The saying that small businesses form the backbone of the UK economy may sound hackneyed to some, but it is hard to argue against proven statistics. SMEs makeup 99.9% of all private sector businesses in the UK, provide 59.3% of all private sector employment, and generate 48.1% of all private sector turnover. Collectively, SMEs employ 14.4 million people and have a combined turnover of £1.6 trillion.
Despite their overwhelming contribution to the British economy and the society at large by driving growth and providing employment, SMEs continue to suffer from a lack of cost-effective methods of resolving their legal issues.
On average, SMEs face a minimum of 8 legal issues per year with trends suggesting that businesses with higher turnovers, more employees and some in-house legal experience have a greater need for legal services. However, research shows that in response to a legal need, an SME is equally likely to ignore an issue or take non-legal advice as it is to take legal advice, and it is twice as likely that no advice whatsoever will be sought. Where SMEs do choose to obtain legal advice, only 30% of them choose to consult a solicitor, with the balance consulting accountants, unions, HR advisers, and barristers.
A 2016 survey conducted by YouGov reveals that SMEs are losing £13.6 billion as a result of neglected legal issues every year. These losses are split between different types of legal issues including Disputes (£1.7 billion), Employees and Contractors (£1.6 billion) and Customers and Suppliers (£1.6). Moreover, as a result of unaddressed legal issues, 23% SME business report a significant loss of income, 12% report an increased cost, 9% report damage to their reputation and 6% report that employees had to be shed and/or the business was closed down.
These numbers reflect an extraordinary trust deficit between the SME business community and traditional law firms. SMEs’ decision to incur losses instead of obtaining legal services can be put down to the fact that only 8% of businesses interviewed considered legal fees to be good value for money. Additionally, only 1 in 5 SMEs rated law firms ‘good’ in terms of access. Respondents also voiced an inability to understand complex legal documentation as a factor in their reluctance to seek legal advice.
Essentially, old-fashioned bureaucratic structures within the legal industry lead to lawyers becoming difficult to access, time-consuming to engage and disproportionately expensive. Whilst businesses understand the need to spend more on their legal needs, they currently lack a viable alternative to the status quo. Alternative Dispute Resolution presents an opportunity for SMEs to bridge this gap.
ADR methods are based on voluntary engagement between parties to resolve disputes under the support and facilitation of an expert third party. As litigation remains a costly and time-consuming exercise along with obtaining non-contentious legal advice from pricey law firms, ADR methods allow disputes to be resolved quickly, at minimal cost and to the satisfaction of both parties. ADR methods such as mediation are widely used in the commercial industry and boast a success rate of 85%. Some methods that may be of interest for SMEs include:
• Negotiation – an informal way of resolving a dispute, involving a back and forth between you and the other party with our assistance until you reach a resolution. Click here to learn more.
• Mediation – involves an impartial third party facilitating negotiations between parties with the aim of reaching a settlement that is mutually beneficial. Click here to learn more.
• Arbitration – like a court, except it offers you confidentiality as well a swift and binding judgment. You may find that obligatory arbitration in the event of a dispute is a term in your contract. Click here to learn more.
The very core of the ADR methodology is to deliver results in legal matters with a minimum time and cost burden on clients and is therefore perfectly suited to businesses that require legal services, but at a proportionate cost. At Phoenix Dispute Solutions, we specialise in guiding businesses towards the right method of dispute resolution for them. Where businesses have already chosen an appropriate method of ADR to resolve their issues, our highly experienced panel of ADR practitioners and bespoke concierge services allow them to simply focus on resolving their issues and getting on with their focusing on their growth.