By William A. Ratliff
Executive turnover is costly. Signing bonuses, search fees, severance packages, and much more bring estimates of the turnover cost of a “C-suite” employee to $1.5 million. Consulting firms estimate the cost at 1.5 to 3 times annual salary, or more.
Yet executives don’t always mesh well. Personality clashes, disagreements on corporate strategy, or the corporate governance structure can cause conflicts. Alternative dispute resolution (ADR) providers, human-resources professionals, and management consultants who can resolve these conflicts and affordably reduce executive turnover will save their organizational clients significant amounts of money.
In this article I describe a new model of conflict resolution I call “Executive Reconciliation, combining traditional ADR, conciliation, and industrial organizational psychology. Executive Reconciliation is a unique and inexpensive approach particularly suited to resolving interpersonal problems among highly paid employees.
Prologue: The Characters
Acme Corporation is a leading manufacturer of industrial fabrics. Three Acme executives (let’s call them Tom, Dick, and Harry) worked together on big projects. All three were necessary to success. But their constant conflicts reduced the profitability and morale of the company.
Tom, Dick, and Harry report to Leopold, an Acme senior Vice President. Tom is a chemical engineer while Dick and Harry are marketing experts. Dick and Harry have no engineering background, and Tom knows little about marketing and project design. They each earn about $350,000 annually.
Michael Tate is a management consultant and expert in industrial-organizational psychology in Birmingham, Alabama. He is certified to use various proprietary psychological assessment instruments oriented toward understanding individual employees. Mike specializes in assessment, assimilation, and development of newly hired executives.
The Case, Part 1: Hitting the Fan
For a given project, either Dick or Harry contacts someone developing an office building or shopping mall, and then sells the prospect on Acme’s upholstery, carpets, and wallpapers. Once a sale is made, Dick or Harry develops a plan with the customer, specifying texture, color/pattern, and more. Tom then oversees the engineering and installation.
Two problems complicated this arrangement. First, duties were poorly specified by Acme. Dick and Harry might overreach in specifying technical details, and Tom might go too far in modifying texture to meet cost requirements. Thus, Dick and Harry would dabble in engineering, Tom in project design.
The unclear role definitions were compounded by severe personality clashes. Tom was strong-willed, and felt he was not appreciated or respected. Dick and Harry believed their work was more important and sophisticated than Tom’s. Tom exploited opportunities to find Dick or Harry in error. Dick was extraverted and politically astute; Harry was introverted and passive-aggressive.
Tom had a quick temper and treated people as problems to be solved or trampled. Some people left Acme over Tom’s behavior, including four managers who each earned around $200,000 per year—an unfortunate loss in light of the above turnover cost estimates.
At his best, each man was talented and efficient in his area. ACME had invested much in each of them. Yet every project ended with threats and insults. As Acme’s business grew, the role confusion and consequent personal conflicts made life increasingly difficult. The employees each managed to eventually exhibit the counterproductive traits of their leaders. Finally, Leopold, desperate, called Mike Tate for help. Leopold hoped to avoid firing anyone, but he was out of ideas.
The Case, Part 2: Grasping for Solutions
Mike Tate had consulted for Acme for years. He administered various personality assessments, then helped each executive build a career development plan in light of the insights from the psychological tests. But Mike didn’t focus on conflict resolution. Leopold had the creative idea of contacting a lawyer with ADR skills. Leopold got a referral, and called me.
Interlude: Assembling the Tools
I have experience in mediation, arbitration, and conciliation. Conciliation provides unique foci and objectives, among these a focus on the cause of a dispute rather than its expedient solution. Mediation and arbitration produce injunctions or dollar-denominated outcomes. With traditional ADR, the conflict is usually specific in nature; the parties want a neutral third party to facilitate a settlement discussion to resolve a specific conflict. Conciliation, in contrast, focuses on restoring relationships.
A conciliator finds who is at fault (often more than one party), and gets them to “own” their issues and ask for forgiveness. The conciliator also helps the parties develop skills and a plan to handle, and ultimately avoid, further conflict.
Adding the foci and methods of conciliation to traditional ADR offers immense promise for resolving conflicts between coworkers. The combination of conciliation and ADR was perfectly suited to Acme’s situation. Mediation or arbitration alone would have only been a patch; if I solved a conflict one week, a new one would arise later.
Add one more ingredient—the industrial-organizational psychologist. Mike Tate and I complemented each other well. Together we could understand and approach the conflict in greater depth than either of us could alone.
Mike made two vital contributions I had not encountered in other dispute resolutions. The first was his in-depth knowledge of the executives, developed through his analysis of their psychological assessments and his personal experience with them. Among Mike’s most valuable information was a set of profiles showing how each executive handled conflicts.
The second contribution was Mike’s ability to apply his information to our situation. For example, one of the assessment tools enabled him to construct a personality “flow chart” linking the counterproductive behaviors of the three men with my “best” responses.
The Case, Part 3: Putting the Model to Work
Before my meeting with Tom, Dick, and Harry, Leopold told them their conflicts had become intolerable and that any or all could be fired. They were motivated to cooperate.
After getting all the information I could from Acme and Mike, we scheduled a meeting. Since the three lived and worked in different states, Acme flew them to Birmingham.
We began by identifying problem areas. Role definition was the biggest problem, though we also agreed that lack of trust, poor communication, and an uncooperative team spirit existed. Role definition and Tom’s personality issues underlay all of the problems. Tom thought it was his responsibility to cover areas Dick and Harry were responsible for. We spent most of the morning defining roles and responsibilities, and as these items became better defined, areas of conflict were reduced.
We developed goals and ways to reach them, creating an action plan for each problem area. Among the tasks in these plans were monthly job-site meetings between Tom and whichever of the others was working on a given project. We also set up a schedule of social meetings. Finally, we produced a written agreement outlining specific mileposts as progress measurements.
Merely having the three together discussing solutions visibly built trust and accomplished some healing. Each executive acknowledged and “owned” his contribution to the conflict. They discussed frankly the problem areas in their relationships and recognized the need to make changes. They exchanged apologies and committed to improvement.
The meeting was highly productive, largely because of the psychological insights Mike provided. I saw each of the three personalities Mike had described, and with his help I responded to their counterproductive tendencies positively and redirected them toward conciliation.
After the session, I sent Tom, Dick, and Harry a follow-up letter outlining the points of the agreement and the tasks and mileposts we had agreed to. I did not set up follow-up meetings with them, but now believe that would have been helpful.
Costs and Benefits
Executive Reconciliation teams an industrial-organizational psychologist, an ADR lawyer, and a trained conciliator. Optimally, an organization would already have a relationship with someone able to provide expert personality information on each of the parties in a conflict. Thus, this model is well suited for an organization that has such information in place or can begin generating it.
Mike Tate estimates that his fees, including Tom’s initial assessments and consultations, and (in Tom’s special case) of keeping Tom on the job for as long as Leopold did, might have reached $25,000. In a more normal case, the cost would have been $15,000. The mediation itself cost under $20,000, including Mike’s fee, my fee, and taking Tom, Dick, Harry, and Leopold off the job to a single location for the mediation.
Such costs superficially suggest that this approach is not suited for small organizations or lower-salaried employees, but variations of the model can work. If a company does not have a relationship with a psychologist, it could still use someone trained in both ADR and conciliation. Alternatively, a company could bring in an industrial psychologist without involving anyone trained in ADR or conciliation. The model is flexible and can be modified for each situation.
The benefits of Executive Reconciliation are numerous. First, using a third party to confront problem employees reduces important risks. A well-trained, neutral third party can confront and address a problem employee without damaging work relationships.
Another benefit is that mediations are confidential. In our case, the mediation was conducted under the Alabama Rules of Civil Procedure, which mandate confidentiality. Nothing done or said may be used by an employee or employer if litigation ensues. Confidentiality also encourages everyone to participate freely without fear of reprisal.
A third benefit of Executive Reconciliation is that it shows employees that they matter. They see the company invest time and money in them through this process, which displays the employer’s commitment to the employees and builds goodwill toward the company.
What Are the Cost Advantages?
Consider the numbers from the mediation described in this article: Mike and I estimate that it would cost over $1 million to fire and replace Tom. Against this, having in place Mike’s knowledge and tools usually costs about $15,000 per executive clearly economical against a salary of $350,000. The process also adds the benefits of career counseling and higher performance.
The cost of the mediation is more elusive: What percentage of the $25,000 spent on Tom over the preceding years should be allocated to the mediation? Arbitrarily adding half of that spent on Tom with half of that spent on Dick and Harry gives $22,500. Fees of the mediation itself, plane tickets, and associated expenses bring the total to $40,000.
If Tom’s job could be saved, $40,000 would be inexpensive indeed. Remember, that figure included part of Mike’s fees at Tom’s hiring – fees Acme already pays for every executive – so the $40,000 estimate is overstated. If we predicted only a 10% chance of success, the expected value of the mediation would have been $100,000 (10% times the $1 million cost of firing Tom). When expected value ($100,000) is above actual value ($40,000), it makes sense to attempt to mediate.
The same quick calculation could be done whenever the firing of an executive over personality conflicts is contemplated. Where success of the mediation appears likely, an attempt to save a lower-salaried employee can have a positive expected value. Clearly, in most circumstances, Executive Conciliation is preferable to firing someone.
Epilogue
The Executive Reconciliation model of intra-corporate conflict resolution has tremendous potential. Combining industrial psychology, traditional ADR, and conciliation might easily resolve otherwise intractable problems between coworkers. I believe the situation at Acme is common and costly. Since many corporations already employ management consultants or others to perform personality assessments of incoming executives, the tools are already in place for many organizations to employ this process.
This model is new. Mike Tate has never worked with a mediating attorney in an internal corporate conflict resolution. I have done hundreds of mediations and arbitrations, and dozens of conciliations, but never with an industrial-organizational psychologist.
I am writing to share this idea as a new tool for organizations that can benefit from a highly effective yet affordable alternative to firing. I believe Executive Reconciliation has great promise, and is easily available to many organizations. I hope to hear from others who are interested.
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