Conflict Resolution|Employment|Mediation|Negotiation|systems design

ADR: The Customer's Perspective

Hans Peter Frick, General Counsel of Nestlé, once offered this guidance for business mediators:  You can either make what you think is a good candy bar and convince people that they “ought to” buy it, or you could go out and ask people what kind of candy bar they want, and go back and make it.

At the IBA in Vancouver, Jane Player of Bird & Bird gave attendees a chance to learn from global companies what kind of candy bar they like: How they consider ADR to add value (or not) in their businesses.  Representatives of General Electric, Swiss Re, Coca-Cola and E.I. duPont spent three hours in conversation among themselves and a the audience of a packed hall discussing relationship management, conflict avoidance, mediation, risk assessment, early case assessment and litigation management as ways to add value to their shareholders.

Candy, anyone?                                 

The session started with a brief presentation by Patrick Green of the London firm Resolex, which specializes in designing dispute management and prevention systems for companies and individual projects.  The challenge, he suggested, was to persuade enterprises that early detection and management of disputes is most effective.  Knowledge of the events giving rise to the problem is very high right at the time of the incident, but rapidly deteriorates with the passage of time.  The knowledge base begins to be rebuilt as litigation proceeds and trial approaches, but that effort is a very expensive way to reconstruct what was right at-hand at the time the event occured.  Moreover, the “re-build” may or may not be accurate.  Go to fullsize imageHe concluded that early convening, when the actors are still on-site, memories are fresh and remedial options are immediately available, is the ideal timing.   

David Burt of E.I. DuPont’s legal team forcefully attested, based on his years of managing law department budgets, that “mediation is great for the bottom line” and that the practice needs to be driven into other areas of the business.  The model of litigation is not business-rational, he said.  Indeed, it is the epitome of unbusinesslike conduct in dealing with other enterprises.  Every case at DuPont is subjected to an Early Case Assessment process.  Once put through mediation, Burt reported, personal injury cases result in a savings of $76,000 per case; employment mediations save an average of $61,000 per case; and business-to-business mediations save a whopping $350,000 per case.  DuPont’s mediation policies also mean that offers to mediate a particular case are not perceived as a suggesting “weakness” because, as Burt put it, “I mediate anything and I mediate all day.” 

What about the client-lawyer relationship?  In-house counsel is there to save the company money, and early engagement does that.  Outside counsel is there to put itself out of business, and if they are good at it Burt says they will be engaged to do so repeatedly and be appropriately rewarded for their efforts.  Outside counsel need to understand the goals of their client, said Burt: “The business client doesn’t want to win — we want the matter over with.”

Al Hilber of insurance giant Swiss Re said that, as a reinsurer, his company’s clients are insurers who have ceded risk.  These are relationships of very longstanding and are the core asset of Swiss Re’s business.  As a result Swiss Re doesn’t use mediation a lot because matters don’t usually get to that stage — they are talked through and accomodations are made.  These relationships are mutually beneficial and individual disputes should not be allowed to threaten them.  As a direct insurer to Fortune 500 companies, Swiss Re takes a similar approach and “sits down directly” with customers to iron out differences.  Indeed, Hilber said, “Swiss Re wants to sell itself” on its willingness to do so.  In disputes involving multiple parties, mediation is especially useful in getting the best results for a coordinated group.  Everyone involved in mass disasters wants to reduce the total loss amount and to avoid the added expense of litigation.  So, said Hilber, “mediation to us is an investment, not an expense.”

David Talbot of Coca-Cola Enterprises presented a dispute avoidance model that was unfamiliar to some in the international audience: the Orgnaizational Ombudsman.  Most of the audience was familiar with the “classical” ombudsman, from Skandinavia, being a legislatively-created office to assist people in dealing with the government.  By contrast, the Organizational Ombudsman first arose on college campuses in the United States during the unrest of the 1960s.  It soon spread to corporate entities.  A central reference for the practice is the book Organizational Ombudsman by Charles Howard.  

Talbot explained that the function of the office is to provide a confidential and trustworthy resource for participants of an enterprise (faculty and students in the case of colleges; employees and managers in the case of companies) to raise substantive issues in a safe environment.  Communications are off-the-record, informal, and do not constitute legal notice to the company.  The Ombudsman’s office is structurally independent of legal or management functions and is designed for those relatively rare instances when Human Resources, Compliance, Legal and other functions are inappropriate.  The Ombudsman can provide non-attributed information to management that can improve the functioning of the organization and divert potential disputes.  The Ombudsman reports directly to the President’s office, avoiding exposure to individuals implicated in the issue.  Talbot called the Ombudsman “impartial and multi-partial: We treat everyone the same way.”  The desired effect of the office is to identify problems and permit their being addressed before they mature into more serious issues.  Rumors are answered, concerns are followed-up, and the organization is run in a healthier way.

Roland Schroeder of General Electric Company noted at the outset of his remarks that “ADR is not an alternative — it is a management tool like any other, to be used when the situation calls for it.”  The core of the challenge is to identify problems that need to be litigated, segregate them from problems that don’t, and proceed accordingly.  But this seemingly straightforward task is usually not done well enough, unless it is formalized, monitored and measured for performance achievement.  GE, said Schroeder, is not in business to fight with shareholders, governments, customers, service providers and other essential stakeholders.  It is in business to create value, and litigation emphatically does not create value.  The company seeks to identify exposure early, book liabilities accurately, find out whether payment will be due and in what quantum, and get liabilities behind it.  Therefore, Early Case Assessment is at the heart of the system. 

Actions need to be taken, not postponed.  Decisions should be made on the basis of the 80% that you know, not on the 20% that you don’t.  The 2 or 3 notebooks of critical documents can be made early on in a matter, and they will seldom be significantly changed.  What does GE consider a “win”?  That is a function of what GE needs out of the case and how soon it gets it. 

Lawyers are invited to the business table early at GE to learn the deal or the project and to take part in ongoing problem-solving efforts.  Lawyers are better problem-solvers than a lot of their clients give them credit for, said Schroeder.  They can look around the corner, be alert to what is happening, report on what issues competitors are facing.  Similarly, after every case Schroeder conducts a “lessons learned” session with inside and outside counsel and the business people to learn what went wrong, what should be done differently, and what changes might be called for in other contracts or deals.  When asked what advice he would give an outside law firm seeking work from GE, Schroeder said “Make yourself a partner of the company.  Tell us how to get rid of this quickly.”

Vancouver lawyer and consultant Bill MacLeod reminded the audience that business disputes arise in a social context, and that they need to be resolved on terms that reflect shared community values.  Disputants must listen to each other and find out what drives the other party to behave the way it does.  Litigation, says MacLeod, runs on its own script and is driven by procedural and structural compulsions set forth by the court’s insitutional needs.  By contrast, ADR provides a superior forum for companies to listen.

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