Conflict in the corporate boardroom is inevitable especially when the board is composed of independent-minded, skilled, and outspoken directors.
This is not a bad thing because Board decisions should result from a process in which directors consider all the information reasonably available to them and engage in a vigorous discussion of issues including strategy, company control, conflicts of interest, and executive compensation.
However, when left unresolved these conflicts can escalate, leading to economic, emotional, behavior, and other costs. It can cause paralysis; even destroy functioning businesses.
Therefore, company boards should be well equipped to handle internal and external disputes. Without adequate preparation, a board’s responses to disputes will inevitably be ad hoc, increasing the risk that effective dispute resolution processes will not be employed.
Just as boards have crisis management plans, so, too, should they have developed and adopted dispute resolution strategies, policies, and processes in place to foster good corporate governance.
Resolving Disputes
A good Corporate governance provides principles and practices to aid directors and managers not only in discharging their responsibilities but also in setting up appropriate mechanisms to prevent and resolve disputes that arise in the organization.
The duty of care of directors must involve and endeavour to ensure that there is a mechanism to manage disputes and, if conflict arises, to resolve them as effectively, expeditiously, and efficiently as possible.
It is thus an important governance issue for the board to ask:
- Do we have an adequate mechanism to resolve disputes which may arise?
- Does our corporation have a system of early-case assessment if such a dispute arises?
- Does the company have mechanisms to manage disputes around its critical procurement functions?
- Are there dispute management clauses in all critical contracts?
- As we do business across borders, with our reputation and goodwill at stake, do we have cross-border dispute mechanisms
In advancing corporate governance principles, disputes among boards, management, shareholders, and regulators should, if possible, be resolved by negotiation, mediation, and, if not, then arbitration.
Mediation as a management tool promotes good governance, building and reinforcing relationships based on trust and mutuality.
Five mediation threads that can be woven into Corporate Governance Dispute Resolution policies are:
- Self Mediation
- Managerial Mediation
- Professional Mediation;
- Executive Mediation and
- Preventive Mediation, using the PULSE Discovery Frame
Mediation provisions in contracts put the dispute resolution framework in place at the relationship’s beginning, not when a conflict arises. The parties to a contracted mediation become used to the process.Their minds actually become attuned to meeting, discussing, and identifying disputes and then resolving them because of an identity of interest –the preservation of the relationship to achieve agreed goals.
Should a corporation’s constitution/regulations have a negotiation, mediation, and arbitration clause?
Yes. This would give providers of capital, directors, managers, workers, and other stakeholders a readily available mechanism for dealing with their disputes. Their minds will be attuned to resolution to achieve contractually defined goals.
It is therefore important that corporations have their own in-house mechanism for handling disputes, and this should be provided for or contained in company regulations and contract documents.
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