Does Your Company Needs A Conflict Control System?

Minimizing unproductive expenses that inhibit your company ability to reach its goals is one of management’s most important functions.  Corporate litigation is one aspect of contemporary corporate life that may often be overlooked as strategic tool for reducing unproductive costs, thereby allowing critical resources to be better allocated.  Conflict can be viewed strategically, and the inevitable and ubiquitous nature of conflict makes conflict control strategies a new and important strategic tool for management.

The costs of corporate conflict can be extraordinary.  Litigation costs in America alone begin at $100 billion with some estimates exceeding $300 billion.  These estimates capture direct litigation costs such as dollars paid in settlement, together with those for attorney fees; expert witness/consultant fees; deposition, trial reporting, and transcribing charges; telephone, photocopy, technology-based document imaging, management, storage, and other litigation management activities.  Add to these direct costs the expenses for travel, lodging, meals and paralegal/administrative support and you have an enormous body of expenses generally classified in our financial documents, but maybe not conceptually classified as a strategic issue in our management thinking.  These unproductive expenses can be strategically thought of as the costs of conflict.  Such costs are many and varied, and include such additional categories as:

• Management Focus: The litigation process itself forcibly redirects organizational attention.  The demands of a lawsuit siphon off valuable time and energy that should be spent on running the business.  Executive and managerial focus, the art of constantly paying attention to the productive activities of the company, is alarmingly diluted by responses to discovery requests for documents, strategizing about motion practice and interim court orders, and by preparing for and testifying at depositions and trial.

• Organizational Dysfunction: If the litigation is significant enough, other indirect productivity losses can permeate the enterprise: low morale, loss of motivation, and time spent speculating.  Mitsubishi’s recent $50 million settlement of sexual harassment suit private plaintiffs the EEOC was not part of its operating plan.  Coca Cola would probably feel the same way; so might Nextel Communications.

What is the gained from this litany of lament?  Corporations tend to treat conflict as an aberration, a surprise out of left field, an unexpected calamity, something that shouldn’t have happened.  And when it does happen, we react to it, not surprisingly, as we would to any attack on our safety and serenity, with the anger that has its roots in fear.  We treat it as something to be driven off, to be destroyed, until once again we feel secure about our interests.

The reality is that conflict is inevitable and ubiquitous, and that is the key to a new system for business: a conflict control system.  Conflict, like any other business challenge, can be proactively managed; in today’s world the reactive approach should be viewed as mismanagement.   The concept of a comprehensive, integrated coherent conflict management system is the next evolutionary descendant of the Alternative Dispute Resolution (ADR) movement. 

Conflict Control Systems Are Broader Than ADR

A conflict control system is broader than other alternatives to litigation such as alternative dispute resolution.  In fact, the very concept of alternative dispute resolution is not the beginning point of new ways to manage conflict, but is actually well down the continuum of opportunities.  Disputes, which are specific controversies that must be settled by some form of negotiation or adjudication, are the products of a conflict.  According to Cathy A. Costantino and Christina Sickles Merchant:

In the organizational context, conflict is an expression of dissatisfaction or disagreement with an interaction, process, product, or service.  Someone or some group is unhappy with someone else or something else.  This dissatisfaction can result from multiple factors: differing expectations, competing goals, conflicting interests, confusing communications, or unsatisfactory interpersonal relations.^[1]

Mediation, arbitration and the other ADR processes are valuable tools that can be used to implement part of a comprehensive conflict control system.  But the system itself is much broader.   Top management people, from the start-up entrepreneur to the multi-national corporate executive, must learn that dealing with external or internal business conflicts in the traditional reacting-to-an-accident modes is too oblique for the speed of an e-commerce era.  Unprecedented technological, economic, social and political change churns the global environment and, in turn, challenges modern companies.  Conflicts follow.  Companies have great difficulty responding to the pace and degree of such dramatic change, precipitating further conflict.  Whether expressed by utilizing scorched-earth litigation tactics, crying in the wilderness for tort reform, or creating special business courts, this old-fashioned approach is inconsistent with all other good business practices.  In every other endeavor, management tries to figure how to control the risks to achieving organizational objectives and it can do the same with conflict. 

Conflict Control System Defined

Precisely what is meant by a Conflict Control System (CCS)? In its most sophisticated expression, it is a complex package of comprehensive, integrated and coherent policies, procedures, dedicated institutional resources.  In its most basic and simple form, it’s the development of control-oriented philosophical principles and values together with a set of skills, implemented through an aggressive program of communication, education, and training.

The first step in designing a CCS is to view your current litigation and dispute strategy from 30,000 feet and identify the places where opportunities exist to boost profits by minimizing conflict’s unproductive costs.   It is helpful to first think in terms of a spectrum of conflict control focal points, ranging from avoidance to prevention, management, and eventually resolution. 

• Avoidance (to go or not to go?): as used here, addresses the point of focus where a decision could be made to refrain altogether from doing business in a particular industry, producing a particular product, or entering into a business relationship.  This is the first point at which we conduct a conflict potential audit and the repeat the audit at each focal point.

• Prevention (how to act proactively?): has to do with precautions and planning undertaken to forestall conflict arising out of a particular interaction which has been consciously undertaken after the first conflict audit.

• Management (how to handle an issue?): deals with making strategic tactical decisions about how to deal with complaints, claims, and lawsuits.

• Resolution (how to advantageously wrap up a conflict?): refers to the precise tools we use in settling disputes that, despite best efforts at earlier focus points, have emerged from conflict. It contemplates how best to control the course and outcome of the processes elected and the work of the professionals selected to shepherd the process to closure.

Next, one can identify the types of interaction to which the focal points will be applied.  Just as with every aspect of CCS design, even if using a design consultant, the essential content of the system must come from the organization and be integrated with its values, strategic plan, structure, and management style.  Accordingly, each organization will identify and name its own interactions, but as an illustrative example, consider the following:    

• Opportunity: deals with all interactions involved in deciding whether to pursue or forego a particular potential business opportunity.

• Product/Services: interactions are those related to conception, production, marketing, distribution and sales of whatever the organization is in the business of doing.  These interactions are related to everything from quality control and traditional marketing and distribution to the unfamiliarly configured alliances that make the e-commerce engine run.

• People: interactions are primarily those between people in the company and embrace human resources, employee and labor-relations activities.  A given organization might expand this to include other on-site workers even though employed by contractors.

• Customers: interactions are those related to satisfaction with the effectiveness, quality, pricing and information about products or services, but might also involve customer concerns about such things as working conditions in the company’s foreign manufacturing facilities; allegations of discriminatory practices such as redlining, toxic waste disposal in poor neighborhoods, or customer or shareholder groups with social action agendas.

• Vendors/Suppliers: interactions involve relationships that provide everything from raw materials to computer maintenance and temporary clerical services and snow removal to food services.  The relationships discussed in footnote 5 generate interactions that would be included in this type.

• Contracted Services: interactions flow from relationships, although similar to Vendors/Suppliers, contemplate professional service providers such as lawyers, accountants, consultants, health plans, insurance and banking services, etc.

• Regulators: include legislatures, governmental agencies and self-regulating trade/service organizations that create oversight interaction related to the organization’s operations.

• Capital Markets: relates to the kinds of interactions the company may have with securities analysts, investment bankers, the financial media, shareholders, related to financing, earnings projections and expectations, etc.

• Media: involves interactions with newspapers, magazines, television, radio and internet news outlets who cover the companies operations and activities.

To further illustrate the process of CCS design, let us concentrate on the first row matrix of opportunity and insert examples of the kinds of information that become part of the CCS:                                   

                             OPPORTUNITY: DOING BUSINESS IN IGOTCHISTAN

AVOIDANCE     Risk and conflict analysis     - Political,/economic/ social instability?   - Currency value fluctuations?    - Leadership graft and  corruption?   - Human rights/environmental         hazards or activism?   - Difficult to understand    culture, customs, ways of  interacting?   - Level of competence and stability in banking system?   - Politicized judiciary?   - Politicized military or police?    - Timing?    - Trustworthy partners?    - Independent or state-owned media?   Strategic risk/benefit analysis   ROI analysis   Go/no go decision

PREVENTION     Insurance coverage to shift risk   - Availability of coverage/limits/deductibles/ excess coverage? - Solid brokers/underwriters? - Premium $; who pays?   Contract language?   - risk allocation/ability to control risk? - choice of law? - arbitration/other ADR?      Provider/administrator? Costs? Tailored process? - litigator-transaction lawyer drafting team - Negotiated investment in  activist causes? - Use of Acultural        translators/experts? - Local partners?   Conflict resolution training for personnel

MANAGEMENT     Early prediction and identification of conflicts as candidates for various management approaches   - Matters for pro-active early     resolution (e.g., initiated         negotiation,  facilitated        dialogue?) - Matters for assisted settlement    processes (e.g., indigenous/      local  methods, mediation,    custom- designed processes?) - Matters for alternative    adjudication (e.g.,    indigenous/local processes,    arbitration; other ADR ) - Matters for litigation

RESOLUTION     Settlement Processes   - Agreements on process selection, process design,    neutral selection, case administration, pre-process     preparation and tactical    planning with impasse back-up    plan and public relations plan   Litigation   - Litigation plan: details of outside counsel engagement,     e.g. fee structure, budget, reports, audit? - Litigation communications    plan; in-house/outside     consultants? Engagement details?

* The hypothetical example here is for summary/proposal purposes.  The final document will instead focus on examples from current corporate practice.

A CEO should insist on having a CCS.  All the resources for creating the system and plan for implementing may be found inside the organization. But the best approach may be to engage the services of a CCS design consultant to bring structure and facilitation skills to the process.  However, contracting out the CCS development in toto will not work.  The product of these efforts needs to be congruent with the organization’s own culture, values, strategic plan and general way of getting things done.