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Cutting the Cost of Conflict by Creating a “Dispute-Wise” Organization. Michael T. Colatrella Jr. Assistant Professor of Law University of the Pacific McGeorge School of Law 3200 Fifth Ave Sacramento, CA 95817 (916) 739-7303 [email protected] Today’s Objectives.

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Cutting the cost of conflict by creating a dispute wise organization l.jpg

Cutting the Cost of Conflict by Creating a “Dispute-Wise” Organization

Michael T. Colatrella Jr.

Assistant Professor of Law

University of the Pacific

McGeorge School of Law

3200 Fifth Ave

Sacramento, CA 95817

(916) 739-7303

[email protected]


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Today’s Objectives

  • What is a “dispute-wise” organization?

  • What are the tangible benefits of a dispute-wise organization?

  • What obstacles have historically prevented organizations from embracing a dispute-wise approach?

    The term “dispute-wise” is a term coined by the American Arbitration Association study Dispute-Wise Business Management (2003), which is available at www.adr.org.


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Characteristics of a Dispute-Wise Organization

  • Appreciates that conflict is inevitable, and the difference between destructive and productive conflict

  • Establishes an effective and fair system to proactively manage internal workplace conflict throughout the organization

  • Establishes a policy, implemented by trained personnel, to manage external disputes with clients and partners at the earliest stage practical, using a range of dispute resolution processes


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Destructive vs. Productive Conflict

  • Destructive

    • Personal attacks

    • Over-competitiveness

    • Issue proliferation

  • Productive

    • Issue focused

    • Flexibility in how concerns are addressed

    • Recognition of others’ needs and concerns


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Costs of Destructive Conflict

  • Loss of productivity

    • Time dealing with conflict

    • Diminished communication

    • Decreased motivation and morale

  • Employee turnover

  • Absenteeism and illness

  • Litigation costs with both employees and external business partners


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Benefits of Productive Conflict

  • Increases the likelihood that the conflict will get resolved

  • Increases the likelihood that the conflict will be resolved efficiently

  • Increases the likelihood of preserving or improving the relationship


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Business Benefits of Productive Conflict

  • Experiment:

    • Several groups of managers were formed to solve a complex problem

    • A panel of experts were engaged to judge the quantity and the quality of the solutions generated

    • The groups were identical in size and composition, except that half of them included a confederate who served as a devil’s advocate

      David A. Whetten & Kim S. Cameron, Developmental Management Skills 346 (1998).


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American Arbitration Association“Dispute-Wise” Business Management StudyThe Study

  • 2003 study that included over 250 companies, ranging from Fortune 1000 to privately held companies

  • Based on a set of eight criteria, companies were characterized as “most dispute-wise” (35%), “moderately dispute-wise” (32%), and “least dispute-wise” (33%)

    Report by American Arbitration Association, Dispute-Wise Business Management (2003), which is available at www.adr.org.


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American Arbitration Association“Dispute-Wise” Business Management StudyThree of the Characteristics of “Dispute-Wise”

  • (1) The top management level of the organization supports a dispute-wise orientation;

  • (2) The legal department is more likely to be highly integrated into the general corporate planning process and have an understanding of the broader business issues . . . ;

  • (3) Corporate senior managers are focused on preserving important relationships, rather than just “winning cases” through an aggressive litigation posture.


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American Arbitration Association“Dispute-Wise” Business Management StudyThe Results

  • Being a dispute-wise company has “positive business outcomes”:

    • The “most” and “moderately” dispute-wise companies enjoyed significantly lower legal department expenses;

    • “Price/earnings ratios for the most dispute-wise companies averaged 28% higher than the mean for all publicly held companies and 68% higher than the mean for companies in the “least” dispute-wise categories.”


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Example of “Dispute-Wise” ApproachUniversity of Michigan Health Systems

  • Commitment to prompt, open and honest discussion with patients of potential medical negligence (sometimes includes an apology).

  • Results of this dispute-wise approach:

    • Average settlement has gone from $48,000 to $28,000

    • Attorney's fees have been reduced by 66%

    • Time to resolve cases has gone from 1000 days to 300 days

      Richard C. Boothman, Amy C. Blackwell, Darrell A. Campbell, Jr., Elaine Commiskey & Susan Anderson, A Better Approach to Medical Malpractice Claims? The University of Michigan Experience, 2 J. Health & Life Sci. L. 125 (2009).


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Example of “Dispute-Wise” ApproachGeorgia-Pacific

  • ADR program emphasizes early evaluation and settlement, relying primarily on negotiation and mediation

  • Estimates savings of $32,780,000 between the 1995-2004 in this dispute-wise approach

    Phillip M. Armstrong, Georgia-Pacific’s ADR Program: A Critical Review After 10 Years, 60 Disp. Resol. J. 19 (Jul 2005).


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Example of “Dispute-Wise” ApproachToro Corp.

  • Toro’s Early Intervention Program sends trained personnel (not lawyers) to customers allegedly injured by one of its products within a few days to investigate and, if appropriate, discuss compensation.

  • If negotiation fails at that initial stage, it is sent to Toro counsel to negotiate.

  • Toro estimates that it has saved over $100,000,000 between 1991 and mid-2005.

    Ashby Jones, Beyond Scorched-Earth Litigation, Corporate Counsel Magazine, Sep., 2004 at pg. 88.


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Example of “Dispute-Wise” ApproachNYC Workplace Mediation Program

  • NYC’s Office of Administrative Trials and Hearings established a mediation center where city employees could voluntarily attempt to resolve workplace disputes.

  • Their cost benefit analysis showed an 80% savings by mediating disputes compared to administrative trials.

    D. Hardison Wood & David Mark Leon, Measuring Value in Mediation: A Case Study of Workplace Mediation in City Government, 21 Ohio St. J. on Disp. Resol. 383 (2006).


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Example of “Dispute-Wise” ApproachAT&T-Bell Labs (One Area)

  • Evaluation of an Ombudsman Program in 1988 dollars, taking into account loss of productivity, management time, personnel savings, legal savings:

  • An ombudsman program that cost $200,000 produced $970,000 in estimated cost savings.

    Mary Rowe & May Simon, A Discussion of the Effectiveness of Organizational Ombudsman (2001), available at http://web.mit.edu/ombud/publications/index.html.


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Example of “Dispute-Wise” ApproachUSPS REDRESS

  • REDRESS mediates over 1,000 employment disputes per month in 90 different cities.

  • REDRESS trains many supervisors and managers in mediation techniques.

  • EEO complaint filings were reduced by 30% (adjusting for changes in workforce size)

    Lisa Blomgren Bingham, Cynthia J. Hallberlin, Denise A. Walker & Won-Tae Chung, Dispute System and Justice in Employment Dispute Resolution: Mediation at the Workplace, 14 Harv. Negot. L. Rev. 1 (2009).


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Example of “Dispute-Wise” ApproachUSPS REDRESS (Cont.)

  • Survey of Employees: “How does your supervisor deal with conflict?”

    • Before REDRESS, 17% of non-supervisory employees responded: “by yelling, arguing, disciplining, or intimidating.”

    • After REDRESS, the percentage fell to 3%.


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Characteristics of Integrated Conflict Management Systems

  • Broad in Scope--Address a wide range of conflicts among employees and external partners;

  • Easy to Use--Highly visible, multiple ways to access the system;

  • Choice--Combination of rights-based and interest-based dispute resolution processes;

  • Conflict Competent Culture--Welcomes productive conflict and commits to resolving destructive conflict at the lowest possible level;

  • Systematic Support--Compressive education on conflict management, incentives to reward good conflict practices, and appropriate financial and leadership support.

    Report Prepared by The Society of Professionals in Dispute Resolution, Designing Integrated Conflict Management Systems (2001), which is available at http://digitalcommons.ilr.cornell.edu/icrpubs/2.


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Why Organizations Adopt ADR Programs: The “5Cs”

  • Compliance

  • Cost

  • Crisis

  • Competition

  • Culture

    Jennifer F. Lynch, Beyond ADR: A Systems Approach to Conflict Management, 17 Neg. J. , 207 (July 2001).


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Why Aren’t More Organizations “Dispute-Wise”?

  • Ignorance about ADR

  • Competitive business leaders are suspicious of a system of collaboration and compromise

  • Adversarial / legalistic culture in how we handle disputes

  • Inertia of status quo


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