Year-End Wrap Up: Are We There Yet?

Business Conflict Blog by Peter Phillips

Some of us have been at the task of providing alternatives to business litigation for fifteen years. Some have been at it much, much longer. Stepping back from the fray for a moment, one might well ask: Are we any closer to where we want to go? What is the current state of the profession of business mediation, arbitration and negotiation?

MEDITATION: Sadly, I don’t think much has changed in business mediation since 1998. There are still a group of corporate leaders, still a group of lip-service corporate adherents (those who say they are always ready to mediate “except not in this particular case”), still an ocean of small-to-medium businesses who file suit to collect unpaid invoices or get sued over employment claims. There are still a group of academics who advance the underlying theory with increasing abstraction, still a (small) group of practitioners who earn a living at it, and still a (vast) group of practitioners who don’t.

In a lot of service industries, 20% of the practitioners get 80% of the work. In mediation, as in acting, 2% of the practitioners get 98% of the work. And just like in acting, the median wage for mediators is zero.

One thing that has changed is the number of organizations that are active in the mediation industry, and whose income streams derive from mediators rather than from parties in mediations. That is to say, there is far more money to be made from people wanting to be mediators than from people wanting mediations. This year alone I have been approached for dues, sales, fees or contributions by:

AAA, CPR, the International Mediation Institute, mediate.com, mediate.org, medition.com, the LCIA, the CIArb, ICC, the ABA Dispute Resolution Section, the ABA Business Law Section, the NJ Bar Association Dispute Resolution Section, the NY Bar Association Dispute Resolution Section, the International Bar Association Mediation Committee, the Union Internationale des Avocats World Mediation Forum, the Mediation/Arbitration ListServe, Pepperdine’s Straus Institute, Harvard’s Program on Negotiation, the US Council for International Business, the Garibaldi ADR Inn of Court, the New Jersey Association of Professional Mediators, CEDR, FINRA…

and many others whose email solicitations I’ve deleted or whose phone calls I’ve hung up on. They want to list me, train me, teach me, market me, network me, credential me and otherwise get me all set to mediate my brains out. Only four of the list above has offered me work, though. Lots of organizations are developing the art of mediation — who is developing the market for mediation?

It’s a sign of a sick market when the barriers to entry are so low, and the market activity is so paltry, that most of the economic activity occurs in preparing supply rather than meeting demand. And that’s where we are in mediation.

ARBITRATION: AAA contracts notwithstanding, the number of businesses entering willingly into arbitration is decreasing and the number of business arbitrations (except perhaps for cross-border arbitrations) is getting lower every year. What loomed as a threat 15 years ago has become a broadly acknowledge reality: Arbitration is experienced by most businesses as litigation without a right of appeal. Fixing the blame for this development would require a multi-armed Indian god.

The businesses say they need to follow the advice of the lawyers. The lawyers say that (a) only Mr. X or Ms. Y will do as an arbitrator, even though they are not available for three years, and (b) full discovery, including depositions and e-documents, is critical to a fair outcome. The arbitrators say that one of the very few statutory bases for vacatur of an arbitral award is a refusal to hear evidence or allow for full hearings. And so it goes: a process that began as a way to ask an industry expert to decide a dispute has now become a nasty, tendentious, expensive, time-consuming, risk-filled, lawyer-driven affair, over which the businesses themselves have lost control.

There is no single component of this toxic brew that, if altered, would make the process once again commercially sensible. Anyone who has a solution to it, please enter it in the “Comments” box below. Until that time, it’s hold your head in your hands and moan until the next Supreme Court ruling hits you on your head again.

NEGOTIATION: Actually, there are many signs that this is getting better — a lot better. For one thing, young lawyers are actually being taught how to negotiate as part of their skills training in school. Training lawyers to negotiate on their cleint’s behalf — what a progressive idea!

For another thing, one reason there is a low demand for mediators is because the lawyers are instructed to resolve the matter prior to, or in the early days of, litigation and to do so with minimal transaction costs. Many parties ordered by the courts to mediate decide instead to negotiate directly and save the time, money and angst of formal mediation. To the extent that the parties really do value the claim differently, many go to retired judges and ask for an opinion based on the former magistrate’s experience in such claims. Wayne Brazil, we thank you once again!

Some friends accuse me of periodically dipping into the dark side, all gloom and melancholy. But just because you’re paranoid doesn’t mean they’re not out to get you. And just because you’re a Cassandra doesn’t mean there aren’t lots of reasons to be concerned.

Maybe it’s not the way ADR professionals do business that is evolving, but rather the way businesses resolve conflicts. Maybe ADR — 1989's Cool New Thing — is neither cool nor new any more, and instead what has happened is that businesses themselves are taking responsibility for their own conflicts, and developing the skills of anticipating, managing and resolving them.

In their book International Arbitration and Mediation: A Practical Guide, John Savage and Michael McIlwrath wrote:

Today’s business world is about risk. Those who can accept risk — and manage the downside — will be rewarded. In international contracts, dispute resolution often is or should be the single most important consideration in deciding whether a particular risk is one to accept. The value of the contract may ultimately reside in how disputes arising out of it will be resolved.

What if that perception were broadly shared? What if what we’re seeing is that businesses equate economic value with contractual enforceability, and are negotiating deals that reflect sophisticated risk assessment and management of business relationships in a manner that was mutually planned and, in large part, mutually profitable?

                       

F. Peter Phillips

F. Peter Phillips is a commercial arbitrator and mediator with substantial experience providing consultation on the management of business disputes to companies around the globe. A cum laude graduate of Dartmouth College and a magna cum laude graduate of New York Law School, Mr. Phillips served for nearly ten years… MORE >