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Cost Effective Conflict Resolution
by Ralph O. Williams III
Managers are paid to resolve the conflict inherent in every human interaction. Conflict comes in many forms: lawsuits, employment claims, supplier/vendor problems and government regulation/compliance issues. Conflict is resolved by negotiation, mediation, arbitration or lawsuits. Mediation and arbitration are the most cost effective and quickest way to resolve conflict. Work with your executive team and lawyers to select the appropriate conflict resolution vehicle and implement it. You will save time and make more money.
As a manager, you make decisions and resolve conflicts everyday. The most vexing and resource draining conflicts are those which generally must be resolved with the aid of lawyers, such as employment and harassment claims, disputes with suppliers, customers and competitors and interaction with government regulatory agencies. By the time disputes have become so difficult and/or acrimonious that they involve lawyers, they have also taken on an intractability which appears to defy resolution. For the same reason that surgeons do surgery, i.e. it is what they do best, lawyers file lawsuits. Once filed, a lawsuit takes on a life of its own. Unfortunately, from a client’s point of view, litigation is a zero sum game. You start off with a negative proposition, i.e. product has been shipped or a service has been rendered and you have not been paid. What is the best result? If you are paid 100 percent of your receivable and are fortunate enough to recover attorney’s fees, you are back to zero. There is no profit in litigation. No matter what, you still have lost the time value of money and the opportunity cost of having to pay attention to litigation as opposed to focusing on your primary mission, generating revenue. Remember, in litigation getting back to zero is the best and rarely achieved result. Once this litigation model is fully absorbed, the realistic manager asks, "What is the fastest way to resolve this dispute at the lowest dollar loss to the company?"
Appropriate Dispute Resolution
There is an old expression, "When the only tool you have is a hammer, every problem tends to look like a nail". This is lawyer’s fundamental approach to dispute resolution. Their primary tool is litigation and therefore every problem can be resolved with a lawsuit. The problem with lawsuits is that they are resource draining, time consuming and expensive. Lawyers also generally ignore the fundamental reality that 98 percent or more of the cases filed are settled. If only 2 percent of the lawsuits filed go to trial and 98 percent settle, then the realistic manager asks "Why shouldn’t my lawsuit be in the 98 percent that settle?". This leads to the next question, "What is the fastest way to settle my conflict or lawsuit?". The answer is, select the correct tool. Sometimes running a lawsuit’s full course is the only way to vindicate a principle or establish a precedent. However, the vast majority of the time, either some form of mediation or arbitration will resolve the dispute much faster and far more cost effectively.
Mediation and Arbitration Defined
Mediation is a voluntary process where a neutral facilitator, the mediator, assists parties in reaching a mutually satisfactory resolution to their dispute. The mediator identifies obstacles to settlement and develops strategies for overcoming them. Mediation mends and rebuilds relationships. Mediation is confidential and non-binding. The parties, with the aid of the mediator, settle their dispute. Arbitration resolves the parties' disputes with a binding decision, called an award. A neutral arbitrator or panel of arbitrators decides the matter submitted after considering documents, statements and other evidence presented by each party. The award can be converted into a judgment.
Litigation Cost Benefit Analysis
Every manager learned the fundamentals of risk analysis in business school. In summary, risk analysis looks at the probability that a particular event will occur and the event’s dollar cost to determine the event’s expected value. In simplest terms, if a customer owes your company $100,000 and there is a 50 percent probability that the receivable will be paid, then the expected value of the transaction is $50,000. To finish the basic cost benefit analysis, determine the go forward cost of a lawsuit or other appropriate dispute resolution process e.g. $10,000 and subtract it from the expected value. In this example, the expected value is $40,000. This tells the manager that if the conflict can be settled for $40,000 or more, it is probably a good decision. Mediation and arbitration are the lowest cost processes for resolving disputes. Meditations usually take approximately one day to close the typical litigated matter. As a general proposition the arbitration process costs about half of the litigation process and take about half the time. If management and its lawyers determine that pressing forward with the litigation and incurring the expense will significantly increase the recovery, then pressing forward makes sense. But if we are playing in a zero sum game, then mediating the dispute to a speedy conclusion is the only sensible decision. No one can justify spending the company’s resources to play a game with no upside.
Ask Your Lawyers to Help You
Your lawyers are not your enemy. Every good law firm in Los Angeles is dedicated to giving its clients the highest quality service at a reasonable price, but you as the client must set the agenda. As your teammates in dispute resolution, your lawyers should give you prompt analysis as to the probability of success or failure and the amount of potential recovery based on the information at hand. Also, your lawyers should give you a budget for the go forward costs in any matter. Armed with this information you can conduct the risk cost benefit analysis noted above to determine your course of action. One note about lawyers, they are highly risk averse. They do not like to make decisions or formulate recommendations on imperfect information. However, the business world works daily with imperfect information. If asked, your lawyers should give you the evaluation you need based on the information currently available. Once you decide, let your lawyers know what you want and they will do it for you.
In conflict management there are always options. Whenever you see a problem as "black and white", all you know for sure is that your vision is impaired. Ask your executive team to help you develop options. Ask your lawyers to help you develop options. Apply business principles of risk analysis and cost benefit analysis to those options, make a decision and execute. Conflict management is no different than any other challenge you face. Nine times out of ten, mediation or arbitration will be the dispute resolution vehicle of choice.