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Companies Relying Less on Arbitration, More on Informal Approaches
The National Law Journal
A just-released study of dispute resolution practices in Fortune 1,000 corporations shows that many large companies are using binding arbitration adjudication with private judges less often and relying more on mediated negotiation and other approaches aimed at getting disputes settled more informally, quickly and inexpensively. The study, based on a 2011 survey of corporate counsel developed by researchers at Cornell and Pepperdine universities with input from the International Institute for Conflict Prevention & Resolution (CPR), indicates that although the approaches of large corporations vary widely, their decisions about how to manage conflict usually boil down to issues of control.
Three decades ago, leading corporate counsel were in the forefront of efforts to avoid the costs and risks of Rambo-style litigation what some have called a "quiet revolution" in dispute resolution. They began using approaches like minitrial and negotiation with the help of mediators. Thanks in part to U.S. Supreme Court decisions promoting the enforcement of arbitration agreements, binding arbitration became even more important as a substitute for public trial. A 1997 Cornell survey of Fortune 1,000 corporate counsel chronicled these developments and suggested a bright future for mediation and arbitration. Corporate counsel expressed positive views of many perceived benefits of these options, including savings of time and cost and more satisfactory, durable results.
The new survey, reflecting the responses of more than 300 Fortune 1,000 corporate counsel, presents a decidedly mixed picture. The respondents, almost half of whom are general counsel, assert that their companies are less likely to employ hardball litigation as a primary strategy, and instead broadly embrace mediation as a tool for resolution of all kinds of disputes now and in the future. They are also becoming more proactive in managing conflict in the early stages of litigation and employing third parties to evaluate and assess different dimensions of a legal dispute in order to chart an appropriate path to resolution. They tend, however, to be tangibly less assured of the potential benefits of "alternative dispute resolution," perhaps reflecting a more realistic (or more cynical) view born of long experience.
And when it comes to adjudication, more companies seem to be turning back to litigation in court. Binding arbitration usage has dropped for most kinds of disputes, and corporate counsel are now evenly divided on the question of their company's future use of arbitration. Notable exceptions to this marked downward trend are consumer and products liability cases, as some companies appear to be taking advantage of the Supreme Court's decisions supporting the use of binding arbitration clauses in standardized consumer contracts, including provisions waiving the right to participate in class actions.
The common theme in these changing patterns is a desire for maximal control of the dispute resolution process. Corporate attorneys logically prefer to manage outcomes, so mediation and other approaches that aim at achieving a mutually acceptable settlement are strongly favored. The evidence suggests that the models they embrace are heavily lawyered, with the emphasis on third-party predictions or evaluations of a case's chances in court. If settlement cannot be achieved, some companies then want to try their commercial cases in court despite the well-known costs and risks, if only because of the traditional "second chance" the opportunity to overturn a faulty verdict or judgment on appeal. But many other corporate counsel continue to view this preference for litigation as ironic, since the alternative binding arbitration is a choice-based process that affords countervailing advantages such as options for enhanced confidentiality, speed and efficiency, expertise and even private appeal! All too often, it seems corporate counsel fail to recognize or take advantage of such options.
Similar themes may be found in the handling of workplace disputes. The survey data reveal that a growing number of companies have incorporated one or more mechanisms to manage employment issues, including hotlines, open-door policies, conflict coaching, peer review, ombuds and mediation. About a third of companies apparently have offices or functions to manage workplace conflict. On the other hand, nearly half of respondents claim that their company has developed no special dispute-resolution tools for the workplace.
Ultimately, the successful evolution of effective alternatives for the handling of business-related disputes depends upon internal decisions that corporate interests can be better achieved by moving beyond traditional approaches. This means overcoming the prevalent caution among corporate counsel about leaving habitual comfort zones and the low priority assigned to dispute resolution in the negotiation and drafting of business agreements. These are formidable barriers. As one expert on corporate deal-making recently explained when asked why the companies he advises had not rushed to employ a particular new program for dispute resolution, "My clients prefer to cross the street in a group."
Thomas J. Stipanowich is the William H. Webster Chair in Dispute Resolution, professor of law and academic director of the Straus Institute for Dispute Resolution at Pepperdine University School of Law. The complete study, "Living with ADR: Evolving Perceptions and Use of Mediation, Arbitration and Conflict Management in Fortune 1,000 Corporations ," by Thomas J. Stipanowich and J. Ryan Lamare , may be found at http://ssrn.com/abstract=2221471.
This article originally appeared in The National Law Journal.