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IN ANCIENT GREECE, a tale was told of a roadside inn where a traveler might find lodging for the night, and although the traveler might be tall, short, fat, or thin, the inn’s bed fit all just the same. The innkeeper, of course, was Procrustes, a giant who tied travelers to the bedstead and either stretched them or chopped their legs to make them fit. Many business disputes seem to be approached this way today: no matter how diverse the parties, issues, or stakes, litigation is the answer. And even those managers or counsel who, unlike Procrustes’ guests, perceive a choice among several available “beds”—litigation, arbitration, or even mini-trials—rarely make further attempts to tailor the dispute resolution process to the conflict at hand. Instead they allow the parties to be realigned, the issues reframed, or the stakes redefined.
Managers must deal with a broad range of conflicts, many of which involve parties external to the organization: valuable business partners, threatening competitors, or inquisitive regulators. But scorched-earth litigation followed by an on-the-courthouse-steps settlement is clearly not the answer to every dispute. Dealing with a competitor turned potential alliance partner whose third-level subsidiary may be infringing on a patent calls for a different approach than does responding to a “professional plaintiff” who has filed a frivolous shareholder derivative suit. Both of these may be different still from how one might want to manage the plausible antitrust claim of a disgruntled distributor.
Sensing the need for a better approach to process selection, both in-house and outside counsel have begun, with the help of academics and specialized professionals, to serve up a choice between traditional litigation and ADR—alternative dispute resolution. But that either-or choice is hardly confidence inspiring: expensive and disruptive litigation on the one hand, and an enigmatic acronym on the other.
Those who do opt for ADR face another vexing choice: should we go into arbitration, mediation, or a mini-trial? The standard, if somewhat unfair, criticisms of each process are well known: “arbitrators split the baby in half; “mediators never resolve really difficult cases”; “there is more “trial’ than “mini’ in mini-trials.” At the other end of the spectrum, ADR partisans indiscriminately and somewhat disingenuously extol the virtues of all ADR processes as uniformly cheaper, faster, and more confidential than the litigation strawman. The choice among the two or three most commercially established ADR mechanisms often feels like the choice offered at a “new and improved” Procrustean Inn: not one, but three beds, accompanied by the familiar promise of “an exacting fit.”
Of course, not every dispute requires a custom designed process any more than every ancient traveler required stretching or hacking. But misdirected attempts to fit the problem to the process exact high tolls in both human and economic terms: wasted time and money, damaged morale, lost opportunity, and unwanted publicity, to name a few. Effective dispute management requires more informed decision making, based on a careful analysis of the conflict and of the means available to resolve it. The manager responsible for the conflict, whether the disputant or a superior, should probably make these decisions and subsequently design and implement the appropriate process, with the advice and support of legal counsel. This essay, then, is directed at such individuals or teams—the conflict managers.
If no single dispute resolution process can effectively, fairly, and efficiently address all concerns raised by the rich universe of external business disputes, what the conflict managers need is a consistent analytical framework. Instead of refining questionnaires or checklists for choosing between litigation and ADR, and instead of sorting through the benefits and drawbacks of standard litigation alternatives, thoughtful managers should change the question. They should ask not which process should we use (suggesting a choice among discrete options), but how can we resolve this conflict? They should try to understand the dispute and determine whether designing a more well-suited resolution process is cost effective. Borrowing problem-solving tools from engineering and medicine, conflict managers should attempt to understand what about the conflict has prevented its being quickly and effectively resolved. Only then will they be well equipped to make an informed decision about how to proceed, and if appropriate, to devise a process capable of resolving the conflict.
In this essay, I propose a methodology to allow managers and their counsel to consider systematically either particular conflicts or categories of disputes and then to devise, refine, and implement appropriate procedures for dealing with them.1 The method, structured as a set of inquiries that the disputants may attempt to answer independently or jointly, starts by positing a standard against which one might measure success. It is a vision of what a good conflict resolution process should look like. The conflict managers can then consider existing difficulties or symptoms against the backdrop of that clear objective. Next they can then try to formulate a diagnosis based on their real-world understanding of business disputes and try to prescribe some general approaches or strategies. Finally, they can specify procedures and an implementation plan. At each step of the way, the conflict managers can rely on the articulated measure of success to instruct their analysis and evaluate their prescriptions. Figure 1 offers a schematic view of the process.2
This methodology should prove useful at different levels. Industry groups or professional associations, for example, might devise and publish model procedures for broad classes of disputes. Indeed, the Center for Public Resources, Inc., a New York-based coalition of general counsel, private practitioners, judges, and academics has adopted this methodology for designing alternatives to certain types of securities litigation. Parties entering a long-term business relationship such as a strategic alliance have used it to draft sophisticated dispute resolution protocols in anticipation of potential disputes. Ultimately, if disputants either lack or are dissatisfied with available model procedures, they can use this approach to negotiate an appropriate process.
Attributes of an Effective Conflict Management Process
Mechanisms for resolving conflict always incorporate some implicit tradeoffs, such as between accuracy and cost, creativity and enforceability, speed and thoroughness. Different conflicts, parties, and relationships require different choices. For example, a disagreement among joint venture partners may call for a highly confidential, forward-looking process that focuses primarily on preventing similar incidents in the future, whereas a dispute with product end users might require litigation to finality, so as to establish a firm precedent. Establishing consensus among disputants early on with respect to the attributes of a good process will facilitate discussion of the design.
I propose the following interest-oriented process for managing business disputes, based in part on the body of theory being developed at the Harvard Negotiation Project.3 This seven-element framework is a set of categories for organizing information and ideas about process and for analyzing the tradeoffs between competing priorities. It should help conflict managers diagnose the current process and prescribe a fresh approach. The sidebar summarizes the attributes.
An effective dispute resolution process should help the parties understand their own and each other’s interests. Without understanding the basic wants, needs, or fears motivating the dispute, the parties will find it difficult to obtain anything but zero-sum, purely distributive results. A process that focuses on the parties’ stated positions or demands will inevitably leave the parties feeling somewhat dissatisfied with both the process and the outcome. A bluffing contest, however entertaining it may be for buying a used car, cannot be the best way to resolve complex, multi-issue disputes.
While positions may be in conflict, underlying interests need not be. There may be room for dovetailing those interests in such a way that both parties can gain, or at least find themselves distributing a great deal more value than they initially thought was at stake. For example, an engineer who had developed an innovative stamping tool was preparing to retire. He demanded a 3 percent royalty from his former employer for its use. The company, after carefully analyzing the value added to the production process by the tool, and on the advice of its accountants and investment bankers, extended a firm offer of 1.5 percent. After months of haggling, they were no closer.
With some work, a facilitator learned that the engineer had sought 3 percent as a means of insuring himself should he be held personally liable for a young shop worker sustaining injuries from the high-speed stamping tool. After further discussions, the facilitator discovered that the company could bring the engineer under its corporate liability policy, at nominal cost to the company. The company had never offered to do so because it did not understand the interest underlying the engineer’s bargaining position. The engineer, upon learning that his retirement could be protected against the unlikely but catastrophic event, was quite satisfied to accept a royalty of around 1 percent.
While most experienced negotiators intuitively recognize the difference between their stated position and their underlying interests, they are often reluctant to disclose their real interests for fear of exposing themselves to extortion. An effective resolution process should allow the parties to share this kind of information without unduly subjecting themselves to such a risk. Absent such a process, the parties may fail to uncover a range of possible agreements that would satisfy their interests without the need to compromise between initial positions.
Builds a Good Working Relationship
The parties to a conflict have some sort of relationship, if only for the purposes of the dispute. And whatever that relationship is, it could probably be better. A good working relationship should enable them to deal effectively and efficiently with the disagreements, large and small, that inevitably arise in any complex interaction between institutions.
A well-designed dispute resolution process should serve two relationship functions. First, it should fill in where the working relationship is breaking down, facilitating the parties’ ability to resolve the problem on its merits, as they might have been able to do but for the current breakdown. That might mean, for example, that the process would include mechanisms that temporarily replace the parties’ need to trust each other by guaranteeing performance in some easily enforceable manner, or that it would specify use of a third party to help set aside personality issues.
Second, an effective process should also help the parties work purposely toward the kind of relationship they want to have. It may be that the parties want to have no relationship at all and the process should facilitate closure. But if they want a long-term, cooperative relationship in which each feels consulted and accepted, they should probably not follow a purely retrospective process designed to allocate blame.
Both relationship functions add up to the same thing: the process should leave the parties at least slightly better able to deal with each other next time, whenever that happens to be. That need not mean the corporate equivalent of a long-term love affair, but parties who would find it mutually beneficial to work together should not be prevented from doing so because their dispute resolution process has made it even harder for them to speak to each other.
Generates Good Options
Most managers would prefer to choose the best course of action from among several options than from a list of one. The more options on the table (within limits, of course), the greater the likelihood of discovering a productive path. What may seem like a foolish or risky approach at first glance may, after reconsideration and refinement by others, develop into a mutually profitable one. An effective dispute resolution process should spur the parties, perhaps with external support or advice, to generate a list of such options before evaluating and choosing among them.
To the extent possible, the process should also orient the parties toward designing options that create value, rather than merely distribute it. By making mutual gain the expressed goal, the options generated are likely to be more creative and value generating.
Is Perceived as Legitimate
Costly and inefficient as it may be, litigation does incorporate certain norms and rules that society believes are essential to the social order. For example, some liability standards and burdens of proof have been tilted in favor of one party or the other in support of legislative policy goals. For an “alternate” process to succeed, the parties must believe it will produce a good solution without requiring them to give up substantial rights they would have had in litigation. An alternate process that seemed to shift the balance of power dramatically would most likely meet resistance from at least one party—including possibly their refusal to participate in the process, or failure to comply fully with any result. Similarly, an alternate process that negated advantages conferred by the legislature on certain classes of parties might well come under powerful criticism as being contrary to the public interest.4
No one likes being taken advantage of. A desirable dispute resolution process should instill in the parties a sense that the solution is fair and equitable and was arrived at in a principled fashion. If the new process requires voluntary participation by the disputants, neither the procedures nor the solutions they produce may be perceived as partisan or arbitrary.
Is Cognizant of the Parties’ Procedural Alternatives
Notwithstanding prior commitments to arbitration, mediation, or some other process, few conflicts arise that cannot at some point and in some form lead to litigation. Given that state of affairs, a good process permits the parties to assess realistically their own and their counterpart’s litigation alternative. In order to be effective, the process must appear, along whatever axis the parties consider most important, to be preferable to litigation. If cost is of principal concern, the new process should be less expensive than litigation; if confidentiality is at issue, it should afford the parties greater control over disclosure; if a long-term relationship is at stake, then perhaps the process should produce forward-looking solutions rather than allocate blame. Ultimately what this means is that the process should generate solutions that are more efficient and satisfying for each side than what they expect litigation could produce. For instance, in a consent-based process the parties might well agree to take more constructive steps than anything a court could order them to do.
Many a dispute escalates because one side misunderstands what the other has said or done. If such misunderstandings are common enough among trusted business partners, they are legion among adversaries and especially their zealous advocates. In the middle of litigation, a simple request for information can be perceived as an attempt to blackmail or coerce, an innocent joke can be taken as an insult, and an attempt to reschedule a meeting as an example of bad faith. Why do we inevitably see the others’ actions in the worst possible light and expect them to give us the benefit of the doubt? Part of the reason is that we all operate on the basis of many unstated assumptions. One common assumption about adversaries is that they want what we want and that if something is good for them, it must be bad for us. Regardless of whether those assumptions have merit in any given case, acting on them without articulating and testing them is simply unwise. A good dispute resolution process should help the parties articulate and examine their assumptions before they act on them.
Similarly, a great many of us tend to see the facts in the way most favorable to our own side. Once we make up our mind about something, we tend systematically to filter out inconsistent data and to gather as much supporting evidence as possible. It is an inclination well worth resisting, and a good dispute resolution process should facilitate a discussion of those partisan perceptions and how they might be biasing each side’s assessment of the situation. One partner in a large national law firm periodically instructs his young associates to begin research on a particular side of a case without telling them they have actually been engaged to represent the opposite side. When they report back to him with their preliminary research (which is usually quite favorable), he tells them, “Remember this well, because this is how strong our opponents think their case is; now prepare our case in response.”
Understanding someone’s concerns need not make us agree with them; it should, however, help us persuade them that they do not have to meet their needs at our expense. Good communication between decision makers is essential to effective conflict management. If an executive cannot make herself understood, how can she influence anyone? And if she does not understand her counterpart, how can she craft a persuasive proposition? A good process for resolving disputes should establish and maintain effective communication channels.
Leads to Wise Commitments
A good process should enable the disputants to craft wise commitments after they have carefully considered all the relevant information and a number of possible options, and after they have determined that their alternatives away from the table are not as good as what they can obtain through a negotiated agreement. Only then will they be able to craft a commitment that is realistic, operational, and compliance-prone. To minimize the risk that one party will use the process as an expensive dilatory tactic, an effective process should also position the disputants with efficient recourse to litigation or some other self-help alternative in the event they fail to reach agreement or one party fails to comply with its obligations.
Having identified the attributes of the dispute resolution procedure, the conflict manager can begin examining the problem at hand—whether it is an ongoing or an anticipated dispute or class of disputes—and to craft procedures for dealing with it. The design process should be structured and systematic: observe the existing difficulties or symptoms, diagnose their possible causes, and then prescribe general approaches to dealing with them. Finally, make an informed decision about what specific actions to pursue. Figure 2 illustrates this methodology.
Observe Symptoms and Difficulties
Before a doctor attempts a diagnosis, she gathers information. She asks the patient to describe his symptoms, to explain in some detail what has brought him into her office in search of a remedy. Good managers, before launching into conflict resolution, should try to understand the conflict as well as possible. Before they can put something right, they must identify what is wrong; in doing so, they should consider both the nature of the dispute and the traditional means of resolving it.
Although categorizing complex business conflicts is no easier than describing everything that can be physically or psychologically wrong with a human being, conflicts do have some characteristics in common that may instruct the resolution design. The methodology described here poses a series of inquiries concerning the parties and the issues. No single answer to a question will determine conclusively the “best” process to follow; each response will, however, help to identify concerns that should somehow be acknowledged.
The Nature of the Dispute
The questions that follow are designed to help conflict managers gather and structure information.5 They should also challenge conflict managers to question their assumptions about their own interests, the other side’s intentions, the likely perceptions of third parties, and so forth.
How many parties are there? Are they individuals or institutions? How sophisticated (financially and legally) are they? Is either party a “repeat player” with respect to this type of conflict, or is this likely to be a one-shot experience for both?
By knowing something about the number and relative sophistication and experience of the disputants, the conflict manager can better design a process that addresses each of their interests. Large institutional entities with experienced in-house or outside counsel, for example, may be less likely to require a process that provides education and reality testing than would individuals who have never litigated previously or who may be ill equipped to evaluate complex settlement proposals.
Do the parties agree about what is at stake? Is this a dispute over money? If so, is the conflict over a fixed sum, or will a subjective determination of the amount be required? Is this a dispute about assigning blame for past conduct, or is the primary goal to define permissible future conduct? Is publicity a major concern for either party? Does this dispute primarily concern the relative competitive posture of the parties? Is this merely “strategic” litigation, with no substantive goal other than to delay or distract?
Understanding what is at stake requires more than reading the prayer for relief in a civil complaint. Without developing a clear sense of the disputants’ underlying interests, it will be difficult, if not impossible, to design a procedure that allows each to feel confident that his or her interests can and will be addressed.
How is the resolution of this conflict tied to other pending or contemplated disputes between the parties or with others? What collateral consequences will either adjudication or settlement have for one or both parties?
The collateral consequences, whether real or imagined, of resolving a particular dispute are often at least as important as the issue at hand. In designing a procedure, care must be taken to consider whether one or both parties would want the results exported to other disputes, or whether confidentiality of the outcome and avoidance of setting a precedent is the key to resolving the conflict.
Is speedy resolution important to either party? Would either benefit from delay? Why? Is it simply a matter of the stakeholder enjoying the time value of the money or are other factors at play?
Speed is often one of the first items on the list of ADR advantages. But is it always a good thing? Although over-crowded dockets generally cause some of the delay associated with litigation, litigants are themselves responsible for substantial delay. Conflict managers must consider the relevance of the passing of time to one or both disputants, whether to allow tempers to cool, fiscal years or reporting periods to close, or key personnel to turn over. These can be as important, in some cases, as the time value of money or the urge to bring unpleasant situations to a prompt conclusion.
The Litigation Path
Conflict managers must generally face the reality that litigation is readily available to the disputants. In order to craft a better process for managing a particular dispute or class of disputes, they should become familiar with the traditional litigation process and learn from litigation’s flaws and virtues.
What are the various stages through which the litigation must go? What is the intended purpose of each? In practice, what happens at each stage? How much time typically passes between each phase? At what points are these suits typically settled, if at all?
Dispute resolution procedures need not be wholly divorced from litigation, nor need they be a complete substitute. The judicial process offers the most effective means of dealing with some issues. Alternative procedures may actually complement litigation, for example, by streamlining discovery and reducing the number of disputed questions of law or fact. By developing an understanding of the various stages of the traditional litigation path, parties can better design a process tailored to their needs.
Costs and Benefits.
How expensive is litigation in expended fees and lost productivity? How are expenses incurred over the dispute’s life (front-weighted, evenly distributed, end-weighted)? Are the costs evenly borne by the parties? Aside from the actual court award, what other benefits does either party expect from litigation (public vindication, blame shifting, fulfilling fiduciary duty in attempting to recover funds)? Do the costs have proportional impact or significance to the parties?
Litigation, like any other product or service a manager buys, delivers some value. It may produce a favorable outcome, but even it if does not, it at least provides some finality and generally delivers a credible and legitimate result. At a minimum it often succeeds in shifting responsibility for the outcome from the line executive to the legal department. The key question, however, is at what cost does it accomplish these objectives? Is this a product worth buying, or could the same interests be met for less? The decision to litigate is a business decision. A manager charged with that decision must consider the alternatives and compare how litigation fares with other means of meeting personal and institutional interests.
Depending on how one defines ADR, the term may well encompass ordinary negotiation between the parties in the course of preparing to litigate. In that sense, there is nothing new, different, or unusual about it— 90 percent to 95 percent of all civil lawsuits are settled. The key to designing a procedure that will help disputants make better decisions about whether and how to settle, and to generate more attractive choices in the majority of cases, is to focus on what has kept the parties from resolving their conflict until now. Having developed a picture of the conflict, the conflict manager should now ask, “Why haven’t the parties settled yet?”
The range of possible answers to this question is very broad. Any given conflict will generally have multiple barriers to settlement. One or more impediments to resolution may leap out as obvious; others may be more subtle, yet nonetheless significant. The framework for an effective process may serve as an analytical guide to sort through and organize these diagnoses. By comparing the current process with the target process, the conflict manager can generate ideas for remedying the deficiencies.
Interests vs. Positions
Have negotiations to date focused on demands and concessions? Are the parties being forthcoming about their underlying interests? If pressed, could each party answer the following questions in a manner to which the other would agree: “What do your counterparts really hope to accomplish in this dispute?” and “For what purpose?”
One exceedingly common cause of breakdowns in negotiations is that both parties get locked into extreme positions from which neither can easily make concessions. One telltale sign is a pattern of negotiating along single, highly quantifiable variables, such as money. A process that encourages such negotiation exacerbates the zero-sum mentality that generally accompanies bitter disputes. For example, as long as the engineer and the manufacturing company were locked into a positional haggle over the royalty percentage, they could make no progress without one side or the other feeling that it had backed down.
What relationship did the parties have prior to the dispute? Are they likely to have future dealings? Has one party threatened to terminate the business relationship unless the other gives in?
Another possible cause for the negotiation breakdown could be the parties’ working relationship. All too often, personality problems keep the parties from discussing the problem’s merits. Sometimes personal trust has broken down so far that the parties cannot even agree to disagree, for fear that the other is trying to pull a fast one. In diagnosing why the dispute has not yet been resolved, it might be useful to know whether the real problem has become the people involved.
Limited Generation of Options
Who has introduced the options that have been considered so far? Does one party typically take the lead in presenting proposals, or do the parties share the burden? Are the parties reluctant to put the first offer on the table? Do time constraints operate differently on them? Do cost constraints affect the settlement (e.g., might it be easier to settle a suit in a particular fiscal year or under another project’s budget)?
Another consequence of negotiation on the basis of positions rather than interests is a relative poverty of good options to choose from. If the negotiators perceive their preparation as girding themselves for battle, and their proposals as starting positions to be defended but eventually modified, they will more likely than not craft proposals that are highly favorable to their own side, expecting to make some concessions later. As both sides do this, blithely ignoring their counterpart’s interests and constraints as “their problem,” no one is devoting any energy to inventing mutually advantageous options that might bring added value to the table.
Fear of Arbitrary, Illegitimate Outcomes
Do the negotiators have critical constituencies to which they must report their handling of the dispute? Do those constituents expect their agents to follow certain rituals? Are there readily available standards, within the industry or otherwise, that cover how disputes such as this one are settled?
One reason a party refuses to settle a dispute may have more to do with the dispute resolution process than with the settlement’s content. If the process feels arbitrary or coercive, the party may devalue an outcome that it might otherwise have accepted. In baseball, for example, players and owners both accept an arbitrator’s award that coincides with their counterpart’s final offer more readily than they do if that same salary figure is proposed by the other side in a blustering “take it or leave it” fashion. Similarly, a party may reject an attractive offer if the terms seem unrelated to any external standards or somehow conjured up out of thin air. Without some supporting rationale, the party might well wonder whether through more strategic negotiating it could do better. A party’s inability to explain the logic of a particular settlement to its constituents may well stand in the way of a profitable resolution.
Overestimation of the Litigation Alternative
Do the negotiators have access to an objective assessment of the dispute, whether internally or outside their institution? Have they done any systematic analysis of the litigation risk? How carefully have they thought through the nonmonetary consequences of not settling?
Sometimes the principal impediment to settlement stems from one or both parties’ limited understanding of their procedural alternatives. A failure to grasp the true costs and benefits of litigation can keep one or both parties from settling a case that should never have been litigated. An interesting example arose in an intellectual property dispute. Two parties that shared a profitable market sued and countersued each other over a number of aggressive trade practices, challenging the validity of one’s right to exclude the other from certain market segments or from certain applications of the intellectual property. Only after careful analysis did they realize that if either prevailed in court on its principal theories, they would open the market to a host of new competitors, to the detriment of both. Without that understanding, however, there had been little room for settlement: each viewed its chances of prevailing at trial optimistically enough that no settlement offer or counter-offer that either could reasonably propose was likely to be acceptable to the other.
What channels do the decision makers use to communicate? Do they always go through lawyers or other agents or do they sometimes communicate directly? How does each party perceive the other’s motives? Do the parties disagree on the facts or on the inferences to be drawn therefrom?
If the parties have very different pictures of the conflict and consequently have drawn very different conclusions as to how to resolve it, it may be impossible for them to reach an agreement. A debtor and a creditor may look at the distribution of proceeds from asset liquidation in the same way the pessimist and the optimist observe the proverbial glass of water: one perceives the glass as half empty, posing the problem of how to refill it, while the other perceives it as half full, presenting an opportunity to distribute its contents between the parties.
Differing perceptions may be formed a number of ways—an individual’s psychological makeup or a career of working on an emotionally charged issue. Or perhaps each side has access to only part of the information necessary to understand the situation and its context. Depending on the primary reasons for the differing perceptions, the conflict managers might devise procedures for gathering information, testing the objectivity of the parties’ perceptions, or facilitating their discussion of such perceptions. To get past the unproductive clash of perceptions, each party must be helped to understand how the other sees it, without feeling that to understand that perspective means it has also to agree with it.
Assuming some agreement could be reached, would it require a one-time act, such as a cash payment, or would compliance involve an ongoing commitment to a more complicated program? What issues must a settlement address? Who would have to cooperate in order to make the agreement operational?
If the parties have not considered or discussed with each other what the outline of an agreement would look like, they may develop very different ideas. The more different these images are, the more difficult it will be for them to arrive at a workable resolution. If one views the problem as an imminently bursting dam in need of an immediate stop-gap solution, while the other thinks the dispute is really about the long-term management of a complex navigation and irrigation system, they will be working toward radically different objectives and each will have a tough time understanding the other. Unless the process can help them clarify the nature and scope of the final commitment, they will probably escalate the conflict in an effort to impose a solution. The international diplomacy analogue makes the front pages all too often: in most armed conflicts, the opponents eventually talk about whether and how to cease hostilities. Unless those operational terms are clearly understood by both sides, one side may find its efforts to work toward an interim cease fire frustrated by the other’s perception of the demand as a permanent cessation and full demobilization. Consequently, both sides increase combat, to “remind” the other side of how bad things can be in the absence of an agreement.
Now the conflict managers are better prepared to devise a process that can overcome, or at least mitigate, the effect of the impediments described above. They can systematically review their particular diagnoses and devise general approaches to build a process that approximates their view of effective dispute resolution. A few illustrations should help capture the flavor of the task.
If the parties are locked into a positional bargaining battle in which substantial concessions seem unlikely, mechanisms to clarify their interests, as distinguished from their positions, may be of value. The classic object of single-variable positional bargaining is money, but underlying a demand for a particular sum are usually other interests that could perhaps be satisfied some other way. An outside facilitator may be able to solicit this kind of information confidentially. When a highly leveraged entrepreneur was attempting to sell one of his magazine properties, his bottom-line asking price was $400,000. No amount of haggling could get him to move, even though no buyer had offered more than $325,000, and independent appraisals had estimated the property’s fair market value as somewhere between $280,000 and $325,000. Only after extensive prodding by an outside facilitator did he admit that his problem was not that he needed $400,000, or that he thought the magazine was worth that much. Rather, he felt constrained by a financing clause that treated any write down of more than $100,000 on any asset as a condition of default. Since all of his financing had cross-default provisions, he could not possibly accept less than $400,000 for a property he had initially purchased at $500,000. Once they understood that, the parties, in consultation with their lawyers and accountants, devised a creative financing scheme that would not trigger a default, but that nonetheless represented real cost to the purchasers of about $310,000.
If both sides are much too willing to take their chances in court, a helpful prescription might afford them a confidential way to develop a realistic assessment of their litigation prospects. The decision-tree and risk-analysis tools long familiar to business decision makers are now being used with some success in analyzing litigation decisions.6 Such an analysis, carried out independently and confidentially for each side by an outside expert, might inject a useful dose of reality into the process.
If partisan perceptions arising from a disparity in the parties’ experience and access to information are impeding communication, the conflict managers may want to devise an information-sharing process that enables one party to “catch up.” If neither party has sufficient information, perhaps a joint or neutral fact-finding process would help. If one side is concerned that the terms of an agreement will be disclosed, the conflict managers might incorporate into the process some means of managing the flow of information about the agreement.
Sometimes, the greatest impediment to settling a dispute comes from the way in which the conflict has been framed, which in turn constrains the types of options the parties consider. To the extent that the parties view the problem as principally involving the distribution of something— money, liability, kudos, or blame—they will conclude that more for one necessarily means less for the other and will proceed to address the problem on that basis. While it is not always possible to settle a dispute by “enlarging the pie,” experience teaches that truly adversarial disputants can always produce a result that leaves less for both, a “negative sum.” Some conflicts, because of the parties’ needs and resource constraints, may never be settled unless someone attempts to generate mutual gains. The small trade magazine that grievously but wholly unintentionally libels the fast-rising entrepreneur may simply not have the ability to make him whole through cash compensation. If he insists on a lump sum payment equivalent to what he might expect to be awarded in court, he may well end up with an unenforceable judgment against a bankrupt company. But a cover story on his visionary leadership in an emerging industry might net him valuable exposure and the publisher an interesting article, made richer and more credible by the subject’s full cooperation.
One of the conflict managers’ goals, and potentially their greatest contribution, is identifying opportunities for turning the dispute into a positive-sum game. By orienting the parties toward joint problem solving instead of adversarial posturing, and by facilitating communication and information exchange, a well-designed process can help the parties resolve their dispute more profitably for both sides. Two rich sources of value-enhancing potential are the parties’ differences and their ability to cooperate.7
Do the parties place different values on possible outcomes or on different goods and services? Do they face different tax or other incentives? Do they have different concerns about publicity? Do the parties have different expectations about contingent events, different attitudes toward risk? Do they have different preferences about the resolution’s timing or the performance of the settlement?
One school of thought suggests that the best way to resolve a dispute is to minimize the parties’ differences. The more alike the two disputants seem, the more likely they are to reach some accommodation. While that may sometimes be true, it is not always possible to accomplish. Some parties may just have too diverse a set of interests and expectations to be homogenized. Besides, many differences are valuable and worth preserving. Many a business alliance is struck not because the parties are similar, but precisely because the parties have different strengths or perspectives that they believe make for a good fit. A good process for managing conflict should facilitate the way the parties deal with their differences rather than paper over them.
Is cooperation between the parties a desirable and efficient manner of resolving the problem? Are economies of scale possible? Do the parties have shared interests in some substantive outcome, public good, or public perception of their handling of the dispute? Can one side take steps to benefit the other significantly at minimal cost to itself?
Cooperation with the enemy is usually the last thing disputants consider. Yet it is precisely because that whole class of solutions is so often overlooked that it should be systematically considered in almost every dispute. Sometimes the best way to resolve a problem about past performance is jointly to devise a better mechanism for encouraging, facilitating, and monitoring future performance. Perhaps the prior OEM agreement was not fulfilled because it would have worked better as a full-fledged joint venture. In most business conflicts, there is usually some way that one side could confer substantial value on the other at comparatively low cost, if only in business referrals or good public relations, or more tangibly in at-cost supply contracts or third-party guarantees. The failure to systematically consider those options costs money.
In many business conflicts there are also activities that both sides would agree constitute a good use of resources and from which both would derive at least indirect benefit; they should consider committing part of what is at stake in the conflict to some such mutually beneficial activity instead of squandering more resources in fighting over how to allocate the nominal stakes between them.
The analysis thus far has proceeded through the classic problem-solving stages. The first step defined a desired outcome—an effective process for managing business disputes. Second, the conflict managers were encouraged to make observations of the conflict, as yet unresolved by traditional means. The third step encouraged them to diagnose the causes for the parties’ failure to settle the case thus far. Fourth, based on these diagnoses, they were to prescribe some general approaches for dealing with the identified problems. Now is the time to take action. What should the conflict managers do next? How do they go from scratchpad to an action plan for resolving this conflict?
Making Process Choices
Designing a custom dispute resolution process requires making some specific decisions about types of mechanisms to use and how they might fit together. These decisions will vary significantly from one case to another.
The Interaction with Litigation.
If the process replaces traditional litigation, should it aim primarily at facilitating settlement, or would some sort of partial or streamlined adjudication be preferable? How should the alternative procedures interact with the traditional litigation track? Should litigation be temporarily stayed? Should judicial approval of the alternative procedures be sought in advance?
Sometimes the only way to apply sufficient pressure on the parties to reach a productive settlement is to keep litigation going full steam ahead while someone else tries to settle the case on a “second track.” Indeed, this is one way to make the parties more comfortable with trying a new approach; they don’t have to surrender any perceived advantage in court. Although such an approach does seem to require committing additional resources to the conflict, it may still pay off handsomely in the efficiency and quality of the outcome. If the “second track” succeeds, the savings from early termination of the “litigation track” alone will easily outweigh the additional expenditures.8 Other times, in order for an innovative dispute resolution procedure to have a real chance of success, the parties must agree to a temporary cease-fire on the legal battlefield, to enable the negotiators to explore a problem-solving approach and exchange information safely.
Should the outcome be binding on the parties, or merely advisory? What will be gained or lost in the flexibility of the process, the seriousness with which parties participate, or their willingness to accept the process at all?
The procedures should help the parties craft a solution that meets their interests, feels legitimate, and is preferable to their best alternative away from the table. Such procedures need not impose an outcome on any party; indeed, by definition any such solution will enjoy the support and consent of every party. Yet some nonbinding procedures may lend themselves to bad faith manipulation and may be used solely for delay and intelligence-gathering. For such situations, dispute resolution procedures can be designed to generate a resolution to which all parties will be bound, even if none would have advocated it.
Participation by a Neutral.
Would a neutral party be of some help? In what capacity? Should a neutral facilitate communication between the parties, evaluate their positions, generate settlement proposals, or ascertain facts? Each of these involves different degrees of intrusion into the process by a stranger to the conflict.
The intervention of a neutral is often charged with tension and anxiety. Some will worry about how the neutral will perceive them and their position and will seek the neutral’s approval. Some will worry that outsiders will see the use of a neutral as an admission that they cannot solve their own problems; they will either try to conceal the request for intervention or show public disdain for the neutral’s efforts. Often such public posturing becomes a self-fulfilling prophecy and the neutral, stripped of credibility and trust, cannot help but fail. Before seeking intervention, try to visualize the neutral’s role. What procedural deficiencies might the neutral address? Is there some other way of addressing them effectively?
Many of the tasks neutrals undertake actually require only someone who does not have a vested interest in the resolution of the conflict, rather than a wholly nonpartisan stranger. In many contexts it is possible and desirable to overcome barriers to settlement by using “internal neutrals,” that is, individuals within one or both organizations who are not directly involved in the dispute and whose primary interest is in helping manage the conflict. So-called “wise men” procedures, whereby senior executives within two organizations are designated as process resources to help jointly resolve, for example, a dispute between line managers, are worth considering for any complex, long-term business relationship.
How formal or informal a process seems best suited to the parties and the dispute? Should rules be specified concerning the stages of the process or their timing? What rules of discovery, if any, should be incorporated? How should the presentation of evidence and testimony (whether to each other or to a neutral) proceed? Should there be avenues of review?
At the risk of turning the design process into a legislative drafting exercise, it is important that the conflict managers think carefully through the operational aspects of the process and the consultative and verification mechanisms that will be necessary to resolve the inevitable procedural disputes. Not only must they think about what process would best help the parties resolve their substantive conflict, but they must consider how to deal with disputes about the process itself. During the discovery phase of traditional litigation, for example, counsel are expected to work out their differences, but if they are unable to do so, they may seek a ruling from the judge, magistrate, or special master presiding over that aspect of the case. While that is not to say that one should adopt an adversarial litigious process to resolve disputes about the process, it does mean that these mechanisms require careful attention, and that the participation of legal counsel may be especially useful.
Who should bear the cost of a failure to reach agreement under the new process? In the event the parties reach an agreement, how should costs be allocated among them?
Much has been written about the importance of cost incentives in dispute resolution, both for counsel and their clients.9 The parties can decide whether they will cover their own costs or allocate costs some other way. Although there may not be an easily identifiable winner in the sense there is in litigation, it may be worth considering whether those responsible for making the parties incur additional costs should bear them. Some dispute resolution mechanisms in litigation, for example, place the burden on the party declining a good faith settlement offer to “do better” by forcing them to bear the risk (in the form of a redistribution of litigation costs) of failing to do so.
As noted earlier, the method described in this essay can be applied by professional organizations to draft model procedures for classes of disputes, or by parties to a business venture who want to draft dispute resolution protocols for future conflicts between them, or by a manager facing a problem that has not been resolved earlier in the process. Whichever the case, conflict managers should make use of as much information as is available.
Although once a conflict arises it may be more difficult to establish the kind of joint problem-solving relationship that might have been available earlier, more facts may be known at that time, and these should permit the parties to devise a process better suited to the specific dispute than to a hypothetical conflict. Mutual consent will generally be required to undertake anything but traditional litigation. The parties will have to negotiate procedures and details, and such negotiations may provide an opportunity for the parties to begin to cooperate.
The analysis described here should enable managers facing an escalating conflict to do several things: first, they should be able to decide whether it is worthwhile to structure a custom dispute resolution process and to discuss the option clearly and systematically with legal counsel; second, even if the conflict managers choose not to negotiate about the process, by having diagnosed the existing problem they should be better prepared to think about how to settle it on the merits; and third, if they decide to approach their counterparts to discuss the possibility of a better process, they will be prepared for negotiating over it.
To initiate such negotiation, managers might try to schedule a meeting with their counterparts to explore conflict management procedures, making it clear that the substance of the dispute is not on the agenda for that meeting. Accompanying the invitation to such a meeting might be a draft of what an effective process should be able to accomplish (rather than what it should look like), along the lines of the attributes described in the sidebar, and an invitation to revise the draft. A list of attributes of a good dispute resolution process is sufficiently removed from the substance of the conflict that the managers may well be able to approach the problem of designing appropriate procedures much the way they might handle a less adversarial problem-solving session: whatever their respective views of the dispute itself, they have a shared interest in using a process that is tailored to the problem, and that might be less painful than letting Procrustes help them into one of those “one size fits all” beds.
1. Based on their experience with labor-management disputes in the coal industry, Ury et al. have come up with a useful and somewhat different checklist of steps that should be included in systems for managing recurring conflicts within an organization. See:
W. Ury, J. Brett, and S. Goldberg, Getting Disputes Resolved (San Francisco: Jossey-Bass, 1988).
2. This diagnostic approach to designing a dispute resolution process is based in part on the Circle Chart described in:
R. Fisher and W. Ury, Getting to Yes (Boston: Houghton Mifflin, 1981), pp. 68–71.
3. The seven elements of the framework have been described in different forms in a variety of published and unpublished papers. The use of this framework for designing alternatives to litigation is, to my knowledge, original to this essay. For a brief definition, see:
R. Fisher, “Negotiating Inside Out,” Negotiation Journal 5 (1989): 33–41.
4. O.M. Fiss, “Against Settlement,” Yale Law Journal 93 (1984): 1073–1090.
5. These inquiries have evolved from a related set of considerations outlined in
S. Goldberg, E. Green, and F. Sander, Dispute Resolution (Boston: Litde, Brown & Co., 1985), pp. 545–548;
H. Raiffa, The Art and Science of Negotiation (Cambridge, Massachusetts: Belknap Press, 1982), pp. 14–19; and other works that attempt to identify the “ADR potential” of a dispute or to produce a classification scheme for disputes.
6. Raiffa (1982);
M. Raker, “The Application of Decision Analysis and Computer Modeling to the Settlement of Complex Litigation” (Cambridge, Massachusetts: ILP Symposium, MIT, 1987).
7. D. Lax and J. Sebenius, The Manager as Negotiator (New York: The Free Press, 1986), pp. 88–116.
8. R. Fisher, “He Who Pays the Piper,” Harvard Business Review, March–April 1985, pp. 150–159;
P. Mode and D. Siemer, “The Litigation Partner and the Settlement Partner,” Litigation, Summer 1986, pp. 33–35.
9. S. Shavell, “Suit, Settlement, and Trial: A Theoretical Analysis under Alternative Methods for the Allocation of Legal Costs,” Journal of Legal Studies 11 (1982): 55–81;
J.C. Coffee, Jr., “Understanding the Plaintiffs Attorney: The Implications of Economic Theory for Private Enforcement of Law through Class and Derivative Actions,” Columbia Law Review 86 (1986): 669–727.