What Every CEO Needs to Know about Alternative Dispute Resolution

dispute_resolutionEffectively managing conflicts is an essential skill for every CEO, especially in the complex business environment companies face today. The marketplace is littered with businesses who were seriously damaged or, worse yet, brought to failure by ineffective management of disputes or disagreements, whether they be arguments among business owners or shareholders; grievances presented by employees; or hostile actions pursued by unsatisfied customers. One powerful tool for responding effectively to conflicts is alternative dispute resolution. We asked attorney Ellen Kandell, President of Alternative Resolutions LLC, to provide an essential overview of what every CEO should know about ADR.

WP: What, in a summary, is alternative dispute resolution?

EK: Alternative Dispute Resolution, or ADR for short, is a catchall term which refers to a range of dispute process options for resolving conflict rather than the traditional American adversarial process. It is often referred to as "appropriate dispute resolution", because it is tailored to the needs of the parties and the dispute. Commonly known processes usually included in the ADR umbrella include mediation, arbitration, conciliation and fact finding, to name a few. Some of these processes are a form of outcome prediction, like early neutral evaluation or summary jury trials. Others, like mediation, are a form of process assistance.  

The common thread in all ADR systems is that they are private and confidential. The parties have greater control over the outcome and usually the issues are resolved faster - and at a far lower cost - than through litigation. In addition, most ADR processes foster self-determination and allow for creative solutions.

WP: What are the most common situations in which dispute resolution becomes important?

EK: Dispute resolution becomes important when a conflict starts taking the business owner or his or her key executives away from their core mission. Poorly managed conflict damages reputations, wastes time, poisons relationships and costs money. An astute business executive will seek out advice from human resources or legal counsel before relationships with colleagues, suppliers, customers and employees are jeopardized.

WP: What should business founders, owners and shareholders/partners do proactively to reduce their risk of future conflicts?

EK: Smart business executives should embrace conflict and create a culture whereby conflict is addressed early and people are encouraged to resolve issues at the lowest level in the company. Great leaders bring the skills and characteristics of a mediator in to solve tough organizational challenges - before they become formal disputes. This is the premise of Mark Gerzon’s book, Leading Through Conflict: How Successful Leaders Transform Differences into Opportunities (Boston, MA: Harvard Business School Press, 2006).

Businesses should have dispute resolution language embedded in all of their corporate documents, from contracts with suppliers to joint venture agreements. Ask “How will we resolve issues if this deal or project falls apart?” and plan for that.  In this way, you’ll have a greater likelihood of preserving the relationship and the underlying business deal.  

Most often, standard form contracts include arbitration as the only dispute resolution option. This is generally a bad idea  for several reasons. First, arbitration is very expensive. Second, in arbitration there is a winner and a loser. It’s difficult to preserve a relationship in arbitration. So, while arbitration is one form of ADR, it should be used deliberately, rather than by default, because it is the only dispute resolution option contained in your contract.

In addition, executives should foster a culture of problem solving so that when issues first arise or relationships get strained, there is an openness and safety for addressing conflicts, whether between colleagues, teams or with outside stakeholders.

WP: How can a company implement best practices that effectively reduce its risk of disputes with customers, employees and other stakeholders?

EK: In addition to the concepts provided in answer to the question above, one best practice for reducing the risk of disputes is to provide training on conflict management for all key employees. In addition, team leaders should encourage employees to raise issues early within the management and leadership structure of the organization.

Another best practice is to take good care of all relationships - whether they be internal or external, with customers, suppliers or employees. Develop a feedback system for addressing complaints and problems early before they mushroom into bigger issues. New ideas deserve dialogue.

Finally, do a review of all standard form agreements. The dispute resolution language should include a multi step process, beginning with self-help, that is tailored to the nature of the dispute.

WP: What is arbitration, and is all arbitration binding?

EK: Arbitration is like having a private court make decisions. The arbitrator, like a judge, issues a decision on the dispute based on the law and/or the contract which established the arbitration requirement. Arbitration is generally binding and final. Arbitration is driven by the rules of the particular arbitration system that is specified in the underlying agreement, i.e. American Arbitration Association or National Arbitration Forum. Arbitration is usually very expensive and can be as litigious as going to court.

WP: What is mediation, and what makes it different from arbitration?

EK: Mediation is a process whereby a neutral third-party facilitates communication between the parties in dispute, so that they can develop options and resolve the dispute themselves. In mediation, the parties make the decision - whereas in arbitration, the arbitrator has authority and decides. Mediation is a much more flexible process than arbitration. Mediation decisions, if they are entered into a court order or are signed by the parties, are binding.

WP: Outside of disputes, how does an expert such as yourself assist companies proactively (i.e. facilitation, strategy, planning, visioning)?

EK: When a business leader needs to be an active participant in an important meeting or when there are strategic issues that need thorough discussion and brainstorming, a neutral facilitator provides assistance with the design and conduct of that discussion. In this way, the executive can be fully engaged in the discussion and not worry about keeping the agenda on schedule or assuring the meeting objectives have been made.

According to the Wharton Center for Applied Research, the average CEO spends 17 hours per week in meetings, senior executives an average of 23 hours, and middle managers 11 hours. And according to senior and middle managers themselves, only 56% of these meetings are productive. These unproductive dialogues translate into millions of dollars of wasted time. An experienced facilitator will work with the leader in making sure that the expected outcomes of the meeting are met and the discussion produces the desired results.

WP: Are all dispute resolution professionals attorneys? And are all of them certified or licensed?

EK: Many dispute resolution professionals are attorneys, although a law degree is not required. State laws govern the qualifications of mediators and arbitrators. Most states don’t limit the practice to attorneys. However, local customs in various jurisdictions may be more limiting than the statutes or court rules. For instance, in Montgomery County Maryland, only attorneys can handle court ordered mediations. There is currently no licensing of mediators, but licensing and certification is a big issue being continually discussed in the dispute resolution field.

WP: What are key characteristics a CEO should look for when selecting a dispute resolution firm or facilitator to address business problems?

EK: Because of the low barriers to entry and the lack of mediator licensing, it is vital to pay close attention in selecting a dispute resolution firm. You should inquire about several factors: training, overall experience, specialized expertise, performance-based certification and references. While the basic requirement in most jurisdictions is 40 hours of training, most experienced mediators have several hundred hours of training.   

In addition, you will want to inquire about any specialized expertise, such as health care, psychology, or architecture sector experience, that may be relevant to the dispute. Seasoned dispute resolution professionals should be able to provide references of parties or attorneys who have participated in their mediations. Serving as a reference for a mediator should not in most cases violate the confidentiality of the process. Finally, there are organizations such as the International Mediation Institute (www.imimediation.org) that have performance based systems where parties and advocates can provide feedback on a mediator’s competence.  

WP: What else would you suggest every business owner know about the strategic importance of effective conflict management in building a growth-oriented company?

EK: While many people view conflict as negative, there are many positive sides of conflict. It produces growth and change which is often necessary. If you view conflict as an opportunity for learning and development it will serve you in the long run.

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Topics: Focus Area: Leadership, leadership strategy, business growth strategy, CEO Knowledge Series, dispute resolution, mediation, arbitration

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