KEEPING IT OUT OF COURT: Dispute Resolution for the Family Business


A source of great pride for many families is their multi-generational family business, a complex, dynamic organism that combines familial and business components. Unfortunately, the family business can slide into dysfunction when issues arise that would be foreign to a business where sons, daughters, wives, and husbands are uninterested bystanders. 

Conflict in a family business takes many forms: family members who are not capable of exercising the function assigned to them, cast in roles that are far above their pay grade; the scarcity of resources during the early development of a family business can create pressure and conflict; succession issues where family members compete for control; the impact of sibling rivalry; the inability of a founder to take the business to the next level; the death of a founder; the issues that arise when an aging founder refuses to relinquish his or her position; and finally, the divorce or separation of founding members.

In this series of articles I will review conflict resolution methods that are ideally suited to assist in family business disputes, focusing on three schools of mediation: transformative, facilitative, and evaluative. I will highlight mediation/arbitration, a process that encourages family members to be personally responsible for their business success while providing a final solution where compromise is not achievable, and finally, arbitration, a process akin to fast-track litigation with the benefits of privacy and reduced costs. 


Mediation is a procedure in which an impartial mediator facilitates communication between the parties concerning matters in dispute, and explores the possible solutions to promote understanding and settlement. The mediator assists the parties in coming to a resolution by formulating a mediation structure appropriate to the parties, imposing a format and rules that optimize effective communication, and helping brainstorm creative solutions. It is voluntary and non-adversarial. 


 Mediation is a useful dispute resolution tool because of certain features of the process, namely facilitation, evaluation, and the transformative opportunities for the parties. Although in earlier decades, mediation styles (whether facilitative, evaluative, or transformative) were more distinct, today mediation often incorporates all of these elements to some extent, tailoring the process to the individual needs of each of the parties.


Facilitative mediation began in the 1970’s and was the only type of mediation taught and practiced in the early days. A facilitative mediator would begin by outlining the process and rely on joint sessions, typically without counsel present. Mediation techniques such as asking questions, validating a party’s view of an issue, focusing on interests as opposed to rights, and declining to recommend outcomes to the parties were the hallmarks of this style of mediation. Facilitative mediators in the business sphere were not necessarily lawyers and included business consultants, counselors, and accountants.  Mediation purists believe this approach is the only authentic way to mediate.


In evaluative mediation the mediator assists the parties by pointing out the weaknesses in their case and opining on what a judge may do if their case were to go to court. They are focused on strict legal rights rather than needs or interests. Their goal is to promote a legally fair solution. Often evaluative mediators will practice “shuttle diplomacy”, where the parties and their counsel are in separate rooms, with the mediator moving back and forth between the parties, presenting the opposing party’s viewpoint and settlement offers. This style of mediation introduces the parties to a cost/benefit analysis. The question asked is: Is it worth spending tens of thousands of dollars at a trial, only to find out that your position is not sustainable in law? Evaluative mediators are typically lawyers who are well versed in the law. 


Transformative mediation was introduced in the mid-1990’s by authors Joseph Folger and Robert Bush in their book, “The Promise of Mediation”. It is a system based on empowerment and recognition of the interests of each party. It theorizes that mediation participants and their relationships with one another or other persons can be transformed by mediation. 

For example, in cases where relationships have failed because the parties couldn’t communicate effectively, or felt like they were disrespected, misunderstood, or ignored during the relationship, the mediation format can be tailored to teach the parties how to resolve these problems. In such mediations, using communication tools like ensuring only one party talks at a time, or asking parties to repeat what the other was saying, can help parties develop communication skills that improve not just their relationship, but many facets of their lives. In such cases, all sessions are joint in order to promote the recognition of one another. The parties themselves structure the process and control the outcomes. This style of mediation resembles facilitative mediation in many respects.

Lawdiva aka Georgialee Lang

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