Companies are more at risk from disputes than they think, according to new research.
Despite 78% having risk management policies in place only one third of policies cover dispute resolution. The estimated cost of commercial disputes is £33 billion each year to UK plc.
Risk management policies may cover obvious issues such as health & safety, but the majority fail to cover dispute resolution’s Disputes don’t just cost businesses money to manage and resolve they can also have a damaging effect on a company’s reputation. Nearly 90% of those surveyed said that senior management’s biggest fear when it comes to disputes is damage to the organisation’s reputation.
Rise in scandals
The rise in corporate scandals and disputes, such as the recent Cadbury chocolate contamination or the Equitable Life scandal, has brought home the reputational and financial risks associated with commercial disputes for many, particularly when customers are involved.
The research found that the most common types of dispute were with customers, followed by employees and suppliers.
Almost half of respondents actually blame ineffective risk management procedures for causing disputes. Eight in ten disputes were said to be caused by poor communication, suggesting that most companies don’t have effective procedures or training in place to actively prevent disputes from arising. In addition, situations involving lack of a written contract, or a poorly drafted contract, both clearly avoidable through more robust risk management, are to blame for around half of all commercial disputes.
Jonathan Warne, Head of Commercial Dispute Resolution at Nabarro comments: “Disputes, in one form or another, are inevitable.
It is therefore important to have an effective risk management policy in place to protect your organisation. This should include clear, practical dispute management procedures.
Not only should this help in minimising the risk of disputes arising, but it should also provide a framework for dealing with them when they do occur.
By feeding the lessons learnt back into your risk management policy, the time and costs involved in settling a dispute can be minimised.
It is worrying that so many organisations seem simply to rely on having a policy in place with the implementation and training – so vital to success –potentially overlooked.