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By Philip Zimmerman, CPA

The first Alternative Dispute Resolution Superconference, sponsored by the American Arbitration Association and FORBES Magazine, explored an emerging area for CPAs to practice in as alternative dispute resolution (ADR) consultants, neutrals, and experts. The conference was held in Washington, D.C. on April 28-29, 1997, and was created with the participation of the American Institute of CPAs, National Association of Manufacturers, and other major associations, publications, and professional firms including Price Waterhouse LLP. It was attended by over 600 participants, including all Big Six accounting firms and several smaller firm CPA ADR specialists.

Made public for the first time were the results of a comprehensive survey of ADR use by 1,000 of the largest U.S. corporations conducted by The Foundation for the Prevention and Early Resolution of Conflict (PERC) and Price Waterhouse LLP. The survey showed that during the last three years, 88% of these firms used mediation and 79% used arbitration and that use was likely to grow significantly in the future. The areas of use were for disputes in commercial, employment, corporate finance (including mergers and acquisitions), international transactions, financial reorganization (including workout) disputes, construction, intellectual property, and product liability.

CPAs who practice in any of the above areas may wish to follow the example of Price Waterhouse LLP, whose representatives explained at the conference that they are vendors in these areas as neutrals (the mediator or arbitrator in an ADR proceeding), advisor (to suggest, among other things, removing ambiguous language that may lead to a dispute and, in the event of a dispute, to help in the conduct of the ADR proceeding), or as independent experts. They are also users of ADR for certain client disputes and for their commercial contracts.

The CPA profession was represented by several speakers. Among them were Michael O. Gagnon and Deborah Enix-Ross of Price Waterhouse LLP, George R. Zuber of Deloitte & Touche LLP, Kathryn A. Oberly of Ernst & Young LLP, William Barrett, sole practitioner (Richmond, VA), and John Meara of Meara and King (Kansas City, MO).

At the conference Monte M. Kaplan, litigation services technical manager, disclosed that the AICPA will soon release practice aids covering binding and nonbinding ADR procedures.

A way that CPAs can use ADR in their practice was explained by Katherine A. Oberly, Esq., who stated that Ernst & Young LLP, since she had become general counsel approximately three years ago, had begun a program of requiring that all client engagement letters state that in the event of a dispute it be resolved first with mediation or, if that is not successful, go to arbitration under the American Arbitration Association's Rules for Professional Accounting and Related Services Disputes. She believes that the use of ADR is overall a better use of resources than litigation because it costs less in time lost and money as a result of the case being settled more quickly. At present, about 50% of their engagement letters and 100% of their contracts with suppliers and other vendors contain such ADR clauses. As it takes time for disputes to surface from an engagement, there have not yet been many cases that have entered into ADR.

James J. Seifert, Esq., assistant general counsel, the Toro Company, said Toro had over 300 mediations of customer claims during the past seven years. During that time, its business doubled while its transaction and settlement costs dropped 65%. At the same time, the net dollars going to claimants increased because claimants had less in the way of legal and expert fees to pay.

Toro's insurance costs dropped about one million dollars a year while its liability limits were raised 25%. The energy they formerly spent on fighting during litigation is now spent on treating their customers more fairly, with respect and dignity. The corporate culture was changed through staff training so that a settlement was not considered "wimpy," but rather accepted as acknowledgment that the company could be responsible in certain cases.

During a panel discussion on "Building a Case for Mediation in Professional Liability," William T. Meisen, vice president, chief claims officer, DPIC Companies, Inc., a leading insurer of architects, engineers, lawyers, and accountants, stated that his company has reduced its combined defense and indemnity cost about 40% through mediation. He also said that about 90% of the claims that they submit to mediation are settled. Their major savings come from the reduction in process time since 90 percent of the indemnity is established before the claim is reported to them and ultimately 99% of all claims are settled before trial.

What Makes a Good Mediator

The Hon. William H. Webster, former director of the FBI and director of the Central Intelligence Agency, in describing the qualities that make a good mediator touched on many of the same qualities that a good CPA has to have. Among these were--

1. the ability to build an atmosphere of trust, including the belief that the mediator is truthful and trustworthy,

2. the ability to explain things to the parties,

3. creativity, and

4. the ability to be a deal maker.

Another speaker, Martha E. Solinger, Esq., senior vice president, Lehman Brothers, Inc., said what she prefers in a mediator is not what many other respondents in large cases prefer. They prefer well- known names or friends of the judge (which usually doesn't work) rather than a mediator with a knowledge of the subject, diligence, creativity, patience, and an ability to listen--once again, qualities that most good CPAs possess.

There was solid evidence at the Superconference that CPAs can profitably add ADR services to their other litigation support services or include it in their risk management assessment of their clients' businesses. Three nationwide vendors of ADR services similar to those that even the smallest CPA firm can provide had panelists and exhibition booths. These were Peterson Consulting LLC, Price Waterhouse LLP, and Tucker Alan, Inc. They now provide ADR services for various industries including architectural, construction, engineering, health care, law firms, banks, petroleum, pharmaceutical, insurance, transportation, manufacturing, entertainment, and real estate. Types of disputes covered are commercial damages, insurance claims, intellectual property, breach of contract, business interruption, and mergers and acquisitions. Services rendered are as neutrals, independent experts, business advisors, fact finders, and information management, including technology.

CPAs are encouraged to join in the vanguard of this rapidly expanding field as a user and as a service providor. State CPA society professionals for many years have been educating CPAs and encouraging of the use of ADR. They also have been available as a forum for the mediation and arbitration of disputes between members and CPA firms.

Readers seeking additional information on ADR should contact Philip Zimmerman, at (718) 352-6300. *

Philip Zimmerman, formerly managing partner of Paneth Haber & Zimmerman LLP, is a self-employed consultant. He is both a mediator and arbitrator with the American Arbitration Association and the New York State Society of CPAs. He is also on the Commercial Division of the New York Supreme Court Register of Mediators.

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

©2009 The New York State Society of CPAs. Legal Notices

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