Corporate governance refers to the system of rules, procedures, practices, and processes by which a company is managed. Corporate governance can be complicated. It often involves finding a balance between the interests of several different parties, including corporate officers, corporate directors, shareholders, employees, and even clients/customers. 

A dispute over a corporate governance can cause significant problems for a company. These types of conflicts are often well-suited for mediation. In this article, our Santa Monica business lawyer explains the most important things to know about mediation and corporate governance conflicts in California, including the benefits, the limits, and strategies that can make the process more effective. 

What is Mediation?

Mediation is a form of alternative dispute resolution (ADR). Under California law (California Evidence Code § 1115), mediation is defined as a “process in which a neutral person or persons facilitate communication between the disputants to assist them in reaching a mutually acceptable agreement.” 

Put another way, mediation is a non-binding process through which parties to a dispute can try to resolve the conflict in a collaborative, structured setting. Mediation is a non-binding process in California. Parties go before a trained mediator in an effort to reach an agreement regarding an underlying legal dispute. If they cannot do so, they can exit the process. 

Mediation May be Voluntary or Required 

Mediation is a non-binding process. When you enter a mediation process for a business law matter in California, you are generally not required to reach a settlement. You can exit the process without an agreement. That being saint, mediation itself may or may not be voluntary in the context of a corporate governance conflict. Here is the difference:

  • Voluntary Business Mediation: You always have the right to try mediation in a civil business conflict. If all parties to the corporate governance dispute agree to enter the mediation process on a voluntary basis, it can be an effective path forward.  

  • Mandatory Business Mediation: Business mediation may be required in a corporate governance case if stated in the company’s bylaws and/or governing documents. In some cases, these documents require parties to certain types of disputes to at least try the mediation process before litigating a matter.

The Benefits of Mediation for Corporate Governance Disputes

As noted previously, disputes over corporate governance are often well-suited for mediation. When used properly, mediation can help parties to a corporate governance conflict or another type of business/commercial dispute find a solution that works for them. Some of the most notable benefits of mediation for corporate governance cases are as follows: 

  • Save Resources (Time and Money): First and foremost, mediation is significantly faster and far less expensive than litigation. No one in the business world wants to get bogged down in litigation—especially if the other party is another stakeholder of the same company. Mediation may provide a faster, most cost effective solution.  

  • Preserve Relationships (Mutual Interests): While there are exceptions, parties to a corporate governance conflict often have mutual interests. For this reason, there can be major benefits to preserving relationships. Mediation helps because it is a collaborative environment instead of an adversarial environment. 

  • Additional Flexibility (Creative Solutions): With mediation, there is a structure in place. At the same time, the process is far more flexible than traditional litigation. Indeed, each mediation of a corporate governance conflict is unique. Parties have additional discretion to manage the process and work towards creative solutions. 

  • Privacy (Mediations are Not Public Record): You generally do not want a messy corporate governance conflict to become public information. A key benefit of business mediation is that the process can be kept fully confidential. You and the other stakeholders of the corporation can maintain your privacy—both regarding the dispute and the settlement.

Four Tips to Make Mediation Work

If you are entering business mediation for a corporate governance dispute in Southern California, you will want to make sure that you are in the best position to get the most out of the process. Here are four tips that you can use for business mediation of a corporate governance conflict: 

  • Get into a collaborative mindset. Mediation is not litigation. If you enter the mediation process unwilling to hear the other side and negotiate, it is unlikely that you will reach an agreement. 

  • Be organized. Effective mediation is about preparation. You need to come into the mediation process knowing what to expect. Among other things, this means understanding the scope of the corporate governance dispute, assembling documents/records to support your case, and knowing what exactly you want to achieve in the process.

  • Seek professional legal representation. Business mediation often works better when parties have experienced guidance and support. A California business mediation lawyer will help to ensure that your rights and interests are protected. 

Know the Limits: Mediation Cannot Resolve Every Internal Business Conflict 

It would be a big mistake to think of business mediation in California as a panacea. While business mediation can absolutely be a cost effective, efficient way to resolve corporate governance disputes, it is not the best answer in every case. Ultimately, successful mediation is built on a foundation of mutual trust and good faith negotiation. If you are dealing with a counterparty that simply refuses to deal in a fair and proper manner, mediation may end up being an ineffective use of time and resources. Another legal forum—arbitration, litigation, etc—could offer a better path to protect your rights and reach a resolution.

Get Help From Our California Business Mediation Attorney Today

At KLEIN.LAW, our Santa Monica business law attorney is an experienced and solutions-focused advocate for our clients. Our legal team is devoted to providing the top quality work of a large firm and the personalized attention of a small firm. If you have any specific questions or concerns about corporate governance conflicts and business mediation, we are here to help. Get in touch with us by phone at (310) 295-2261 or send us a direct message. Initial consultations are always strictly confidential. With a law office in Santa Monica, we provide services throughout Southern California.