(Shareholder) Disputes in the United States Orestis Omran, Esq. - - PowerPoint PPT Presentation

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

• f 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) Disputes in the US 2

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) Disputes in the US 3

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) Disputes in the US 4

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

08/11/2017 Mediation of Corporate (Shareholder) Disputes in the US 5

Types of Corporate Governance Disputes

08/11/2017 Mediation of Corporate (Shareholder) Disputes in the US 6

:

• 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

Mediation Stages in Shareholder Disputes

• Mediator Appointment
• Preparation
• Negotiation
• Concluding phase (parties formalize

agreement)

08/11/2017 Mediation of Corporate (Shareholder) Disputes in the US 7

Appointment

• Internal Shareholders Disputes- Who to appoint:

– Chairmen or other board members – CEOs – Senior officers – Appointment of a corporate governance ombudsman

08/11/2017 Mediation iofCorporate (Shareholder) Disputes in the US 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

• ver the value of shares in a squeeze-out procedure

08/11/2017 Mediation of Corporate (Shareholder) 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)

)

08/11/2017 Mediation of Corporate (Shareholder) 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

08/11/2017 Mediation of Corporate (Shareholder) 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

08/11/2017 Mediation of Corporate (Shareholder) 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
• f 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) Disputes in the US 13

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

08/11/2017 Mediation of Corporate (Shareholder) 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

08/11/2017 Mediation of Corporate (Shareholder) Disputes in the US 15

08/11/2017 16