In the Schools Business Schools Loo king Into ADR Courses

At a meeting hosted late last year by the American Arbitration Assn. and chaired by Walter B. Wriston, chairman of Citibank, 11 representatives of major American business schools indicated that ADR is beginning to find its way into the business curriculum, for the most part apparently boot- strapped onto traditional courses in decision analysis and negotia- tion.

One interesting component of a course given at the University of Michigan’s Graduate School of Business Administration involves a computer program called CLAR- ENCE (named after Clarence Dar- row, of course, who attended Mich- igan Law School). The program guides students to reach more ac- curate assessments about the utili- ty of bringing, or proceeding with, a lawsuit. Created by Professor George J. Siedel Ill, who teaches business law, and David C. Blair,

Transamerica (Continued from page 1) case, did not go through every legal issue, and did not attempt to cross every “T” at the outset.

“It was like an acquisition agreement,” Cat tani recalls. ‘LThere were certain deal points that had to be agreed on first. After that came the fine points, from both a legal and business perspec- tive.”

Rather than react negatively to what lawyers might have perceived as misstatements or changes in em- phasis, the letter-exchange permit- ted an executive to say: “Yes, this is what we agreed to, except for this point or that point,” which could then be amended or refined.

Once the business executives reached a settlement, the “lawyers came in to fix the nuances,” Cat- tani says. The simple letters even- tually became a 50-page settlement agreement. But the difference be-

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who teaches computer and infor- mation systems, CLARENCE is designed to be used after the stu- dents have approached a case in the traditional manner. Using a case loosely based on an on-going intellectual property dispute in Tennessee involving alleged copy- right infringement and misappro- priation of computer software, the students must grapple with the usual kinds of questions manage- ment is often called on to answer: Should we settle? How much should we budget to carry on the lawsuit? Answers to this first phase are generated from memos ostensi- bly written by an executive vice president using vague language.

In the second phase, students use standard decision analysis taught in traditional business school courses. The students learn that the vague language of the memos (“we have a good chance to win”) is not very useful and that it becomes necessary to query the V P for more precise estimates of prob- ability gleaned from the lawyers. In the first phase, the students guessed that they would have a 70% chance of winning. Once they pressed the lawyers for more pre- cise estimates, their guess sunk to 39%. In dollar terms, the problem says that if the case is won the cli- ent will be awarded $9 million; if lost, the client will be out of pocket $300,000 more than has already been spent up to the time that they decide whether to proceed. With- out guidance, the students’ guesses about how much should intelli- gently be budgeted for further dis- covery ranged from $5,000 to $4.5 million. The decision analysis sug- gests in the particular case that the company would be safe spending up to $125,000 in further litigation costs.

Finally, CLARENCE takes the data and working through several variables verifies the quantitative answers that the students had la- boriously arrived at manually. But CLARENCE has built in a “risk preference curve,” a particular de- gree of willingness to take risks. This attitude toward risk may dif- fer from that of the individual managers down the line. Indeed,

Siedel believes from initial investi- gation that lower-level managers are more risk-averse than top man- agers who make general corporate decisions.

Siedel says the exercise is fruit- ful because it suggests how far off is the typical person’s intuition. He suspects that one reason the law- yer’s prediction is often amiss is that the lawyer’s training “is very single-issue oriented. Lawyers aren’t taught the link between all the issues in a case.”

CLARENCE is, as far as Siedel knows, the first computer program developed specifically with man- agement in mind to help make law- related decisions. “I hope in the long run,” he says, “that the pro- gram will represent one step to- ward effective management control of litigation.”

Alternatives will present reports on developments in other schools in future issues. 0

A It erna t iv es to the High Cost of Litigation

Copyright Q 1984 by Law & Business, Inc.

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2 Alternatives to the High Cost of Litigation Vol. 2, No. 4, April, 1984