THIS NEW BREED OF NEOGOTIATOR

By H. Scott Flegal, Esq.

Does your lawyer take pride in being a tough, hard-line negotiator? If he or she does, you may want to have them take a look at some of the literature and related information streaming out of the Program on Negotiation at Harvard Law School. While there is a time and a place for old school hard-line negotiating, in many instances discretion may be the better part of valor.

The Harvard Business Review recently contained an article by Danny Ertel, a partner in the Boston consulting firm “Vantage Partners”. Vantage Partners works with companies to help manage their relationships with partners, suppliers and customers. Ertel’s article is entitled “Getting Past Yes – Negotiating as if Implementation Mattered”.

The thrust of Ertel’s article is that the techniques employed by the negotiators while putting a deal together can have a significant impact on whether the deal is successful when it is ultimately implemented. According to Ertel, the most important challenge for negotiators is not winning every small victory during the negotiations and leaving the least amount of money on the table. Rather, the magic lies in negotiating a deal that will work well in the real world, after the deal has closed. If the negotiations are hostile and one-sided, what looks like the best deal can become the worst deal when it is actually implemented.

This approach represents a significant change in tactics for many traditional negotiators, many of whom employ hard-line tactics to get the best deal. The old school “tough” negotiator used hard-ball tactics such as surprise to keep the other side off balance. They would withhold information, fail to correct mistaken impressions, create artificial deadlines, issue threats – in short, they would bully the opponent in an effort to gain maximum leverage in the transaction. The thinking was that in this fashion, their side would obtain the “best” deal possible.

Many lawyers I know proudly consider themselves to be tough, hard-line negotiators of this nature. In some cases, their tactics can be effective. For instance, in a personal injury case, where the parties are essentially an insurance carrier and an injured plaintiff, each side makes the best deal it can. There is no need to be concerned about the long-term fallout from tough negotiations. There will be no continuing relationship between the parties. But in business cases, this line of negotiation can be counter-productive.

After all, businesses get in disputes and have conflicts with employees, suppliers, distributors, regulators and customers. These are parties with whom the company has on-going relationships. In most instances, they will continue to interact after the dispute or problem is solved. In this context, it makes no sense to adopt a take-no-prisoners, scorched-earth approach to the negotiation. The relationship between the parties can be irreparably damaged or even destroyed if one side needlessly bullies the other or uses hard-line tactics to gain an unfair advantage.

Ertel’s approach to negotiation is especially applicable in the area of mergers and acquisitions. In larger deals, the surviving entity might contain elements of both the buying and selling organizations. If one side bludgeons the other during the negotiation of the deal, the ability of the people in those companies to work together after the closing can be seriously challenged. People get marginalized, and their feelings get hurt. While the deal might have looked sweet when it was made, it can be awfully sour when it is eventually implemented.

I never cease to be amazed in my own practice where in a relatively small business acquisition, for example, the lawyer for the buyer or seller adopts a hard-line approach to the negotiations. These bottom line distributive bargainers don’t want to share information. Fairness is not a concern. These lawyers view their role as one where they must obtain the best price for their client, at all costs. A lot of value is lost in deals like this.

Instead of getting the parties together with their lawyers in one room around one table and hammering out an agreement that works for everyone, we commence the back and forth exchange of offers and counter-offers. Not only is this inefficient, but in many instances the parties become frustrated and upset by what they view as the unreasonable position taken by the other side.

Furthermore, in many instances, there is seller financing or some other aspect of the deal that requires the parties to spend time working together after the deal has closed. A bad experience during the negotiation of the deal can make this time very unpleasant for both parties. The seller’s lawyer may have driven a hard bargain and obtained the highest purchase price. But if the buyer and seller cannot get along after the closing, the lack of cooperation can hurt the business and make it difficult for the seller to collect any funds due after the sale.

Ertel would suggest a different approach by the negotiators. The smart negotiators would avoid surprises. They would raise important issues early. They would share information. They would openly question assumptions. They would define interests that need to be considered on both sides of the table for the deal to be successful. They would envision the deal as it will look after it has closed, try to anticipate problems, and negotiate a structure that will let the deal be a success. The fact is that in most negotiations, the important thing is not how it was negotiated, or whether one side got the better of the other. The true measurement of whether the deal has been successful is whether the deal creates value in the future.