October 2000

Beyond ADR: The Opportunities for Business Lawyers

by Michael A. Landrum

Most of the often strident discussion about so-called multidisciplinary practices (MDPs) has focused on the horrors that will befall us when the big accounting/consulting firms take over the practice of law. Concerns over the specter of lawyers having to practice a time-honored profession in organizations not owned and controlled by lawyers have missed completely what are actually great opportunities for lawyers in the years to come. What about an MDP that is owned and controlled by lawyers?

There are many kinds of value-added services and advice related to the management of conflict that lawyers and other professionals under their direction can provide to clients. Any lawyer with a mediation practice is engaged in an MDP. Various approaches to implementing this strategy can be found in particular subject matter contexts. Management labor lawyers, for instance, more and more provide training, education, and other dispute-management services, such as internal complaint investigations. Among manufacturers, Toro’s in-house counsel took the lead in developing a series of proactive intervention activities that has saved the company millions of dollars by controlling costs associated with product liability claims. General Electric and John Deere have procedures in place to identify early cases appropriate for ADR and to establish policies and procedures for the cost-effective management of claims. The strategy of naming lawyers "national coordinating counsel" to manage the resolution of large numbers of repetitive or similar claims around the country, while not commonplace yet, is no longer novel. It’s not uncommon for lawyers who handle personal injury litigation to have nurses as employees of the firm. At least two Minnesota law firms have created consulting subsidiaries or divisions in the area of health care regulation and compliance.

These kinds of initiatives are merely isolated examples of new, more creative roles for business lawyers, both litigation and transaction counsel. It’s the greatest opportunity for growth and development in the history of the profession, if we would wake up and smell the roses. Even "cutting edge ADR" is just a modified form of the traditional response -- dealing with the resolution of disputes after the fact, concentrating on containing transaction costs.

But what we know as litigation expense, incurred or avoided, is only the tip of the iceberg of the cost of conflict. The real costs of conflict include elements such as:

Management Focus – The litigation process itself forcibly redirects organizational attention. The demands of a lawsuit siphon off valuable time, energy, and focus that should be devoted to running the business.

Organizational Dysfunction – If the litigation is significant enough, other indirect productivity losses can permeate the enterprise -- low morale, loss of motivation, time spent in speculation about the effect on sales, profits and employment. Mitsubishi’s recent $50 million settlement of sexual harassment suits with private plaintiffs and the EEOC has undoubtedly had such an effect..

Customer Confidence – Erosion of customer confidence is another hidden cost of conflict, difficult to quantify but impossible to ignore. The now legendary Ford Pinto fuel filler neck fiasco is a classic example. The most significant cost was the enduring and incalculable damage to the company’s brand image. Ford was forced to discontinue production of the vehicle, the first serious American effort to meet the challenge of the Japanese small car. Calculating the overall cost to Bridgestone/Firestone and Ford of the recall of 6.5 million SUV tires has hardly commenced.

Capital Markets – Securities analysts don’t like litigation -- witness the dramatic impact of the government’s antitrust action on Microsoft’s share price. On December 31 of 1999 it was $120 a share. On April 3, 2000, when the action was announced, it went to $106 1/4. The day after Judge Jackson’s initial findings the price was $69 3/4 and eventually fell to a low of $60 6/16.

Michael Landrum has served as an adjunct professor at William Mitchell since 1986, and in 1998 he was appointed director of the Center for Conflict Management¨. He is nationally recognized for his work in dispute resolution. Before joining the college full time he was president and cofounder of AMERICORD, Inc., a provider of dispute resolution and consulting services.

"The reality is that conflict is inevitable and ubiquitous"

The insight to be gained from this litany of laments: Our business clients, aided and abetted by us, treat conflict as an aberration -- a surprise out of left field, an unexpected calamity, something that shouldn’t have happened. When it does happen, we react to it, not surprisingly, as we would to any attack on our safety and serenity. We treat it as something to be driven off, to be destroyed, until we are secure once again against the threats to our interests that conflict brings with it.

The reality is that conflict is inevitable and ubiquitous -- and that’s the key to a new strategy for business: a "conflict control strategy." Conflict, like any other business challenge, can be proactively managed. This concept of a comprehensive, integrated coherent conflict management strategy is the next evolutionary descendant of the ADR movement. Rule 114 has been a feature of the legal landscape of Minnesota since 1994, but the very concept of "dispute resolution" is not the beginning point of new ways to manage conflict -- it’s actually well down the continuum of opportunities.

That’s because "disputes" -- specific controversies that must be concluded by some form of negotiation or adjudication -- are the products of conflict: the expression of dissatisfaction or disagreement that arises from differing expectations, competing goals, conflicting interests, confusing communications, or unsatisfactory interpersonal relations.

Mediation, arbitration and the other ADR processes are valuable tools that can be used to implement part of a comprehensive conflict control strategy. But the strategy itself is much broader. The top management people of our business clients, from the start-up entrepreneur to the multinational corporate executive, are learning that dealing with external or internal business conflicts in the traditional reacting-to-an-accident modes is too oblique for the speed of an e-commerce era. Unprecedented technological, economic, social and political change churns the global environment and, in turn, challenges modern companies. Conflicts follow. Companies have great difficulty responding to the pace and degree of such dramatic change, precipitating further conflict. Whether expressed by utilizing "scorched-earth" litigation tactics or by crying in the wilderness for tort reform legislation or the creation of special "business courts," the soon-to-be old-fashioned "dispute resolution" approach is inconsistent with all other good business practices. In every other endeavor, management tries to figure how to control the risks to achieving organizational objectives. It can do the same with conflict.

By the end of the first decade of the new century, our business clients will become the drivers of new conflict control strategies. They will need help in designing and implementing them. Lawyers are uniquely positioned to assume that role. If we don’t, members of other professions will; the accountant/consultants lead the field. The largest "law firm" in Spain is a unit of Arthur Andersen. Ernst & Young recently financed the launch of McKee Nelson Ernst and Young, a law firm headed by two former partners at Atlanta’s King & Spalding.

Four people described as the "practice leaders" of Ernst & Young’s Legal Management Services Group published in the March, 2000 issue of Corporate Counsel magazine an article with the intriguing title "Corporate Conflict Management Programs: Multidisciplinary Aspects of Program Design and Implementation."

And it’s not just the Big Five. In 1996, Republic Environmental Systems, a hazardous waste service company in the doldrums, merged with a private company called Century Surety Group. In the last four years, this company, now known as Century Business Services, or "CBIA," quietly has created various affiliations with small and medium sized accounting practices throughout the country (including at least two in Minnesota) to create "Your One Source for Customized Business Solutions." Under the brochure heading "Litigation Advisory Services," it performs work in the areas of "antitrust; bankruptcy; civil and criminal tax investigations; discovery support/document management; economic loss/damages analysis; expert witness testimony; forensic accounting/fraud investigations; malpractice and standard of care issues; marital dissolution; Medicare/Medicaid fraud"; and -- last but not least -- "service as arbitrator/mediator."

How can we help our business clients with these value-added services? The first step in designing a conflict control strategy is to identify the places where opportunities exist to boost profits by minimizing the unproductive costs of conflict. It may be helpful to think in terms of a continuum of conflict control "focus points." The first can be identified as conflict "avoidance" -- deciding to refrain altogether from doing business in a particular industry, producing a particular product, entering into a business relationship with a particular partner. The second is conflict "prevention" -- precautions taken and planning done to forestall conflict arising out of a particular interaction consciously undertaken after the initial "avoidance" analysis. Next is conflict "management" -- making strategic decisions about how to deal with particular complaints, claims, and lawsuits. The final focus point is dispute "resolution" -- deciding upon and utilizing the precise tools for settling disputes that, despite best efforts at earlier focus points, have emerged from conflict.

It’s obvious that the plethora of issues and considerations involved in developing a conflict control strategy requires the collective skills of a multidisciplinary team. Such a task can be analogized to building a house. The homeowner needs a surveyor, an excavator, laborers, cement masons, carpenters, plumbers, sheetrockers, electricians, roofers, painters, and landscapers. But most people don’t assemble their own crews. They need, in addition to the wielders of the tools, someone to design the structure -- an architect -- and someone to organize and marshal all the resources to achieve a coordinated result -- a general contractor.

Lawyers should be the "architects" and "general contractors" of conflict management strategies. We are skilled and experienced in the organization and direction of multidisciplinary projects: enlisting specialized cocounsel, hiring and managing investigatory consultants and expert witnesses, coordinating the work of others on our legal team and the legal teams of other parties, interfacing with the court, organizing and managing thousands of documents, discerning the threads common to our contractual or litigation themes.

Do we want a piece of this collaborative action? Or do we, in the process of circling the wagons to keep out the 21st century, want simply give it all away to others? Even as the MDP battle rages, forward-thinking law firms can assemble these value-added multidisciplinary services through any number of "strategic alliances" of the kind now commonplace in e-commerce. They can be provided through joint ventures or working agreements with firms of other professionals or through Rule 5.1 "ancillary businesses," in every way protecting the core values of the profession and complying with ethical rules.

In this the age of globalization, the time is not far away when a single professional practice -- hopefully owned and controlled by enlightened lawyers --will have in-house expertise from professionals in the fields of actuarial science, anthropology, architecture, communications, computer science, economics, education, engineering, human resources, journalism, mathematics, medicine, political science, psychology, statistics -- whatever is appropriate to provide to its clients comprehensive, value-added conflict management services.