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An increasing number of companies are facing failure in this economy because owner disputes are preventing down-sizing and other business strategies from being implemented, according to accounting and business advisory firm RSM Richter.

Joel Cohen, a partner with RSM Richter (www.rsmricher.com), which focuses on serving mid-to-large size private and public companies from its offices in Toronto, Montreal and Calgary, says his firm's financial mediation practice is
receiving increasing numbers of calls from lawyers whose client companies want to avoid   litigation to help resolve their financial and strategic disputes. 

"Before the recession, when revenues were strong, company owners could afford to postpone tough decisions on inflated salaries or weak business divisions, but things are different today," says Cohen. "In this recession timing is critical. Owners need to find a mediator with the financial expertise to help them resolve their issues and put the company back on course."

Cohen said other critical issues that a company can't postpone until the recession is over include:

    -   An acquisition made after the recession struck last fall is not the "bargain" it seemed at the time;
    -   Financial resources are at risk of being depleted before the economy turns around; and
    -   The aging or tired CEO needs to be replaced by a person with the energy and skills to take the company to the next level in the competitive, post-recession landscape.

"Lengthy legal battles can take a damaging emotional and financial toll on any business, especially when the parties involved are owner-managed or family-owned companies. In addition, litigation usually takes more time than the company has, especially in today's recession," says Cohen. "By attempting mediation before legal proceedings, legal advisors offer their clients a better chance at a fast, fair and effective resolution to their issues."

    Mediation examples

Cohen said the following examples demonstrate the range of financial and mediation skills necessary to help companies succeed.

Home furnishings retailer
A successful home furnishing retail chain decided to begin manufacturing ome of its own products and negotiated an agreement prior to the current recession to purchase a suitable manufacturing business. After the recession struck, but before the deal was closed, the manufacturer looked less attractive - inventory had rapidly grown with returned and unsaleable products, profit margins had shrunk, and liabilities had increased - and the retail chain refused to complete the deal. The manufacturer sued to enforce the sale agreement, contending it would come out of the recession strong and that its inventory was sound.

RSM Richter was brought in to mediate the disagreement and prevent a court battle. The mediator reviewed the documents, interviewed both sides, considered the impact of the recession and determined appropriate values for inventory and liabilities based on the terms of the deal. The mediator encouraged both sides to compromise - the manufacturer agreed that some inventory had to be written off and that liabilities needed adjusting, while the purchasing company agreed that its claims and concerns were excessive. The parties then negotiated a revised price and the deal closed in the midst of the recession.

Construction subcontractor
The company was a victim of its own success and had outgrown the skills and resources of the owner-managers. Some wanted out, some wanted to continue cruising in neutral and others wanted to take action to bring the company to the next level. As mediator, RSM Richter helped identify issues and allowed frank expression of views. Management and financial deficiencies were identified and strategies to remedy them were discussed. Eventually a course of action was agreed upon - and a strategic partner was brought in with the finances, technology and skills to move the company forward. Some older owners cashed out while younger owners signed on for the next round of growth.
 

Distributor of industrial products
The family-owned company became paralyzed when the aging father wanted to retire and let the two sons run the business. One son was outgoing, assertive and aggressive, while the other was conservative, technical and introverted. The parents wanted both sons to have equal ownership, compensation and authority, but extensive mediation by RSM Richter made it clear that this formula would not work. It was agreed that the success of the business and the harmony of the family would be best served if one of the sons bought the
shares of the other - and the aggressive son bought the business at a valuation facilitated by the mediator.