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Mediating Asian Family Businesses

Family businesses are the backbone of Asian economies, contributing to about half of the total number of listed companies here. In a 2011 report on Asian Family Businesses, Credit Suisse found that most family businesses are first-generation firms at an early stage in their life cycle.

As Asian family businesses continue to evolve and go through generational transitions, they continue to face a multitude of issues, from those faced by businesses in general, to special challenges that include governance, family conflicts, wealth succession and preservation, and the passing down of values between generations. Each of these issues can pose challenges to the sustainability of the family business.  Throw in a combination of these factors, and the potential for conflict and stress is amplified dramatically.

This is where mediation can play a powerful role in helping family members resolve conflicts that may arise in a business setting. Here are three ways mediation can help:

  1. Mediation offers a flexible approach, which is very helpful when family dynamics and business relationships are intertwined. In a 2012 article, Karen LaRose pointed out that in family business conflicts, relationships are embedded in a system of family dynamics and a business system. It is impossible to separate the two components - familial relationships and business relationships - because one informs the other in a circular fashion. Mediation offers a range of strategies to help work through these multi-layered disputes and determine the best course of action.
  2. Mediation helps family members navigate inter-generational values and attitudes, shoring up trust in the long run. In KPMG Australia’s 2013 Family Business Survey of nearly 600 family businesses, it was found that two of the primary causes of conflict boiled down to differing ‘vision, goals and strategy’ and unequal ‘competence of family members’. Add to this the sobering fact that in the USA, only about 30% of family businesses survive into the second generation - with only 3% of all family businesses operating into the fourth generation or beyond - and we can see the crucial need for proactive techniques to ensure that family problems like a lack of communication or trust are resolved quickly and comprehensively.
  3. Mediation can help family members understand and come to an agreement about decision making processes. The same KPMG survey identified another primary causes of family business conflict, namely how decisions are made. It found that the primary source of conflict for larger family businesses centred around decision-making processes, and “recognising that as firms grow, they also become increasingly complex in structure and operations, with more family and non-family members engaging in decision making”.

All this begs the question that if family acrimony is so pervasive - with some commentators saying it is responsible for the failure of over 60% of family businesses - then why aren’t more family businesses fixing the problem?

While most Asian family businesses are still at the first generation stage, it is important for them to regard family dynamics as a business consideration. With some foresight and planning, proper precautions - including using mediation at crucial junctures in the business’ development - can be woven into the business model. This will help the different family members and business owners work through issues including diverse personalities, emotions, values, attitudes, and feelings of entitlement.

Contact us today to find out how HMG can help family businesses work through their issues and achieve long long term settlement that benefits all parties.

Dora Yip, HMG Research Associate

When to mediate

As mediation becomes a prominent feature in the Singapore legal and commercial landscape, one common question that arises is when, and under what circumstances, should one consider mediation?

Timing is everything

“Observe due measure, for right timing is in all things the most important factor,” the Greek poet Hesiod wisely advises us. Deciding on the right time to mediate then, depends on several things, including the context surrounding the dispute, the type of dispute and the parties involved. In general, a dispute stands a better of chance of being resolved when referred to mediation at an early stage. Take relational cases for example. If parties go to mediation at too late a stage, there may have been too much acrimony and bad faith generated to achieve a peaceful settlement. The parties might also be reluctant to settle because of the legal costs that have already been incurred. In other words, they have invested too much time, emotion and resources and have the mindset to “go for broke”. If the dispute has already gone to court, then sometimes mediating at too early a stage could be more bane than boon. For example, the parties may need time to cool-off before they are in the right frame of mind to negotiate again. Waiting six months after court proceedings may be a wise move in this case.

Court-based vs private mediation

When to mediate also depends on the type of dispute in question. In Singapore, where the mediation movement is largely institutionalised, the two main categories of mediation practised here are court-based mediation and private mediation. The Singapore Academy of Law explains in an article that “court-based mediation is mediation that takes place in the courts after parties have commenced litigation proceedings. This type of mediation is mainly carried out by the Subordinate Courts and is coordinated by the e@dr centre, also known as the Primary Dispute Resolution Centre (PDRC).” Private mediation in Singapore is carried out by agencies like the Singapore Mediation Centre and private practices like HMG. The State Courts of Singapore offer the following guidance to help the public decide when it is best to mediate (vs litigate). They say that mediation may be effective in the following situations:
  • The parties know each other and want to save or maintain their relationship.
  • There is a need to reach a quick end to the dispute.
  • The parties want to avoid publicity or to maintain confidentiality.
  • The law does not provide a solution that meets the parties' real interest. For instance, while a suit may appear to be for breach of contract, there may be communication issues amongst the disputing party that have to be resolved. In another illustration, party may file a suit for defamation, but he or she may really be seeking an apology which is not a normal legal remedy given by the courts.
  • The parties want to save legal costs.
The Courts advise that mediation may not be appropriate for certain disputes, for instance, where:
  • There is a need to establish a legal precedent in court. For instance, a company may need a court decision concerning how to interpret a clause in its standard contract.
  • The key representatives or decision makers are not willing to participate in mediation.
  • One or more parties may not be attempting mediation in good faith (e.g. to gather more information without any intention of exploring a settlement).
  • One or more parties wants public attention to be drawn to the dispute.
While there is no hard and fast rule as to when to mediate, the efforts of the judiciary have shaped a culture that strives for early dispute resolution. Whether it is ad hoc mediation for community and relational disputes, or a formalised tool to manage complex commercial cases, most practitioners would agree that mediation is effective and highly successful when used in the early stages of the judicial process. Dora Yip, HMG Research Associate    

The Price of Litigation: When Winning Comes at a Cost

$1.7 million. That is the staggering amount a Singapore-based couple spent on legal costs last year to decide where their divorce should be heard, as well as litigation costs associated with their two year-old son. The British judge presiding over their case called their case a "story of human tragedy", saying that the warring couple were committing “financial suicide” by not resolving their differences. “London High Court Justice James Holman said it was “tragic” that the couple had not concentrated on a ‘straightforward matter of how much to provide for the wife and son’. Instead, ‘so much firepower’ has been directed on the issue of where the divorce case should be heard.” The lawyer husband and anaesthetist wife could not compromise, and the judge noted that their “sustained forensic struggle throughout the hearing was painful to observe”. Described by the judge as “highly intelligent, very well-educated, energetic, successful and ambitious professional people”, the couple committed nearly one-quarter of their wealth to a “highly charged litigation and an atmosphere of intense emotion day after day in the courtroom”. Despite ruling in favour of the mother - which meant the divorce case would be heard in the English courts - this example just highlights how a win in court is rarely a 100% victory. Consider another example cited in a recent article on cost recovery in commercial disputes. Stamford Law Corporation’s Timothy Cooke explains how “a plaintiff successfully brought defamation claims in the Singapore High Court and was awarded S$210,000. It cost the plaintiff over S$1.1 million to prosecute the case at trial and on appeal. He was awarded S$250,000 in costs, leaving him over half a million dollars out of pocket.” Given how high legal costs can soar, sometimes to well over the claim amount, the winning party may still end up dipping into their own pockets to cover the cost of the litigation. Deputy Attorney General at the California Department of Justice Vincent DiCarlo sums it up perfectly when he describes litigation as a “bloodless war played by rules - expensive, exhausting, and generally out of control.  It should be avoided whenever possible.” He argues that a contractual alternate dispute resolution clause, carefully used in commercial contracts, can have a dramatic effect on how businesses resolve disputes with employees, customers, vendors and other stakeholders by discouraging claims from being brought, and limiting exposure to large damage awards. Mediation is one such alternative dispute resolution method. Choosing to mediate first when a dispute occurs has proven to make good business and financial sense, not least because it saves all parties time and money (offering a 60 to 75% settlement rate in the fraction of the time and money it takes to go to court), but also a rapid settlement (most clients settle within a full day of mediation or within 10 hours, not including the time taken to collect external data or for additional investigations). Dora Yip, HMG Research Associate

What to Expect at Your First Mediation Consultation

The first consultation with your mediator is the first step in a journey towards settling a dispute peacefully and efficiently. Being prepared for this meeting will go a long way to help you achieve the best possible outcome for your case. Here are four things that usually happen a first meeting, and some tips to help you make the most of this session: 1. Briefing of mediation objectives and process The mediator will describe and explain the mediation process and how it relates specifically to your particular circumstances. He or she will answer any questions you may have about mediation and in turn, will ask you questions to arrive at a deeper understanding of the nature of your dispute - from your goals for resolution, to what factors have led to the dispute reaching an impasse. Tip: Try your best to come to this session with an open mind. Having a positive attitude and genuine desire for a peaceful settlement is one of the best ways you can ensure a successful outcome.  2. Get to know your mediator In a recent blog, we wrote about the importance of selecting a mediator who is able to build rapport with his or her client. An experienced mediator will use this session to get to know you better, and have a better sense of your values, world view and assumptions. Skilled mediators will be able to put you at ease while finding out more about you. Tip: An honest, mutually-respectful relationship with your mediator boosts the chances of a successful outcome and win-win settlement. Remember, it is in your interest to be as open as possible with the mediator. 3. Administration and logistics planning for mediation session(s) Your mediator will take you through the logistics and details of the upcoming mediation process, and make sure you are fully aware of what is coming next. This could include discussions about financial counselling, the number of parties who will be present at the session, what information is needed for each session and when it is needed by, fixing possible dates for each mediation session and details of the venue. Tip: To get the most out of this first meeting, you may want to organise your thoughts and collect information and documents in advance of the first session. Jot down the key elements of the dispute, any supporting evidence or documents you may have, and any other points that may be relevant. 4. Signing of the “Agreement to Mediate” At the end of the preliminary session, clients sign an “Agreement to Mediate”. This agreement sets out the mediation procedure that all parties agree to, including the role of the mediator; the parties’ commitment to co-operate with the mediator, and the parties’ agreement to treat all information disclosed during the mediation as confidential. Tip: Remember, whether you would like to proceed with mediation - and how you would like to proceed - is ultimately your decision. Experienced and flexible mediators will always try their best to accommodate your needs and interests. Dora Yip, HMG Research Associate  

War and Peace: Five Ways Mediators Reframe Conflict During a Negotiation

When disputes occur, it is common for some parties to adopt a more aggressive stance than others. This could manifest in various ways, including being confrontational and using attacking phrases. When faced with an impasse, the disputant might fallback on the language of war, using phrases like “I can’t retreat from my position” or “he keeps attacking what I said”, words designed to escalate conflict rather than bridge it. When an inherent aggression is tinged with a sense of hubris, the outcome can be catastrophic. Consider a recent case involving two executive committee members of a prominent association who filed law suits against each other in the high court. When the presiding Judge instructed both parties to go to mediation, one side decided not to, thinking they had a sure-win case. The side that rejected mediation eventually lost the case and is now suing their lawyers. Their false arrogance resulted in a substantial loss and huge legal fees. Experienced mediators are trained to help all parties - even those predisposed to aggression - to reframe conflicts during a negotiation. Here are five approaches they may use to help their clients: 1. Look at the issue through different lenses “Do not judge a man until you've walked two moons in his moccasins.” This Native American proverb reminds us to refrain from judging another because we may not be fully aware of what has shaped their opinions, values and identity. Mediators may use techniques like having respective parties imagine the other’s perspective, or using narrative forums and listening circles to help disputants understand the dynamics behind the conflict. Most importantly, they want to help the parties involved see that other perspectives may be just as valid and credible. 2. Reducing tension Mediators seek to reduce tension and de-escalate hostility between disputants by creating forums framed around a set of limited objectives that encourage all parties to communicate openly. This helps to mitigate the risk of the cycle of conflict escalation, which often happens when disputants come into the session with incompatible frames. 3. Finding common ground Mediators may also help disputants establish common ground as a basis for agreement. Using visioning exercises and other explorative processes, mediators guide the different parties to identify things they agree on, whether it be what they want the desired future to be, to actions that all parties can agree to. This helps shift the focus from the short-term perspective to a longer-term one. 4. Question what constitutes loss and gain “In the middle of every difficulty lies opportunity." Einstein’s wisdom resonates in a conflict setting, where mediators will help disputants identify the possible benefits that could be gained from resolving the conflict. Mediators will also seek to help the parties involved reframe their perceptions of loss into gains. 5. Having options is a good thing! Mediators also help their clients see the value of having multiple options. By making options and alternatives desirable to the various parties involved in a dispute, mediators help disputants break out of a single-solution mindset (i.e. an “I benefit/you lose” mindset or vice versa) and be open to multiple outcomes with different degrees of loss and gain, both tangible and intangible. Dora Yip, HMG Research Associate

Why You Should Insist on a Mediation Clause in Contracts

When a dispute occurs, choosing to mediate as a first step makes good business and financial sense. Litigation and arbitration can be both expensive and time-consuming, not to mention stressful, what with the worry that comes with long, drawn-out court battles in the former and the finality and legally-binding nature of the latter. In what is a growing trend the world over, many organisations and individuals now insist on including a mediation clause in contracts, one that calls for mediation as the first step in settling disputes. Here are three reasons why:
  1. Most businesses and people want to resolve disputes as quickly and as cost-effectively as possible. It is in all parties’ interests to do so. Mediation has a remarkable track record - between a 60 to 75% settlement rate - especially when used at an appropriate juncture during the dispute.
  2. Mediation allows each party to tell their side of the story. In our experience, many disputes escalate because the different parties want their positions to be heard and validated. Mediation encourages empathy and understanding, something which more adversarial processes do not.
  3. A mediation clause pre-empts conflict and protects all parties from acting in the “heat of the moment”. If the contract does not have a mediation clause, it may be a challenge convincing the parties to use mediation when they are in a middle of a dispute. Think of the mediation clause as an active reminder to always pursue a peaceful resolution to conflict before embarking on a more adversarial approach.
An example of a mediation clause that can be inserted into a commercial contract is provided below: “If a dispute, controversy or claim arises out of or relates to this contract, or breach, termination or invalidity thereof, and if such dispute, controversy or claim cannot be settled and resolved through negotiation, the parties agree first to try in good faith to settle such dispute, controversy or claim through mediation, under the rules of [to insert rules governing mediation1]. The mediator shall be mutually agreed to by the parties, failing such agreement, the mediator shall be appointed by HMG.” While most practitioners agree that every lawyer-drafted contract should have some form of a dispute resolution clause, there is still a widespread variance as to the mode of dispute resolution to employ. Mediation is a sensible first-step, and we are likely to see the growing trend of its inclusion in contracts both locally and globally. Do contact us to find out more about how mediation can help you and your organisation minimise conflict. Dora Yip, HMG Research Associate 1. Refer to paragraph 3.6.7  

Three Tips on Selecting the Right Mediator

If you have never experienced mediation before, looking for a qualified mediator to help you settle a dispute could be a daunting task. Where do you go to look for one and what should you look for in a mediator? In a recent article, the Harvard Law School suggests that apart from getting recommendations from a reputable provider agency (or in the local context, you may want to ask a friend, lawyer, counsellor, or any other professional), you should choose a mediator who possesses the following three key qualities: the ability to build rapport, creativity in the way they approach problem solving, and patience. Three other factors you may wish to consider include: 1. Track record To ensure the best chance of success, choose a mediator who has a proven track record of settling cases. Experienced mediators have the wisdom and expertise to help their clients evaluate their own position realistically, and to help achieve breakthroughs where there have been only impasses. They will also have a tenacious approach that will see them going the extra mile to achieve a settlement. If important, you may also wish to pick a negotiator with specific experience in a certain industry. Some checklist questions you could ask include:
  • How many years has the mediator been practicing?
  • How many cases have they handled? How many resulted in a successful settlement?
  • How many cases similar to yours has the mediator handled?
  • What is the mediator’s professional background?
2. Accreditation As with any service provider, you may wish to evaluate the mediator’s training background and qualifications. While most mediators receive formal classroom-style training, others participate in apprenticeships and mentoring programmes. Though formal training is not the only predictor of a mediator’s level of competence, it is important they they have received accreditation from reputable institutions. When deciding on a suitable mediator, you may also wish to ask the following:
  • How much training has the mediator had? How many hours?
  • How recent was the training?
  • Was their training relevant to the dispute you are involved in?
  • Does the mediator participate in continuing education?
3. Style Find out what values and goals are emphasised in their mediation practice. For example, does the mediator support parties communicating directly with each other? Or does he or she control the interchanges? Mediators should be able to describe their style of mediation and the role they play in the mediation process. Not all mediators adopt the same style and approach. Some use the evaluative approach, others are more facilitative. Yet others adopt a transformative or narrative approach. The best mediators understand when to use the different styles, depending on the dispute in question in order to keep negotiations moving forward. Another aspect of style is whether the mediator uses a caucus, which is a meeting between one of the parties and the mediator without the other party present. Some mediators use a caucus frequently while negotiating, others seldom or never use this procedure. Read more about HMG’s mediators and how their training and experience has enabled them to help their clients as well as earn the respect of their co-mediators. Dora Yip, HMG Research Associate