Featured Guest Post: What Every CEO Needs to Know About ADR, Part I

Last month Doug Wendt of Wendt Partners interviewed me for the Wendt Partners blog, asking me to elaborate on ADR and its relevance to the business community. I’ll be re-posting the interview, as posted on the Wendt Partners blog, in two parts. Check out Part I below.

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.

Check back soon for Part II of the interview!

Ellen F. Kandell is a certified professional mediator and attorney with over 30 years of public and private sector experience. She provides mediation, group facilitation and training to diverse, national clients. Get in touch with her via email, LinkedIn, Twitter, or give her a call at 301-588-5390.