One of the most valuable skills an in-house lawyer brings to a company is the ability to negotiate. In-house lawyers negotiate contracts, M&A transactions, litigation resolution, government/regulator inquiries, internal squabbles, and a host of other issues. While negotiation is an important skill, it is rarely – or poorly – taught in law school (certainly here in the USA). Meaning, unless you were fortunate enough to learn negotiation skills while employed at a law firm (and I’d wager that it is hit and miss whether your law firm truly spend time teaching negotiation skills), your ability to negotiate is largely self-taught. Some of us get by on instinct and natural ability, some of us flounder a good bit, sometimes doing a great job, sometimes not.
I am a self-taught negotiator, picking up bits and pieces of good and bad advice along the way. I have negotiated a large number of contracts and settlements in many different countries and I supervised those that did as well (learning as much from that process as being in the room). One thing I learned for sure was that regardless of where you fall on the continuum of negotiation skills, there is always room for improvement. As usual, there are some core things you need to know and understand in order to develop or improve your skills in this area. This edition of Ten Things will discuss how to negotiate:
1. Prepare (and prepare some more) – Preparation is the single most important factor for a successful negotiation. If you fail to take the time to properly prepare, you will almost surely get less than you could have otherwise gotten from the negotiation. The time you spend preparing should dwarf the time you spend negotiating with the other side. Here are some areas to focus on:
- Know your objectives: What are you trying to accomplish? What issues are important to your client, which ones are not? What is your “walk away” position?
- Know your client: Who is the business person you are paired with? What motivates them, drives them, what are they trying to accomplish with the negotiation (and does it match what’s important to the company)? What do they need to get a successful “deal?” Equally important is to manage client expectations and keep them realistic under the circumstances. Sometimes the “internal” negotiation is the hardest.
- Know the strengths and weaknesses of your position: Where are your positions the strongest and the weakest? What issues/circumstances (e.g., home forum in litigation) run in your favor and which don’t?
- Know the other side: Use every resource to get a handle on the people on the other side of the negotiation. What motivates them? How do they negotiate? Do you know anyone who has dealt with them in past? Scrub the internet for firm bios, social media, LinkedIn profiles, etc. Are they young or old, do they work in this area of the law regularly? Likewise, put yourself in their shoes and think about their objectives, how they might see the respective parties’ strengths and weaknesses, what pressure points are they facing, and what do they need to get out of negotiation. Most importantly, do any of your objectives overlap with the objectives of the other side? If so, you already have an area of common ground.
- Get information: All of the above rests squarely on your ability to gather information. It may be as simple as asking “what do you want?” Ultimately, you need to understand several things about your and their position: goals, needs, interests, and options. Your sources of information will include people internal to the company, people external who have dealt with the other side, research from public sources (Internet, court filings, regulatory filings, etc.). Information is power in a negotiation and the side with the better/more information is the side that usually comes out with the better result.
2. Understand leverage – A key part of preparation is understanding the leverage each party brings to bear in the negotiation. “Leverage” is simply the ability to influence the other side to move closer to your negotiating position. Typically, leverage comes down to some basic facts — facts that you need to dig out and think about before going into the negotiation. Knowledge = leverage. For example, how much does your side want or need the deal or the settlement? Same question for them. What are each side’s alternatives in the event no deal is reached? Who is facing time pressure (i.e., “patience” can be a highly effective negotiation tool). From a commercial perspective, where do you or the other side go for goods or services in the event you cannot strike a deal? If those “next best alternatives” are not as good as the product or service being offered, then some of the commercial leverage will fall to the party offering the product or service. In litigation, a “decision tree” chart showing the percentages of likely outcomes of the claims and damages can be very helpful in thinking through the question of leverage. Likewise, the lack of confidentiality in legal proceedings may be a large incentive for one side to prefer settlement.
3. Control the agenda/writing – Resist letting the other side set a pace for negotiation that does not suit you or your team. This does not mean that everything will done exactly on your timing, but it does mean you should not be a pushover and let the other side run roughshod over your side with respect to how the meeting(s) progress and the which issues get discussed when. If you need a break, take a break. If you want to go faster, push ahead. If you think the parties need to meet over the weekend to get a deal, set that out. If your side wants to discuss issue X or put issue Y in the “parking lot” for a while, work on making that happen. If they want a face-to-face and you think a telephone meeting is all that is needed at this point, stick to your guns. Similarly, once there is a deal in place, work hard to get control of the first draft of the agreement, the settlement, term sheet, order, or whatever. Even better, prepare the document in advance. It is always easier for your side when the other side is working off your draft. Volunteer to take the first cut. If that’s not possible, then be sure to take your time going through any drafts presented to you by the other side. Make sure all of the issues and agreements are dealt with and fight for language you are comfortable with. Resist the urge to let down your guard based on the fact that you’ve an oral agreement on the basic terms. Don’t let up until the document is drafted and signed.
4. Have a written “playbook” – For any negotiation of importance, invest the time to prepare a written “playbook.” This document will summarize the key issues you face in the negotiation and then go point-by-point with a summary of your position and the other side’s position along with showing how those positions change over time (i.e., the “gives and the gets”). You will set out your preferred “landing zone” for each issue along with your “walk away”, i.e., if you cannot get at least these terms or amount of value then you are willing to truly walk away from the deal. This last point is important. You must always be prepared to walk away from a bad deal.
In your playbook, you should rank the issues by importance, i.e., those listed first are more important and core to the deal than those that come later. As to the latter, you may be willing to trade away to get those items higher on the list. This is part of your “offer and concession” strategy which is key to getting to a deal. Be sure you are building room for flexibility during the negotiation (i.e., “take it or leave it” rarely works). The playbook is regularly updated through each round of the negotiation. It is also a great tool to share with upper management or others on your side who have an interest in how the deal is progressing. A playbook will keep everyone on your side focused on what’s important and will instill negotiating discipline, allowing you to maximize your leverage and strengths and focus on what’s truly important to your side. Here is an example of what a small section of a simple playbook might look like after one round of negotiation:
5. Nothing is done until it’s all done – Do not try to resolve your issues one point at a time. This will take forever and you will find yourself giving up things too early in the game. For example, of the first three issues in a contract negotiation your side may only truly care about one of them. If you fully negotiate all three issues, when you come to issues 18 and 19 — which both mean a lot to your side — you cannot trade issues two and three to get what you want for 18 and 19. Go through all of the issues once and understand generally each side’s position, without fully negotiating each point. Most importantly, do not give something unless you get something for it. Ideally, present the other side with a draft document and let them mark-it-up with their changes. Don’t be put off by a lot of “redline” and “comments” this is how you start to learn what issues are important to the other side, where there might be misunderstandings, and where they are coming from in their thinking. Once you get the redline, you can go back and rank issues with your team. As you move forward, be clear that there is no deal until all issues are agreed to. This doesn’t mean you cannot “close out” issues, just be sure to say “This seems agreeable. Let’s see how the rest of the negotiation goes before with make anything final.”
6. Listen more than you talk – In a negotiation, you want to get as much information as possible about what the other side is thinking and what they want, along with their motives, fears, concerns, and interests. The best way to do this is by listening to them vs. talking. The rule of thumb here is to listen 70% of the time, talk the other 30%. Ask them what it is they want and then listen hard to the answer. Not every meeting has to be a negotiation. Some of the most important meetings just involve listening to the other side explain what they want or why they made changes to the language in the draft agreement. It’s a great time to probe and ask questions. Let them explain their point to you and then summarize back what you heard to make sure both sides are thinking about the point the same way. This doesn’t mean you agree, but it will help keep you from missing each other (and the other side will feel that you are listening to them, which is helpful). Remember that 50% of communication is non-verbal, so it’s important to pay attention to body language and to facial reactions. Odds are good that people in the room will try to wear a poker-face throughout the negotiation but that is very difficult to keep up over time. At some point, everyone will give away what they thinking or how they are feeling through body language, facial expressions or other reactions to what you are saying.
7. Build a rapport with the other side – It is worth your time to try to build some type of relationship with the other side during your negotiations. Even if it’s just small talk about family, where you went to school, etc. Some of this you will know things from your research on the other side, but that should not stop you from taking time to be friendly. Sometimes during tough negotiations, I would invite my counterpart to step out of the sessions and grab a cup of coffee. We’d talk about the negotiations and things we could do to bring the sides together or we just talked about sports or the weather or whatever and used the time to clear our heads. Usually we’d come back to the room with some new ideas or a renewed sense of purpose to get the deal done. There is a good article by Eric Barker where he interviews a former FBI crisis negotiation unit member who discusses negotiation strategy utilized by the Bureau. While the stakes are certainly not the same, the principles around effective negotiation are. The agent explained several techniques the FBI used – all of which fit perfectly into the world of business negotiations and for building a rapport with the other side. From the article:
- Ask open-ended questions – encourage the other side to open up.
- Use pauses – use pauses for emphasis or to encourage the other side to keep talking.
- Encourage the speaker – simple phrases like “I see” or “Okay” make it clear to the speaker that you are listening to them and care about what they are saying.
- Use mirroring – rework the last sentence the other person used into your own sentence.
- Paraphrase – use your own words to repeat what the other person said.
8. Take reasoned positions – One of the most effective techniques in a negotiation is the ability to show why your position makes sense from a “reasoned” basis, i.e., there is a reasonable, logical, and valid rationale for what you are asking for and that what you are asking for is “fair.” For example, if you can show that the clause you want to insert around liability caps is “at market” and is “fair” based on the revenue stream of the contract, it is difficult for the other side to refuse to agree. They may have reasons, but those reasons will need to be based on why the provision is not fair or not market or why the circumstances of your deal are different, thereby calling for a different result. But the focus of your negotiation is built on reasoning and logic, and not emotion. Likewise, you need to listen to the other side as they lay out positions and understand whether those positions are market-based, or are industry standard, or are otherwise “fair” under the circumstances. If you disagree, bring facts to bear and not just “I don’t want to do that.” And, if you can, always try to show how what you are proposing works for them or their position. You may need to tweak language to get them over the hump but if you are sure your proposal gives them what they are asking for, be prepared to explain why.
9. It’s not a war – A frequent mistake people make heading into a negotiation is to think of it as a “war” where someone has to “win” the day. The basis of a good negotiation, however, is that everyone gets something and if you can help the other side feel like they got things important to them (even if they’re not important to you) it can go a long way to reaching a deal. If you want a war, that’s what the courts are for. Each side will go into the negotiation with strong points and weak points. Don’t over-estimate your strong points or under-estimate those of the other side. Every once in a while you are part of a negotiation where one side simply has all the power. I have been on the “wrong” side of those types of negotiations and it’s not fun. If you happen to be on the side with the leverage, my advice is that a little bit of humbleness goes a long way with the other side. You can get everything you want and need (because you have the commercial leverage) but do so in a way that does not leave the other side feeling crushed. Do you really need to win every point? Keep in mind that if it’s a business contract, you’re still going to need to work with the other side going forward. “Crushing” them in the negotiation is not going to make that easy and you can expect them to look for every angle to come back at you at some point. A little empathy goes a long way.
If you have purchased a copy of Donald Trump’s “Art of the Deal” you may want to leave it on the shelf. While entertaining to read, those tactics rarely work (as evidenced by the number of unpaid debts, lawsuits and bankruptcies). A recent Harvard Business Review article entitled “What Donald Trump Doesn’t Understand about Negotiation” looks at the “Trump” negotiation style and concludes that there are many problems with it, in particular preconditions and ultimatums are usually bad ideas and “they lose” does not equal “you win.” If you do come across the “bully” negotiator, don’t make it personal. The best thing to do is let them rant and rave and then say either “are you through and can we start the negotiation now?” or “we’ll come back when you can behave like an adult” and leave.
10. Be ethical – The one thing you have in your professional career is your reputation. If that gets tarnished, it is very hard to recover. People respect tough, hard negotiators. People despise liars and cheats and will look for the first of many opportunities to “stick it” to them down the road. If you have a reputation for being truthful, living up to your word, and doing what you say you will do, your negotiations will go much better and deals will be easier to reach because there is a level of trust between the parties. Breach that trust, and the relationship between the parties becomes contentious and unpleasant. How you and your side negotiate will become known and the other side will be looking into your reputation (just like you will theirs). This does not mean that usual gamesmanship of negotiation is off limits (e.g., it may not really be you’re “final” offer), but misrepresenting material facts to gain an edge is. In sum, play hard, but play straight.
There is a lot of information packed into the above and there is much more to negotiation than my high-level points. Here are a few additional resources I have found useful:
- Effective Legal Negotiation and Settlement (7th)
- Getting to Yes: Negotiating Agreement Without Giving In
- The Accidental Negotiator
- The Harvard Program on Negotiation – Daily Blog
While outside resources are nice, don’t forget that there may be even more valuable resources close at hand, i.e., your colleagues in the business or the legal department. If you know of an experienced negotiator within the company or department, ask them to coffee and pick her brain on how they negotiate (or refer someone on your team to them). Similarly, be willing to share what you know with others. Some companies offer negotiation training (live or online) to their sales teams. Little prevents in-house counsel from taking those same courses. Investigate all available resources and then be proactive and volunteer to set up a negotiation boot camp for your legal department. That’s a good deal for everyone.
June 14, 2016
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