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When Outsiders Step In: Mediation and Arbitration
Principles of Management · Chapter 12: Communication and Financial ControlSection 12.6 · lesson 78 of 11713 min · free with a free account
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In this lesson
6 forms of third-party intervention, and how to choose among them.
- Distinguish the forms of third-party intervention
- Describe how mediation and arbitration each work
- Explain the neutrality problem of internal third parties
- Determine which form fits a described dispute
Transcript
Everything said in the video, section by section (1,750 words). Read along, or search it.
Communication and Financial Control
When Outsiders Step In: Mediation and Arbitration
Some disagreements can't be settled by the people inside them. When that happens, someone from outside the dispute steps in. That move is called third-party intervention, and it's the subject of this section. We'll see when it's called for, and lay out six forms along a single spectrum. The spectrum runs from the least control a third party can take, to the most. Then we'll look closely at two of those forms, mediation and arbitration. We'll cover the internal roles that can play the third party, and the neutrality problem each one carries. We'll set out how to choose a form for a given dispute. And we'll finish with a manager whose good intentions weren't enough.
When It Is Called For
4 Reasons to Bring in an Outsider
Third-party intervention means involving someone outside the original dispute, to help resolve it. Subchapter twelve point five already named the circumstances that call for it. There are four. The first is genuine deadlock. The parties have made a good-faith effort with the five direct approaches, and they're still stuck. The second is a damaged relationship. Things have deteriorated so far that direct negotiation no longer functions. The third is a power imbalance between the parties. When one side holds much more power, a genuinely fair process may not happen on its own. The fourth is a formal dimension, such as a contractual or regulatory question. That kind of dispute needs an actual determination, not a negotiated accommodation. In each case, more direct effort from the two parties, on its own, isn't likely to get them there.
6 Forms, 1 Spectrum
Arranged by Third-Party Control
Third-party intervention takes six forms, and they're best understood on a single spectrum. The spectrum measures how much control the third party actually takes. One distinction runs through all of it. Does the third party help the parties decide, or decide for them? Facilitation involves the least control. A facilitator manages the structure of a conversation, the agenda and the turn-taking, without engaging the substance at all. Conciliation goes a step further. The conciliator works to improve the relationship, and to open communication. But a conciliator still doesn't propose solutions. Mediation is more active again. The mediator helps the parties reach their own agreement, often by helping generate options. Fact-finding means investigating a dispute, and reporting objective findings, without deciding its outcome. Then a line is crossed. In arbitration, the third party actually decides the outcome, after hearing both sides. Adjudication involves the most control of all. It's a formal legal process, in which a court or tribunal issues a binding, legally enforceable determination.
Table 12.6.1
Who Decides, and What Each Form Suits
Table twelve point six point one matches each form to who decides, and to the dispute it suits. Facilitation suits disputes where communication itself has simply broken down. Conciliation suits relationship damage that's severe enough to block direct negotiation. Mediation suits genuine deadlock, as long as the relationship is still workable. In all three of those, the parties decide for themselves. Fact-finding suits a dispute that turns on a disputed factual question. The parties still decide. They're simply informed by the findings. Arbitration suits a dispute that needs a determination the parties can't reach themselves. The arbitrator decides. And adjudication suits disputes with a genuine legal dimension. A court or tribunal decides. So reading down the table, the decision moves steadily out of the parties' hands.
Mediation
Helping Them Reach Their Own Agreement
In mediation, a neutral third party helps the disputing parties reach their own agreement. The mediator holds no power to impose an agreement on them. That limit shapes everything else. A mediator works largely on process, rather than substance. She may separate the parties, where that's useful. Without the other side present, each one can speak candidly. She surfaces interests, in exactly the sense developed in Subchapter twelve point five. That means moving past what each side says it wants, to why it wants it. And she helps generate options the parties may not have considered on their own. Notice what's missing from that list. At no point does the mediator pick the answer.
The Mediation Process
5 Stages, 2 Separate Roles
A mediation moves through five stages. At each one, the mediator and the parties do different things. In the opening, the mediator sets ground rules and explains the process. The parties agree to participate, and they do so voluntarily. In the statement stage, the mediator listens, and asks open questions. Each party states her view, without interruption. In exploration, the mediator separates the parties if needed, and surfaces interests. The parties reveal their underlying concerns. In option generation, the mediator facilitates brainstorming and tests ideas. The parties propose possible solutions. And in the agreement stage, the mediator drafts the terms. The parties confirm them, and commit. Now follow just the mediator's part, from start to finish. It never includes deciding anything on the parties' behalf, at any stage. Her activity is all process, structure, and surfacing. Every substantive decision stays with the parties.
What Makes Mediation Work
4 Conditions, and a Durable Result
Mediation depends on four specific conditions holding. The first is voluntariness. The parties must genuinely choose to participate. They can't be forced into a process they don't actually accept. The second is the mediator's neutrality, and critically, the parties' perception of it. A mediator who is genuinely neutral, but isn't seen that way by one party, loses much of her effectiveness. Her actual impartiality doesn't rescue her. We'll come back to that point shortly. The third is confidentiality. What's said in mediation, especially in separate sessions, generally can't be used against a party later. That protection is what allows candid disclosure of the real interests behind a stated position. The fourth is the authority to settle. Whoever sits at the table must actually hold the power to agree. Without that authority, no binding outcome is possible, however well the process goes. When the conditions hold, mediation has a genuine strength: durability. An agreement the parties made themselves is considerably more likely to hold than one imposed from outside. They understand its reasoning, they had a hand in shaping it, and they're more invested in honoring it.
Arbitration
The Third Party Decides
Arbitration is the point where the third party stops helping, and starts deciding. The arbitrator hears both sides and issues a decision. That's in direct contrast to mediation's process-only role. Arbitration can be binding. The decision is then final, and enforceable. Or it can be non-binding. The parties keep the option to reject the decision, and pursue the matter further. One significant variant deserves attention: final-offer arbitration. Each party submits a single proposed resolution. The arbitrator must select one party's position in its entirety. She has no authority to split the difference, or to craft a middle outcome. That rule changes the incentive to be reasonable, and it does so deliberately. Without it, a party might open with an inflated demand, hoping to be split down the middle. Under final-offer rules, an extreme, unreasonable position has essentially no chance of being selected. So each side is pushed toward a position close to what a reasonable arbitrator would actually choose.
Interest and Grievance
Which Question Is the Arbitrator Answering?
Two further forms of arbitration are told apart by the question the arbitrator is actually answering. Interest arbitration looks forward. It sets the terms of a future arrangement, deciding what a new agreement should contain. Grievance arbitration looks back, at something already agreed. It interprets an existing arrangement. The question is what an already-agreed contract actually means, or requires, in one specific disputed instance. A simple way to hold the difference: one writes the terms, and the other reads them. In both, the arbitrator decides. What differs is the question she is deciding. Both connect directly to the collective bargaining process. This course covers that fully in Subchapter thirteen point twelve, so here we only flag the link.
Internal Third Parties
Each Role Has a Neutrality Problem
Several roles inside an organization can serve as the third party. Each carries its own neutrality problem. Start with the HR function. HR is formally positioned to intervene. But it's part of the organization itself. So it can be perceived as favoring the organization's institutional interests over an individual employee's. An ombuds role addresses some of that concern. It's a position designed specifically to be independent and confidential, within the organization. Even so, it depends entirely on the parties genuinely trusting that independence, in practice. Then there's the manager, acting as arbiter between her own subordinates. This is perhaps the sharpest version of the problem. She holds ongoing authority over both parties' careers, their evaluations, and their opportunities. However neutral she intends to be, true neutrality is hard for either party to fully believe in. What counts is the parties' belief, not her intent.
Choosing the Form
4 Considerations
Before choosing a form, ask whether the dispute has left the organization's control altogether. Some disputes become legal matters. A claim alleging discrimination, for example, or a contract dispute heading toward litigation. Or a matter otherwise governed by statute or regulation. Once a dispute has genuinely crossed that line, legal counsel is required. This course doesn't offer legal advice. But recognizing the boundary is itself a managerial responsibility. It comes before any attempt to resolve the matter with the approaches in this chapter. Short of that line, choosing a form comes down to four considerations. First, the relationship. If it's worth preserving, that favors mediation's self-determined process over arbitration's imposed one. Second, the need for a decision. Mediation can't guarantee one, since it depends on the parties agreeing. Sometimes a facilitated conversation will suffice. Third, confidentiality. How much do the parties need the process, and its content, to stay private? And fourth, cost, in time, money, and organizational attention. Cost generally rises as a dispute moves along the spectrum, toward arbitration and adjudication.
Case Vignette
Naomi's Neutrality Is Doubted by Her Own Team
Here's a composite case, constructed for instruction. Naomi, a department manager, tried to mediate a genuine, escalating disagreement between two of her direct reports. The issue was how a shared project's credit and responsibilities should be divided. Naomi felt well positioned to help. She knew both employees, and she knew the work. The process stalled almost immediately. In a private moment, one employee admitted she didn't feel she could speak candidly in front of Naomi. Naomi would be writing both of their performance reviews within the month. Anything said in the mediation might color that evaluation, consciously or not. The other employee voiced a similar hesitation, if less directly. Naomi's intentions had been genuinely neutral throughout. Nothing in her conduct suggested otherwise. But the neutrality problem never depended on her behavior. It depended on whether her subordinates could believe in her neutrality, given her authority over both their careers. Good intentions alone couldn't supply that belief. That closes the chapter's conflict resolution thread. Subchapter twelve point seven turns to financial control.
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