Non-adjudicative alternative means of dispute resolution in corporate governance

Abstract

This thesis aims at exploring the benefits regarding the adoption of nonadjudicative alternative means of dispute resolution (NAADR), mediation in specific, in corporation’s legal frameworks and contracts. This paper reviews literature, categorizes the types of corporate governance conflicts, analyses several studies and presents empirical evidence that shows the positive effects of a NAADR as an enhancing factor in increasing the value of a company. This paper starts by acknowledging the existence of several situations in corporate governance that are commonly identified as irritants for a healthy steering of a company. We can separate these situations causing conflict in two different groups: the conflicts that are board-related and the ones that are corporate governance related conflicts, without needing the presence of the board. The categorization of corporate governance conflicts is followed by an overview of the negative consequences that these conflicts have for the overall performance of a company. It finds, supported on evidence presented, that corporate governance conflicts, on an economic stand point, contribute to undermine a company´s overall performance by making it less profitable, leading inclusively to shareholder value decline. This shareholder decline claim is illustrated by recent two different corporate scandals: The general motors case and the Volkswagen emission case. In both cases, decline in shareholder value happened after public disclosure of information. It continues by building on existence research that analyses the relation between a Director resignation that triggers the necessity of filling the 8-K filling form, and the reaction of the market that followed such happening. It follows, by presenting the ADR procedures continuum, highlighting, in specific the advantages of mediation and its importance on the prevention in what concerns the negatives outcomes resulted from corporate governance conflicts. It concludes by asserting that mediation is one of the best suited nonadjudicative alternative means of dispute resolution for corporations. Nevertheless, it acknowledges its lack of implementation on the corporate governance realm and analyses the main reasons behind that lack of implementation, with a specific focus on the Portuguese legal framework. It concludes that the legal Portuguese framework and the Portuguese lawyer’s mindset doesn´t favor the implementation of mediation as a true “forum” to seek grievance for the resolution of a conflict. This thesis ends by providing a thorough analysis on the macro and micro economic benefits that result from good corporate governance practices where NAADR mechanisms find its rightful place as an enhancing factor for firm growth.