Claude Amar*
*Partner, Mediation & Resolution I President, Institut Français de Certification des Médiateurs I Paris, France and
Véronique Fraser, Ph.D.
*Professor for the Master\’s degree in Conflict Prevention and Resolution at the the Sherbrooke University School of Law (Canada)
While mediation is indeed an excellent method for resolving on-going disputes, one can argue that mediation may prove just as useful, if not more so, in preventing conflicts before they arise. Although it is not yet widely used in this manner, a strong case can be made for the use of mediation not merely as an alternative to resolving current disputes, but also as a pre-cursor or preventative measure in the art of deal making. This paper aims to highlight the benefits of mediation in non-conventional areas such as deal-making and deal-management in order to encourage its further development and widespread use.
Unfortunately, many people fail to realize that future problems could be avoided if a mediator were present during the drafting of a deal from the very beginning stages. In this manner, the mediator would act as a deal-facilitator as suggested by Schonewille and Fox. According to Stearn (2008), deal mediation is ‘facilitated negotiation, with the involvement of a neutral third party, of business transactions in which no dispute has arisen’. Usually the currently existing process of closing a business deal is more akin to a negotiation involving positional bargaining than it is a “win-win” optimal deal which benefits all involved parties in the best possible way. This is where a deal mediator or a deal-facilitator can prove useful.
Schonewille and Fox’s (2011) research has shown that parties directly involved in a commercial negotiation can easily fall into many traps and pitfalls which could lead to a ‘suboptimal’ deal. These pitfalls include dividing value rather than creating value and parties sticking to their own bargaining positions rather than exploring options for mutual gain. As parties involved in such negotiations are often very inexperienced in proper negotiation techniques, they often end at an impasse or in cases where a deal is reached, opportunities for greater value-creation are missed. While such a deal may be just fine and seemingly satisfy the multiple parties involved, it is highly likely that the resulting deal is not the optimal deal that the parties could have reached. The job of the deal mediator in such cases is two-fold: their first aim is to ensure that a deal is reached (although this is not a guarantee) and the second aim is to ensure that whatever deal is reached carries the highest possible value for each party meaning that each party receives the maximum possible benefits from the deal to which they agreed (Neiman 2012). The key takeaway from these aims is the idea of the maximum-possible benefit for each side. The parties could of course choose to negotiate a deal on their own, with the assistance of their counsels, and could end up successfully closing a deal in which they are all seemingly satisfied. The main difference, however, in using a Deal Mediator or deal-facilitator is that their main goal is not merely in closing a deal, but rather in creating the best possible deal for all parties and ensuring that all involved parties have satisfied as many of their underlying interests as possible. In other words, the deal mediator’s objective is to create the best possible deal whereas parties’ councils aim to maximize the individual value for their client. The latter situation can sometimes lead to hard bargaining tactics and a distributive result representing parties’ bargaining power.
Why is a Mediator Important in Deal-Making?
As noted by Salacuse (2002), due to the modern-day climate, deals are becoming increasingly international, thereby involving parties from around the world who come from a variety of cultures and backgrounds and who approach each deal with varying negotiation styles. This cultural richness carries with it the propensity for cultural misunderstandings which can easily hamper the closing of a deal. A deal-facilitator or a Deal Mediator could be useful in avoiding any such misunderstandings and of clarifying any differing viewpoints that arise from a difference in backgrounds.
Another advantage of a Deal Mediator lies in their thorough comprehension of a deal. If for instance the Deal Mediator were present from the very early stages of the drafting of the deal, they would possess a deep and thorough understanding of the negotiated agreement and would therefore be familiar with the intricacies of the deal. This would allow them to anticipate or handle any future disputes much more easily than a mediator who was not present during the initial stages. A deal mediator who has been involved in the opening stages will be better able to help the parties brainstorm and anticipate all potential areas of disputes. The deal mediator may also have a specific expertise in an industry and can assist the parties to anticipate areas of potential dispute. An example of this is the Disputes Potential Index in the construction industry (Construction Industry Institute). In referring to international Deal Mediators in the construction industry, Salacuse (2002) posits that their continuous contact with the parties and the projects leads to an ‘intimate familiarity with the transaction’.
Additionally, the deal mediator can assist parties in tailoring specific dispute resolution processes to deal with each potential area of disputes pre-identified by the parties, this can include establishing clear lines of communication, standing neutrals, etc. With his expertise in dispute resolution processes, the deal mediator can help the parties to tailor processes to their specific needs and situation.
A third advantage lies in the mediator’s ability to identify each party’s interests and to assist each party in devising solutions to fulfil those interests. Too often, parties enter a negotiation situation such as deal-making with very strong positions. These positions are stated in such a way that there is little room for manoeuvring and parties tend to hold tightly to these positions. The mediator’s job is to avoid positional bargaining by focusing on the interests or the underlying needs associated with the positional stance (Fisher and Ury). In a simulated negotiation case concerning the pharmaceutical industry, Company A says ‘I need coconuts to find a cure for a disease which is ravaging the population’. Company B says ‘Well I need the coconuts which are in limited supply in order to feed the population of my country without which there will be a famine’.
What each party failed to say was that they needed only a specific part of the coconut; Company A needs the coconut water to make their pharmaceutical drug and Company B only needs the coconut meat in order to feed the population. Because both parties came into the negotiation with very strong positions from which they refused to budge, they failed to realize that their needs were compatible with each other and that there was definitely room for collaboration. This is where the mediator comes in. The mediator is able to dig beyond the positions laid out by each party and in doing so he/she is able to open up the ZOPA (zone of possible agreement) and get the parties thinking about collaborative and amicable solutions. I used this example to illustrate the importance of identifying interests and to emphasize that when parties are left alone to negotiate a deal of any kind, they will not be as successful in identifying the true interests behind the other parties’ positions as they could be with the use of a neutral third-party.
A fourth advantage is the ability of the deal mediator to help the parties make a realistic allocation of risks. Although this is one of the most critical steps in preventing future disputes and avoiding unnecessary costs, many parties and their counsels prefer to focus on ‘winning’ the bargaining game while shifting as much risk to the other side as possible. As advanced by CPR International Institute for Dispute Prevention & Resolution (2010), this method of risk allocation can lead to great mistrust and even resentment between parties and lead to far more damaging consequences than originally envisioned. For these reasons, a rational allocation of risks between the parties is essential; it can help prevent and control disputes between contracting parties while leading to a longer-lasting deal and business relationship.
Admittedly, there are certain risks associated with deal mediation. I shall talk about those in the second part of this post, with possible skills that one can acquire to mitigate such risks.
*Claude Amar
*Véronique Fraser, Ph.D.