DISPUTE-WISE MANAGEMENT

By SCOTT FLEGAL, Flegal Law Office , PA

Legal fees. Those two words sure do create a lot of anxiety. As lawyers, we can't live without them. Those of us in private practice don't eat if we don't generate them. Those of us in small private practices live month to month, working to insure that we generate enough of them to keep the lights on and the malpractice insurance paid. Believe me when I tell you that those two words make lawyers anxious.

Of course clients don't much like those two words either. Legal fees can take a big chunk out of the bottom line. Hands tremble when the client holds the envelope containing the monthly invoice from their lawyer. "What will the number be this month", they wonder with great trepidation. More than one staff member has told me that they make themselves scarce when the boss opens that envelope. They have learned that the envelope could well contain a surprise that might send their boss into orbit.

Of course, nowhere are these unwelcome surprises any more substantial then when parties are in litigation. Once a lawsuit has been filed, the lawyers really don't have much choice. They have an ethical obligation to insure that the case is properly prepared for trial. Good trial lawyers try to work with their clients to keep the costs of litigation within some budgetary parameters, but the truth is that legal fees in litigation are awfully difficult to control. Monthly surprises rule.

There are indications, however, that change may be in the wind. The American Arbitration Association, the recognized world leader in alternative forms of dispute resolution, recently conducted a research study that suggests that at least in large corporate America, companies are actively using alternatives like mediation and arbitration to resolve their business disputes.

The research study, which can be accessed at the AAA website at www.adr.com, is entitled "Dispute-Wise management - Improving Economic and Non-Economic Outcomes in Managing Business Conflicts". The AAA surveyed 101 Fortune 1000 companies, 103 mid-size public companies, and 50 privately-held companies, most of whom had revenues of somewhere between $500 million and $1 billion dollars.

The study examines the way that these companies use mediation and arbitration to manage their disputes. But the AAA study takes the analysis to an important new level by posing two critical questions: Can companies that might be considered as "dispute-wise" be identified, and if so, what are their characteristics? And, is there a relationship between "dispute-wise management practices" and favorable "outcomes" of both an economic and non-economic nature?

The results of the survey may indicate the emergence of an important trend in the manner in which parties seek to resolve their disputes. It seems that in the world of big business in particular, parties are avoiding litigation and its many associated costs by using mediation and arbitration to resolve their disputes. And, the survey suggests, this strategy is working.

The study estimates that the bill for civil litigation in the U.S. has reached somewhere between $200 and $300 billion annually. Companies are understandably interested in reducing this cost. But the study indicates that successful companies have taken the management of their disputes to a new level. The most "dispute-wise" companies are taking a "portfolio" approach to disputes. According to the survey, these companies recognize that ""winning" should be measured by how well the organization manages over time the overall total economic and non-economic impact of the full array - or portfolio - of disputes it faces across all facets of its business." The research study also makes one very significant finding for corporate America: The companies that were deemed most "dispute-wise" in the study had price to earnings ratios that were 68% higher than the mean for companies in the "least dispute-wise" category.

What the study seems to boil down to is this: the best-managed companies with the best earnings performance are changing the way they approach and resolve their business disputes.

These "dispute-wise" companies address their disputes globally. They manage their risk. They recognize that even where a favorable judicial outcome is likely, winning is not necessarily the primary goal. If they can use mediation or arbitration to lessen risk and expense, conserve resources for more important matters, or to help maintain good relationships with customers, suppliers and employees, they do so. These companies are learning to avoid what the AAA describes as America's "contentious, costly and over-burdened court system."

While the use of mediation, in particular, as a means of resolving disputes is becoming popular among Fortune 1000 companies, it has yet to make significant inroads as a dispute resolution tool in markets like New Hampshire, where the business landscape is dominated by smaller players. At least for the moment, New Hampshire businesses appear to remain committed to resolving disputes the old-fashioned way: in court. But eventually, those monthly surprises will get old, and the smart companies will re-evaluate their dispute resolution tools.