When Two Tribes Go To War?

19 December 2007

"The Psychology of Disputes"

The heart versus the head

A Research Study by Field Fisher Waterhouse

Law firm Field Fisher Waterhouse has recently published research which it commissioned to analyse how companies can improve the way in which they handle legal disputes, and in particular, the psychological and emotional aspects of dispute resolution. The research looked at the roles played by a company’s management and its in-house counsel, and by external law firms, focusing in particular on the way emotion can be a barrier to objectivity, and the harm generally to a business that results from the emotional aspects of disputes.

The research demonstrates that personal antipathy leads to and feeds conflict – 47% of respondents conceded that a personal dislike of the other side led them into expensive litigation, 88% appreciated that unrealistic expectations are often a barrier to resolution of a dispute, and 65% admitted that emotion and personal pride adversely affected their chances of reaching a commercial solution to disputes.

The disruption caused by disputes is invariably underestimated. Too many businesses believe, at least initially, that disputes can simply be left to the lawyers. Handling a dispute is an unwelcome distraction – businesses want to concentrate on the future rather than ‘waste’ time dealing with a historic problem. Proper dispute management however requires a full team effort from the board/senior management, relevant company personnel and the lawyers.

Disputes not only take time and money to resolve. They can also sap the emotional and psychological resources of management and employees, which manifests itself in different ways, including:

• Sub-optimal decision making by management on resolving disputes
• A lack of objectivity on what is best for the business
• Damage to the personal pride of senior people
• Reputational damage to individuals and the organisation
• An inclination to offload the dispute onto others.

With disputes often being guided by the heart rather than the head, extraneous factors influence behaviour and decision making. Often the other side in the dispute is seen as unrealistic and antagonistic, leading to ‘glasshouse’ syndrome, with both parties seeking to blame their opponents, and allowing managers to seek to avoid any suggestion of fault on their part.

In-house counsel (where organisations have one in post) play a pivotal role in bridging the gap between external lawyers and management, and are best placed to shape the strategy of dispute resolution – they know the business, the context in which the dispute took place, and internal sensitivities. They also know the individuals who will be best placed to produce the evidence required. However, in-house counsel cannot work alone, and both management and external lawyers need to work with them to resolve the dispute, especially with the shift to mediation through Alternative Dispute Resolution.

With regard to external lawyers, the research shows that the market demands more of them than purely the giving of clear and accurate advice on the law and legal process. Lawyers must understand what constitutes a good or bad result for the client. A ‘court victory’ may often be pyrrhic – the broader outcome must be considered, including the cost in time and money of achieving the court victory, the impact on the company’s business and people, the impact on reputation, and any other knock-on effects.

All respondents to the survey agreed that lawyers need to be flexible, to be able to fight a case or negotiate with diplomacy depending on the circumstances. This reflects an increasing demand for lawyers to consider Alternative Dispute Resolution. That said, 53% of respondents thought that lawyers taking a too adversarial stance contribute to the escalation of disputes.

In summary, the survey shows how important it is that the decision to embark on litigation should be approached in the same way as any other investment decision. The key is to conduct an objective risk vs reward analysis, to identify both the outcome the company would like to achieve and the outcome which it would be prepared to accept, and to assess the legal likelihood of achieving either result, or something in between.

Whilst the risk vs reward assessment may introduce objectivity and commercial pragmatism, it is nevertheless unrealistic to expect the parties to approach the dispute entirely dispassionately. Companies should introduce a management structure for dealing with disputes that helps them recognise and minimise the impact of personal issues. The use of external lawyers from an early stage should also help facilitate overcoming the emotional aspects, because they can provide objective advice and a range of solutions unaffected by internal political considerations.

The above summary of the full research report was prepared by Tom Brass, Deputy Chairman of the Institute, with the kind permission of Field Fisher Waterhouse. Readers interested in obtaining the full research report or further details on the range of services offered by Field Fisher Waterhouse can find suitable contact details at www.ffw.com.