When the going gets tough, Americans litigate. More than the citizens of any other country on the planet or any civilization in history, Americans seek to resolve their disputes in the courtroom. While issues of national significance are resolved in the U.S. Supreme Court, minor disputes are argued every day before small-claims courts in towns and cities across the country. Whether it's a matter of national security or just a minor dispute among neighbors, we know that a court can ultimately resolve the case, and that we have a right to our day in court.
Of course, it was not always this way. In fact, one of the reasons why the colonists declared independence from England was because they were often denied their right to judicial redress. When it came time to craft a constitution for the new nation, it was no surprise that trial by a jury of our peers became a constitutionally protected right. To ensure this right, an independent and equal judiciary was established alongside the executive and legislative branches of our new government. While our right to seek justice is sacrosanct, like all of our rights, it is not free.
Although cases such as Brown v. Board of Education of Topeka, Miranda v. Arizona, and Roe v. Wade dominate the news and the history books, in everyday life American judges and juries dispense justice and protect our rights in a way that would make the Founders proud. But the process comes at a cost. The expense is not just one of time and money, but also the effort necessary to navigate through the judicial system.
For businesses, these costs are massive. Each year litigation, and the threat of litigation, adds trillions in costs to businesses large and small. According to a report by consultant Towers Perrin, the direct financial cost of the U.S. tort system was $254.7 billion, or $836 per person in 2008. These costs are essentially borne by consumers through increased prices. Beyond the actual cost of litigation are the business opportunities forgone because of the risk of potential litigation. Because of the potential for litigation, businesses add disclaimers to nearly everything and some businesses even forgo launching new products that might attract litigation.
Every year brings new stories of outrageous jury verdicts. In fact, the Stella Awards are given to focus attention on ridiculous jury awards. The Stella Awards are named in honor of Stella Liebeck, the New Mexico woman awarded $2.9 million in damages from McDonald's (MCD) after she was burned by spilling coffee from one of the chain's restaurants on herself. (The jury award was later reduced.) Frivolous and trivial lawsuits clog the trial dockets of most courthouses, delaying justice for other, more worthy litigants.
While businesses correctly argue that tort reform is necessary, many companies have taken a proactive approach to resolving disputes and reducing litigation costs. Under the leadership of the current and former general counsels of many of the top multinational corporations, the International Institute for Conflict Prevention & Resolution (CPR) has pioneered new and inventive approaches to the prevention and resolution of business disputes.
In many ways it is simply easier to file a lawsuit and let the judicial process take its well-defined course. Businesses adopting an alternative approach to dispute resolution find that it requires new and different resources. The approach must not only have the support of the legal department; it must also have the full backing of senior management.
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