Mediation of Corporate (Shareholder) Disputes in the United States Orestis Omran, Esq. Counsel, DLA Piper
Definition of "mediation" • Article 1 of the 2002 UNCITRAL Model Law on International Commercial Conciliation : “a process … whereby parties request a third person or persons … to assist them in their attempt to reach an amicable settlement of their dispute arising out of or relating to a contractual or other legal relationship. The conciliator does not have the authority to impose upon the parties a solution to the dispute.” 08/11/2017 Mediation of Corporate (Shareholder) 2 Disputes in the US
Why mediation ? • Cost • Speed • Quality • Predictability • Control • Flexibility • Confidentiality • Limited risk • No admission of liability • Voluntary character • Non-binding yet enforceable agreement 08/11/2017 Mediation of Corporate (Shareholder) 3 Disputes in the US
Mediation v. Litigation • flexible approach • unforeseen creative solution • non- adversarial approach • more objective and detached mirror reality check • more reliable risk management technique 08/11/2017 Mediation of Corporate (Shareholder) 4 Disputes in the US
Mediation in the US: The framework • UNCITRAL Conciliation Rules • ICC Mediation Rules 2014 • International Institute for Conflict Prevention and Resolution (CPR) - CPR Mediation Procedure • US Constitution (Due Process) Federal laws-rules of Civil Procedure/ Common Law Jurisprudence • 28 U.S. Code Chapter 44: ADR Program per District Court • Uniform Mediation Act (Last Revised in 2003) (drafted by the National Conference of Commissioners on Uniform State Laws in collaboration with the ABA's Section on Dispute Resolution) • State legislation (eg. California Code of Civil procedure) – California, Florida, Ohio and (less) Texas taking the lead on shaping US corporate mediation • See also Delaware Court of Chancery ADR Program Mediation of Corporate (Shareholder) 08/11/2017 Disputes in the US 5
Types of Corporate Governance Disputes : • conflicts of interest by board members or executives; the appointment of board members/executives • remuneration/bonuses to board members; discharging individual board members/ executives; share valuation (issue of new shares or bonds or squeeze out) • the terms of a proposed takeover • acquisition or disposal of company assets 08/11/2017 Mediation of Corporate (Shareholder) 6 Disputes in the US
Mediation Stages in Shareholder Disputes • Mediator Appointment • Preparation • Negotiation • Concluding phase (parties formalize agreement) Mediation of Corporate (Shareholder) Disputes in the US 08/11/2017 7
Appointment • Internal Shareholders Disputes- Who to appoint: – Chairmen or other board members – CEOs – Senior officers – Appointment of a corporate governance ombudsman Mediation iofCorporate (Shareholder) Disputes in the US 08/11/2017 8
Conduct • Informal Mediation or Facilitation – controlled forum – eg. facilitation of a board retreat or strategy meeting • Formal Mediation or Conciliation - focused solely on process – eg. mediation of a dispute between the board and dissident shareholders • Formal Mediation or Early Neutral Evaluation – encouragement to agree by use of legal knowledge – ie dispute over the value of shares in a squeeze-out procedure Mediation of Corporate (Shareholder) 08/11/2017 Disputes in the US 9
Enforcement of Mediation Settlement Agreements in the US • Enforcement in the US (contract, settlement agreement, per se judicial enforcement) – In need for a new uniform framework? • International commercial conciliation: preparation of an international instrument on enforcement of international commercial settlement agreements ?(UNCITRAL Working Group II – Dispute Settlement Feb. 2017) ) Mediation of Corporate (Shareholder) 08/11/2017 Disputes in the US 10
CASE STUDY 1: PHOENIX TIMBER CORPORATION (1985) • Dissident shareholders wishing to appoint 3 new independent board members • CEO: Keep Board intact • Majority prevailed BUT: poor corporate performance and resignation of several directors, including the Chairman • Result: substantial losses for that year Mediation of Corporate (Shareholder) 08/11/2017 Disputes in the US 11
CASE STUDY 2: The New York Times (2008) • Investment Funds – dissident shareholders (19%): elect 4 new directors but not eliminate two tier share structure allowing management to be kept by family owner • Board meeting with dissident shareholders Resolution: minority appoints 2 new directors • Take away: should be part of corporate policies to hold regular discussions with all major shareholders solutions before disputes escalate into proxy fights Mediation of Corporate (Shareholder) 08/11/2017 Disputes in the US 12
CASE STUDY 3: HEWLETT-PACKARD (2002) • Shareholder dispute over Merger with Compaq: All Board members FOR but Walter Hewlett (son of co-founder was against) + Packard family (jointly 18%) AGAINST • War to prevail: Letters to shareholders by both sides – campaign to diminish opposing view • Result: Non- appointment of Walter Hewlett to the Board of the merged company + expensive law suits • Take-away for M&A: potential costly disputes/companies end up losing the link with their roots 08/11/2017 Mediation of Corporate (Shareholder) 13 Disputes in the US
The Next Level: Self-Compliance Mediation Programs • US Companies successfully implementing in-house corporate mediation programs : • Toro Co. (in house ADR program -50% in settlement costs • Wells Fargo ( all-in Comprehensive DR Program) • U.S. Postal Service (REDRESS Program for Employment Disputes) • Air Products and Chemicals, Inc. (2 mediators to assist trila team) • American Express (. • Exploring ADR before litigation : Increasingly some of the largest companies in the US – including Time Warner, UPS, General Electric, the Prudential and Coca-Cola Mediation of Corporate (Shareholder) 08/11/2017 Disputes in the US 14
CONCLUSIONS • No unified concrete legal framework across the US • Mediation: Efficiency and Cost-Management • Importance on resolving corporate (shareholders) disputes • The new era: Mediation as the major tool to resolve corporate disputes Mediation of Corporate (Shareholder) 08/11/2017 Disputes in the US 15
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