Negotiating a Deal? Be a Mediator, Not a Gladiator

What’s the primary goal of most business negotiations? I don’t mean negotiations in the context of a dispute – I mean in the context of a prospective business deal or relationship. In that setting, the primary goal is to reach agreement. And that generally means emphasizing mutual benefit and necessary compromise to reach the desired outcome for both parties, not just one – after all, if your negotiations are so “successful” that the other party has lost everything, there’s really no reason for that party to proceed at all. In other words, you may “win” the negotiation battle but “lose” the deal.

So, how should a business person (and that business person’s lawyer) approach negotiations? Simply put, I think it’s better to assume the role of mediator than that of gladiator; be a problem-solver not a competitor. That doesn’t mean that you must avoid confrontation and disagreement in all cases. What it does mean is you should pick and choose your “battles” carefully; and where possible, avoid them entirely by finding creative solutions.

Negotiation is not generally possible without some level of disagreement. If that weren’t the case, we’d never need to exchange multiple drafts of an agreement, since all parties would simply agree to the first draft. Disagreement is not the problem. Confrontation, however, often times can be – particularly if it’s not handled with professionalism and diplomacy. If disagreement is necessary, try and explain to the other party why your position is reasonable, and why the issue is important. If it’s a potential “deal-breaker,” explain that too. In the end, I believe it’s most productive to avoid confrontation when you can. Disagree when it’s important, but even then seek compromise where it’s possible and makes business sense. Be creative and seek to find win-win solutions. Remember, the goal is to get the deal done on terms that benefit everyone – not walk away after “fighting a good fight.”

Subtlety Has Its Place

As the title to this post indicates, subtlety has its place – just not in business negotiations or contracts.  This is not to say that people shouldn’t be tactful, courteous and professional in these contexts – of course, they should be.  I’m not talking about manners; I’m talking about clarity, precision, directness and transparency – i.e., the things that avoid uncertainty and minimize the risk of disagreement (and litigation).

Occasionally, clients will ask me to word a provision in a contract so that it isn’t as clear or explicit as it might be, so that it’s “less conspicuous,” or in a way so that “later, we can take the position that it meant X. . . .”  This is almost always a bad idea.  After all, a contract is meant to be a clear and complete expression of the parties’ mutual intent and agreement – trying to “finalize” the deal while simultaneously avoiding clarity and completeness in order to avoid points of disagreement is NOT a recipe for success; to the contrary, it is a recipe for future disputes.

So, what does this mean for your negotiations and contracts?  Quite simply, items of potential disagreement should be identified and discussed (and hopefully resolved) early on, just as items on which the parties agree should be discussed.  Dispute resolution at the point of negotiation/deal-making and as part of the contractual process is healthy and productive.  It generally leads to one of 2 outcomes – either the parties ultimately reach agreement through compromise, concessions, etc., and they move ahead with the deal; or they don’t, and the deal doesn’t get done.  Either result is far better than signing a contract or entering into a relationship only to end up in the other kind of dispute resolution – the kind that comes after the contract is signed and involves 2 teams of lawyers, a judge, jury or arbitrator, and words like injunction, breach of contract, damages, and legal fees.  Don’t be subtle . . .

The Value of Good Faith and Fair Dealing

There’s a principle, or really two related principles in the law known as good faith and fair dealing.  There are various definitions, but generally the combined concept means something like, honesty in fact and the observance of reasonable commercial standards of fairness.  I’d like to weigh in on the importance and value of good faith and fair dealing – not just in purely legal terms, but in all business activities including legal and contractual relationships, negotiations, and even litigation and dispute resolution.

The concepts of good faith and fair dealing have legal meaning and impact.  The UCC implies them in contractual relations between merchants.  Franchise law implies them in the relationship between franchisor and franchisee.  Courts sometimes find a failure by a party to act in good faith or to deal fairly and reasonably with another party as a basis for a breach of contract or tort claim, or as the basis for a defense to such a claim.

However, and I think equally important, good faith and fair dealing have direct value and benefit to the underlying businesses and business activities.  They lead to honest and efficient/effective negotiations.  They lead to clear and understandable contracts that reflect the parties’ actual agreement and intent, rather than hidden agendas and attempts to “trick” the other party.  They allow the parties to avoid misunderstandings and to resolve them more directly and efficiently when they do arise.  In other words, they save time and money and allow the parties to focus on the important business issues rather than protecting themselves from the other party’s devious behavior. 

Good faith and fair dealing is, in some ways like the law’s version of the “Golden Rule” – do unto others as you would have them do to you (and the world will be a better place).  Treat others with honesty and fairness, and it will yield value to you and to them – value that directly impacts your bottom line.

How to Respond to the “Deal Breaker” Issue – Part 2 of 2

So, now that you’re confronted with a deal breaker issue, how can or should you respond?  There are really only a few choices and strategies – here they are, along with some additional tips:

  • Before doing anything, keep in mind the basic premise of this blog – the business issues are more important than the legal ones.  From a business perspective, when you first considered the deal you wanted to do it – again remember, you make profits from doing (good) deals, not from walking away from them.  You walk away either because the risk became too great, or the upside became too small.  It’s the difference between prosperity and survival.  You want the former, but you need the latter.
  • Next, carefully consider – is this really a deal breaker, or is it just something that makes the deal more complicated, less appealing, etc.  If the latter, it’s really not much different than any other issue to be negotiated; if the former, it will decide whether the deal happens at all.
  • Assuming it really is a deal breaker, is it a business or a legal issue or a combination?  This may dictate who responds (client or attorney) and how.  Whenever possible, on issues of this importance I’d rather have the business person respond rather than the lawyer.
  • Consider whether compromise, restructuring, or further negotiation might lead to an acceptable resolution for both parties.  In doing so, analyze the issue from both your point of view and the other party’s point of view.  This may be a deal breaker for you but may not even be particularly important to the other party – you’ll want to know this before responding.
  • Next, make the other party aware of the issue, and (again, assuming it’s truly a deal breaker) be clear that, if the issue cannot be resolved to your satisfaction, you will (have no choice but to) walk away from the deal.
  • If at all possible, don’t just identify the issue, but rather, suggest a (or several alternative) solution(s) that you believe will work for both parties.
  • In discussions with the other party, be careful not to ascribe bad motives or intentions.  This can end discussions before the alternatives are even considered.

In the end, you may have a decision to make – is the deal worth the risk, or is it one you have to pass on?   But of course, you only want to make this decision after considering all possible alternatives.

You Can’t Always Get What You Want …

“. . . but if you try, sometimes you get what you need.”  The Stones had it right – and even though they didn’t know it, their lyrics are right on for businesses and lawyers negotiating deals and the underlying documents.

In virtually all business negotiations, the objective is to reach agreement on fundamental terms that are fair, reasonable and mutually beneficial.  True, each party wants the best terms possible, and in some cases, there will be specific deal points that are non-negotiable; but the bottom line is, if the deal isn’t good for both parties, there will be no deal.  And businesses make money based on the deals they make – whether entering into a complex joint venture, selling products, or settling contentious litigation.

This means that businesses and their lawyers, in negotiating deals and even more so in drafting the underlying documents, will bring the most value and the highest likelihood of success (think ROI and EBITDA) by resisting the urge to overreach – particularly on issues that aren’t fundamental to the underlying business deal.  Instead, they should focus on reaching agreement on the most important business issues under terms that are fair and reasonable and don’t create unreasonable risk or liability to either party or unfairly allocate that risk or liability.  This is what leads to long term, mutually beneficial and profitable business relationships.

If you’ve ever participated in negotiations where the parties have reached agreement on all of the key business terms (e.g., price, payment terms, timing, duration, etc.) only to break down because they (or worse yet, their lawyers) can’t agree on choice of law, venue or what set of arbitration rules will apply if they have a dispute, you know what I’m talking about.

Negotiation and Deal-Making Advice 101 from BizB4Law – first, “get what you need” – then, maybe consider what else you “want.”  But, keep in mind, the business only makes money if the deal is made.