Negotiation Preparation: Interests, Rights and Power

Preparing to Negotiate

• Preparation is a crucial element, accounting for 80-90% of an effective lawyer's work in negotiation.
• Clients have the final say in almost every decision made by their lawyers.
• Lawyers should never add to or change the business deal without the client's approval.
• Lawyers shouldn't negotiate business issues unless specifically authorized by the client.
• Lawyers should explain the final contract draft to the client, especially if the client lacks experience with such deals.

Interests, Rights and Power

• Every deal presents both opportunity and risk, with the main interest being to increase opportunities while reducing risks.
• During business issue negotiation, parties focus on opportunities and business risks like cost increases.
• Transactional lawyers specialize in identifying potential deal risks and protecting clients.
• Determining the level of acceptable risk for a client is a difficult question.
• Rights are principles that show the legitimacy or fairness of a party’s position.
• These rights can come from laws, industry standards, or market practices.
• Lawyers use arguments to leverage their clients’ rights.
• Arguments require a statement of the rule/standard, a description of the facts, and a conclusion.
• Multi-dimensional reasoning and a balanced argument can increase argument strength
• Balance creates an appearance of reasonableness.
• Acknowledging weaknesses on your side affects the legitimacy of any argument
• Power is the ability to coerce someone to do something they would not otherwise do, without enforcing legal rights.
• Relative power can vary and doesn’t always determine a negotiation’s outcome.
• Economic power is a party’s resources influencing negotiation.
• Expertise within negotiations can result in power imbalance.
• The power to walk away comes if a party has a better deal elsewhere; this requires a party must develop a best alternative.

Best Alternative to a Negotiated Agreement (BATNA)

• A business person should know their best alternative if an agreement isn't reached.
• If a deal isn’t better than their BATNA, they should walk away.
• For transactional lawyers, BATNA lurks in the background unless an issue pushes it to the forefront.

Problem Solving and Positional Approaches

• The two primary approaches to negotiation are problem-solving (focus on interests) and positional (focus on rights/power).
• Nearly all negotiations mix both approaches, and adaptability is key.

Problem Solving Approach

• Lawyers diagnose, predict, and strategize to influence events.
• This approach emphasizes integrating resources to benefit both parties.
• Negotiators integrate interests into the final contract during business/legal issue negotiations.
• Problem-solving works when both sides recognize the value of a fair agreement.
• A risk is that one lawyer may become too collaborative and fail to get what the client needs.
• Frustration can cause lawyers to take positions, converting problem-solving into positional negotiation.
• Building a "golden bridge" can prevent this by keeping focus on interests, facilitating incorporation, and helping the other party save face.

The Positional Approach

• Parties take positions they're entitled to, and negotiation becomes a contest of concessions.
• Negotiators assume bargaining is limited to options under common practices or form contracts.
• Lawyers may become adversarial, leading to deadlocks requiring client intervention.
• Roger Fisher and William Ury reject positional bargaining

What to do when the other side refuses to problem solve:

• Ask "Why?" to identify interests underlying their position
• Ask “Why not?” after a rejection to find the interests the other lawyer is protecting.
• Change the rhetoric and ask questions to influence the dynamic
• Don’t lecture the other lawyer about problem-solving instead convince them it will satisfy their interests better than positional bargaining.

Combative vs. Collegial Styles

• Combative lawyering can kill deals, since commercial transactions shouldn't be adversarial.
• Commercial transactions aren't about winning, but about making a deal that makes sense to both parties.
• A combative style is tough, dominating, forceful, aggressive, and attacking.
• A collegial style is personable, friendly, and tactful.
• Lawyers might switch styles during a negotiation.
• Style depends on the listener's perception and the culture of the negotiation.
• Select a style that works well in the circumstances and is based on strategy.

Overlawyering

• A good lawyer knows when enough is enough.
• Overlawyering wastes time/money by focusing on small/unlikely risks.
• The critical consideration is whether the expected impact of the risk justifies the cost required to allocate it.

Requests, Demands, Offers, and Concessions

• A demand is an aggressive, inflexible request implying only yes is acceptable
• Demands narrow conversations and requests keep open the possibilities for better solutions
• Lawyers need to phrase requests in a civilized way to keep negotiations alive, for example:
  • "My client needs comfort on matter X" which is lawyer speak for "My client is at risk because of X. I want some way of reducing or eliminating that risk."
• Offers propose an exchange.
• Concessions involve trading but should be done carefully
• Horse-trading is an exchange, one concession for another
• Logrolling offers concessions to create momentum toward agreement
• The keys to a presentation are credibility and justification (reasons that the other side can accept).
• Give the other lawyer a reason for every concession you make, minimize any sign of weakness.
• Specific justification for each concession helps resist pressure to make concessions just to “get along”

Anchors and First Offers

• Anchoring happens with numbers, concepts, and contract wording.
• These anchors provide a context for everything that follows on that topic.
• First offers can have anchoring effects
• Buyers often negotiate down from the sticker price, and that's a mistake.
• Ignoring the anchor will destroy it.
• Creating your own anchor by making the real first offer yourself.

Who Drafts

• The exact words in the contract matter the most.
• The words control what parties can and must do, and will control any dispute.
• Whoever chooses the words has the power to anchor them.
• The drafting lawyer specifies the shade of green, and the nondrafting lawyer must notice and negotiate.
• The lawyer who drafts acquires a comprehensive understanding of the deal from the beginning.
• Amending an agreement is tricky, and knowledge of the entire transaction will minimize oversight risk.

Information Bargaining

• To prepare, identify:
  • Information you want to obtain from the other party.
  • Information you want to disclose voluntarily.
  • Information you want to conceal.
• Obtain information by asking, listening, and using silence.
• Verify what you think you know and negotiate over what you don’t know.
• Speak completely and precisely, or incompletely/ambiguously depending on the situation.

Common Problems in Negotiation

• Ethical issues in negotiation, false statements
• Threats and warnings

Ethical Issues in Negotiation

• Lawyers mustn't knowingly make false statements of material fact/law.
• False statements about facts are misrepresentations.
• A knowing misrepresentation exposes the lawyer and client to tort liability
• Even accidental misrepresentations can lead to the rescission of a contract
• Puffing isn’t misrepresentation because it’s not a statement of fact.

Scriveners' Errors

• Lawyers must correct scriveners' errors even if the client objects and the other party hasn't noticed.
• A scrivener's error is an inaccurate expression of what the parties agreed to.
• The actual contract is the meeting of the minds; the written contract is only evidence.
• Omission still counts if lawyers "knowingly... fail to disclose a material fact to a third party when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client"
• Lawyers must correct errors by redrafting whether the client likes it or not.
• If they permit the parties to execute a contract that she knows inaccurately expresses their agreement, she may be participating in fraud
• If a lawyer notices an error only after the contract is executed, the duties are less clear.

Threats and Warnings

• A threat is a statement of intent to assert a right/power if the other party doesn't comply.
• Lawyers use threats to coerce the other side to agree.
• Threats can make it harder to agree and harder to form relationships.
• Prolonged threat displays, may be followed by a quick splitting of the difference
• Threats aren’t a substitute for problem-solving.
• Instead of threats, give warnings.
• Warnings work only if they’re credible and will have a significant impact.