Taking pro-active measures Featured

6:51am EDT July 30, 2006
Benjamin Franklin is credited with the adage, “In this life, nothing is certain but death and taxes.” Business conflicts involving owners, employees and customers are just as unavoidable as taxes. However, with some planning and thought, business conflicts can be minimized and resolved.

Herewith are some ways of minimizing and resolving conflicts.

  • Develop policies that anticipate as many issues as possible. Communicate and adhere to such policies, which should be subject to ongoing review and revision.

Example: An organization manual should be provided to all personnel outlining the organization’s responsibilities and obligations to its personnel and its customers; the duties and responsibilities of personnel to the organization and its customers; employee benefits; permissible and impermissible use of organization assets; and identity of whom the employee should contact in the event of violations of policy or conflicts with other personnel. A record of the employee’s written acknowledgment of receipt and agreement to such policies should be maintained by the organization.

Example: A confidentiality agreement and/or noncompete agreement, tailored to the employee’s or owner’s duties with the organization, should be signed by appropriate personnel at hiring or issuance of ownership interest.

Example: The organization’s conflict-of-interest policy statement should be provided to all personnel at hiring, requiring employee disclosure and organization approval, as appropriate, of outside investments, board memberships and employment or contractor arrangements.

Example: Written statement of terms and conditions of employment for appropriate personnel should be agreed to by organization and employee, taking care not to inadvertently create other than an at-will employment relationship.

Example: Establish a written complaint handling process with appropriate forms to verify compliance with the policy.

  • Form an outside advisory board of objective business people that meet at least on a quarterly basis. The board may include the company attorney and accountant but should not be limited to people viewed to favor one business owner’s interest over another’s. Such a board can help business owners recognize, avert and resolve conflicts that otherwise might be allowed to fester.

Initiate meetings among business owners, between supervisors and employees and among project members to communicate relevant information, provide a forum for employee feedback and to focus on company (versus individual) goals. Provide timely summary of agreed-upon action steps, conclusions and timeframes.

  • Don’t leave the consequences of predictable events in the lives of an organization and its owners to chance or future negotiation. Obtain written agreement among business owners before each individual owner knows whether he will be the buyer or the seller of an ownership interest.

Example: Any conflict among business owners as to defined “noncritical” decisions will be resolved by majority vote of the advisory board.

Example: In the event of conflict between owners as to defined “critical decisions,” either owner may request that the other owner set a price at which the first owner has the option to either sell his interest or buy the other’s interest. The uncertainty of the consequences of the put/call option encourages dispute resolution, but provides an exit strategy if the dispute cannot be resolved. Examples of “critical decisions” include setting of owner compensation, determination of new owners and a change in company name, dissolution of company and sale of company assets outside the normal course of business.

Example: Consequences of owner death, disability, failure to make agreed-upon capital contributions, failure to provide agreed-upon services or to maintain appropriate professional qualifications should be addressed, along with agreed method of valuation and terms for payment of value of ownership interest.

Example: Any dispute between owners in interpreting a relevant document will be resolved by mediation, if both parties agree, or by binding arbitration.

Litigation is a public, costly and time-consuming process that frequently ends in the parties resolving the dispute as the costs mount and their respective attorneys point out the hazards of litigation.

In mediation, a third party assists the parties in finding a mutually acceptable solution, but does not impose the solution. In binding arbitration, a third person or panel of third persons renders a decision that is binding on the parties. It will generally be to the advantage of the organization and the majority of the organization’s owners to require arbitration rather than litigation of disputes. The expertise of the judge assigned to the case and his or her willingness to assist the parties in resolving their differences is uncertain. In contrast, arbitration may permit the parties to have some role in the selection of the arbitrator or panel of arbitrators, better assuring the suitability of the arbitrator to resolve the conflict, and will generally be more expeditious and less expensive than litigation.

CAROL A. SHEEHAN is a partner in the law firm of Carlile Patchen & Murphy who specializes in real estate and tax law. Reach her at (614) 228-6135 or cas@cpmlaw.com.