By Michael Hanks, Esq.
The purpose of this column is to provide non-attorneys with insights into the legal profession, with the hope that such knowledge will permit them to have a more effective and cost efficient relationship with their attorney.
In this column, I want to focus on certain aspects of the negotiating process.
There are of course a number of books on the market which discuss the art of negotiation. I have not read any of them. Accordingly, what you are getting in this column are my unvarnished views on the process.
Attorneys negotiate a lot, and business attorneys engage in negotiations even more than most. Negotiation is nothing more than the process of reaching a deal. The deal may relate to a sale of property, settlement of a business dispute or any other instance in which at least two sides have differing interests and a common motive in resolving the problem.
In my experience, a person can be a successful negotiator despite lack of extensive prior experience, by understanding a few common sense guidelines.
1- If you are unable to walk from the table you have no true negotiating power. This is the most problematic reality regarding negotiations. An attorney is often placed in the situation where his or her client is unable for whatever reason, to discontinue further settlement discussions, but nonetheless wants to negotiate for better terms. Unless he is willing and able to reject an inadequate final offer, he has no true negotiating power. The client often times attempts to insert as a substitute the perception that he is willing to walk. The idea is that if the other party believes that you are willing to walk if acceptable terms cannot be met, that should be sufficient. However, the other side will also be angling for a strategy and thus will also want to appear as if he is willing to walk on a moment’s notice. Unless you know that not to be true (i.e., you know that the other party will ultimately take your best offer, whatever it is) this strategy will fail since it will be neutralized as a tactic.
Accordingly, one of an attorney’s functions in the early part of a business transaction, before any contracts are signed and legal commitments undertaken, is to maintain the client in a status wherein he is both legally and mentally prepared to walk from the table if acceptable terms cannot be reached. If the attorney allows the client to become legally entangled, early on in a collateral matter, such that the client has no true choice but to pursue and conclude the deal, the clients negotiating position will be compromised.
2- In the typical negotiations, the more the other side knows about your situation, the more likely the negotiations will be successful. This statement runs counter to conventional wisdom. However, in my experience, unless your client ha a good reason to hide adverse information, the more information the other party has in his possession regarding your needs, the better he may be able to suggest and agree to terms that accommodate your needs while still achieving his. Further, an atmosphere of full disclosure increases the level of trust among the parties, which inevitably leads to more successful negotiations.
This is not to say that facts should be arbitrarily and randomly disseminated without control. Certain facts are none of the other party’s business and there may be circumstances in which disclosure of such facts (if not legally required) will compromise your negotiating position. However, you should not automatically reject the idea of full disclosure as a tactic since it may be to your benefit.
3- In any successful negotiation, there is usually one person acting as moderator. Although negotiations are by definition a two-way (and sometimes a multi-sided) affair negotiations are always assisted by the assumption by one party of the role of “moderator.” This role is often played by one of the attorneys for one of the negotiating parties, and such a role does not need to compromise the attorney’s effectiveness on his client’s behalf. A moderator is simply one who takes responsibility for keeping the negotiations on track, following up when the other party has not responded promptly, arranging meetings or other methods for bringing the parties together, taking responsibility for developing creative ideas and approaches which hopefully will address all parties’ primary needs in a way which allows them to reach agreement, and finally keeping a cool head and a civil tone in the proceedings. In some fortunate circumstances, both attorneys undertake this role, and such negotiations are almost always successful. However, such a role is necessary in any series of complex or sensitive negotiations. It is sometimes a role played by a third party independent mediator (as in more formal conciliation proceedings) but it need not be a third party.
It is, I believe, this ability to moderate disputes effectively which distinguishes the experienced attorney from the less experienced.
4- You are better off to negotiate against a party represented by an experienced and capable attorney. This also runs counter to conventional wisdom. Intuitively, you would think that a party having an attorney in negotiations has the advantage on the party without an attorney. However, except in limited situations, I find that not to be the case. The advantage of a skilled attorney on the other side of a case is considerable. The attorney not only brings objective professional judgment, he also brings credibility. He will also typically be entitled to receive, and will be expected to give, certain “professional courtesies” which facilitate the negotiations. Finally, the attorney will assist in expeditiously reviewing and completing necessary documentation so that the transactions can be appropriately concluded.
The absence of an attorney on the other side typically leads to delay, confusion, a sense on the part of the other side that they are being taken advantage of, and a possible reluctance on the part of the attorney to negotiate as aggressively since the other side is unrepresented.
It is this role as professional negotiator which constitutes one of the primary services provided by the legal profession in a democratic free enterprise society.
5- The give and take of negotiation is inevitable. Despite the best efforts of parties to limit negotiations, there is a certain inevitability to the negotiating process. The offer and counter-offer process will continue until exhausted. Usually, nothing either party says by way of “final position” statements will be effective if the other party is not prepared to accept the terms or feels that he can still exact some concessions. In that instance, you will receive a counter offer rather than an unconditional acceptance. Thus, I rarely make such statements in letters to the other side, realizing that they will either be ignored or interpreted as being mere posturing.
In my opinion, in the typical situation such brinkmanship should be avoided.
6- Settlement negotiations should commence immediately and be actively pursued from the commencement of the dispute. The strategy of refusing to negotiate and pushing aggressively at the outset of a dispute to establish dominance, and delaying negotiations until later is usually unwise. Not only do the parties (perhaps unnecessarily) incur attorney’s fees (which usually forces the parties further apart since each has more invested), the parties may take actions during the interim period which make settlement more difficult. This change of position often times works against resolution of the dispute since it may close options and cause parties to incur costs.
Admittedly, some times natural event assist negotiations and their resolution. The terminated employee who, after a period of looking, finds a much better job at a higher salary is an example. There is also of course the benefit of time in terms of cooling tempers and reducing emotion. However, if the parties have displayed a good faith intent to negotiate early on, these natural events and cooling of tempers will still have their beneficial effect, and there will be a basis of good will between the parties to build on.
In future columns, I am going to discuss certain aspects of the negotiating process in more detail, since every successful businessman or woman needs to have a working knowledge of this area for survival.
To speak directly with Attorney Michael Hanks about a business, real estate, estate planning, elder law or prenuptial agreement matter, contact the Law Offices of Michael Hanks at (916) 635-0302.