July 12, 2012

On Preparing for Negotiation

Posted in Negotiation |

“If you know the enemy and know yourself, you need not fear the result of a hundred battles.  If you know yourself but not the enemy, for every victory gained you will also suffer a defeat.  If you know neither the enemy nor yourself, you will succumb in every battle.” - Sun Tzu, The Art of War, Book III (Clavell Translation)

Imagine inviting a dozen or so friends over for a dinner party.  Assume further that you’re not trying to repulse people, but really want to have a successful dinner.  The party starts at 6 PM.  By 5 PM, you haven’t planned a menu or done any grocery shopping.  So you find whatever ingredients are in the refrigerator (let’s say maraschino cherries, buttermilk, pickles, and week-old Chinese food), combine them in a pan, and put them in the oven.  (No, this is not an episode of Chopped – I’m trying to make a point.)  You’re not sure how high the temperature in the oven should be, so you pick 550 degrees on a whim.  You’re not sure how long to cook the “food,” so you figure a half-hour will do.   You justify your behavior with the idea that you’re better when you’re “spontaneous.” 

These guests aren't likely to be your friends much longer.  You didn’t show any respect for them, or for what you were doing. Negotiation is no different.  Yet the lack of preparation I see in dozens of relatively complex business negotiations – let alone effective, systematic preparation – is appalling.  Remember this rule of thumb:  expert negotiators will generally spend four hours preparing for every hour they expect to spend at the negotiating table.  Or, to paraphrase motivational speaker Zig Ziglar, when it comes to negotiation, the elevator is broken, but the stairs always work. 

Not long ago, I had the displeasure of mediating a dispute involving racial profiling by a department store's security personnel.  An African-American woman complained that the store's private detectives were harassing minorities who were shopping in the store's clothing department.  In advance of the mediation, the plaintiff and her attorney supplied me with a detailed, written mediation statement citing and analyzing applicable case law, and setting out a reasonable analysis of expected damages in the event the case were to go to trial.   They also supplied me with a copy of the store's surveillance film, which clearly showed store personnel hassling minorities while white shoppers went about their business unmolested.  The plaintiff and her attorney appeared at the mediation room on time, well-versed in the facts and ready to discuss a reasonable settlement.

In contrast, the department store sent a junior attorney to the mediation who arrived late, who obviously had not read the file, and who did not even have the phone number of a contact at the company with settlement authority.  She seemed, in fact, somewhat annoyed to be there at all.

Needless to say, settlement discussions went nowhere.  Perhaps the department store's management was trying to send a "message" to the plaintiff about what they thought of her position.  If that was the intent, the tactic failed.  Both the plaintiff and her attorney were enraged at the treatment, and I was unhappy because my time was wasted.  As an old friend of mine is fond of saying,  “never give the other side something to put on their bulletin board.”   I can guarantee that the department store ended up spending more on resolving the matter than it should have.  What a needlessly squandered opportunity.

I graduated from college in 1982.  None of my classmates had computers.  For four years, I used an old Royal manual typewriter that I’d bought for $25 (with onion skin if I wanted copies!).  Times have completely changed, and given the astonishing breadth of the information superhighway, and the ease of access to it, there’s no excuse for negotiating anything but the simplest matters without being thoroughly prepared.   Here’s a simple, basic checklist to follow:

1.    Know the facts and issues cold.  Organize all of the key documents together in a binder or, preferably, a computer file so you can call them up easily during your negotiation session.  Never negotiate until you’re ready to do so.  If you need more time, stall.

2.    What’s your best alternative to a negotiated agreement (“BATNA”)?  That is to say, if you don’t get the deal done, what will you do?  What will the cost to you be?  If your BATNA involves resorting to an uncertain process such as litigation, what are your chances of success?  If your dispute involves $100,000 and you have a 50% chance of success, the case value is $50,000.  If it will cost you $20,000 in litigation expense and lost time to get there, the case value is $30,000.  Be realistic in your thinking.  Most people fall in love with their own story, which is deadly at a negotiating table.  It helps to review your approach with a disinterested party (another lawyer, a business friend, your spouse).  Trial lawyers talk a lot about the usefulness of mock juries and focus groups.  There’s a reason for that.

3.    What’s your walkaway position?  You can only know this if you’ve done the proper risk analysis.  Consider the use of decision trees and risk analysis software.

4.    What’s your initial position going to be?  Don’t ignore the concept of “anchoring,” which I discuss in more detail below.  Many negotiators don’t like to put the first proposal on the table, because they feel it creates a “ceiling.”  I think that’s ridiculous.  If you can set the parameters, the other side will be negotiating off your position, as opposed to you having to negotiate off theirs.  Your life generally becomes much easier that way.

5.    Find detailed and objective criteria to support your position.  If you’re negotiating a deal to buy a company, for example, what are the comparables?  If you’re negotiating the resolution of a dispute, try to say something like: “We’ve researched this issue pretty carefully, and we found 25 cases nationwide that deal with this fact pattern.  22 adopted our position, and the other 3 awarded only minimal damages to the side using your analysis.” If you can tie your position to objective fact as opposed to subjective argument, you can continually keep the other side off-balance.

6.    Turn the map around.  How will your opponent approach the negotiation?  What’s your opponent looking for?  What’s your opponent’s best possible result?  What’s your opponent’s worst  possible result?

7.    Research your opponent.  Talk with those who have negotiated with him before.  What’s he like?  What are his “hot buttons”?  Is he cooperative?  Aggressive?  Is he thorough, or does he like to “wing it”?  Is he intelligent, or is getting him to understand the main points going to be a struggle? 

8.    Prepare yourself physically.  Get enough sleep.  (Some people laugh when I say this.  I don’t think that those people are serving their clients or employer properly.)  Negotiation can be grueling.  You won’t do well if you don’t feel well.