Operating a business is a lot like operating a complex machine. The moving parts of a business involve all kinds of people and relationships. Simply by the nature of that complexity, at some point the machine may break down, that is, there may be a dispute between parties. The dispute might involve a client for breach of contract, or it might involve a vendor for property damage resulting from a broken lift, or it might involve employees engaged in a workplace conflict, or a zillion other possible issues.
Regardless of the issue, if the dispute can’t be resolved the parties may turn to the legal system for relief and, eventually, someone is likely to prevail. But at what cost? In litigation, and even arbitration, it’s typically a huge cost. Both processes are expensive, and in more ways than just dollars.
For the parties, then, the challenge becomes how to resolve a dispute without investing heavily in the process. One answer is mediation, a process of negotiation facilitated by a neutral third party that offers four valuable cost savings:
- Financial costs
- Opportunity costs
- Relationship costs
- Emotional costs
1. Financial Costs
Financial costs are about the dollars. In litigation and arbitration the numbers add up quickly, including attorney hourly fees, court fees, deposition fees, the costs of hiring expert witnesses, and so on. The list is potentially endless, and unless a party prevails in the action and is awarded legal fees, those costs are going to make a big dent in the wallet or bottom line.
Mediation, on the other hand, is a far more abbreviated and informal process. It’s an opportunity for the parties to think forward about settlement, rather than draining cash to prove the past. Ultimately, a mediated settlement is a small fraction of the financial costs of litigation or arbitration. And with a voluntary, mutual agreement in hand, the party obligated to pay money or turn over property is much more likely to comply than if ordered to do so by a judge or arbitrator. This puts assets back in the receiving party’s pocket without having to spend more dollars chasing down enforcement of a judgment in court.
2. Opportunity Costs
Opportunity costs are often the “hidden” costs of litigation and arbitration. If you’re spending time and resources doing battle with another party, you’re not spending that time and those resources building your personal life or business. You’re basically passing on new opportunities in order to endlessly pursue a “win” in court.
Here again, because a business is like a complex machine, it may not be practical to think breakdowns — disputes — can be completely avoided. But it’s the decisions that are made after the dispute arises that determine the opportunities lost as a result. Litigation or arbitration can take months or years to bring to closure while parties in mediation can find resolution in days or weeks. The difference in potential lost opportunities between the two scenarios is quite measurable. It’s far more cost effective to take that measurement at the starting gate rather than halfway or further around the track.
3. Relationship Costs
The pursuit of litigation or arbitration doesn’t just cost dollars”¦ it also costs relationships. It’s difficult to put a value on relationships, but frayed or destroyed relationships can be devastating to individuals and businesses. By design, the court system’s resolution process places parties in opposition until someone emerges victorious. A do-what-it-takes mentality prevails and each side spends its time posturing, maneuvering, and attacking the other. The chances are next to nil that the parties’ post-dispute future will include profitable business contracts, or productive workplace relations, or important customer retention, or any other contact.
Not infrequently, the opportunity exists through mediation for parties to reach resolution without burning the relationship bridges. With the focus on settlement, the parties work cooperatively and creatively to find answers. Even where the parties don’t have the need or desire for ongoing relations, just being able to communicate in a non-adversarial setting makes it far more likely a mutually satisfying resolution will be reached than if redress is sought in the courts.
4. Emotional Costs
While some people appear to enjoy conflict, maybe even welcome it, most would prefer to avoid it if for nothing else than the emotional costs. Litigation and arbitration carry high emotional costs. The processes are long and drawn out, more decisions have to be made, a larger number of dollars have to be spent, greater resources have to be utilized, and everyone’s laundry will probably be aired out in an open, public forum. Uncertainty, a major stress inducer, is like a constant companion. No one knows what’s going to happen in the courtroom, even when a party thinks it’s a “slam dunk” case. Stress levels increase from day one of a dispute, and keep trending upwards until full case resolution is achieved.
Mediation, on the other hand, is a confidential, private and comparatively brief proceeding, offering parties the opportunity to minimize their emotional costs. The sooner resolution can be achieved, the less stress the parties have to endure”¦ and that’s a big plus for personal health, family life, and work productivity.
So when the “business machine” breaks down, mediation can be a good option for getting it fixed. At the very least, the four cost savings identified here should factor into the analysis of how to proceed. In the end, statistically speaking, less than 10% of civil cases actually make it to trial; they settle at some point before going to a judge and/or jury. With litigation or arbitration, the parties leave the cost faucet on for months or years until the almost inevitable settlement disposition takes place before trial anyway; with mediation, the faucet can be turned off quickly, and the parties can get back to the business of doing business.
Los Angeles Attorney Mediator Mark Lewis is the principal of The Mark Lewis Firm and a panel member with the Agency for Dispute Resolution. Mark provides mediation services for businesses, individuals, and community organizations.