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SPEAKER 1: Let's move now to consider a case typical of those that go into mediation or arbitration. And this is drawn from the securities industry. Mrs. Smith, a 75-year-old widow, invested her life savings with a securities investment firm after seeing one of the firm's television commercials. She transferred more than $320,000 to the firm.
Mrs. Smith claims that she was entirely without any knowledge or sophistication as it pertained to the stock market and financial investing. According to Mrs. Smith, she had several meetings with her investment firm. And at one meeting, a representative of the firm stated that quote, "I guess we haven't been paying close attention to your account," unquote.
Five years after opening her account with the firm, she withdrew her money. Her account had dropped in value from $320,000 to less than $220,000. Mrs. Smith filed a claim in arbitration alleging a number of wrongdoings, including misrepresentation and negligence.
She contends that given her age and her financial status, her money should have been, but was not, managed in a more conservative manner. She seeks not only the money that was lost, but also additional monies that she quote, "would have earned," unquote had her accounts been managed properly. So Mrs. Smith is seeking an award in the amount of $300,000 plus punitive damages.
Not surprisingly, the investment firm has a different view. According to the firm, the money was invested as per the instructions of Mrs. Smith. The firm claims that they have documents which prove that she was not averse to investing with moderate risk.
Her accounts, according to the firm, were managed properly. And firm representative requested, but Mrs. Smith declined, most invitations to meet with her investment counselors. She didn't complain until the day she withdrew her money.
In the beginning of our discussion about conflict, we introduced a number of central elements involved in a conflict episode. Using the Smith securities case, let's revisit these elements and examine which ones apply. First, did the parties have opposing interests?
This element is clearly present in the case at hand. The parties are disputing a monetary claim. A gain for one party is, by definition, a loss for the other party. Thus, the parties have opposing interests.
Whether or not they can overcome this conflict of interest is another matter, which we will explore later. It is important to note that having opposing interests does not mean that there are no other interests that may encourage a party to resolve the specific conflict. For example, the investment firm's interest in protecting its reputation may supersede its interest in avoiding compensating Mr. Smith.
Second, did the parties recognize their opposing interests? Here, too, the answer is yes. Mrs. Smith clearly recognized that the investment firm's refusal to compensate her for monetary losses she incurred are in opposition to her interest. Similarly, the investment firm clearly recognized that Mrs. Smith's claims are in opposition to their interests.
Well, what about the beliefs held by each party? Here, we don't know what each party believed. Yet, it is likely that in filing an arbitration claim, Mrs. Smith believed that the investment firm was in fact blocking her interest.
Fourth, with regard to the process that developed between Mrs. Smith and the investment firm, here the answer is less clear. On one hand, the parties did have a longstanding relationship, which may have influenced the conflict episode. On the other hand, it is not certain how the context of their relationship influenced the conflict episode. Since the conflict is primarily monetary, it may have developed regardless of the previous relationship.
Finally, it is clear that with regards to the actions taken by each party, this element is satisfied. Mrs. Smith filed an arbitration claim. And the investment firm has acted in their refusal to compensate her.
This simple exercise in identifying conflict demonstrates the usefulness of breaking down a conflict episode into elements which help clarify what is really going on. Instead of viewing conflict as one mass, analyzing these elements enables us to paint a more refined and delineated portrait of the given conflict. As we will soon discuss, it is crucial to clarify the nature of conflict before attempting to resolve it.
The next question is, how did Mrs. Smith's case actually get into arbitration? Registered securities representatives and their firms must arbitrate disputes with their customers even without a written agreement. Why?
Because of the regulations of the National Association of Securities Dealers and other stock exchanges. Although the broker is bound to arbitrate disputes with the customer, the reverse is not true. If a broker wants to arbitrate customer disputes such as Mrs. Smith's, then a written agreement is required.
Earlier, in our discussion on arbitration, we talked about the qualifications of arbitrators. In the securities industry, the categories of arbitrators are divided into two sections, public arbitrators, who are not affiliated with the securities industry, and non-public arbitrators, those individuals who are affiliated with the securities industry. Mrs. Smith's case is not uncommon. Indeed, the securities industry has seen a rapid growth in the number of cases filed.
For example, in 1990 3,600 cases were filed. In 1997, 6,000 cases were filed with the NASD. By 2003, that number had jumped to 9,000 cases. And industry experts expect a significant increase in the year 2005.
For those of you who are investors, you may ask, who wins in securities arbitration? In 2003, the NASD reviewed 1,668 customer cases. They found that 893 cases, the customer was awarded damages. While in 765 cases, the customer was not awarded any damages.
We move now to a brief consideration of opportunities in dispute resolution. Many of you may be interested in careers in mediation or arbitration or other dispute resolution processes. How would one go about developing a practice? How would one go about receiving training?
At Cornell's Institute on Conflict Resolution, Cornell trains workplace mediators and maintains a roster of workplace neutrals. Many different agencies and organizations maintain mediation and arbitration panels. In the securities industry, the NASD maintains a roster of mediators to help resolve cases scheduled to go to securities arbitration.
Many different agencies and organizations maintain mediation and arbitration panels. In securities, the NASD maintains a roster of mediators to help resolve cases that are scheduled to go to securities arbitration. Community organizations and court programs throughout the nation train mediators for their respective programs. Indeed, such organizations frequently serve as the training ground and starting point for people who may eventually go on to establish practices as professional mediators and arbitrators.
In addition to serving as a neutral, other opportunities in conflict resolution include designing conflict management systems and advocacy. Many organizations, including private corporations and public and federal sector agencies, hire consultants to assist them in the development, administration, and evaluation of conflict resolution programs. It is increasingly common for parties to hire representatives, both lawyers and non-lawyers, to assist them in preparing and presenting their cases in mediation and arbitration. Many corporations would not consider participating in a conflict resolution process unless they had retained an experienced and skilled representative who was familiar with either or both mediation and arbitration.
Our session today provided a general introduction to the topic of conflict and its resolution. It explored a specific example of conflict drawn from the securities industry. And we concluded with some suggested areas where opportunities exist in the field of conflict resolution. Each one of the topics we covered is the subject of countless books, articles, and other scholarly publications.
Numerous training programs and courses of study are readily available in a host of different venues across the nation. For those of you who are interested in learning more, I encourage you to contact the Cornell Institute on Conflict Resolution. We would be happy to assist you in becoming more acquainted with academic and practitioner opportunities that exist in the field. You may also wish to visit and participate in the online discussion associated with this room. Thank you.
All interactions, all relationships, include the possibility of conflict. In the business world, great strides have been made in recent years in understanding conflict and mitigating its negative effects. This study room presents various definitions and characterizatons of conflict, and then discusses how conflicts can be resolved through negotiation, mediation, and arbitration.
This video is part 4 of 4 in the Conflict Resolution series.
