Morgan State University Alter

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Many companies have developed arbitration not so much to hold down as to disguise both costs and unnecessary procedures. As a result, arbitration is more expensive than it should be, and critics claim, with some justification, that ADR’s cost-cutting ability is exaggerated. NCR has set up guidelines to deal with this problem. It has been found that arbitration looks like, feels like, and works like arbitration when the parties are prepared to pursue the following goals.

Back in the 1980s, experts and executives alike heralded alternative dispute resolution (ADR) as a sensible, cost-effective way to keep corporations out of court and away from the kind of litigation that devastates winners almost as much as losers. Over the next few years, more than 600 large corporations adopted the ADR policy statement. The bad news is that ADR as currently practiced too often mutates into a private judicial system that looks and costs like the litigation it’s supposed to prevent. At many companies, ADR procedures now typically include a lot of excess baggage in the form of motions, briefs, discovery, depositions, judges, lawyers, court reporters, expert witnesses, publicity, and damage awards beyond reason (and beyond contractual limits).

At Chevron, for instance, ADR-based mediation of one dispute cost $25,000, whereas mediation through outside counsel would have cost an estimated $700,000 and going to court as much as $2.5 million over a period of three to five years. At Toyota’s U.S. subsidiary, a Reversal Arbitration Board, set up to ease contention between the company and its dealers concerning the allocation of cars and sales credits, has brought about a steady decline in the number of these cases, from 178 cases in 1985 to 3 in 1992. The difference between success and failure lies chiefly in the level of commitment. Companies that give ADR top priority—even in cases where they’re sure they’re right—are realizing immense savings of time, money, and relationships. In contrast, companies that let old litigious habits worm their way into the process might as well go back to court.

At NCR and many other companies we know of, including AT&T, US WEST, BankAmerica, and Chevron, top management has decided that winning at all costs is too expensive. These companies evaluate lawyers, contract managers, and paralegals not merely on lawsuits won or lost but also on disputes avoided, costs saved, and the crafting of solutions that preserve or even enhance existing relationships. The legal departments use quantified measures and objectives to reduce systematically the number of lawsuits pending, the amount of time and money spent on each conflict, and the amount of financial exposure. As a result of this kind of attention, NCR succeeds in resolving and closing more than 60% of filed cases within a year of their being opened. NCR evaluates its lawyers not only on lawsuits won or lost but also on disputes avoided and relationships preserved.

NCR requires all of its commercial contracts to include a clause specifying ADR as the first, preferred method of settlement should a disagreement arise. (See the insert “NCR’s Standard Contract Clause.”) The corporate law department is built around a dispute avoidance and resolution process. Under this policy, staff ombudspersons (or, as NCR prefers to call them, ombuds) trained in problem-solving, dispute avoidance, negotiation, and dispute resolution record and monitor all claims by or against the company. Each case is reviewed to ascertain whether it should be arbitrated or litigated. Performance measures ensure that the procedure has teeth.

At NCR, as well as at AT&T, an ombud analyzes each case at the outset in order to assess objectively the financial exposure posed by the claim. The written analysis, distributed to management, includes an ADR plan and suggestions on how to strengthen the relationship with the opponent. If the case can be handled through ADR at or below the calculated risk-exposure level, the company will proceed to resolve it without litigation. The overall aim is to resolve the contention efficiently with little expenditure of time and money.

Toyota’s legal department set up the board at a time when negotiation was already a firmly established part of the company culture. The board had three distinctive features. First, it laid down rules for the arbitration process rather than allowing the process simply to develop on its own. Second, it made arbitration decisions binding on Toyota but allowed dealers to appeal. By underscoring the fairness of the procedure, this feature of the program has had the unexpected effect of actually increasing dealer acceptance of arbitration results. Third, it set up an open file of case histories, which has allowed Toyota and its dealers to cite relevant precedents and thus cut straight to a resolution of many disputes without laboring through the entire arbitration process. Because most disputes are similar, dealers with very little legal expertise can work through the details and find helpful patterns. Toyota made arbitration decisions binding on itself but gave dealers the right to appeal.

A further positive outcome was Toyota’s decision to amend the sales-credit program that had provoked much of the contention in the first place. Toyota’s experience is typical of initiatives taken by many companies to avoid disputes by analyzing root causes and acting on the analysis—an indispensable aspect of the peaceful approach.

Respond to the questions below, Answers should be long enough to support the arguments and proper justification with examples if appropriate.

1. A number of companies have learned to use ADR effectively, and those companies are in fact reaping ADR’s predicted benefits: lower costs, quicker dispute resolutions. What are other positive outcomes you feel can also be achieved by companies and or employees by ADR?

2. As a business owner, you always want to save money and make things run more efficiently. Many companies have developed arbitration not so much to hold down as to disguise both costs and unnecessary procedures. As a result, arbitration is more expensive than it should be. Critics claim, with some justification, that ADR’s cost-cutting ability is exaggerated. What is your stance and opinion of this argument? Explain why you feel this way?

3. What are Chevron and Toyota doing those other companies are not? Explain what aspects of Toyota’s and Chevron’s methods and practices you like?

4. Some would argue that Alternative Dispute Resolution (ADR) is at the root just bringing people together sitting around the table to work things out and work together. Many companies can avoid disputes by analyzing root causes and acting on that analysis—an indispensable part of the peaceful approach. Do you agree? At your current or previous work whether you witnessed or seen disputes, what observations or methods can you tell that work and what methods do not work in terms of company resolving? Discuss a life example informing us what happened and how did it get resolved?

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