Mediation to resolve governance conflicts

---

Governance is a hot topic both in the business world and in public organizations. Frequently, the media report conflicts within the governance bodies of different organizations. For many of these situations, it is worth remembering that mediation is a way to prevent these governance conflicts from escalating, becoming public and having damaging consequences for the entire organization. In addition, mediation can generally provide lasting solutions to governance conflicts and prevent future conflicts.

1) Governance : 

First, several theories influence the definition of governance[1]. Therefore, there is no formal consensus on this definition. Based on a variety of sources[2], we propose the following definition of governance for this article: 

“The process and structure used to direct and manage the business and affairs of the organization with the objective of enhancing shareholder or member value, which includes ensuring the financial viability of the organization. The process and structure define the division of power and establish mechanisms for achieving accountability among shareholders (or members), the board of directors and management. The direction and management of the organization should take into account the impact on other stakeholders such as employees, customers, suppliers and communities.”

For the purposes of this article, we refer to governance in the more specific context of interactions within the board of directors and its committees. We also refer to the interactions between the management of the organization (e.g. CEO) and its board of directors. In these interactions, conflicts can arise at different levels. For instance, one may think of conflicts between directors or others between the board of directors and its chief executive officer. 

2) Example of a governance conflict:

To illustrate this, let us take the example of a cultural organization (e.g. museum) where a conflict arises between the board of directors (the "Board") and its chief executive officer (the "CEO"). In this scenario, let us assume that the conflict escalates and leads to the dismissal of the CEO. The CEO contests his dismissal by taking legal action. In this scenario, let us assume that the parties do not resort to mediation from the beginning of the conflict until a judgment is rendered. 

What are the impacts for the parties in this scenario? First, let us remember that the judicial process is public. Thus, if the organization is known and of interest to journalists, they will be able to obtain copies of the current proceedings, usually attend motions and hearings and report everything in the media. As we mentioned in another article, the judicial process can take years[3]. It is therefore likely that at each motion or hearing, spanning years, the media will report each of these steps. 

Presumably, this presence in the public sphere will have several negative consequences. For instance, in the case of the organization, it could tarnish its reputation. As a result, there may be a decrease in subscriptions and membership, which will lead to lower revenues. 

Faced with this situation, it is likely that some donors are more reluctant about the extent of their support and the value of their donations. For employees, depending on their views of the conflict, this can create disengagement from the organization and affect the quality of their work performance.

For the directors of the Board, this may have already created conflicts between them. In addition, some directors may not have their mandate renewed by voting members at annual meetings. 

In short, a conflict between the Board and the CEO will have multiple consequences that may affect the parties inside and outside the organization.

3) The usefulness of mediation and preventive mediation:

In one of our articles, we explained and discussed the criteria for mediation between the parties[4]. One of the fundamental elements of mediation is its confidentiality. Based on our example above, one may conclude that confidentiality of the process reduces the consequences of the conflict. Summarily, mediation allows for an examination of the sources of the conflict in order to develop possible solutions. 

In most conflicts, there are several sources leading to an escalation of the main conflict. If we refer to our example above, it is possible that the sources are found in a succession of different events that have staggered over time, namely: disagreement on the strategic plan of the organization, disagreement on the role of directors versus that of the CEO, communication problems between the Board and its CEO , lack of knowledge of directors about certain elements of the organization, conflicts of interest of certain directors, employee management problems by the CEO, etc...

All the aforementioned elements may have gradually culminated in the breakdown of the relationship between the Board and the CEO and thus, the legal action contesting the dismissal. It is even possible that the finality of the legal action (e.g., the confirmed dismissal or the reinstatement of the CEO in his functions) does not resolve the underlying conflicts. 

Through the mediation process, it is possible to establish solutions not only for the main conflict, but also for most underlying conflicts. As a result, these mediation solutions may even prevent future conflicts. 

As for preventive mediation, it refers to mediation that occurs very early in the process of the conflict. Indeed, in the context of a preventive mediation, the parties will be able to quickly examines the sources of the conflict (in complete confidentiality) in order to avoid an escalation of the main conflict. For example, if the CEO and the Board find that tensions are rising as part of the implementation of a strategic plan, a mediator could help the parties try to resolve the impasse quickly. This outcome may then prevent an accumulation of incidents ultimately resulting to a dismissal. 

4) Conclusion: 

In most conflicting governance situations, it is in the parties' interests to attempt the mediation process. Mediation can prevent the governance conflict from escalating, becoming public and having adverse consequences for the entire organization. In addition, mediation will generally lead to the development of lasting solutions to the main conflict and the underlying ones. 

Simon Blais is a certified mediator in civil, commercial and labour issues. He assists parties in the process of alternative dispute resolution. His expertise in governance allows him to adapt the mediation process to the issues experienced by organizations. 

The use of masculine is only intended to lighten the text.

 REFERENCES:  

[1] CA Mallin, "Corporate Governance," 3rd edn, Oxford University Press, New York, 2010, p. 14.

[2] CA Mallin, "Corporate Governance," 3rd edn, Oxford University Press, New York, 2010, pp. 7-8; Toronto Stock Exchange Committee on Corporate Governance in Canada, “Where Were the Directors?”, Toronto:TSX, 1994, p. 7, cited in T Dorval, “Governance of Publicly Listed Corporations”, 2nd edn, Lexis Nexis Canada, Markham, 2012, pp. 1-2; Institute on Governance,  "Defining governance", available at  https://iog.ca/what-is-governance/ as of October 10, 2020.

[3] See BLAIS, Simon : “Judicial delays: Mediation offers solutions’’, Blais Legal Services Inc., published on May 10, 2020, accessible at https://blaislegal.ca/art-eng-jud-delays, as of October 10, 2020

[4] See BLAIS, Simon : “What is mediation?’’, Blais Legal Services Inc., published on March 10, 2020, accessible at https://blaislegal.ca/art-eng-mediation, as of October 10, 2020