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Dispute Resolution in The Changing Workplace

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IV.

WORKPLACE DISPUTE
RESOLUTION SYSTEMS

Dispute Resolution in the


Changing Workplace
David B. Lipsky and Ronald L. Seeber
Cornell University

Abstract
For the past seven years, the authors of this paper have been
conducting research on the use of Alternative Dispute Resolution
(ADR) (particularly in employment disputes) by major U.S. corpo-
rations (Lipsky and Seeber 1998a, 1998b, 2000). In our research we
discovered that an increasing number of American corporations are
moving beyond ADR to the adoption of so-called “integrated conflict
management systems” (Lipsky and Seeber 1998a; Gosline et al.
2001). Although considerable research on the operation of various
ADR procedures exists, very little has been done on the formation
of conflict management strategies, including the use of conflict
management systems (Ury et al. 1988; Costantino and Merchant
1996; Stitt 1998; Colvin 1999). In this paper we examine: a) the con-
cept of an integrated conflict management system, b) the conflict
management strategies used by American corporations, and finally
c) the factors that account for the evolution of corporate conflict
management strategies from traditional approaches (including heavy
dependence on litigation) to the widespread adoption of various
ADR techniques and finally on to the adoption of full-blown conflict
management systems by a vanguard of U.S. organizations. In our
discussion we draw heavily on interviews we conducted with top
managers and corporate lawyers in more than fifty corporations
across the United States.

Author’s address: 621 Catherwood Library Tower, 6th Floor, Ithaca, NY 14853-3901

30
WORKPLACE DISPUTE RESOLUTION SYSTEMS 31

Methodology and Data


This article is based on data the authors have gathered from two separate
but related research efforts. First, in the spring of 1997, we surveyed the gen-
eral counsel or chief litigators of the Fortune 1000 companies on topics relat-
ed to Alternative Dispute Resolution (ADR) (Lipsky and Seeber 1998a). This
survey and two others remain the only source of empirical data on ADR us-
age by U.S. corporations (DeLoitte Touche Tohmatsu International 1993;
American Arbitration Association 2003). The objective of the survey was to
obtain comprehensive information about each corporation’s use of ADR.
The empirical results from that survey were the springboard that led to
the next phase of our research. The survey results underscored our realiza-
tion that a number of corporations had moved beyond the use of ADR tech-
niques and toward a more proactive, strategic approach to conflict manage-
ment. This realization motivated us to undertake case studies of workplace
dispute resolution and conflict management systems in a large sample of or-
ganizations. Over the course of 1999 to 2002, we visited and conducted inter-
views at more than fifty corporations across the United States. The organiza-
tions we studied cover a broad spectrum of industries and represent a
cross-section of approaches and philosophies to ADR and conflict management
(Lipsky et al. 2003). All of the organizations we have studied are large by al-
most any standard, and accordingly their experience with conflict management
systems does not necessarily represent the experience of medium-size and
small employers. For each of the firms we visited, we tried to schedule inter-
views with corporate CEOs, CFOs, general counsel, human resource execu-
tives, and managers at corporate headquarters or one or more of their sites.
In only a couple of cases did we succeed in interviewing the CEO of the firm;
usually we were able to interview a handful of top human resource executives
and in-house attorneys. We also compiled dossiers on each company we stud-
ied, consisting of annual reports, financial statements, press releases, and the
like. In the end, we built a detailed understanding of the experiences of well
over fifty large organizations with ADR and conflict management systems.

Inclination to Change
Organizations do not set a process of wholesale shift to new systems in
motion unless there is substantial dissatisfaction with the old; that is the case
with dispute resolution. A number of different trends have converged to pro-
duce motivation for corporations to change from conventional methods of
dispute resolution to the use of ADR and, beyond ADR, to the adoption of
conflict management systems.
First, the traditional approaches of organizations to disputes have been
32 IRRA 56TH ANNUAL PROCEEDINGS

largely reactive, reflecting compliance with systems imposed on the organi-


zations by outside institutions. Disputes with consumers, governmental agen-
cies, and other organizations have generally been resolved either in the courts
or in other public forums established for that purpose. The dissatisfaction with
these public forums, which has been growing for some time, reached a crisis
point in the last ten years. Litigation is seen as time-consuming and costly. It
is also often viewed as producing results unacceptable to either party to the
dispute. Organizations view compliance with court-ordered settlements with
barely concealed hostility. In sum, the courts and administrative agencies set
up to resolve disputes are viewed with antipathy—if not hostility—by nearly
everyone involved, except members of the legal profession, who are an inte-
gral part of the system (Olson 1991; Garry 1997; Dunworth and Rogers 1996).
A second trend in U.S. corporate life has been the long-term decline in
the labor movement and thus in the use of collective bargaining and its at-
tendant processes to resolve employee complaints. Collective bargaining as
an institution reached its high-water mark in the 1950s, and since that time,
the labor movement has been on a steady decline to its current status, with
less than ten percent of workers now represented by unions (U.S. Bureau
of Labor Statistics 2001). Collective bargaining provided explicit channels
for the resolution of employee-employer disputes. Strikes were the means
by which collective interest disputes were resolved and, while never viewed
as positive, they were effective for that purpose. Collective bargaining nearly
always established elaborate grievance systems, usually culminating in a bind-
ing arbitration procedure for the final resolution of disputes of rights (Volz
and Goggin 1997).
U.S. corporations never embraced collective bargaining and tried to limit
its influence by fighting the existence of unions wherever they emerged. Some
corporate leaders held the naïve view that when unions did not exist, conflict
would disappear. More sophisticated corporations recognized that workplaces
produce conflict and that if unions and collective bargaining were not the
vehicle for dispute resolution, another means would have to be substituted.
Elaborate human resource systems designed to surface and channel employ-
ee dissatisfaction generally did not produce an effective substitute for this
important function of unionism. Minor conflicts with employees often did not
surface at all, and those that did came through unwanted, expensive litigation
under the ever-growing system of individual legal rights in the workplace. Thus,
employers in the 1990s found themselves facing the Hobson’s choice of unions
they did not want or alternative but ineffective means of dealing with employee
conflict (Lipsky et al. 2003, 301–9).
A third source of dissatisfaction came from the changes made by organi-
zations to deal with the increased competition from globalization and dereg-
WORKPLACE DISPUTE RESOLUTION SYSTEMS 33

ulation in the latter part of the twentieth century. Especially at a time when
organizations were being forced to reinvent themselves, organizational effec-
tiveness was critically dependent upon a committed, well-trained, and well-
organized workforce. Efficient workforces offered a potential competitive
advantage. Conflicts that remained unresolved or that did not surface in a
productive fashion severely compromised organizational effectiveness and the
quality of the good or service produced (Lipsky et al. 2003, 54–58).
Although conflict was seen as a natural outgrowth of contemporary orga-
nizational life, turnover of employees due to conflicts was viewed as an un-
productive waste of talent and organizational resources. A smooth-function-
ing organization demanded a smooth-functioning system of dispute resolution.
Yet many businesses found themselves without such a system even after they
had made the other organizational adjustments necessary for survival (this and
other observations we make in this section are based upon our interviews with
corporate managers and attorneys).
The total effect of these forces of dissatisfaction was a powerful motivation
for organizational change. Faced with the realization that conflict is inevitable,
and left without effective means of dealing with that conflict, one business af-
ter another attempted to create a new system of dispute resolution. Many went
well beyond that, however, into a new realm of conflict management.

Litigation, Dispute, and Conflict Management


The terms “dispute management” and “conflict management” are often
used interchangeably. The lawyers we interviewed sometimes told us that they
engage in ADR routinely, by trying to negotiate rather than litigate in appro-
priate cases. This occurs post-filing, however, and rarely involves trying to
resolve disputes before they become litigation, much less trying to prevent
conflicts from even becoming disputes.
Conceptually, we believe that conflict management is much more compre-
hensive than dispute management. At the root of this concept is a distinction
between conflicts and disputes. Conflicts can be seen as nearly any organiza-
tional friction that produces a mismatch in expectations of the proper course
of action for an employee or a group of employees. Conflicts do not always
lead to disputes—sometimes they are ignored, sometimes suppressed, and
sometimes deemed unimportant enough to be left alone. Disputes, on the
other hand, are a subset of the conflicts that require resolution, activated by
the filing of a grievance, a lawsuit against an organization, or even a simple
written complaint (Bacharach and Lawler 1980).
Accepting this distinction between conflicts and disputes allows the argu-
ment to progress naturally to a divergence in the attempt to manage both
events. The management of disputes, which after all represent only the tip of
34 IRRA 56TH ANNUAL PROCEEDINGS

the iceberg of conflict, is a significantly less complex problem. To manage dis-


putes successfully, the organization need only maneuver the dispute into a
forum most to its advantage to attain lower costs (transactional and outcome),
a quicker speed of resolution, or simply a higher probability of a better out-
come. Such activities would be seen as effective management of disputes.
Thus, much of what we see of dispute management looks like forum shopping.
Organizations that desire to manage conflict must go well beyond this
smaller set of processes and into more facets of organizational life, encompass-
ing a much wider range of questions, the involvement of more parts of the
organization, and a more complex system. The goals of a conflict management
system are broader and more numerous. Conflict management systems at-
tempt to channel conflict in productive directions, for example, not just to
manage their resolution. Conflict management systems spread the responsi-
bility for conflict and its resolution to the lowest levels of the organization. Thus
they require more training in order to be more widespread. They seek to trans-
form the organization, not just implement a set of processes. Because of their
complexity and the potential rewards they offer an organization, conflict man-
agement systems are a much more fruitful arena for inquiry and exploration.
Dispute management is always more complex than litigation management, and
conflict management more complicated yet (Lipsky et al. 2003, 8–19).

Conflict Management Systems


The study of conflict management systems requires a comparison of mul-
tiple features. Systems differ on many important dimensions, each contain-
ing the potential to lead to unique outcomes. There are variations in the pro-
cess of the design of a system, for example: Who is involved? How is the system
created? How is the system implemented? These design features are not trivial
because the values implicit in the design process are often eventually reflect-
ed in the system itself. Next, conflict management systems vary in the way they
are structured: Who controls the system? Is the system centralized or decen-
tralized? What are the goals of the system? Who is responsible?
Systems also vary in the procedures they employ for conflict resolution.
In our field research we have investigated systems that include ombudsper-
sons, peer-review panels, facilitated discussions, mediation, arbitration, and
multiple variations on these basic procedures. The choice of procedures can
reflect the values underlying the system itself. Some conflict management
systems place value on participation in the conflict resolution process, some
on having any disputes that occur be resolved as quickly as possible, some value
simply surfacing conflict. The solutions created to reach these fundamental
goals will be reflected in the procedures utilized within the system.
It is also important to identify and analyze the participants in the conflict
WORKPLACE DISPUTE RESOLUTION SYSTEMS 35

management system. One simple distinction is the amount the system relies
on outsiders—neutrals and consultants, for example—to feed and maintain
it. But it is important to go beyond the use of outsiders and into the organiza-
tion itself. The extent to which line managers are involved and responsible for
resolving conflict is an important distinction between systems. Finally, since
(as one of our colleagues has repeatedly told us) “we are what we measure,” it
is important to analyze what is judged to be critically important by an organi-
zation by looking at the features of the system they choose to measure and
evaluate success.
There is no general agreement on the precise definition of a conflict man-
agement system, even among experts. Clearly, though, an authentic system is
not merely a practice, a procedure, or a policy. It is something more encom-
passing, which may incorporate all three—practice, procedure, and policy. Our
understanding of systems is rooted in the classic works on the system concept
(for example, see Von Bertalanffy 1976). We prefer the conflict management
system definition contained in the ACR report (Gosline et al. 2001).
ADR and conflict management systems seem to have arisen largely as a
response to changes—some long-term and some short-term—in the organi-
zational environment that made their use an effective alternative to conven-
tional litigation. These environmental changes were filtered through a set of
the organizations’ motivations, resulting in some organizations’ choice of a
conflict management strategy.
Three Strategies of Conflict Management
The dependant variable in our model—the organization’s choice of conflict
management strategy—is divided into three categories: contend, settle, and
prevent. These categories are obviously somewhat arbitrary. In truth, organi-
zational strategy ranges across a spectrum, and grouping large numbers of
organizations in a particular category may blur important differences across
organizations within that category. To some degree each organization we have
studied had its own unique conflict management strategy, tailored to fit its own
objectives and circumstances. Yet we defend our three-part categorization
because we believe it captures the most fundamental differences in organiza-
tional strategy that we observed in our research (Lipsky et al. 2003, 117–19).
In the contend category we include those organizations that clearly pre-
fer litigation to ADR. These are organizations that never or rarely use any ADR
technique to resolve a dispute. They reject the use of ADR as a matter of or-
ganizational policy, although occasionally some of them will accept the use of
mediation or arbitration in a particular dispute.
In the settle category, we include a majority of the major corporations in
the United States. Again, we recognize that there are critical differences in
36 IRRA 56TH ANNUAL PROCEEDINGS

organizational strategy across this large group of companies, but in general


these corporations, and most large organizations, use ADR either as a matter
of policy or on an ad hoc basis in a variety of different types of disputes.
In the prevent category we include organizations that apparently use ADR
in all types of disputes as a matter of policy. In this category are the organiza-
tions that have developed conflict management systems; that is, they do not
merely use a particular dispute resolution technique as a matter of practice
or even policy, but have instead developed a comprehensive set of policies
designed to prevent (if possible) or to manage conflict (Lipsky et al. 2003).
The Operation of the Model
We believe an organization’s choice of conflict management strategy is a
function of two types of factors: environmental and organizational. In the
environmental category we hypothesize that several exogenous variables in-
fluence the organization’s choice of strategy. For example, we hypothesize that
market factors influence the organization’s choice: corporations operating in
more competitive, global markets tend to rely on ADR more heavily than do
organizations in less competitive markets. The underlying logic supporting this
proposition is straightforward. Corporations in competitive markets need to
be more diligent about controlling and reducing their costs, and ADR is a
means of controlling and reducing the costs of dispute resolution. Corpora-
tions in less competitive markets have less need to be concerned with the costs
of litigation (Lipsky et al. 2003, 123–24).
Our model postulates that these environmental variables operate through
a set of organizational motivations. We hypothesize, for example, that an or-
ganization that has experienced a “precipitating event,” such as a major mul-
timillion dollar lawsuit, is more likely to rely on ADR than one that has not.
Exogenous environmental factors may be necessary conditions for an organi-
zation to adopt a pro-ADR policy, but they are not sufficient conditions. The
growth of government regulation, for example, might cause a company to adopt
pro-ADR policies, but the influence of this environmental factor is filtered
through organizational factors such as culture and management commitment.
As another example of how our model operates, we hypothesize that an orga-
nization that both operates in a competitive market and has been a defendant
in a major lawsuit is much more likely to have a pro-ADR policy than an or-
ganization that operates in a competitive market but has not experienced that
type of “precipitating event.” Thus, it is the interaction of environmental and
organizational (or exogenous and endogenous) variables in our model that
influences an organization’s choice of strategy (Lipsky et al. 2003, 124).
The model does not suggest that environmental factors invariably lead to
WORKPLACE DISPUTE RESOLUTION SYSTEMS 37

a particular conflict management strategy. Many organizations experienced


rising litigation costs in the 1970s and 1980s, but not all responded to that factor
by adopting pro-ADR policies. An organization that faces an escalation in lit-
igation costs presumably considers how it might reduce or minimize those
costs. It might choose ADR as a cost-saving measure. Or it might respond in
a different fashion, such as by seeking other means of more efficiently man-
aging litigation. Indeed, if the organization has reason to believe the rise of
litigation costs is a transient phenomenon, it may decide to do nothing in re-
sponse. How an organization makes decisions in the face of changing environ-
mental conditions is a complex phenomenon. Clearly, organizational culture
plays a critical role, but culture is an amorphous term requiring definition. The
culture of an organization reflects the values, experiences, and belief struc-
tures of the organization’s decision makers (Lipsky et al. 2003, 124–25; and
Gosline et al. 2001, 20–21).
Similar organizations faced with a common set of environmental chal-
lenges might choose very different conflict management strategies and, in
fact, this is the situation we observed in our research. One of the companies
in our study (PECO Energy), for example, had adopted a sophisticated
conflict management system, whereas most other utility companies had not.
After PECO merged with the Unicom Corporation, headquartered in Illi-
nois, to form the Exelon Corporation, it discovered that managers at Uni-
com resisted the adoption of the conflict management system favored by
PECO managers. The two utilities were similar, if not identical, in most char-
acteristics, but one strongly favored a prevent strategy and the other did not
(Lipsky et al. 2003, 125).
Another company in our study, Halliburton (and its construction subsid-
iary, Kellogg, Brown, and Root), pioneered the use of mandatory pre-dispute
arbitration agreements in employment, but most other companies in the con-
struction business have not. The Zachry Construction Company, a large con-
tractor also headquartered in Texas, has consciously considered Kellogg,
Brown, and Root’s approach and decided not to adopt it. Conversations one
of the authors had with Zachry managers revealed that they were not only
aware of Halliburton’s approach but had tracked Halliburton’s experience with
it carefully. Zachry had consciously chosen the contend strategy but was con-
tinually benchmarking its key competitors, including Halliburton, and was
prepared to consider an alternative conflict management strategy under the
right circumstances. In sum, the decision to adopt a particular conflict man-
agement strategy is strongly influenced by environmental factors, but the or-
ganization’s actual choice of strategy is ultimately determined by organizational
motivations.
38 IRRA 56TH ANNUAL PROCEEDINGS

Some Correlates of the Choice of Strategy


In our 1997 survey of corporate counsels, we asked a series of questions
regarding how the respondents would characterize their organizations’ conflict
management strategies. On the basis of their responses, we were able to group
the corporations into the contend, settle, and prevent categories. The propor-
tions listed, which must be considered rough estimates subject to the caveats
previously discussed, are constantly shifting. Presumably, though, the num-
ber of corporations in the contend category is shrinking and the number in
the prevent category is growing, but this is by no means certain. We estimate,
nevertheless, that in 1997 about 9 percent of the major U.S. corporations stud-
ied rejected ADR and elected to be in the contend category; 74 percent fit in
the broad settle category; and 17 percent strongly favored ADR, had some
form of a system, and accordingly belonged in the prevent category (Lipsky
et al. 2003, 126).
After we grouped the corporations in our sample into the three conflict
management strategies, we were able to perform some simple analyses to
determine the correlates of the organization’s choice of strategy. Although we
had not collected sufficient data in our survey to do a test of the model, we
had collected enough on the basic characteristics of the corporations in our
sample to perform a few elementary tests.
The corporations’ choice of conflict management strategy was highly cor-
related with size, as measured by either revenue or number of employees.
Corporations in the prevent category tended to be significantly larger than
corporations in the contend category (albeit all corporations in the Fortune
1000 have revenues greater than a billion dollars), and corporations in the settle
category tended to fall in the middle range.
We used a measure of industry concentration as a proxy for market pres-
sure, and it proved to be related to the corporation’s choice of strategy. Cor-
porations in less concentrated industries, which presumably face greater mar-
ket pressure, tended to choose the prevent (or system) strategy, while
corporations in more concentrated industries, facing less market pressure,
tended to choose the contend (or traditional litigation) strategy. Corporations
in the settle category once again tended to fall in the middle.
Finally, we found a pattern between choice of strategy and the industry in
which the corporation operated (specifically, the two-digit SIC industry in
which the corporation conducted its primary business). Corporations choos-
ing the prevent strategy tended, for example, to cluster in financial services,
insurance, construction, and non-durable manufacturing. As the PECO and
Halliburton examples suggest, the variance within an industry can be very
great. Construction, for instance, is clustered in both the contend and prevent
WORKPLACE DISPUTE RESOLUTION SYSTEMS 39

categories, because there are corporations, such as Halliburton and Zachry,


in the construction industry that fall at either end of the spectrum (Lipsky et
al. 2003, 127–28).

Conclusions
Our research demonstrates that nearly all major U.S. corporations have
some experience with the basic ADR processes of arbitration and mediation.
A much smaller number of companies, however, have had extensive experi-
ence with ADR or have tried to use it as a general mechanism for dispute
resolution. Our findings show that in most U.S. corporations mediation, arbi-
tration, and other ADR processes are not yet institutionalized. In general,
parties are reluctant to agree in advance to mediate and make that decision
on a case-by-case basis. Arbitration, although less widely used, is almost al-
ways agreed to in advance.
A relatively small proportion of corporations have adopted an authentic
conflict management system. The emergence of conflict management systems
in U.S. corporations is such a recent phenomenon it is difficult, if not impos-
sible, to gauge the success of such initiatives. Our respondents at these cor-
porations told us that to date their experience had been favorable, by which
they usually meant that participants in these systems (managers, employees,
customers, suppliers, and so forth) said they had satisfactory experiences us-
ing these systems. The respondents also reported that most complaints had
been resolved early in the procedures and few had ended up being resolved
by outside neutrals. Contrary to the expectations of some skeptics, making
elaborate procedures available for employees and others does not promote the
filing of complaints. On the other hand, we have not been able to quantify the
costs and benefits of using systems and cannot provide bottom-line measures
of the effectiveness of the systems strategy.
Finally, it is highly significant that no company or organization that has
adopted a workplace conflict management system has, to the best of our knowl-
edge, abandoned that system in favor of more traditional methods of manag-
ing conflict. The long-term trend toward the privatization of dispute resolu-
tion is a social and cultural reality. Given that trend, conflict management by
organizations will merely systematize the privatization under a new regime.
Contemporary trends seem almost overwhelmingly to favor the continued
creation of conflict management systems. It seems unlikely that reversal of
those trends will occur in the foreseeable future.
40 IRRA 56TH ANNUAL PROCEEDINGS

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