I remember our parting discussion on mediation and conflict resolution. If you recollect, I had opined that mediation is considered successful if it leads to an acceptable solution although it may not be a fair one. You had probably a slightly different opinion on the subject wherein you felt that outcomes need to be fair and generally win-win. I thought it would be a good idea to share my thoughts on the subject.
I would like to expand the basic thought process in this respect using a hypothetical example. Let us say Coy A is an established manufacturing company in India supplying critical aircraft parts with embedded software. They have a top-level MOU with a foreign vendor Coy B regarding supply of certain parts although the contract is renewed every time an order is placed. In fact, Coy A has become an established player because of the initial Transfer of Technology from Coy B some years back.
Everything had been fine for the last three years and the companies were able to close the contract at figures generally close to market standards. A young and aggressive CEO has taken over Coy A recently and through a bit of industrial intelligence has come to know that another supplier to Coy B for the same parts has shut shop and he (Coy A) is in fact the sole supplier left in the market in the short term. He knows that this is critical part and can badly impact Coy B’s aircraft delivery schedule. He therefore instructs his business development guys to raise the price by 50% i.e instead of the expected quote of 1 million$, Coy A puts in a quote of 1.5 million$. The reason cited is that the embedded software needs an upgrade and IT resource has become expensive.
Coy B cries foul and sends its negotiators to sort out the matter since this development can be pretty disruptive. They feel that these actions tantamount to a kind of blackmail while Coy A looks at it as a business opportunity. Negotiations break down. Arbitration and litigation are no choices since the MOU has expired last month. Someone suggests mediation and the parties decide to give it a chance.
The question which comes to the fore at this stage is that what is a ‘fair price’ for the items and what is a fair solution to this conflict? Would the original price of 1 million $ be fair or 1.25million$ or 1.5 million$? Obviously, each party is looking at either maximizing profits or cutting losses. The mediator who has entered the negotiations, is not a judge or an arbitrator and professional ethics prevent him from opining his paradigm of fairness.
To take the story forward, during the course of negotiations, Coy B gathers a fair bit of industrial intelligence of his own. He comes to know that Coy A is heading towards some sort of financial crisis and this particular order has become extremely important for them. The grapevine is that Coy A may have to altogether shut down its plant if this order is not received. Sensing a great opportunity to teach a lesson to Coy A, Coy B disregards the previous offers and now firmly makes a risky but extremely low-ball offer of 0.8 million $ which is way below the existing contract rate. Now Coy A cries foul but is in a serious dilemma since the continued existence of their plant is at stake now.
Serious negotiations take place with the help of the mediator. At the end, both parties agree to sign a contract for 0.95 million $ which is the sum finally acceptable to both parties.
Although Coy A has accepted the final price, he still feels that he has been exploited and the deal has not been fair. Coy B feels elated as he knows that he has made a significant profit. He feels that it is only fair that such opportunists should be taught a lesson. However, deep in his heart, he knows that he has been unfair to Coy A as there has indeed been some cost escalation due to changes in the embedded software but definitely not to the levels initially projected by Coy A.
At this stage, the parties have reached an acceptable solution but not really a ‘fair’ one. Fairness is a very personal paradigm dependent on many factors which may include conscience, values, ethics, greed, ground realities, perceptions, power and survival imperatives.
Sometimes in mediation, we are relatively more successful wherein win-win solutions are found and in some case both parties go back satisfied, even if not totally happy. Sometimes, solutions are perceived to be unfair by both parties to varying degrees but accepted as the alternatives of litigation, cost and time delays and breakdown of relationships weigh heavily in the minds of the conflicting parties. The mediator’s job is done as long as convergence has taken place. Happiness, satisfaction and a sense of fairness are desirables but not essential to the successful outcome of mediation.
P.S A good mediator would have also worked towards both the parties evolving a mechanism by which such problems would not occur in the future by helping the parties to mutually devise a long term MOU through which cost escalations could be established objectively.
Mediation is a very interesting subject and satisfying profession although it has not really taken off in India due to certain ‘environmental’ issues.
Would love to hear your comments on this small piece.