In May of 1997, Forbes magazine and the American Arbitration Association sponsored a conference in Washington, D.C. entitled “The Alternative Dispute Resolution Superconference; Strategies to Insure Profitability.” The impressive list of registrants included representatives of Fortune 500 companies, trade associations, government agencies, accounting firms, and America’s leading law firms.(see endnote #1) The sponsors of the conference promised to enlighten the attendees “about the ways in which ADR can resolve even the most complex disputes and help maintain valued business relationships.”

The two day conference included such topics as: “Utilizing Alternative Dispute Resolution in Environmental Disputes”; “The Use of ADR in Mergers and Acquisitions”; “Is The Brave New World of Employment ADR Right for My Company?”; “Practical Considerations in Drafting Dispute Resolutions Provisions in International Commercial Contracts: A U.S. Perspective”; and “Opting into ADR for Product Liability and Mass Tort Disputes.” With the exception of a vocal minority view expressed by representatives of the American Civil Liberties Union and various labor unions, the presenters at the conference engaged in a love-fest for ADR. It was clear that corporate America had endorsed ADR, that it was excited about sharing the details of its experience with ADR, and that it believed the use of ADR would continue to expand among the corporate community.

Speakers at the Superconference made frequent reference to a survey conducted by Cornell University, The Foundation for the Prevention and Early Resolution of Conflict (PERC), and Price Waterhouse, which obtained information from the corporate counsel of the 1,000 largest U.S.-based corporations about the use of ADR (see endnote #2) The results of the survey confirmed that corporate America was embracing ADR. In the prior three years, 88 percent of the respondents reported using mediation and 79 percent reported using arbitration. The prediction of respondents was that they would increase their use of ADR in the future. Over 84 percent indicated that future use of mediation was likely; 69 percent forecasted the future use of arbitration. Based on these statistics, the study concluded that corporate lawyers preferred mediation or other non-binding techniques to arbitration.

An analysis of the survey data enabled Cornell to draw the conclusion that to a certain extent, policy and conflict resolution varied with the type of dispute. Specifically, the survey indicated that the use of mediation and arbitration was more widespread in employment disputes than in corporate finance, financial reorganization and workout disputes. Mediation was preferred to arbitration, particularly in personal injury disputes and product liability cases, where approximately twice as many corporations had used mediation as arbitration.

The study attributed the growth of ADR to three basic factors: cost control, legal mandates, and dispute management. With respect to cost control, the corporate respondents to the Cornell Survey had adopted an ADR strategy to try to reduce the cost of their legal disputes. Viewing mediation as a cost saving measure, the corporate interest in saving time and money induced many of them to encourage their outside law firms to become more familiar with ADR and to employ it more frequently.

Legal mandates, largely stemming from statutes such as the Civil Rights Act of 1991 and the Americans With Disabilities Act, as well as the growing use of ADR by administrative agencies such as the EEOC and State Workers Compensation boards, require the use of ADR. Many state court systems have adopted court-annexed programs to help reduce their dockets. These court mandates were cited by 64 percent of the respondents as the reason they use mediation, while 44 percent of the respondents cited court mandates as a reason for using arbitration.

In their executive summary, Lipsky and Seeber suggest that corporations also use ADR techniques “to gain greater control over the process and outcome of dispute resolution.”They cited the fact that 81 percent of the respondents agreed that one of the reasons to use mediation was that it provided“a more satisfactory process” than litigation. Fifty-nine percent of the respondents stated that mediation “preserves good relationships.”

Interestingly, the survey exposed reservations about the qualifications of the neutrals involved in ADR. A majority indicated that in its view, mediators and arbitrators were only “somewhat qualified.” Corporate America apparently does not believe there is a lack of ADR neutrals, only a lack of qualified neutrals. It was pointed out that in approximately 20 percent of the mediations in which the respondents had been engaged, mediators were provided by the courts. Private ADR providers were cited as another important source of mediators.

With the focus of the May Superconference and the Cornell Study in mind, the planners for the State Bar’s Fourth Annual ADR Institute in October 1997, included a panel discussion on corporate use of ADR. The panel consisted of James J. Seifert, Assistant General Counsel at Toro Inc., in Bloomington, Minn., who spoke on Toro’s pre-litigation intervention program, which features mediation as a vehicle for resolving claims; George Wratney, Corporate Ombudsman for United Technologies Corporation of Hartford, Conn., who spoke about the decade-old, world-wide ombuds program for United Technologies’ 174,000 employees; and William E. Beringer, the retired former Vice-President and General Counsel for Siemens Energy and Automation in Atlanta, who spoke on his experience with mediation and arbitration at Siemens. The positive presentations of the three panelists were very well-received by the attendees at the ADR institute, as indicated by the comments and questionnaires received at the end of the seminar. Many of them wanted to know more.

The questions arise: What is the attitude of Georgia’s leading corporations toward ADR? Do they embrace it? Do the Georgia corporations draw the distinctions between mediation and arbitration that are reflected by the data from the Cornell study? Do they intend to continue to use ADR in the future? The best (and the worst) way to obtain answers to these questions is through a questionnaire. With the Cornell Study as a model, I created a questionnaire which sought information about the use of ADR, the existence of formal ADR programs, both external and internal, the relative satisfaction with mediation and arbitration, the cost savings, and the sources of and qualifications of neutrals. I sent the questionnaire to 28 of the largest corporations in Georgia and received responses from 17 of them.(see endnote #3) It might be difficult to argue that the responses of these 17 corporations give us statistically valid data. Thus, I will not try to draw ultimate conclusions from this material, but to present this data as a matter of information, which nonetheless provides us with an impression of the extent to which major corporations in Georgia are using various ADR processes.

A brief profile of the corporations which answered the questionnaire is helpful. All of them had more than 1,000 employees and most of them had more than 3,000.Surprisingly, only half of them employed in-house counsel, and of those that did, only four had a member of their legal department specifically assigned to ADR. With respect to ADR training, approximately half of the respondents required or provided training in ADR techniques for their in-house staff. Four of the corporations had trained mediators on staff and only two of the corporations had staff counsel who are active arbitrators.

Although most of the corporations had some experience with ADR, only about half of the respondents had a formal corporate ADR policy. Four of the corporations have in place an internal ADR program for employee claims. These internal programs employ mediation and/or arbitration to resolve employment discrimination claims, wage disputes, labor matters, claims under the Americans With Disabilities Act, and sexual harassment claims. None of the corporations polled has kept statistics on the number of internal claims submitted to ADR during the last three years.

After inquiring into general background matters and the existence of a formal ADR policy, the next series of questions on the survey dealt with the use of various ADR processes, the level of satisfaction with these processes, and the relative importance of various factors which are generally cited as justifiying the use of ADR.The responses are interesting. All but four of the respondents had used mediation to resolve external claims within the last three years. Several had used mediation only two or three times and several had used it as many as 20 times, with one corporation having used it 50 times and another having employed it 90 times.

There was a similarly wide disparity in the use of arbitration. All but six of the respondents had been involved in arbitrations of external claims within the last three years, with several having engaged in only one or two, and a couple having engaged in as many as 20 arbitrations. Only two corporations reported experience with the ADR process known as “early neutral evaluation,” and two corporations noted that they had employed other ADR techniques without specifying what they were.

It appears that the old adage “time is money” still holds true for Georgia corporations. When asked to evaluate the importance of various reasons for employing mediation and arbitration, “saving time vs. litigation” was the most important factor for both processes. The other factors for using mediation in relative order of importance were: cost savings, control over the process, more satisfactory results, and preserving the relationships of the parties. For arbitration, the relative importance of the factors was: control over the process, cost savings, preserving the relationship of the parties, and more satisfactory results.

These rankings are revealing in several respects. Apparently, preserving the relationships of the parties is a relatively unimportant factor to the respondent corporations. Perhaps this is not surprising since this series of questions did not deal with internal disputes such as employee claims. Another interesting result, which is entirely consistent with the results of the Cornell Study, is that “control over the process” and “more satisfactory results” received higher rankings of importance with respect to mediation than arbitration.

When mediation and arbitration were compared directly, mediation emerged as the clear preference. On a scale of 1 to 5, with 1 being “highly satisfied” and 5 being “not satisfied,” mediation scored a 2.2 and arbitration scored a 3.1. Thirteen of the respondents preferred mediation over arbitration, two preferred arbitration, two had no preference, and one added that it preferred to arbitrate international claims. For the most part, the comments comparing mediation and arbitration were consistent with the results of the rankings.

One of the respondents felt that arbitration could be just as time-consuming and costly as litigation. Another focused on the results in arbitration, observing; “[a]rbitrators tend to ‘split the baby’ but mediation allows the parties to more freely exchange views and reduce the tension that created the conflict.” Emphasizing the strengths of the mediation process, one respondent wrote: "We generally prefer mediation. It allows us to give the other party a summary of the strengths of our case in a less adversarial setting. I have also found that it can be very effective when the other party ‘caucuses’ with the mediator, who often points out the weaknesses of their case, as an independent knowledgeable third-party. Even if a case does not settle at mediation, oftentimes the mediation lays the ground-work for a future settlement."

One of the companies emphasized the finality of arbitration: “I favor arbitration in disputes involving technical code and industry issues. It is required by certain of our contracts and thus brings the rashly litigious to the table for final resolution. Mediation too often is frustrated by opposing counsel or his client’s intransigence.”

In spite of the fact that cost savings was near the top of the list as a justification for using ADR, very few of the respondents, only four, actually keep track of the results of their ADR experiences in terms of cost savings. One company estimated that $100,000 spent in attorney’s fees in ADR saved it $500,000 in jury trial results.

The responses regarding sources for mediators and arbitrators and satisfaction levels with them varied widely. The most frequent source for obtaining mediators was “word of mouth,” followed by “court-appointed mediators” and “ADR providers,” which tied for second. This question may have been somewhat confusing, though, since a mediator identified by word of mouth could be associated with one of the ADR providers and thus fit into both categories. In terms of levels of satisfaction, mediators obtained by word of mouth ranked highest, followed by those obtained from ADR providers. Court-appointed mediators were a very close third.

The overall satisfaction rating for arbitrators was significantly lower than that of mediators. Arbitrators scored 3 on a 1 to 5 scale with 1 being “highly satisfied”and 5 being “not satisfied.” This score was not entirely consistent with the fact that a majority of respondents answered “no” to the question: “Do you believe there is a shortage of qualified arbitrators?” This was one of the few responses where our Georgia corporations differed from those polled in the Cornell study.

All but two of the companies agreed that they were likely to increase the use of mediation in the future and more than half agreed that they were likely to increase the use of arbitration. Seven of the corporations also stated that they planned to use more early neutral evaluation. One vehicle for increasing the use of ADR is contractual provisions. A majority of the corporations already include arbitration clauses in their contracts; slightly less than one-half include mediation provisions in contracts; and one corporation contractually requires early neutral evaluation. It can be inferred from the responses that Georgia corporations will begin to include mediation clauses in their contracts more frequently in the future.

In the final section of the questionnaire, there was a space for comments about any dissatisfaction the respondents may have had with ADR. There were only two comments, one voicing dissatisfaction with international arbitration under the ICC Rules on the ground that it was costly and takes too long, and one general criticism of arbitration on the ground that it lacks the “procedural protections” of litigation, especially the right of appellate review to correct mistakes made by arbitrators.

Two prominent Georgia corporations, Home Depot and Georgia-Pacific, have instituted comprehensive ADR programs largely due to the foresight of their corporate legal departments. David Rutherford is in charge of the ADR program at Home Depot. He came to Home Depot from private practice where he concentrated in construction law, a practice area which provided him with exposure to arbitration and mediation. When he arrived at Home Depot two years ago, he found the company was very receptive to his suggestions about increasing the use of ADR.

Although Home Depot has typically included arbitration clauses in its construction contracts and its vendor buying agreements, Mr. Rutherford hopes to add to the company’s contracts provisions which would require mediation as a pre-condition to arbitration or litigation. In addition, Home Depot is in the process of fashioning an internal ADR program for employment claims. This program is expected to take effect in 1999. To encourage outside counsel to use ADR techniques, Home Depot now requires in its engagement letters that counsel take a careful look at the forum and mechanisms for resolving claims and advise the company of the possibilities of using ADR for resolution. Mr. Rutherford related that he has found the construction bar to be very familiar with the use of arbitration and mediation, and he has found the personal injury bar to be willing to use mediation to resolve claims. With respect to disputes in the commercial context involving, for example, leases, real estate, or property and casualty claims, he has found attorneys less familiar with ADR or less willing to employ ADR techniques.

Georgia-Pacific describes the transformation of its approach to lawsuits as a “culture change.” (see endnote #4) Prior to 1993, Georgia-Pacific handled lawsuits much as most of America’s other corporations did. In-house legal staff dealt with outside attorneys who conducted 18-36 months of time-consuming and expensive discovery before settling the case. When James F. Kelley became Georgia-Pacific’s Vice-President and General Counsel, he sought to cut legal fees and costs by involving in-house legal staff at an earlier stage of the process and by taking a more active role in the management of litigation. A part of the active involvement which Mr. Kelley expected of his staff was early case evaluation “with an emphasis on alternative dispute resolution.” (see endnote #5) G-P’s lawyers began attending training sessions in ADR, began to review every file with an eye toward settlement or ADR, and began to attempt the resolution of cases prior to the onslaught of expensive discovery.(see endnote #6)

Georgia-Pacific reports that the results of this culture change have been “impressive.” Nearly 50 cases mediated in 1996 at a savings of at least $1.5 million, and approximately 74 cases mediated, arbitrated or settled through early case evaluation in 1997 at a savings of at least $6.5 million. (see endnote #7) These numbers have certainly convinced management of the value of Mr. Kelley’s thinking.(see endnote #8) Philip Armstrong summed up Georgia-Pacific’s experience as follows: "It’s a new day at Georgia-Pacific with a new approach to managing litigation. Cases get settled, business relationships are preserved, management spends less time responding to discovery (or otherwise providing factual support for the case) and the company saves money, sometimes big money."(see endnote #9)

Mr. Armstrong has some very helpful suggestions to corporations who may wish to follow in the footsteps of Georgia-Pacific and others in setting up an ADR program. They are as follows:

1. Get top management to buy-in. The executives in the company must be shown the economic benefits of early case resolution versus a “winning-at-all-costs”philosophy.

2. Training. While most lawyers today are at least familiar with ADR, few have had formal training. An interactive training session, complete with role plays, is money well spent.

3. Start small. Don’t try to change the corporate culture too quickly. Perhaps begin with a category of cases, e.g., product liability claims, then expand.

4. Require ADR clauses to be routinely incorporated into your commercial agreements. This provides a mutual, face-saving method of forcing the parties to utilize alternative means to resolve disputes “before the battle lines are drawn.”

5. Assign someone full time responsibility for promotion and utilization of ADR. In-house expertise is essential to any successful program.

6. When the existence of a dispute becomes known, promptly investigate the facts, objectively evaluate the case, and, when appropriate, initiate negotiation or ADR.

7. Build a library of resource materials. Treatises and periodicals on alternative dispute resolution are both extensive and readily available.

8. Be willing to fully litigate those cases that call for it. An aggressive program does not mean every case is suitable for ADR. However, you should screen every case to determine its suitability for early settlement or ADR.

9. Measure the results. This can be somewhat tricky since you must estimate what you would have to spend had a claim been litigated. However, most litigators know what a case will cost and, with some exceptions, can reasonably estimate the outcome. It’s not a science, but one’s ability to evaluate a claim properly in its early stages is the key to a successful program.

10. Be patient. It takes time to build a successful program and not every ADR experience will be positive. Overtime, however, the results will speak for themselves.(see endnote #10)

As noted above, it would be unwise to assume that the results of this survey are unassailable. The sampling was too small statistically. It can be said, however, that if these responses accurately reflect the thinking of the larger corporations in Georgia, ADR, especially mediation, is well-accepted and its use will grow in the future. It also appears that the attitude of the Georgia corporations which participated in the survey mirrors in most particulars the attitude of America’s largest corporations, as reflected in the Cornell Study.


Robert S. Glenn Jr. is a partner at Hunter, Maclean, Exley & Dunn PC in Savannah. He is a graduate of Princeton University and attended the University of Georgia Law School. Mr. Glenn was trained and certified as a mediator by the Association of Attorney-Mediators, an organization in Texas. He participated in the Harvard Negotiation Workshop in the summer of 1993, and has handled over 350 arbitrations and mediations since that time.

ENDNOTES:
1. The list included Georgia-Pacific, General Electric, NCR, Corp., Sony Electronics, Texaco, McDonalds, Colgate-Palmolive, CIGNA, AT&T, Chevron, Johnson & Johnson, Xerox, Westinghouse Electric, The EPA, The EEOC, The Department of the Navy, The Department of Justice, The U.S. Army Corps of Engineers, Coopers & Lybrand, KPMG Peat Marwick, Ernst & Young, and many more.
2. David P. Lipsky and Ronald L. Seeber, The Use of ADR in U.S. Corporations: Executive Summary, A Joint Initiative of Cornell University, The Foundation for the Prevention and Early Resolution of Conflict (PERC) and Price Waterhouse, LLP.
3. Those corporations responding were: American Family Life Assurance Corporation, BellSouth, Cable News Network, Coca-Cola, Crown Crafts, Delta Air Lines, Georgia-Pacific, Georgia Power, Genuine Parts, Gulfstream, Home Depot, Mohawk Industries, Scientific-Atlanta, Southwire, SunTrustBank, Union Camp, and United Parcel Service.
4. Philip M. Armstrong, Culture Change: Georgia-Pacific’s Aggressive Use of Early Case Evaluation and ADR Has Changed The Way It Manages Litigation (unpublished paper)(copy on file with author). Mr. Armstrong is the Associate General Counsel for Georgia-Pacific and is in charge of its ADR efforts.
5. Id.
6. Id.
7. Id.
8. Mr. Armstrong points out in his paper that Georgia-Pacific does not settle every case. If claims are frivolous, involve important precedent or matters of principle, Georgia-Pacific may follow a “scorched earth” policy.
9. Id.
10. Id.