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Risk

Conflict is a business risk. To respond wisely to business risk, one needs to recognize and address common conflict management risks.

In my earlier blog posts, I stated that corporations should pay more attention to conflict management because it pays off. I also suggested some questions to determine where your corporation currently stands in terms of corporate conflict management. I then warned about making false performance conclusions based on the answers and suggested that valid performance conclusions can only be based on rigorous tracking of conflict-related decisions, grounds and results thereof (for an explanation of the definitions please refer here).

Let’s say that you have an understanding of where your corporation currently stands in terms of corporate conflict management. The next question to ask is: where should your corporation be (in terms of corporate conflict management)? To which direction should you tune your management efforts, if any?

I suggest considering the elements of risk, reward, resource and response. This blog post addresses risk.

Conflicts differ. Some are like mosquitos giving your organization a mere itch. Some are like mosquitos carrying a disease – capable of burdening your organization’s performance to a varying degree. And then there are occasional game-changing killer whales – more than eager to satisfy predatory needs and leaving your corporation or business crippled – if not dead.

A conflict is always a business risk – an event that may impair a corporation’s ability to provide returns on investment. The risk may in some conflicts be monetarily so insignificant that you don’t really pay attention to the matter. In some other conflicts, the business risk may keep you awake at night pondering what will happen to your corporation – and you.

It usually takes a while to figure out how a newly emerged conflict can bite your corporation. Some conflicts have the potential to go all the way up and until an enforceable court judgement or an arbitral award. Some conflicts never lead to formal dispute resolution proceedings because of commercial interests and realities. Yet, all conflicts bite.

Worst-case scenarios are useful in mapping the maximum exposure, on a rough scale. The scenarios are often rather straightforward to come by because assessments can be built on claims (or arguments) as they are – ignoring altogether considerations on whether such claims have merit or not. The minimum exposure can be mapped much in the same manner by taking the response as a starting point.

Minimum and maximum exposures draw a spread for the business risk. The outcome can be found somewhere on a line from minimum exposure to maximum exposure.

In an ideal world of full transparency of relevant information, the legal merits of the case alone determine the outcome. In the real world, the outcome can be far worse than it should and far better than it should. And how you manage your case plays a decisive role in where you land.

Low quality management is a risk for all conflict parties – always. Not only for conflicts that will be fought until the bitter end but also for conflicts that, for one reason or another, need to be settled without a battle.

Someone might argue that all business activities are subject to a management quality risk – and I agree. Quality, however, tends to matter more in conflict management than in any other area of business management.

Heated contract negotiations may seem overly adversarial but the opportunity for mutual benefit guides both parties towards a solution. While competing fiercely with someone, it may similarly seem like you are in a boxing ring but both of you are, in fact, running in the same direction. Your competitor may win occasionally, but you are not paying the price.

In a conflict, someone is running to face you – prepared to punch you in the nose. If you lose, whatever your opponent wins (and something more) will be carved out of your skin. Your conflict management efforts will not get any support from “mutual benefit opportunities” and you pay for your opponent’s win.

Thus, it seems fair to suggest that the conflict management environment is less forgiving than any other business management environment. Mistakes cost more. Quality matters more – not just for a conflict currently worrying you but also in a wider context. The learnings from a well-managed conflict may speak volumes of why a certain business area is frequently burdened by conflicts.

So, how to improve the quality of conflict management?

By recognizing and addressing properly common conflict management risks.

Conflict management risks can be categorized in many ways. The below is not an exhaustive presentation of all imaginable conflict management risks but, instead, details the ones that conflict parties regularly face in one form or another. Four of them relate to information, two to management biases and the additional two are also worth mentioning here. Address these risks properly and you have far better chances of succeeding with your conflict management efforts.

Availability of information

Conflict parties typically face a risk in respect to the availability of information. Relevant information is usually scattered. Some of the relevant information is available with effort, some accessible with cost and some inaccessible.

A conflict manager typically needs to gather the necessary information by asking chains of questions. The sphere of relevant questions is, however, often difficult to define. When you learn something crucial far too late in a proceeding and wonder why your home base did not share this with you, “no one asked” is a common answer.

Often the information sought is relatively old. As individuals retire, files change location and IT systems evolve, one simply may not find older information, although, theoretically, it should be available.

Some of the relevant information is not available ‘in-house’ but needs to be acquired. The process typically requires guidance and the services of external advisors (attorneys, technical experts, financial experts, etc.). As the services of external advisors represent an out-of-pocket cost, conflict parties tend to delay these engagements as far as they can. In the short term, this undoubtedly makes sense money-wise. The tactics, however, bears a cost in the form of information availability risk.

The list of inaccessible information can be long and it depends on the conflict. In every conflict, some of the relevant information simply is inaccessible. It may be accessible to your opponent though.

Quality of information

Conflict parties, further, face a risk in respect to the quality of information. Even if one finds seemingly relevant information, that information may be erroneous.

Many unintentional errors are possible in human interactions and communication. Someone may have misunderstood a question and the response reflects that misunderstanding.

It is also good to bear in mind that when asking questions from someone involved in a conflict, the account received of past measures and actions may describe such measures and actions in – well – a favourable light. Lying is rare in corporate settings, sugar-coating not that uncommon.

Relevance of information

Corporations have, further, the risk of assessing erroneously the relevance of the information they have. Only proven facts count in a proceeding, yet corporations tend to argue at length with arguments that in the end do not have any legal relevance in the matter.

External advisors should come in handy when trying to separate the relevant from the irrelevant. Delaying the engagement of an advisor, therefore, feeds not only the information availability risk but also the information categorization risk.

Timing of information

At the beginning of the conflict, corporations have no option but to start making decisions on the conflict with very limited information. As time passes, corporations learn more and more but the question is: do they learn in time or too late? Conflict parties have a timing risk in acquiring relevant, accurate and correctly categorized information. In my experience, much of the necessary learning happens too late.

In addition to information related risks, corporations face decision maker bias risks.

Engagement bias

The best decisions in conflicts are made by bias-free decision makers – i.e. by individuals who are not economically, by reputation, professionally, emotionally or otherwise attached to the conflict or its outcome.

It is, however, quite typical in conflict situations that the individuals managing conflicts have been involved in the conflicted matter right from the start. Having been involved in something is not the same thing as having a bias. The risk for a bias should however, be recognized. Especially so if the schedule or the outcome of a conflict can impact the relevant individuals’ compensation.

Prior decision bias

Another decision maker bias risk relates to the decisions made during the conflict. It is often difficult to back down from an earlier position even though one should. In conflicts – as in ordinary business ventures heading south – one should not throw good money after bad. Someone heavily vested in the earlier decisions and their correctness may not be the best person to assess and decide where to head to next when prior efforts have failed. Emotions are a factor that a wise conflict manager always observes, but emotions should not dictate action.

Cost underestimation

Conflict parties, further, regularly face a risk of being overly optimistic about how much the conflict will cost. In other words, corporations tend to underestimate costs – in the broad sense.

I’m referring not only to representation costs (the cost of using an attorney) and judiciary costs (court fees, arbitrator fees, etc.) which, in the end, only burden the corporate wallet, but moreover to so-called disruption costs which burden your corporation’s business in numerous ways (and which generally are difficult to quantify even after the proceeding): the time of the individuals involved in the case, reputational losses, business relationship losses, etc.

Adverse event

Conflict parties are, finally, subject to the risk of an adverse event. Even if a corporation has successfully navigated through the above conflict management risks and the conflict management measures have been correct and properly timed, something unexpected can still happen. Instead of unknown unknowns, I’m referring to Rumsfeld’s known unknowns – like the health of a key witness. What happens to a corporation’s case before a court if a key witness dies before giving testimony?

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The way your corporation sees the risks in connection with a conflict affects your corporation’s conflict management response. If the common conflict management risks are not recognized, addressed and factored into the conflict decision making, conflict management is not likely to perform well – or at all.

Contact

Harri Jussila

Founder, Attorney at law, EMBA

+358 50 577 4088

harri.jussila@iquja.com

Address

Huopalahdentie 24
00350 Helsinki
Tel. +358 50 577 4088

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Iquja’s office is located at Menuetto Business Center in Munkkivuori, Helsinki (20 minutes from the Helsinki Airport [HEL/EFHK]).

Business ID, VAT code

2801483-4 / FI28014834

E-Invoicing address

EDI-Code: 003728014834

Operator ID: 003721291126