U.S. Corporations Should Implement In-House Mediation Programs Into Their Business Plans To Resolve Disputes

“We decided that we wanted to regain control of our money, of our documents, of our reputation and of our time,” said Andrew Byers, overseer of The Toro Company’s mediation program, regarding why The Toro Company of Bloomington, MN implemented a mediation program to settle their in-house and customer disputes as an alternative to litigation. [1]

According to professional mediator Michael Roberts:

“We are in the midst of a litigation crisis. The high cost and long delays associated with the trial of civil matters often make litigation an impractical method of resolving disputes. It is not uncommon for the attorney’s fees, expert witness fees, jury fees, court reporter fees and other related costs to exceed the amount in dispute. Parties increasingly find that they are spending more to litigate than the cost to settle the matter. The increasing number of lawsuits filed each year is indicative of the unwillingness or inability of parties and their attorneys to effectively utilize negotiation to resolve disputes. Because the current legal environment discourages the early settlement of disputes, society is demanding a new approach for resolving disputes more efficiently. That new approach is mediation.”

This article discusses why today’s American businesses and corporations should practice alternative dispute resolution by implementing mediation-approach programs into their business plans to settle customer, employee and contractual disputes in order to save money and resources beyond dollars rather than immediately resorting to traditional litigation. In-house ADR programs and policies, specifically mediation, enhance corporations’ business relationships, save valuable time, and offer significant cost savings in comparison to traditional litigation.

Mediation offers disputants important advantages over litigation and even arbitration.. The American Arbitration Association reported that more than 85% of all disputes that went to mediation resulted in a settlement. A 2003 AAA study concluded that a “stream of evidence has long suggested that there is a real business value to the rapid, comparative inexpensive, and easily accessed alternative to the judicial system that ADR represents.”

In the past few years, companies have been recognizing this value and implementing programs to take advantage of it. Many companies have formed Conflict Management Programs or Corporate ADR Programs that make use of mediation; some exclusively incorporate mediation. For example, during the Y2K scare, a dozen multinational corporations including Bank Of America Corp., General Mills Inc., Phillip Morris USA, The Coca-Cola Co., Bell South Corporation, and the United Parcel Service of America Inc., in conjunction with the persuasive efforts of CPR Institute for Dispute Resolution, agreed to use mediation instead of litigation to settle disputes arising out of Y2K computer glitches.

Recent data supports a growing trend in corporate America towards mediation as the preferred means of ADR. A Cornell University sponsored survey of 1,000 U.S. corporations found that an overwhelming 87 percent of survey respondents preferring mediation to other third party neutral facilitated ADR. Of the survey respondents in the Cornell Report, 19 percent reported that they used mediation frequently, 30 percent said they used mediation rarely, and 43 percent used it occasionally. That means that 73 percent out of the 92 percent who responded incorporated some level of mediation practice in their business plan.

The U.K.’s leading companies are also moving toward mediation. Of the U.K.’s leading companies, 20 percent are reevaluating their ADR policies according to recent research conducted in 2007 by European litigation law firm Herbert Smith LLP. “As an increasing number of corporations invest outside their home markets, the number choosing to settle disputes through international arbitration has grown. Increasingly, litigation is no longer seen as the sole recourse of clients seeking legal remedies to protect or defend their commercial position.” Research shows that 21 leading “blue-chip” companies, including Shell, Royal Bank of Scotland, Merrill Lynch, KPMG, Zurich, UBS and GE, are focusing more on ADR than traditional litigation and “actively reviewing their ADR policies with in-house lawyers citing their most common objective was to embed the ADR culture in their dispute management procedures.” Specifically, mediation was the most favored ADR method and “55 percent of respondents used mediation at least four to eight times over the past 12-month period.”

In-house corporate mediation programs can yield big returns. For example, the Toro Company, a manufacturer of professional and homeowner outdoor maintenance machinery, reported that “it had not been involved in a jury trial nor had any discovery of its documents since 1994” because of its mediation approach to conflict management.

Before Toro Co. implemented its in-house ADR program in 1992, the cost of the average litigation file to Toro Co. was more than $47,200. Throughout the 1980s, Toro Co. “prepared for trial six to eight times annually, and won 82 percent of the cases that went to verdict”… “but it was at great expense to the Toro Co.” Specifically, “the average verdict or settlement [for Toro Co.] was nearly $68,400.

After implementation of its ADR program, the 905 claims resolved between 1992 and 2000 were settled for an average of $20,250–and 95 percent of these settled within four months. A significant ancillary benefit to Toro Co. was that during each of the program’s first three years, the company’s insurance premium dropped by $1.9 million.”

Toro Co. litigation director Andrew Beyers concluded, “The program…is very, very successful not just because of mediation, but because of an attitude by the company to encourage mediation in disputes. The success of this program … led senior management subscribing to mediation as the way to resolve disputes.”

Another ancillary benefit Toro Co. receives is that they now have the ability to actually budget their legal fees in advance. There are no ad hoc legal fees billed after or during litigation because Toro Co. pays its mediation counsel a flat fee at the beginning of the year based on how many matters the company expects to assign in a year period.

Toro believes that their mediation program works best for them largely because the company has more control than it would in traditional litigation. According to Byers, “We can control our money, our engineers’ time, and our documents.… Once you’re in front of a jury, you’re stuck with what happens.”

Toro is not the only company to have found success with an in-house ADR program. Financial services company Wells Fargo modified its deposit and bank-card contracts to provide a mechanism for using mediation, among other ADR avenues, in customers’ disputes. ADR is used to handle disputes from consumer complaints about credit-card late fees to cases involving swindling by small-company bookkeepers.

In the summer of 1992, Wells Fargo notified bank customers that they may submit disputes involving claims of $25,000 or more to the company’s in-house, multi-step ADR process. The Wells Fargo policy, known as the Comprehensive Dispute Resolution Program, includes good faith negotiation, mediation, and binding arbitration in order of escalation. While exact cost savings are hard to calculate, Wells Fargo lawyers estimated that mediation provisions would affect millions of bank customers positively.

The U.S. Postal Service implemented an in-house ADR program in October 1994 to address employment type disputes with its employees. The mediation program was named REDRESS®, which “stands for “Resolve Employment Disputes, Reach Equitable Solutions Swiftly.” Its purpose is to provide employees with mediation as an alternative to the traditional Equal Employment Opportunity (EEO) complaint process.

The REDRESS mediation program is one of the country’s leading conflict resolution programs and has received global recognition from the ADR community and positive feedback from employees, supervisors, and their representatives for resolving disputes without litigation. The USPS developed and encourages its employees to use REDRESS because “when disputing parties are giving an opportunity to participate in a transformative mediation session, not only do they gain a better understanding of the conflict, but they also develop a better ability to communicate with each other. [C]onflicts are … reduced as communication is improved. This all leads to a better work place.”

The transformative mediation model of mediation at the USPS allows the aggrieved employee and the Postal Service to openly discuss the complaint and focus on the issues that the parties believe are important. It is carried out in a manner that is intended to help “transform” the working relationship between employer and employee or between disputing employees.

Pam Zuczek, the leader of the Postal Service REDRESS Mediation Program and EEO ADR Coordinator in the New York Metro area, reported that in 1999, the Postal Service of the New York Metro area had 10,998 formal EEO complaints on its docket. In 2000, this number dropped by nearly 2,000 cases. That year, the REDRESS program had at a settlement rate of 80 percent. Of the cases handled by REDRESS, 6,089 settled at the mediation table, and 1,674 were not pursued further. “What happens is that [employees] become generous; they begin to see the other side and they begin to realize that their behaviors and their attitudes sometimes affect another person and they are willing to sometimes modify their behavior,” Zuczek said.

Air Products and Chemicals, Inc., a manufacturer of gases, performance materials, and equipment, effectively uses mediation to settle disputes. Its process calls for the parties to agree in advance to mediate early and focus the dispute resolution process on discovery before lawsuits are filed against the company. Air Products, Inc. retains two mediators: one who is an expert on the subject matter and another who understands the mediation process generally. Its approach includes having an in-house settlement team that operates simultaneously with its outside trial team. The idea is that the outside trial team of lawyers will set the stage for mediation but will not stop the trial preparation process while preparing for mediation. In other words, the trial team is in place as a safety net in case mediation fails. The mediations are generally attended by business people rather than lawyers, in order to avoid the appearance of a litigious approach that would impede the settlement process.

The results Air Products, Inc. has seen from its mediation process are very positive and pay dividends beyond saving money. Even if mediation does not immediately settle a matter, the process often narrows the issues, making it an excellent tool to help control litigation expenses. Its flexibility and adaptability help the company preserve long-term relationships while untangling any dispute that might arise. For Air Products, Inc. avoiding formal discovery rules and pre-trial procedures such as motion practice permits the company to determine how the dispute will be resolved. Additionally, by mandating the mediation process in a contract in advance, Air Products, Inc. avoids all the expenses and legal fees of discovery and pre-trial practice and goes directly to mediation with the other party.

American Express takes a different approach to mediation: It enlists the aid of experienced mediation professionals when it needs to settle disputes. The Chief Litigation Counsel of American Express, Stuart Alderoty, insists that from his company’s standpoint, when the mediator has the confidence of both parties to the dispute, the “psychological impact of a well chosen [mediator] helping the parties to put a number to the claimed damages is very positive.”

Rather than beginning its mediation process by selecting mediators like American Express, Johnson & Johnson selects settlement lawyers from its general counsel department who believe in mediation and who can drive this concept of ADR and early resolution outcome.

The companies mentioned above are just a few of the firms that have discovered the advantages to implementing an in-house mediation program or, at minimum, a mediation policy as part of corporation’s business plan. A variety of companies saw drastic reduction in costs associated with dispute resolution, as well as gains from mediation in the form of retaining a customer base, saving valuable company resources, and creating more efficient working environments among employees. Today’s corporations ought to follow in the footsteps of the pioneers who have reaped the benefits of in-house ADR policies and procedures.