Published in
Building Owner Management Association
February 1999 newsletter

Mediation - Protecting Your Business in the Year 2000

by Robin Hoberman

Many people believe that the Year 2000 is merely a technical/computer problem. That simply is not the case. The Year 2000 problem is just as much a general business problem. The reason is that, while the origin of the problem may be computer oriented, the impact of the problem is much more far-reaching.

More than a Computer Problem

To illustrate, consider the following hypothetical situation. A commercial office building has a date coded security system. The management company, which is a public company, purchased the system years ago, relying on the advisory services of a consulting firm. On December 31, 1999, the system fails. The following week, prior to being able to have the system serviced, a stranger enters the building after business hours, breaks into an office, injures a tenant, and takes several computers, which contain confidential customer information.

The tenant and his company sue the management company for personal injury, breach of contract, and negligence. That is not all. The management company, in turn, sues the consulting firm for having failed to advise it of the potential failure of the alarm system. The company also sues the manufacturer of the alarm system for breach of contract and warranty. The manufacturer, in turn, sues its suppliers and/or its consultants. The management company's shareholders sue its directors and officers for breach of fiduciary duty and failure to disclose information to which they believe they were entitled. The directors and officers turn to their insurance company for coverage, but the insurance company takes the position that the Year 2000 was a foreseeable event and denies coverage.

I do not paint this picture as a prediction of what will necessarily occur but rather to demonstrate that the business implications of a Year 2000 failure are real. We, in business, do not function as islands. We are dependent on our employees, suppliers, vendors, business partners, etc. Year 2000 lawsuits, current and future, do and will involve a multiplicity of parties and legal theories. Liability flows upstream and downstream. Even companies who do everything in their power to prepare themselves may be impacted by the failure of their clients, suppliers, etc. to prepare themselves.

Mediation - How it Works

Unlike other lawsuits, the Year 2000 lawsuit has a ripple effect, and EVERYONE, at a minimum, should know their options. One of those options is MEDIATION. Unlike litigation and arbitration, mediation is a NEGOTIATION process that places the decision-making power in the PARTIES. In other words, the parties have the ability to customize resolution of their conflicts to their particular needs by discussing them directly with one another. In this respect, mediation parallels settlement more than arbitration or litigation. Yet, mediation differs from settlement discussions in that it is much more preventive and comprehensive. At the conclusion of the mediation, the parties sign an agreement.

More than almost any other process, mediation enables parties to have as free a voice in the outcome of their conflict as possible. From the inception of the mediation process, the parties discuss ideas for resolution. In doing so, they save much time and money that might otherwise be spent on the procedural aspects of filing, serving, and engaging in depositions and the like of a lawsuit.

Another benefit of mediation is its confidentiality. The parties can protect information that might otherwise be disclosed to the public during a lawsuit. They also have the opportunity to meet with the mediator separately. These private sessions enable the parties to gain a second layer of confidentiality, during which they have the opportunity to disclose information and/or test ideas with a neutral before sharing that information with the other party/parties.

The mediator's role throughout the mediation process is to facilitate a professional and effective line of communication. The mediator assists the parties in discovering options and solutions that they may not have otherwise considered. Often, by engaging in this process, parties are able to feel "heard" by the other side and avoid an unnecessarily antagonistic and adversarial escalation of tensions. Of course, I do not in any way suggest that a successful mediation translates into all parties feeling 100% happy with the outcome. What I do suggest is that mediation can be, and frequently is, the best option in a mutually unfortunate situation, where resolution and not the finding of fault is most paramount.

Mediation and the Year 2000

So why is mediation optimal for resolving Year 2000 conflicts? The court system, by its nature a win-lose system, and may inevitably pit businesses who previously worked together against one another. I do not believe that in the majority of instances this will be in the best interests of the parties. Of utmost concern will be resolving the problem as swiftly and inexpensively as possible. The litigation process is ill suited to meet this objective, as it is designed to recreate the past and empower a judge or jury, completely unfamiliar with specifics of the parties' experiences, to decide who was right and who was wrong. While this paradigm may have its place in certain contexts, when business survival is critical and time is of the essence, that process often fails to meet the more immediate concerns of the parties involved. Resolution comes at the end of the court process. In striking contrast, resolution is the goal from the commencement of mediation.

How to Prepare

Businesses should begin assessing their business relationships NOW. Just because you are Year 2000 compliant does not mean that the companies with whom you conduct business are equally as prepared. For this reason, both Congress and the SEC have taken the position that disclosure and communication are critical to managing the Year 2000 problem. In fact, the SEC not only requires public companies to disclose their own level of Year 2000 compliance but also that of third parties with whom they deal.

To protect yourself, pre-commit to mediate Year 2000 disputes. This trend already is on the rise. For instance, legal organizations in the United States, the United Kingdom, Australia, Singapore, and Hong Kong have signed a "Millenium Accord," committing to an effort to resolve Year 2000 disputes through mediation. Additionally, several multi-national companies have signed Year 2000 pacts, committing to mediation and nonbinding negotiation of Year 2000 disputes. These companies include American Contractors Insurance, American standard, Bank of America, Bechtel group, Cigna, Darden Restaurants, Eaton, General Mills, McDonald's, Phillip Morris, PPG Industries, and TRW.

You also should consider using mediation proactively to open a facilitated dialogue with companies you determine are key to your business operations. Already, companies are experiencing Year 2000 failures and are realizing they will not be able to wholly rectify these problems by the end of 1999. A mediated dialogue would enable you to establish a modus operandi for any Year 2000 problem you already foresee.

In taking these steps, you may very well save yourself lost business relationships, opportunities, and great expense. At a minimum, you will be positioning yourself to ACT and not REACT in the event of a Year 2000 related failure.