Corporate Governance Dispute Resolution Practice Group Meeting – Key Takeaways and Next Steps
Practitioners discussed how to advance the use of consensus-based approaches for corporate governance dispute resolution at an April 23, 2012 meeting in London. It was organized by the IFC Global Corporate Governance Forum in partnership with and hosted by the Center for Effective Dispute Resolution (CEDR).
Earlier this year, IFC and CEDR signed a memorandum of understanding to deliver best practices to tackle corporate governance disputes “This collaboration is the first step towards educating director-level stakeholders on the strategic use of alternative dispute resolution in high-level disputes, to further company goals and objectives, whilst maintaining good governance,” said Dr. Karl Mackie, CEO of CEDR.
This meeting followed the Forum’s publication in 2011 of the Resolving Corporate Governance Disputes Toolkit, which provides evidence on how to prevent and efficiently manage corporate governance disputes and avoid costly, lengthy lawsuits. Materials include examples, sample documents and activities such as role-plays that can be used in highly interactive training and awareness raising sessions.
The practice group meeting reviewed experiences in using the toolkit for training and institution building activities and focused on how best to mainstream dispute resolution techniques and skills as part of good corporate governance practices. Specifically, meeting participants discussed:
Lessons learned from capacity building/training events held in the Middle East and Latin America
Greater integration of corporate governance dispute resolution into IFC corporate governance advisory projects
Using corporate governance dispute resolution approaches to better addressed firm-level advisory work
Tailoring corporate governance dispute resolution tools to specific industries or types of firms (including family-owned or -controlled companies)
Throughout the day, the participants cited companies paralyzed or destroyed by intractable arguments within the boards. In G8 countries, unmanaged conflict has huge financial cost; in the UK alone, conflict costs businesses upwards of £33 billion each year. In the developing world, the total impact of organizational conflict – including disputes between company board members or with shareholders – could be far greater, resulting in weakened local economies.
Yet, convincing board directors to seek out third-party help or to train for corporate governance dispute resolution can be a hard sell, meeting participants generally agreed. Few directors see the immediate need if their boards are not involved in conflicts or disputes. Others find it difficult to see the merits of using court alternatives, citing their unfamiliarity with such approaches, the lack of precedents, and the uncertainties.
Ironically, once directors attend dispute resolution programs it’s an eye-opening experience. They find half-day trainings too short and are eager to acquire the skills that would help them manage many types of difficult conversations during board deliberations.
“Management of corporate governance disputes needs to be embedded into standard corporate governance training for board directors,” suggested Leonardo Viegas (pictured, on the right), a member of the Forum’s Private Sector Advisory Group (PSAG) and both founding member and deputy chairman of Brazil’s Institute of Corporate Governance (IBGC). Eileen Carroll, deputy chief executive officer of CEDR, supported this point: “Chairmen and directors have ‘difficult conversations’ daily. They will readily see the value in training for two-way communications, which are at the core of settling corporate governance disputes.”
Semantics matter, too. Emphasizing the positive attracts more interest and action then negative messages. “Just the words themselves -- alternative dispute resolution -- evoke unpleasantness,” said one participant. Another observed that people are motivated best when they are told what could happen if they don’t do anything, the potential looming costs, rather than being told “they should do.“
“Success stories that speak to the concerns of the chairman, CEO, board directors, and senior management turn the skeptics into ADR advocates,” said Barney Jordaan, head of the Africa Centre for Dispute Settlement (ACDS) at University of Stellenbosch Business School.
Jeremy Denton-Clark, an IFC nominee director and director of GBRW Expert Witness Limited, stressed the importance of understanding the legal traditions and cultural dynamics within a country and how those factors influence board conduct, jurisprudence, and dispute resolution.
Similarly, Viegas said, family-owned or family-run companies have unique issues and decision making processes that differ from public corporations or state-owned enterprises. The disputes typically involve one or more of the following issues: succession; related party transactions; family members in management; private use of company assets; and priority setting (whether to distribute dividends or reinvest earnings).
“The Practice Group’s suggestions will guide the work of the Forum and IFC moving forward, from training IFC nominee directors, advising firms and helping corporate governance institutes develop dispute resolution services in their respective markets,” said Marie-Laurence Guy, senior operations officer for the Forum. Rather than isolate corporate governance dispute resolution, the practitioners agreed that best practices need to be mainstreamed and embedded into all aspects of our corporate governance work.
The practice group will continue meeting on a regular basis and agreed to work on the following:
Exploring the dynamics of family firm governance disputes
Preparing model documents that can help firms utilize good dispute resolution practices in their bylaws
Developing a set of lessons on how institutes can effectively market and integrate effective dispute resolution practices into their training curriculum and services
Preparing modules that can be integrated into Forum and IFC core training of trainers programs and director training curriculum
Compiling additional training materials to help directors strengthen their dispute resolution skills
Preparing a training session on how to effectively facilitate board evaluation meetings that can help surface issues, align positions and prevent or manage disputes
Participants agreed that the following topic wouldwarrant further attention:
Understanding the interrelation of board diversity and corporate governance disputes
Managing disputes with shareholders and other stakeholders
Measuring results and impact of effective dispute resolution as part of good corporate governance practices