Stepping into the Fray: Mediating Client Disputes (11/00)

Authors: Judy Weintraub, Esq. and David Gage, Ph.D.
Clients of CPA firms often want their accountants to intervene in a dispute among the partners. They believe that their accountants may be in the best position to help since they usually have a good understanding of the business’ operations and of the partners themselves. They usually feel more comfortable with their CPA than with any other advisor. However, does that mean it’s a good idea for the accountant to jump into the fray? Is it ever a good idea to get involved in partners’ disagreements, even if it appears that the business will self-destruct if someone doesn’t help? To answer these questions and find out more about the role of mediators, CPA/AMR turned to veteran mediators David Gage, Ph.D. and Judy Weintraub, Esq. both of Business Mediation Associates (BMA), www.Business-Mediation.com. a national mediation firm with offices in Washington, D.C. and Philadelphia, PA., specializing in the resolution of disputes among business partners and owners of closely-held corporations.

“Some accountants tell of clients pleading and trying to pull them into doing it,” says Gage. For example:

—Judy O’Dell, the managing shareholder at Beucler, Kelly and Irwin, Ltd., a firm in Wayne, Pa., has been pulled into many partner squabbles, the toughest involving family owned businesses. “Such disputes inevitably demand dealing not just with strong emotions but also with a lot of family baggage which I was never trained to do,” admits O’Dell.

—Steve Grossman, of Grossman & Assoc., a firm in Bala Cynwyd, PA. had a highly profitable client company whose two, unequal owners were brothers. “The trouble was that they couldn’t stop bickering,” says Grossman. “Both brothers asked me to intervene.”

—“By the time partner disputes reach the boiling point, I’ve already heard more of one side of the story and then it’s very hard for me to be neutral,” said Walter Deyhle at Gelman, Rosenberg & Freedman, P.C. in Bethesda, Md. “But that’s not actually the biggest obstacle that I find when clients want to get me involved in their arguments. I can’t think of a case where all partners viewed us as totally neutral even when we thought we could be.”

—Gage and Weintraub believe there are certain inherent risks for accountants if they put themselves in the middle of client disputes, even when they know their clients very well and the clients trust them. Grossman’s experience illustrates their point. “Grossman said he `tried to be a peacemaker,’ but after many meetings he was unable to get the partner brothers to work out their problems,” says Weintraub. “Ultimately, the brothers split up and Grossman lost a client. The brother who continued the business told Grossman that he could not be trusted. Why? Grossman didn’t take the brother’s side often enough in the dispute! Mediating between warring partners is riskier business than people imagine and often produces unintended casualties

Reading the signs that clients need help

“There can be clear signals that such disagreements between partners have grown into something that an accountant is not ordinarily prepared to deal with” says Weintraub. “In such circumstances, a call for outside help is in order.” Weintraub’s red flags:

—Disagreements reveal a considerable gap between the interests and expectations of the different principals, or the parties appear to have conflicting values that often cause them to see the same picture differently. “Sometimes, partners will simply stop talking to one another,” she says.

—A dispute has been festering for a long time or emotions are running high. “Not only may partners not be talking to one another, but, worse, they may be shouting at one another,” says Weintraub. “They may oppose one another’s positions before they even hear the other partners’ views.”

—The differences among the partners involve a complicated mesh of financial, interpersonal, and legal issues.

“In some such situations, an accountant still may be able to serve as an expert adviser on distinct financial or tax issues,” says Weintraub. For example: The heirs to a family business agreed in mediation on a complicated three-way split of the company and some real estate that their parents owned. “All three parties agreed to have the company’s accountant draft alternative plans for the split, with his critique of the financial and tax implications of each plan.”

According to Weintraub, there are occasions when it may not be advisable for the CPA to act even in a limited expert capacity. “That can happen, for instance, when the CPA has represented certain partners in an individual capacity or has otherwise developed a much stronger relationship with some of the partners in the dispute,” she says. “ In such situations, the CPA will not be viewed as neutral. And only someone who is perceived by all the parties as neutral can effectively help partners resolve their disputes.”

Suggesting mediation

“When clients wave any of the red flags, accountants should inquire into the partners’ interest in bringing in an expert mediator,” says Gage. “Often they will discover that some partners are positively disposed to try mediation but one of the partners needs encouragement to take the next step. Such hesitant clients usually accept recommendations for mediation from their accountants.” Before they do, Gage suggests that the accountant share the basics of mediation with the client, which Gage explains as follows:

—The risks in attempting mediation are very low. “No outcome can be foisted upon the partners in mediation, and if the process isn’t working, any one of them may end it,” says Gage.

—Mediation keeps private matters between partners private.

—Mediators are constantly striving to rebuild relationships, even when partners will separate.

—The success rate with mediation is around 80 percent.

—The partners stay in control of the outcome. “They know their business better than anyone, and changes occur only if they agree to them,” he says. “This is very different from arbitration, in which someone who may not appreciate the nuances of the business decides the fate of the owners. Mediators simply control the process—not the outcome—and assist the principals in their negotiations.”

Weintraub attributes that high success rate to mediators’ specialized training in managing powerful emotions, controlling game playing, uncovering hidden agendas, and keeping people focused on developing constructive solutions. “Mediators are process experts, skilled in designing and running efficient meetings, reading body language, and knowing when and how certain people might need to be nudged when they are getting in their own way,” says Weintraub. “ Many times, skilled mediators can in a matter of days help clients resolve problems that have been around for years.”

Selecting mediators

According to Gage and Weintraub, a key to the success of mediation is retaining the right mediator or mediators. They suggest considering the following factors before making a decision:

—The extent of the mediators’ training and experience.

—The kind of experience. There are many types of mediation, such as divorce mediation and community mediation. Although the general skills are transferable, it is preferable to work with a mediator who has experience with business disputes.

—The degree of expertise in the matter at hand. Most of the issues involved in partner disputes are specific to being partners. Understanding the nuances of ownership—both technical and psychological—is extremely valuable when trying to understand the problem or generate options.

“Most disputes between business partners involve a complex mix of issues,” says Gage. “Accordingly, we utilize two mediators in every dispute.” He selects from mediators with backgrounds in psychology, law, business, and finance. “The pairing depends on the particular nature of the dispute. This team approach ensures that all the critical issues are properly addressed and leads to better, more comprehensive solutions.” He believes that the highly charged nature of partner disputes demands a team approach and has found that such an approach is also more efficient, because it improves the chances of achieving a successful resolution quickly.

Bottomline: “The first rule for CPAs who are asked to intervene in a client dispute is to be careful in assessing the risks of doing so,” says Gage. “In many cases, CPAs would be well advised to recommend hiring a skilled mediator, rather than intervening in the dispute themselves.”