How Fortune 1000 Companies Use ADR

Last year, a survey was conducted among senior in-house counsel of the Fortune 1000, to follow-up on the findings of the influential 1997 Cornell survey.  Thomas J. Stipanowich of Pepperdine and J. Ryan Lamare of Penn State have now prepared an analysis of that new survey, and in an important article they have made trenchant conclusions with respect to trends in commercial dispute resolution.

They find, among other things, that more corporations have embraced mediation as a management tool and foresee its continuing use — as well as other informal approaches top early resolution of conflicts — in a wide spectrum of disputes.  By contrast, arbitration has “reached its tipping point,” as fewer major companies use it to resolve many kinds of disputes and question its future use.

The article, available to be downloaded here, describes both the findings and the methodology of  a landmark survey co-sponsored by the Cornell University’s Scheinman Institute on Conflict Resolution, the Straus Institute for Dispute Resolution at Pepperdine University School of Law, and the International Institute for Conflict Prevention and Resolution.  The authors conclude that, analyzed in light of the 1997 Cornell survey and the 2011 Rand report, the survey:

presents dramatically contrasting pictures of the evolution of the two primary ADR choices, mediation and arbitration.  While mediation appears to be even more widely used than in 1997 and is today virtually ubiquitous among major companies, the survey indicates a dramatic fall-off in the use of arbitration in most types of dispute: commercial, employment, environmental, IP, real estate and construction…. At the same time, the survey offers tangible evidence of corporations’ growing sophistication and increasing emphasis on control of the process of managing conflict, including neutral evaluation and early case assessment, approaches aimed at deliberate management of conflict in the early stages, as well as control over the selection of third-party neutrals and increasing sophistication in the use of ADR.

The authors offer a comprehensive (and necessarily subjective) narrative of the growth of ADR and the concerns of ADR end-users from the mid-1980’s through what they term the “Quiet Revolution,” including growing distrust of arbitration as a commercially rational alternative to court adjudication.  They also note the rise of early case assessment analysis and systematic approaches to management of conflict in the workplace during this period.  One might characterize the entire evolution as a shift from reactive to proactive management.

They also note certain flaws in the methodology, including a more narrow response rate than the earlier survey and certain structural obstacles to making strict comparisons between the results of the current survey and the 1997 predecessor.

However, certain findings seem beyond dispute:

• More companies identify their policies as using litigation only selectively, and using ADR for all others
• More than half indicated that the predominant trigger for the use of ADR in corporate/commercial disputes was a contractual provision
• Companies used ADR in order to save time and money — often as a way of avoiding or limiting American-style discovery expense and delay
• 98% of the responding companies had used mediation in the prior three years, and 66% had used early case assessment
• Arbitration usage dropped — in some cases precipitously — for most catagories of disputes
• More companies reported using mediation for nearly all kinds of disputes; however, significantly fewer companies reported arbitrating in key categories

Thus, the authors conclude, “the statistics signal very different trends in mediation and arbitration.  Mediation usage is expanding and arbitration usage contracting in most conflict settings…. [Moreover, while] almost eighty-six percent of respondents said their company was “likely” or “very likely” to use mediation instead of litigation for future corporate/commercial disputes, … respondents were almost evenly split as to whether their companies were likely or unlikely to use arbitration instead of litigation in future corporate/commercial disputes.”

One of the most attractive features of these findings is that they are not based on reports from service providers, nor are they distinguished by region.  Instead, we are talking about the 1000 largest companies, regardless of where they do business or the legal jurisdictions in which they operate.

And, although the authors do not note a distinction, it must be assumed that most cross-border contracts call for arbitration in order to provide for an award that is enforceable internationally pursuant to the New York Convention, as mediated agreements or court judgments are not.  Thus, if international arbitration’s share in these usage statistics were to be discounted, companies’ disenchantment with arbitration to adjudicate domestic conflicts must be even more precipitous.

The article will, one assumes, soon be in wide circulation.  It shows a compelling new world of corporate conflict management practices that attorneys and ADR practitioners would be well advised to take very seriously indeed.