Last month the Legal Director Benchmarker survey in association with Cedr and Pinsent Curtis Biddle found that the number of UK companies involved in serious business disputes has risen significantly in the last six months. Here William Marsh and Heather Allen at Cedr explain why mediation now forms part of a modern business tool-kit and how in-house lawyers can harness the benefits of ADR.
Those who thrive in the current business arena are those who adapt best to change, to new ideas and to the challenge and excitement of working in new ways. In the field of dispute resolution, the landscape has changed and is changing.
The Woolf reforms in 1999 turned the attention of the courts to the use of mediation as an alternative to litigation.
Earlier this year, the Lord Chancellor, Lord Irvine, announced that all government departments are to use alternative dispute resolution (ADR) methods as the first choice for dealing with disputes.
The impact of mediation and other dispute resolution processes is likely to be far-reaching. ADR demands a solutions-based approach to the management of litigation and a new focus on the design and implementation of dispute resolution and dispute prevention processes throughout all sectors. The extension of choice provided by mediation puts an onus on all those involved to approach all disputes with a much closer diagnostic scrutiny and a much more creative range of procedural options.
So many disputes become entrenched not because they are inherently incapable of being resolved, but because they were not tackled early enough, or in the right way. It is this basic management failure which in many ways creates the problem.
At the heart of this is a reluctance or inability to think in terms of problem prevention and problem solving and the assumption that disputes are a sign of failure. They are not. Disputes are an inevitable by-product of running a business. The real management challenge is not to win, but to prevent and manage disputes in the first place. Mediating during the litigation process may be better than not doing so, but the real challenge is to ensure that the dispute is not allowed to get that far. Examples abound of key corporate relationships in which minor ‘niggles’ are allowed to take root and fester. By the time it reaches the desk of corporate counsel, what could have been easily resolved has become entrenched, and many of the options for resolution are no longer on the table. What is lacking are the early warning and response systems. At the most basic level, an obvious dispute resolution system is the inclusion of ADR clauses in any procurement or joint venture contract – hence, the Government has recently published its formal pledge committing government departments and agencies to include such clauses in all standard procurement contracts. The use of standard or bespoke ADR contract clauses can be a valuable risk management tool in preventing a dispute spiralling out of control.
There are, however, more subtle approaches available. The essence of these is the pre-empting of disputes – creating corporate systems and a corporate culture which can recognise disputes and channel them through the most effective management and resolution system as early as possible.
A number of organisations such as BNFL and Esso have, with Cedr’s assistance, become open minded to the opportunities presented. Both groups have initiated ‘dispute design systems’ which avoid ‘differences’ from escalating into disputes and, where a dispute arises, provide an efficient settlement process. Quite apart from the beneficial PR impact an organisation can reap either with its employees, franchisees or any close business partners through an overtly constructive approach to disputes, a company can save millions in professional fees.
Not all disputes fall within the remit of the legal department but may involve others such as the commercial director, procurement director or finance director – in fact, any of those staff involved in day-to-day commercial negotiations. But in-house lawyers have a special need to understand, and to be able to work with, these systems and to assist the management to do so with confidence.
The model of the ‘solicitor’s office in-house’ has long gone, and the effective in-house lawyer is now a pro-active, creative and commercial problem solver. Legal advisers in-house should be able to demonstrate an understanding of the principles and process of mediation and to assist with the preparation for the negotiations. They have a responsibility to brief members of the negotiating team so that they can join in fully and confidently from the start of the process.
Mediation is not a soft option, as anyone who has participated in it will know. It is a robust process in which tough negotiations take place. It leaves control of the outcomes with the corporate principals, because decisions are made by the parties and not imposed by an external third party. The role of the mediator is to facilitate negotiations and help the parties to test their approaches against their business interests and to generate solutions. Mediation provides opportunities for better relationship management in an ever-smaller world. And it allows for sensible commercial outcomes for even the most intractable problem.
Negotiations may have broken down for a whole range of reasons, but, for the mediation to have the best chance of success, the representatives must attempt to establish or to re-establish effective working relationships for the day with the other team or teams, as well as within their own team. The in-house lawyer is well placed as a trusted member of the team to offer the objectivity needed to meet this challenge.
Clearly, during the course of the mediation, the in-house lawyer must ensure that his or her company’s interests, as well as its rights, are presented, explored and negotiated fully. In addition, he or she should contribute creatively to problem solving and solution building as the fuller picture emerges. Later, good conceptual and drafting skills are necessary when discussing and finalising terms for settlement.
In-house lawyers also need to understand the principles and practicalities of mediation in order to manage the work of external lawyers.
Most in-house legal departments use a variety of marketing methods to promote the work of the department internally. These activities often include providing training to managers throughout the organisation to encourage effective management of risk while achieving business objectives. There is real scope for improved training for all managers and key operational staff in understanding and using mediation together with a whole range of dispute resolution systems.
Lawyers in-house need to operate as business people, particularly if they aspire to sit at board level. At all levels in business, those who get on are those who know what the company is about, understand its potential and its pressure points and work in a way that reflects that awareness.
These are the people who are seen as contributing to business aspirations and objectives, and who are valued far beyond the technical expertise that they bring. They will be trusted as sounding boards, providers of answers, big-picture thinkers and reliable decision-makers.
Mediation has significant benefits in terms of direct savings (litigation and external legal costs) and indirect savings (management time, preserving stakeholder/supplier relationships and preventing adverse publicity). External lawyers, directors and managers need to know this.
Mediation must now form part of a modern business tool-kit since it is a pragmatic process with commercial solutions at its heart.
William Marsh is director of Cedr Solve’s consultancy service and Heather Allen is director of studies at Cedr Solve’s In-house Lawyer Programmes.
