Corporate conflict. How to avoid disagreements within the company?

Contents:

• Types of corporate conflicts
• External corporate conflicts
• Corporate conflict: resolution procedure
• Method 1. Solving the problem on your own. 
• Method 2. Pre-trial settlement of corporate conflicts. 
• Method 3. Appeal to the court. 
• Corporate conflicts: grounds, consequences

A corporate conflict in an organization arises against the background of a clash between two subjects of the workflow due to a violation of corporate relations within the team. As a rule, such a conflict always involves finding a way out of this situation in order to maintain a normal workflow. 

Regulatory legal acts regulating the work of a joint-stock company or LLC do not directly indicate the definition of the term “corporate conflict”. However, this definition is widely used in other sources. For example, in 2002, the Federal Securities Market Commission of Russia recommended the application of the Code of Corporate Conduct (Order of the Federal Securities Commission of Russia No. 421/r dated 04.04.2002). The Agency defines such a dispute as a conflict situation between: 

• the body of the company and its shareholder or shareholders; 
• between the shareholders themselves, if it affects the interests of the Joint-stock company.  

According to Appendix No. 1 of the Decree of the Government of Moscow dated 17.02.2009 No. 104-PP, a corporate conflict is a disagreement between the management of the company and the management of a joint–stock company or LLC on the basis of participation in the company, the implementation of various acts and compliance with the interests of all parties. 

Thus, we can call such a term commonly used in relation to two types of conflicts: between the management of the company and its owners, as well as between the owners themselves on issues of the organization’s work. Corporate conflicts involving third parties are singled out separately . 

Types of corporate conflicts

On the basis of Article 225 of the APC of the Russian Federation, corporate conflicts are divided into several types. Among them are: 

• disputes related to the establishment, working procedure and liquidation of the company;
• disagreements related to the determination of ownership of shares or shares in the authorized capital; 
• disputes related to claims against a legal entity for damages or invalidation of transactions; 
• conflicts based on disagreements over the election or removal of the company’s management body; 
• disagreements regarding the issue of the company’s securities;
• conflicts related to the register of securities holders; 
• disagreements about the form or time of the meeting, as well as the very fact of convening a meeting of LLC participants;
• disputes about the appeal of decisions made by the company’s participants;
• disagreements related to the notary’s activities regarding transactions with shares in the authorized capital. 

Such disputes are internal and do not affect persons unrelated to the company’s activities. 

Of particular interest in the practice of corporate conflicts in LLC are external disputes. 

External corporate conflicts

Any organization is not immune from the illegal behavior of third parties, most often associated with attempts of raider seizure. This happens if the company’s management cannot cope with asset management or does not sufficiently protect them from various legal risks. In this case, it is not necessary to get into a situation of complete and brazen weaning of the company. However, the risks for the so–called greenmail – the buyout of an enterprise on unfavorable terms – are increasing many times. 

The essence of the greenmail is an attempt by one of the minority shareholders to sell his stake at a price significantly higher than the market price. Otherwise, a member of the company blackmails the rest of the company’s management with a hostile takeover or creating difficulties for the further operation of the enterprise. 

Such corporate raiding is often found in a joint-stock company or LLC, where the value of assets exceeds their market capitalization. Thus, the blackmailer is only trying to get the maximum profit from owning shares or shares. 

The complexity of such a situation lies in the fact that a minority shareholder acts legally, despite the fact that such a situation goes beyond the ethical framework of doing business. However, other members of society have to look for reasonable ways out of this situation. 

Corporate conflict: resolution procedure

The procedure for resolving corporate conflicts can be divided into three main methods.  

Method 1. Solving the problem on your own. 

As a rule, the company’s management has all the resources to resolve certain types of corporate conflicts. Among such resolution methods , one can distinguish: 

• Making changes to the control link. Provided that the conflicting parties in different composition leave the founders, shareholders or investors, we can talk about smoothing or resolving the dispute. 
• Registration of an additional issue of securities or the presence of a permanent registrar. Such measures will help to minimize the risks of mergers or acquisitions of the company by other shareholders. 
• Connection of a permanent consultant. An intermediary can become effective in resolving corporate conflicts, eliminating disagreements in many issues of the company’s work. 

Method 2. Pre-trial settlement of corporate conflicts. 

As a rule, this procedure involves the use of one or more methods. In a pre-trial procedure , a corporate conflict can be resolved or an attempt to resolve it can be made using several methods:

• The participation of a mediator – a third independent person who interviews both sides of the conflict and, based on the information received, looks for solutions to the situation that would suit everyone. 
• Facilitation procedure – conciliation meetings where the causes and ways of resolving the conflict are discussed. 
• Sending a pre-trial claim of one of the parties to the other. 

Method 3. Appeal to the court. 

If the previous methods of resolving the dispute did not lead to the desired results, a shareholder or a participant of the company may file a lawsuit with the court. In the application, it is necessary to motivate the fact of the appeal, prescribe your requirements and provide the available evidence. 

It is important to know that the plaintiff can apply both to the court of general jurisdiction and to the arbitration. However, in the second case, the parties are deprived of the right to appeal the decision to a higher court.  

Corporate conflicts: grounds, consequences

Any corporate conflict negatively affects business, causes deterioration of the relationship between counterparties and business reputation in general. The most serious consequences are the loss of control over the management of the business and significant financial losses. 

VALEN’s lawyers have considerable experience in the field of corporate conflict resolution. We can become intermediaries between the conflicting parties or representatives of one of the parties in court in case of unsuccessful completion of negotiations.