Think Outside the Box

I just finished a mediation that was a classic example of how focusing on interests, instead of positions created an opportunity to settle, where one may not have seemed to exist. A mediator or someone in the midst of negotiations must assess the ever-changing landscape and be flexible, ready to adapt to the circumstances set before them and that means being able to see outside the box.

It is imperative to understand what is motivating the parties; it assists in addressing emotions, and getting a sense of why certain positions are being held. The mediation I just finished was a dispute between a franchisee and franchisor; the franchisee operated multiple locations and was looking to sell some outlying locations. The franchisor wanted the existing franchisee to sign a personal guaranty, protecting the franchisor from loss if the new franchisee failed.

From a business standpoint it is clear why the franchisor wanted the protection, the more people in the pool, the more people financially responsible. The franchisee couldn’t understand why, if the franchisor approved and put the new franchisee through training, he had to remain “on the hook”.

This had been discussed, negotiated and fought over for weeks by the two parties, until they reached an impasse and called me in to assist. When I got the matter the franchisor had agreed to limit the guaranty to two years, but with no financial limits. We began to address the larger issue of why each side was holding the positions they were (interests), and began to build an understanding of what was important to each party (not agreeing with it, just understanding it). It was agreed that selling these two units, which are geographically farther away from the franchisees existing units made sense to both sides.

The concern to the franchisee was the franchisor might allow the new franchisee to run up huge losses, which the existing franchisee had no control over, yet would be responsible for. Additionally, the existing franchisee could not just step back in and take the units over if things went south, since to do so would necessitate him having to reequip the unit, and put quite a bit of money into making them operational, on top of the losses the guaranty made him responsible for.

The franchisor was only willing to release the existing franchisee, after the new franchisee had a track record of success, which after a bit of prodding they thought would take about a year.

I asked each side how they would provide the comfort to the other side to move forward, but the ideas weren’t flowing. I asked if I could make a suggestion to get the juices flowing, they at that point were happy to pass the ball. I suggested the existing franchisee not sell, but allow the intended buyer to run the units, on a manage to own basis, the sale to become effective as soon as the franchisor would approve him without a guaranty, but in no case longer then one year. Each side began to discuss how that might work, they agreed upon and later drafted an agreement that allowed the new operator to manage the units, but at the same time have status as an owner in the eyes of the franchisor. At the end of one year, a bit of paperwork, and the units would be transferred, with the existing franchisee walking away clean.

Not being rigid in our approach and being willing to abandon the sale to create a more appealing transition was only possible because we understood the interests of the parties, and were willing to abandon our target, the sale, for an idea that addressed the interests of both sides.

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