recovery Public vindication The case turns on a mattre of principle There is a wholly frivolous claim – if so, the client may have a standard policy dealing with such claims The Jackpot syndrome (bet the company/shares) Broadening the mediator’s toolbox and the scope of ADR At the initial stage of a project, when mediators do not have much experience facilitative style is preferred. The evaluative style, while being an opportunity to create value for the parties, can also cause them harm, if improperly used by an inexperienced mediator. However, with time, experience, and further trainings mediators usually expend their repertoire and add a more evaluative approach to their toolbox. They also learn which situation can be better for using either of the two styles or some kind of the combination of the two. Another avenue of adding more dispute resolution processes is through continuing training of mediators who can learn not only how to use different styles of mediation but also how to add use other ADR methods, like mini-trial, med-arb, arb-med, Michigan mediation etc. (for description of these methods see Appendix A). Thus, without any formal introduction of any new procedures, mediators can, in fact, cover more continuum of the dispute resolution processes from pure facilitation in some cases to non-binding arbitration in other. Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Dispute resolution clause Clause or ad hoc? Contracts Company constitution Board rules One process or multi-tiered. Negotiation/Mediation/Arbitration Choose a process or a nutral? What are the goals of the mediation (dispute resolution process) Enfrorcement of mediation clauses. What is duty to mediate (good faith). Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Global Corporate Governance Forum, Paris What type of mediation? Facilitative/Evaluative Transformative/problem solving Court related/out of court Narrow/Broad problem definition (legal, business, relational, community) Other related procedures What are the goals of the parties is the main question? What kind of mediation technique is the answer to that question. Caucusing no caucus. Transformative ??? Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris

Choose techniques or a mediator? External neutral („professional” mediator and his/her style). Internal neutral (e.g. ombuds, internal dispute resolution system). Peer mediator. Disputants’ superior. Many excellent reputable organizations represented here. Style of a neutral matters. Ombubs, internal Toyota, GM gievances system. Mediators with a stake. Non-neutral neutral. Impartial. Mom as the Helper (Raiffa et al. negotiation analysis p. 312.) Dispute between two managers or or board members having common superior. Father of twins so much of my thinking of dispute resolution is how to resolve conflicts among them. Let’s imagine a situation that twins play with one toy. I try to decide dispute between them. What power do I have (arbitration). Do I want to use it? No. My preffered option is. The manager as negotiator (manager is always in the middle). Often multiparty issues, even if, on the surface they seem 2P Training directors and CEO in mediaiton instead of replacind CEO (Christian Strenger). Duty of a director (Mervyn King) Feb. 12, 2007 Lukasz Rozdeiczer Global Corporate Governance Forum, Paris