In today's legal services market it is important to keep abreast of the changing needs and concerns of companies involved in disputes. In this way we can develop the supportive role that both in-house and external legal advisers play in guiding clients towards the resolution of disputes.

Field Fisher Waterhouse recently conducted a survey of UK companies involved in disputes in the last three years. The survey was commissioned to identify common themes emerging from the experience of senior executives and in-house counsel involved in disputes. The aim was to see if those themes could be used to improve the ways companies and their legal advisers deal with conflicts and encourage a more efficient and cost-effective way of handling disputes.

The stark message that came across was that disputes are still not handled well in most organisations. The survey showed that one of the primary reasons for this was the impact of emotional and psychological factors on dispute resolution. More than two-thirds of those surveyed admitted that emotion and personal pride adversely affected their chances of reaching a commercial solution.

This raises two important questions. Firstly, is it surprising that psychological factors play such a prominent role in the approaches adopted by companies involved in disputes? Secondly, how can those organisations best overcome the impact of emotion and personal pride? We should stress that this article is concerned solely with companies (and not individuals) involved in commercial disputes.

In any company there will be a defined individual or project team responsible for dealing with and reaching agreements with a particular business partner. Depending on the size of the project, this process may also involve legal advisers. That same individual or team will also typically be responsible for the ongoing operational aspects of the project. This inevitably means they will deal with any issues that arise out of the contract. This may lead to disputes.

As a result of the personal involvement with the project, a negative comment or action by the business partner can all too often be perceived as a direct criticism of the team responsible for the project. Almost inevitably this then leads to a defensive reaction from the team. In other words, wounded pride starts to influence the process.

Minimising the impact

Businesses would benefit from having in place a set procedure to minimise the effect of emotions. The research commissioned by Field Fisher Waterhouse indicates that the impact of these factors can manifest itself in several negative ways including:

- sub-optimal decision making by management on resolving disputes;

- a distraction from running the business; and

- a lack of objectivity on what is best for the business.

In the event of any conflict arising with the business partner that is not quickly or easily resolved, it is important to take steps to consider the issues in dispute in a rational and commercial way. One way to do this is to ensure that a report of the conflict is made by the operational team to someone independent.

That person must have sufficient standing within the company that their views will be respected and followed. The ideal person is in-house counsel. Where there is no in-house legal team, the most appropriate independent person will depend upon the nature and importance of the project – there can be no hard and fast rule. It will often be appropriate in the absence of in-house counsel to involve external counsel even at this early stage.

The role of the independent adviser is to ensure an objective approach. However, this does not equate to ignoring the emotional factors at play. It is important the adviser does not approach the project team with an absence of enthusiasm or support. Indeed, support is an important ingredient of teamwork within a company. Team leaders are keen to ensure that they and their colleagues are not ignored or subjected to unnecessary criticism.

It is important they feel that their position vis-a-vis third parties is supported. The independent consultant has to respect that need for support – it materially determines morale, collegiality and the inclination and willingness to report issues in the future. But the need for support must not override the need for objectivity.

The survey results also uncovered a reluctance of behalf of senior management to take the necessary tough decisions to resolve disputes. Some 69% of respondents revealed that senior management in their company actively disengage from disputes.

Tough decisions might include an early decision to settle, which could be wholly contrary to the views of the operational team. To reiterate, though, the views of this team may well be marred by negative emotions and personal antipathy. On the other hand, a tough decision might be to immediately embark upon litigation or another formal dispute resolution procedure in circumstances where the operational team do not want to fall out with the business partner or rock the boat of their day-to-day dealings. In both cases, it is important to have a clear rationale for taking an approach uninfluenced by emotion or misplaced loyalty.

The objectivity and the role of the independent adviser is key. The survey results suggest this is an area in which most companies need to improve. In our view, a team approach is necessary. The operational team, the independent adviser, senior management, in-house counsel and external counsel all need to be involved in the decision-making process.

The role of the independent adviser is to clarify the issues in dispute and identify the company's objectives. These goals must be realistic and justifiable on a commercial basis. They must also be clearly understood by all those involved. The plan to achieve those goals must demonstrate a clear understanding of what constitutes a good result for the company. This will not always mean going to court – often it will mean the opposite.

The plan must also take into consideration the time and expense of achieving the desired result. That said, it is important clients are supported so that they are not afraid of going to court and are not pressurised by time and cost constraints to accept an unjustifiably low result. These decisions must be made on a rational basis by weighing up the costs and benefits of pursuing each potential course of action.

The independent adviser should review those decisions to identify and minimise the effect of emotions on the decision-making process. This can be achieved by conducting a risk versus reward analysis at key stages of the dispute to maintain commercial objectivity throughout the process.

Lawyers who recognise and minimise the effect of emotions on the escalation of a dispute can help to support their clients or colleagues through the process of dispute resolution in a way that helps the business client to achieve the best possible commercial result.

Alexandra Underwood is a solicitor and Peter Stewart is a partner and head of the commercial litigation group at Field Fisher Waterhouse.