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Are Businesses Missing The Dispute Resolution Boat? A Study Underscores Lack of Early Intervention Usage

by Barry Simon
September 2004 Barry Simon
For those companies who find themselves in court, the use of alternative dispute resolution (ADR) has proven to be a win-win proposition for everyone with proven savings in money and time and a high rate of satisfaction by the parties. Yet, these same companies have not used low-cost ADR to address internal workplace disputes before they escalate into lawsuits. Why would the business community consciously choose lawsuits over ADR when they know the latter costs less and provides more benefits? Have they gotten so familiar with the legal approach to conflict resolution that business leaders can’t see a better alternative right in front of them?

THE PROBLEM

When consumers sue companies, when companies sue each other and when employees sue employers, their disputes are often directed to mediation somewhere along the litigation route. Over the past two decades, most courts in the country have turned to mediation for resolution of many civil law cases. Not only has it proven effective, it lowers the courts’ growing caseloads and reduces costs for everyone, including taxpayers.

Through these court programs, the business community has become familiar with the benefits of alternative dispute resolution (ADR). It also saves them time, money and relationships. Some companies have even initiated the use of ADR themselves in order to successfully resolve lawsuits early or to side step litigation altogether.

Yet, these same companies, who understand the advantages of ADR, have not employed it for early intervention of on-going internal conflict. Left to fester, these work place disputes become the source of employment based and compliance driven lawsuits. In part, this is because no one at the company listened to them and the employee had no where else to turn but to an attorney who gladly paid attention.

This is the picture presented by a recent study entitled “The Use of ADR (Alternative Dispute Resolution) in Maryland Business” published in May, 2004, by Maryland’s Mediation and Conflict Resolution Office (MACRO) (www.courts.state.md.us/macro/ index.html) It looked at how state businesses resolve external conflicts, such as disputes with other companies, subcontractors, customers or the general public. It also surveyed the use of ADR for internal workplace disputes, such as personnel conflicts, discrimination claims and other day-to-day workplace grievances.

To examine these two areas, MACRO sent an “External Relations Survey” to the General Counsels of 105 Maryland businesses. It also sent the “Employment and Workplace Survey” to Human Resource officials at the same businesses. It followed up with a phone call to the key contacts at each of these businesses.

Given the growth in ADR use spurred on by the introduction of mediation into the nation’s courthouses, it is not surprising that the “External Relations Survey” respondents indicated its continued and growing usage for managing grievances and litigation. However, the picture of ADR usage for resolving internal workplace conflicts before they turn into lawsuits is not as rosy. Yet, it is here where a company can also save money, time and working relationships. However, most companies seem to ignore this simple “ounce of prevention” approach.

This is particularly surprising given the results of another survey conducted by the law firm Fulbright & Jaworski L.L.P. (http://www.fulbright.com/index.cfm?fuseaction= home.494) It found that 62% of 300 companies from 41 states indicated that their number one litigation concern was labor and employment lawsuits. If this area of litigation is their primary concern, one would expect that the business community would be doing something to stem the on-coming tide. But that’s not the story the MACRO study tells.

FIRST HALF/SECOND HALF

The two surveys that make up the MACRO study clearly delineate the two halves of the conflict cycle. The first half is when the conflict first arises, when the normal differences between people become a disputed issue. Addressed effectively, the dispute usually can be resolved.

However, workplace conflicts are often ignored or an attempt is made to resolve them in an ineffective manner, such as using a heavy hand (“My way or the highway”) or trying to compromise away the issue. While it might appear on the surface that the conflict has been resolved, the feelings still fester and the dispute goes underground, only to erupt at a later time and often more vigorously. Given a company‘s reluctance to acknowledge the conflict and manage it through more effective means, the employee may turn to the only option available: litigation.

When the dispute enters the legal system, it has also entered the second half of the conflict cycle. As the MACRO study found, this is when most companies are best prepared to address the problem. Unfortunately, it will also cost them a lot more than if they had effectively addressed the conflict earlier.

As the MACRO study reminds us, the average cost of defending a litigated employment claim is $130,000 and takes 2.5 years before a civil trial begins. In time, energy and money alone, it makes more sense for a company to address conflict in the first half rather than wait until “people problems” evolve into legal conflagrations.

When you also factor in human “costs” such as lost productivity, lower morale, potential sabotage, damaged relationships, increased absenteeism, extended medical leaves and reduced retention with its worker replacement/training costs, there is really no valid business reason for any company - large or small - to wait until the second half to address workplace conflict. Yet, that is exactly what most businesses do.

Under the guise of “early intervention,” when a dispute arises or the potential of one is felt, a company might contact its legal adviser, believing it is nipping the conflict in the bud. While it is always a good idea to get legal advice, the intention here is not early intervention. Rather, it is more about protecting the company’s butt. Talking with one’s attorney might help the company side step a possible legal problem, but it does not address the core issue of the dispute itself. It merely addresses the legal issue. True early intervention involves addressing the actual conflict head on through an effective conflict resolution process.

In his book, “The Peacemakers: Peace Settlement of Disputes Since 1945” (London: MacMillen, 1992), Hugh Miall writes, “There are two main phases in conflict when resolution is more likely to be achieved. The first is at an early stage, before attitudes become too fixed and behavior too hostile. The second is at a later stage when the conflict has become a costly stalemate and the parties are exhausted.” The latter phase describes what the business community does now. The former is what is what they should be doing.

THE EMERGENCE OF ADR

In the mid-1970’s, a growing dissatisfaction with the administration of justice led 200 legal experts to meet for what became known as the “Pound Conference.” Here they looked for ways to improve what happens in courthouses across the nation. This marked the emergence of alternative dispute resolution - in particular, mediation and arbitration - within the justice system. (As the field has developed outside the courthouse, other processes have been added to the ADR list: conciliation, collaborative meetings, facilitation, conflict coaching, etc.)

Today, these ADR approaches to resolving civil law disputes are well entrenched within the business community as shown by a study published in 2003 by the American Arbitration Association (AAA) (www.adr.org/dw/index.asp). Entitled “Dispute-WiseSM Business Management: Improving Economic and Non-Economic Outcomes in Managing Business Conflicts,” this study focused solely on the second half of the conflict cycle. It surveyed “corporate general counsels, associate general counsels, or people in similar positions of seniority within legal departments.”

The AAA study attempts to create a “conceptual framework for measuring how companies manage disputes.” To do so, it measured 254 companies’ legal practices against an eight-item index of key characteristics, such as being in tune with broader business issues facing the company and the industry; focusing on the preservation of valuable relationships, not just on winning; likelihood to not take an aggressive approach to dispute resolution; and likelihood to favor ADR over litigation.

Fully 95% of the respondents reported that their companies had used some form of ADR procedures during the last three years and primarily for the reason that money was saved (91%-med/71%-arb). The second reason was saving time (84%-med/73%-arb) followed by “provides a more satisfactory process (83%-med/66%-arb).

The study also reveals:

  • The overwhelming majority of all companies surveyed say they use both mediation and arbitration, but mediation is favored somewhat over arbitration.
  • There is a greater use of mediation and arbitration among Fortune 1000 companies than in mid-size and private companies.
  • The primary reasons for using mediation or arbitration include saving money and saving time. Companies also report using mediation because it allows parties to resolve disputes themselves.
  • Mediation and arbitration are more often used for commercial contract and employment disputes.
  • Companies report higher satisfaction with mediation than arbitration, perhaps because the parties themselves reach agreement in mediation.

Further underscoring the advancement and benefits of ADR in resolving disputes in the second half, the Administrative Office of the Courts in California published in 2004 an “Evaluation of the Early Mediation Pilot Programs” (www.courtinfo.ca.gov/reference/ documents/empprept.pdf). It reported on the use of court-annexed civil mediation programs in five California counties: Fresno, Los Angeles, San Diego, Contra Costa and Sonoma.

In summary it said that “…all five of the Early Mediation Pilot Programs were successful, resulting in substantial benefits to both litigants and the courts. These benefits included reductions in trial rates, case disposition time, and the courts’ workload, increases in litigant satisfaction with the court’s services, and decreases in litigant costs in cases that resolved at mediation in some or all of the participating courts.”

Clearly, on the litigation side of dispute resolution, using another approach other than litigation has proven effective and desirable. Given the obvious benefits to businesses, it would seem natural that similar thinking should have crept over into managing conflict within their own workplaces. Yet, just the opposite seems to be the case.

ADR IN THE WORKPLACE: THE MACRO STUDY

Maryland’s Mediation and Conflict Resolution Office (MACRO) is a court-related agency which serves as an alternative dispute resolution resource for the state of Maryland, supporting innovative dispute resolution programs and promoting the appropriate use of ADR in every field. It supports efforts by others to advance effective conflict resolution practices in Maryland’s courts, communities, schools, state and local government agencies, criminal and juvenile justice programs and businesses.

Like the AAA’s “Dispute-Wise Management” study, MACRO used an index of key characteristics developed by the Association of Conflict Resolution that indicates a company’s use of an Integrated Conflict Management System. This index includes five major provisions:

  • providing options for preventing, identifying, and resolving workplace disputes
  • fostering a culture that welcomes good faith dissent and encourages resolution of conflict at the lowest level through direct negotiation
  • providing multiple access points
  • providing multiple options for addressing conflict
  • provides systemic support and structures.
The survey goes on to include eleven key characteristics of a Conflict Management System, such as provides training and education, has an oversight body, at least one person functions as a neutral, adequately funds conflict management, etc.

One hundred five companies participated, with staffs ranging from more than 5,000 to fewer than 250. The study reveals the following (italics and bold facing are added):

  • 35% of respondents report that ADR training and education is provided to legal staff. But only 13.5% provide such training and education for the non-legal staff.
  • 71.4% have no dispute resolution training and education for first line supervisors.
  • 69% have no dispute resolution training and education for managers.
  • When it comes to creating a dispute resolution oversight body that includes representation of key stakeholder groups, 88.1% responded they have no such body.
  • 67% have no ADR program that is used in resolving employment and workplace disputes.
  • 45.2% indicated they had no one who functions as an internal, independent, and confidential neutral.
  • 61% have no central coordinator or coordinating office the spurs the development, implementation, and administration of their companies dispute resolution efforts.
  • Only 2.4% have a trained mediator on staff either full or part time. And 0% use external mediators on a contractual basis to help resolve conflicts within their workplaces.

In short, businesses do not focus on using ADR to resolve internal workplace conflict even as they use it to successfully resolve lawsuits. This is strange given the known advantage of resolving conflict early in the dispute cycle and the low cost of this early intervention. Meanwhile, “people problems” within the workplace are the steady drip, drip, drip that slowly drains time, energy, productivity and profits from a company’s resources. The good news is that for those companies that have gotten the message, the results are very promising.

THE GIANT STORY

A Conflict Management System (CMS) can come in many different sizes and shapes. Some are formal while others are less so. Some can be intricate and require substantial financial resources (but seem less expensive when compared to litigation costs and judgments against a company). Others are more informal and cost less to create and support. Some are in-house while others use outside providers on an as-needed basis.

The complexity, cost and shape of a CMS depends, in part, on several factors:

  • the number of employees,
  • the level of internal conflict,
  • the conflict resolution skills of management on all levels,
  • current litigation costs,
  • the cost of unresolved conflict on the bottom line as measured by:
  • retention,
  • absenteeism,
  • extended medical leaves,
  • worker comp claims,
  • compliance complaints.

The important point is that for a company to reduce the cost of unresolved conflict, it must become, in the AAA term, “dispute-wise.” It must understand that resolving disputes early is not a cost but a savings; it is not a luxury but an essential part of running a business.

The MACRO Survey highlights several examples of companies that have instituted some form of a CMS. One such company is Giant of Maryland, LLC (Giant). With 25,000 employees, conflict is to be expected. But how this company has chosen to manage internal workplace disputes makes Giant the exception that should become the rule.

The Giant story begins in the early 1980’s when senior management had a vision of creating a better approach to managing workplace disputes. This highly unionized company created a Fair Employment Practices Office which is now part of its legal department.

The company has posted signs in every store promoting the Office’s phone number. When an associate (as employees are described) contacts the Office, it assures the person that it does not report to the associate’s boss and guarantees confidentiality within the associate’s immediate work environment. At the same time, it is straight forward about the possibility of reporting to the legal department when it is appropriate to the dispute. So, almost from its beginning, this Office had two important components of an effective dispute resolution program: unqualified support of upper management and the guarantee of confidentiality.

It also points out the corporation’s “No Retaliation” policy and promises to do its best to provide an environment in which the associate is comfortable. In short, the Office does everything within its power to provide the associate with a “safe space.” Once informed, the associate can decide to move forward with the issue or to drop it.

The Office’s first line of action is to assess the issue and then send the associate in the right direction. Some issues can initially look like a compliance problem, such as discrimination. But in reality it might be a complaint about assigned hours that has been labeled as “discrimination” by the associate. Through its assessment process, the Office can direct this person to the union where assignment of hours is covered by their contract.

Some issues, like sexual harassment, can be more difficult to prove. But even when the facts are not verifiable, the Office will reinforce the company’s stated policy to supervisors and managers. Because its affirmative defense is to respond promptly to any complaint, it doesn’t dismiss situations out of hand. This willingness to investigate the full story and address the issues presented has earned the respect of the company’s associates, another important component of an effective CMS, and is more than likely an important element in its long term success .

As employment laws change, the Office trains the company’s managers and supervisors as to revised company policies. This adds the next important element of an effective Conflict Management System: on-going education through training. While many companies do the same, it’s the combination of elements - senior management support, confidentiality and training along with other aspects, such as credibility and trust - that makes the Giant approach to conflict so successful.

In the early 1990’s, the EEOC started to emphasize the use of mediation for resolving EEO complaints. The management of Giant Food took this approach to heart. Besides the trainings, investigations, informal phone calls and meetings it was using to address conflict, it embraced the use of this dispute resolution process, too.

How well does this Conflict Management System work? In 2002, the Office received 800 internal complaints. Only 20 of these became formal complaints. Of those, 18 were also resolved. This left two out of the original 800 that moved into the second half of the conflict cycle.

How complex is this CMS? It is two Fair Employment Practices investigators whose sole mission is to personally respond to and resolve workplace complaints.

Having an active CMS has been very effective for Giant. If any one of those 800 complaints in 2002 had resulted in a large judgment against the company, there is no predicting what the final cost could have been. With the MACRO study pegging the average cost of litigation at $130,000 (not including a judgment against the company), preventing even one complaint from turning into a formal grievance or lawsuit justifies the Office’s existence. The fact that the Fair Employment Practices Office has been maintained for over two decades demonstrates senior management’s belief that it saves money, not to mention intangibles such as morale. Clearly, the benefits have outweighed the cost.

Without a commitment to resolving workplace complaints on a daily basis, there is no telling how many of the 800 complaints might have escalated into the second half and how much money would have been spent on litigation costs. But the point is this did not happen because Giant had a relatively inexpensive mechanism in place to address conflict as soon as it arose.

COSTS AND SAVINGS

Cost is always a factor in determining whether or not to create any program. What if another company had 800 complaints which it had reduced to 20 through their effective Conflict Management System? As an exercise, if we take the $130,000 average litigation cost and multiply it by the 20 complaints, the total cost of litigating these disputes could be $2,600,000. Remember, this does not include any judgments against the company. So the costs could be much higher if they lose any one of these disputes.

What if our imaginary company resolved 18 of the 20 complaints? The approximate cost of litigating the remaining two would be $260,000. That’s quite a savings from litigating the original 20. That’s a savings of $2,340,000 ($2,600,000 - $260,000 = $2,340,000). That would pay for the creation and maintenance of a Conflict Management System many times over. With this kind of savings, the CMS almost becomes a profit center.

If you add in the possible savings in “human costs,” such as greater retention, reduced absenteeism, higher morale, few worker comp claims, shorter medical leaves, the savings times the 800 complaints can be even greater.

FIRST STEPS

A company does not need 25,000 associates like Giant of Maryland, LLC, in order to become “dispute-wise.” Nor does it need a formal, multi-layered Conflict Management System in order to resolve disputes effectively. But it must have a commitment by upper management to resolve conflict early within its work environment. Without this “early intervention” vision, a company becomes victim to a “second half” mentality in which litigation is seen as inevitable. If senior management decides to address internal workplace conflict in the first half of the conflict cycle, litigation can be avoided. Plus, when disputes are addressed early and with respect for all parties, it is good for the staff, it is good for management and it is good for the bottom line.

Once there is a commitment to early intervention of workplace disputes, a company can start with on-going training in conflict resolution skills for staff and management. If the level of internal conflict calls for it, a company can designate a third party neutral to address disputes early. Smaller companies can turn to an outside provider, such as a mediator or a conflict manager, to help resolve occasional conflicts that cannot be managed internally. Medium sized companies can create a Fair Employment Practices Office, as Giant did, or start an ombuds position. Large firms can create a more nuanced Conflict Management System that addresses its structural complexity.

Effectiveness can be evaluated by utilizing the same criteria used to originally assess the cost of unresolved conflict: retention rates, absenteeism, extended medical leaves of absence, worker comp claims, and compliance complaints.

CONCLUSION

Just as many businesses have embraced alternative dispute resolution on the legal side, it is time for them to bring this new way of managing conflict into their own work environments. Even more important is using these dispute resolution processes early in the conflict cycle before a workplace dispute escalates into an expensive litigation. However, it takes an upper management that understands the value and savings that come from having a systematic approach to resolving conflict early rather than waiting for it to escalate into a lawsuit because it was the only alternative left.

The company that embraces effective conflict management also reaps the rewards: increased productivity, higher morale, saved relationships, decreased absenteeism, lower medical leaves, increased retention which reduces replacement/training costs and…an improved bottom line. To do otherwise is to continue doing “business as usual” which means waiting for litigation and then paying its high cost. Given the benefits of managing conflict early, it seems the choice is clear. So why is the business community hesitating?

Biography


Barry Simon is a conflict manager in private practice who has conducted mediations concerning community issues, divorce, same gender relationship dissolutions and workplace conflicts as well as facilitating meetings, coaching and training people in basic dispute resolution skills.

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Website: www.resolvenow.com

Additional articles by Barry Simon

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