In one of my first mediations, the parties had been mediating to the point where they only had a small gap between their respective offers. At that point they stalled. I see this often in my mediations; people work well up until the last little bit, and then neither one wants to be the last to adjust their offer.
In this mediation, I brought up every interest-based resolution technique I could think of. Neither party made a new offer.
Then one party said to the other, “Are you a betting man?” They agreed to toss a coin, and to settle on the offer made by whichever party won the coin toss. Bemused yet intrigued, I checked in with both parties that they were really amenable to finishing their mediation this way. They were, so that’s what they did.
Now imagine that you’re settling a case worth $3 billion. In 2008-2009, that’s what brothers and longtime business partners Fred, Henry, and Tom Elghanayan did with their real estate empire, Rockrose (“Flipping a Coin, Dividing an Empire”, New York Times, 31 October 2009). When Henry Elghanayan wanted to split up the company, the brothers used several mechanisms to make sure that the outcome was as fair and – and this is the important part – as envy free as possible. In other words, they wanted to make sure that each brother was satisfied with his portion of the company and did not envy either of the other brothers their portion.
Here are some of the techniques they used.
- They flipped coins, as I already mentioned.
- They drew straws – actually, given their wealth, they used a more-elegant method of choosing from opaque envelopes, one of which held a coffee stirrer.
- They used auctions. They reverse-auctioned the right to propose an initial division of the company into three portions. In other words, whichever of the brothers submitted the lowest bid, reviewed all of the company’s assets and proposed a division into three portions.
- They used a standard mechanism of game theory, in which the brother who proposed the division was not the first one to choose; the other two brothers flipped a coin to decide which of them chose first.
- At the end, they ended up trading parts of their portions with each other.
Henry Elghanayan kept the name Rockrose and his portion of the original company, and Fred and Tom with their portions created a new company, TF Cornerstone.
The method that the Elghanayan brothers used to split up the original Rockrose worked. While Fred and Tom weren’t happy with splitting up the company, over time, much of the rift between the brothers has healed, which only would have been possible with most envy-free division of the company. And both companies are doing well.
As for my mediation, the two parties accepted the outcome of the coin toss, I wrote up their agreement, and they went on with their lives.