Legally Astute Negotiating
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In her working paper, Winning Legally: The Value of Legal Astuteness, Harvard Associate Professor of Business Administration, Constance E. Bagley posits that "legal astuteness" -- the ability of top management to effectively communicate and work with counsel to solve complex problems — is a valuable dynamic capability.
According to Bagley, legally astute managers understand that "every legal dispute is a business problem, requiring a business solution." These astute managers will listen carefully to the legal advice given to them but they will not be overly deferential to their attorneys. Professor Bagley reemphasizes what all business executives now surely know, that "litigation is a 'zero-sum' game, with a clear winner and loser," leaving few opportunities for integrative bargaining.
"Legally astute" business executives, she stresses, "take responsibility for managing their disputes and do not hand them off to their lawyers with a 'you-take-care-of-it' approach."
But how, you ask, does a "legally astute" manager retain control of a business problem that has become a multi-million dollar piece of litigation. Let alone in a way that synergizes the strengths and diminishes the weaknesses of everyone on the litigation team -- executives and trial lawyers alike.
Litigators: Bring Your Business Executives Back in from the Cold
When mediating settlements of commercial lawsuits, I always begin by inviting the business executives back into the game. "Your lawyers," I remind them, "justifiably advised you not to talk about the litigation in public or satisfy your need to "tell your side of the story" at deposition. If you've heard it once, you've heard it a million times -- "today is not our day to win the lawsuit; today is our day to provide as little information as possible."
Settlement day, however, is the day to come armed with business information and business strategy.
"Only lawyers," I say to managers, "have legal problems. You have a business problem you couldn't fix without the coercive power of the law. That legal power has now brought your opponent back to the negotiating table. The legal dispute is again a commercial problem for which there are myriad business solutions."
"That's the good news," I say. "The difficult news is that it will take a lot of work from everyone and the end result is unlikely to look like the victory you once hoped for. Today we try to find a way to negotiate an agreement that is a better alternative than trial."
Then we all roll up our sleeves and begin.
Executives: Partner with Litigation Counsel and Your "Opposition" to Create Business SolutionsNo matter how costly or sophisticated the dispute, the litigator's role is a simple one -- use the testimony of the witnesses and the ambiguities of available documentation to weave a tale of injustice so convincing that the jury swiftly wields the power the Judge gives it to right the wrong the trial lawyer has so compellingly elaborated. Juries do sometimes manage to overcome the zero-sum limitations of their charge by, for instance, reducing or increasing damages to compensate for areas of gray. Nevertheless, the verdict a jury delivers is a blunt instrument of resolution no matter how skillful the lawyers; how diligent the judge; and, how attentive the jury.
What can business executives do to help their attorneys achieve settlements that are better commercial risks than trial? Ask questions about what "winning" might look like to the other side and then:
- Negotiate a contingency contract. Where, as is often the case, an uncertain future is the major obstacle to reaching a negotiated agreement, consider building contingencies into the deal. Instead of arguing about the future, do what entrepreneurs do every day -- bet on it. As Dr. Thompson stresses in The Mind and Heart of the Negotiator, contingency contracts not only provide a safety net against potential losses, they help create an atmosphere of trust between the parties. She cites as an example the negotiation between Real Time and the Football Association ("FA") for an e-commerce web site for the U.K. 2006 World Cup bid. Real Time offered FA a percentage of what Real Time was able to sell on the site, backing up its talk with its walk and creating an attractive "up side" to the risk taken by FA on an untested business partner.
- Unbundle Issues. The settlement of a lawsuit is never solely about price. It is also about terms. For smaller businesses, those terms often include pay-off over time. When trust between the parties is low and one party is claiming (to the other's disbelief) an inability to pay more quickly or in larger instalments, I've often found stipulated judgments containing "penalties" for default to be particularly attractive options. The payor, who is generally satisfied it can meet the proposed payment schedule, is often willing to stipulate to a judgment for a greater amount than the settlement itself. This provides an otherwise unavailable settlement sum to the party who believes the payor will likely default. The settlement doesn't simply seem larger, in the event of default, it actually is larger than the payor would otherwise be willing to agree.
- Make Multiple Offers Simultaneously. Making multiple issue offers avoids sequential bargaining which can lock people into lose-lose outcomes; and, permits the offering party to make risk-free concessions by giving up one of several items of equal value. I recently broke impasse in a settlement conference concerning non-conforming goods by using a combination of multiple offers and contigencies. The parties to this dispute over the quality and value of imported table lamps placed wildly diverging values on merchandise still in storage. To break impasse, I suggested that the parties consider alternative deals, one for cash and one for the the immediate sale of the goods to a liquidator. The parties settled upon a cash payment after their frank re-evaluation of the goods' market price, which included a reversal of opinions. In a classic case of reactive devaluation, the seller, who originally contended the stored goods were extremely valuable, asserted that they were unmarketable as soon as the buyer offered to transfer them to extinguish his debt. (For an intriguing article on using mediators to help parties structure deals, including a discussion of the effect of reactive devaluation on contract negotiations, see Contract Formation in Imperfect Markets: Should We Use Mediators in Deals? by Scott R. Peppet)
These are just a few of the business strategies that can be used to settle commercial litigation. Although litigators often settle lawsuits, most business people are far more skilled in negotiation tactics and strategy than are their attorneys. More importantly, the business people know their own business, particularly concerning the opportunities they seek and the risks they are willing to take. If business people would share their expertise and business strategy with their litigation counsel as readily as they do the reasons they should prevail at trial, the potential for achieving a better resolution by negotiated agreement than by trial would be geometically increased.
