Negotiating Great Settlements
An awareness of proven principles and practices can lead to successful legal negotiations
By Gregg F. Relyea and
Byron L. Hanchett
If your only tool is a hammer, you’ll see every problem as a nail.
After accepting $150,000 to settle a case by telephone, Jane pressed “End Call” in exasperation. More voice and text messages flashed insistently. The settlement was well within the client’s authority, but she was still dissatisfied. The press of business seemed to rule out careful preparation and consideration of options. Personal attacks bordering on unprofessional poisoned her dealings with the other attorney and Jane was troubled by opposing counsel’s glib parting comment, “Not to worry — a good settlement is when everyone walks away unhappy.”
Without an awareness of specialized negotiating tactics and techniques, a lawyer-negotiator is merely a hunter shooting in the dark. A good grasp of the facts and law is not enough. Consistently optimal settlements will be elusive. Well-intended bromides about equally unhappy parties cannot satisfy the desire for a well-negotiated settlement. Undisciplined negotiating brings additional risks: unnecessary concessions, reacting rather than responding to offers and missing opportunities for favorable settlement.
Negotiators may overestimate or underestimate their abilities. Performance in negotiation is difficult to measure without clear benchmarks. For many negotiators, case-by-case learning produces a long, slow and sometimes painful learning curve that may plateau at a level of acceptability rather than strength.
Negotiation is a structured process
Negotiation is a structured process, with identifiable stages, terms and tactics. The subject matter, personalities and terms of settlement may vary widely, but a template for negotiation exists. Under-standing this template will enable lawyers to approach the negotiation process with greater confidence and to get optimal results on a regular basis.
A global view of the negotiation process reveals that there are three basic approaches to resolving conflict: power, rights and/or interests. Negotiators must ask themselves which approach — or combination — is appropriate? Is the client so dominant that it can impose its pricing structure on the supplier, thus warranting a power approach? Are there legal standards, contract rules or a history of dealings leading to a rights-based approach? Or are the personal, business or other interests of the parties so compelling they invite exploration of other options outside of or in addition to a power or rights-based approach?
Preparation, negotiation and implementation represent three meta-stages of the negotiation process. Professional negotiators spend significant time preparing for negotiation, exploring tactical moves and setting overall strategic outcomes. Fact gathering, developing positions and devising supporting arguments are essential. Another critical task is to identify the personal and business interests of one’s client and the opposing party. Effective preparation includes setting an aspiration price (desired outcome), choosing an opening offer, setting a reservation price (bottom line), generating evidence to support positions, and considering and strengthening alternatives to negotiation. An “anchor” is an offer that influences the remainder of the negotiation because it is reasonable and not excessive. Opening offers should be “stretched” to test the other party; however, caution should be exercised as opening offers lose their impact when perceived as unreasonable or out of the ballpark.
Generally, successful negotiation involves both claiming and creating value. Many negotiators begin and end their negotiations by “claiming value,” i.e., making demands, striving for a larger share of “the pie” and battling for more concessions. Locking horns and impasse are likely to result. “Creating value” refers to the active generation of terms and trade-offs including non-monetary, non-traditional, options for settlement. Creating value involves identifying the needs of the parties and creating terms of agreement that meet their needs.
Used together, claiming and creating value can be powerful negotiation tools.
Going beyond the BATNA
The aspiration price, opening offer and reservation price all reflect options for agreement that exist within the negotiation between the parties. Equally important is the analysis and consideration of alternatives, i.e., what will happen to the client if negotiation does not result in agreement. Alternatives exist outside the negotiation and include the consequences of non-agreement as well as the fallback plans of action that are available to the client.
In Getting to Yes, the authors describe a vitally important, yet often overlooked, preparation tool, called the BATNA (best alternative to a negotiated agreement). The BATNA describes the best alternative(s) a party has in the event of non-agreement. For example, before negotiating salary, an employee would be well-advised to actively develop other alternatives for employment inside or outside his company. For litigants, it may be possible to strengthen alternatives to settlement by conducting discovery that strengthens their evidence.
While it is crucial for a party to take active steps to develop their best alternative to a negotiated agreement, it is just as important to consider the worst alternative to a negotiated agreement (WATNA). Is a party’s worst outcome zero or worse (owing attorneys’ fees and court costs to the other party)? Is a business client’s worst outcome merely losing a deal or also losing a business opportunity, goodwill and future income?
Finally, it is important for a party to consider their most likely alternative to a negotiated agreement (MLATNA), which is, perhaps, the greatest test of an attorney’s advice, experience and good judgment. For litigants, this may involve carefully predicting the most probable outcome at trial, along with associated costs and personal and business consequences. Considering the BATNA, WATNA and MLATNA brings balance, realism and experience into negotiation.
Negotiators tend to demonstrate a well-defined range of negotiating behaviors and styles, ranging from competitive to collaborative, compromising, avoiding and accommodating. Effective negotiators identify their own natural orientation and carefully observe the style(s) of their counterparts. In doing so, they are aware of and able to understand the dynamic interplay of negotiation styles. Depending on the circumstances, versatile negotiators are able to use different styles and to extend themselves beyond their natural orientation.
When they are cycling through various negotiation styles, versatile negotiators will observe several rules. First, when opposing counsel makes a competitive move (e.g., denying an extension of time to respond to interrogatories), a lawyer must be prepared to make a competitive move in response (e.g., refusing to reschedule a deposition) or there is risk of being exploited.
Second, responsive competitive moves generally should be reasonable and proportional, to prevent escalation and preserve professional relationships. Third, instead of hardening into permanently polarized positions, seasoned negotiators are usually willing to return to a cooperative style after their counterpart demonstrates a similar willingness.
Types of bargaining
Different types of bargaining methods are effective under different circumstances and in different combinations. Like a baseball pitcher with a variety of throws, a versatile negotiator, well-schooled in an array of bargaining methods, is most effective.
Most negotiations are either fundamentally distributive, i.e., dividing a fixed amount of resources, money, property (dividing a “fixed pie”), or integrative, i.e., the parties actively introduce additional terms and trade-offs to “expand the pie.” It is customary to initiate negotiations using traditional forms of distributive bargaining, such as positional bargaining, where negotiations focus primarily on offers and counter-offers or rights-based bargaining, where the primary focus is on fault. These approaches, however, often lead to impasse and they can leave parties feeling that negotiation has been reduced to a “haggling session.”
Interest-based bargaining expands the breadth of negotiation to include an analysis of the facts, law and the underlying personal and business interests of the parties. Interest-based bargaining involves a three-step process: identifying the parties’ interests, prioritizing their interests and developing terms of agreement that meet the parties’ most important interests. This is a type of bargaining that enables negotiators to penetrate through legal positions in an effort to understand each other’s true needs.
Interest-based bargaining is effective in breaking deadlocks where the parties are stuck in a cycle of positional/rights-based bargaining and in cases where the parties have an interest in preserving their relationship. Interest-based bargaining is not always the bargaining tool of choice in personal injury cases, disputes between strangers or other primarily zero-sum negotiations, where one party’s gain is, by definition, the other party’s loss.
When the parties are ready to focus their attention on generating options for possible agreement, two techniques can be helpful: lateral thinking and brainstorming. Lateral thinking is creative, intuitive, innovative, non-linear, non-traditional thinking (“outside the box”). It is often contrasted with logical thinking, which is structured, rational, linear and often traditional. Versatile negotiators recognize the value of both logical and lateral thinking and are always on the lookout for opportunities to improve negotiated agreements by using them both.
Brainstorming is a well-known, but little understood, process for generating options for agreement. Often, negotiators pre-judge settlement proposals and self-edit prematurely by thinking of prospective options and immediately evaluating them. Experienced negotiators use a two-step brainstorming process, the first step being inventing — and writing down — all ideas for possible solutions, whether they are workable, reasonable, affordable, etc. Isolating the inventing stage and using both logical/lateral thinking open up greater opportunities for possible solutions.
The second step in brainstorming is the systematic evaluation of each of the written options. To avoid the simplistic process of accepting or rejecting options, negotiators can probe further by asking why a particular option is inappropriate or unacceptable, which will reveal much richer information about possible terms of agreement.
Knowing how to say it
While negotiating, a number of specialized communication techniques can be employed for greater productivity. Several forms of verbal recognition, such as restating (repeating a speaker’s point), reflecting (rephrasing in a way that mirrors the emotions being expressed), summarizing (recapping accurately, fully and neutrally) and acknowledging (verbal recognition of a speaker’s point without agreement/disagreement), demonstrate that the listening negotiator accurately heard the speaker’s points.
Reframing is another specialized communication technique that is highly useful in turning a conversation from a litany of complaints or arguments into an exploration of options for agreement. Reframing is effective in situations where the speaker wants to move into a problem-solving mode. Reframing involves a special kind of rephrasing that converts a negative complaint or grievance into a positive statement of what the speaker wants, moving the discussion from the past to the future, from positions to interests, and shifting the focus to the speaker’s needs.
For example, a client may say, “I don’t want to spend a lot of money getting out of this partnership, but my former partner breached his fiduciary duty. He can’t be thinking he will get 75 percent of the partnership assets by denying me access to the books.” A lawyer can reframe these comments as follows, “So, you want to minimize your expenses and get a better allocation of partnership assets than 75 percent after examining the books.” Reframing the client’s interests in affirmative terms has shifted this conversation from a bitter assault on the former partner to a positive statement of future action.
Cognitive barriers to negotiation
Constructive negotiation can be thwarted by cognitive barriers that are part of human nature and limit our ability to perceive. Awareness of these cognitive barriers can minimize or eliminate their effect. For example, “assimilation bias” leads some negotiators to tune out unfavorable information. It is present when opposing counsel repeatedly misstates or understates the facts or law against their case. To counteract this cognitive barrier, a savvy negotiator can restate the relevant facts or law, marshal documents or deposition testimony to support their position, or commit the information to writing, making the unfavorable information harder to ignore.
The “endowment effect” is another cognitive barrier that reflects the tendency to overvalue current or future property interests, e.g., homes, cars, lawsuits. It is evident when opposing counsel consistently overvalues a case without reference to community norms, specific facts or the parties in a case. To counteract this cognitive barrier, a lawyer can refer to objective or third-party criteria (expert appraisals/reports, jury verdicts, or similar settlements) or inquire about the specific basis for valuation by opposing counsel.
While each negotiation is unique, there is a readily identifiable structure to the process that legal negotiators can learn. Preparation tasks can be isolated, options and alternatives to settlement can be examined, and choices about types of bargaining can be made. Coupled with effective brainstorming and communicating during negotiation, these principles lead to better practices in negotiation and consistently stronger results.
• Attorney Gregg Relyea is a private mediator, negotiation trainer and adjunct professor of negotiation at University of San Diego School of Law and University of California, San Diego. Byron L. Hanchett is a transactional lawyer, real estate specialist and worldwide corporate negotiation trainer/consultant.
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- Conflict may be approached in three different ways: power, rights and/or interests.
- Preparation for negotiation is a critical stage of the negotiation process.
- An “anchor” is a settlement offer that sets a parameter for negotiations because it is reasonable.
- “Creating value” refers to demands, claims and requests for compensation that are part of a negotiation.
- When preparing to negotiate, it is important to generate options for agreement and also to consider the alternatives to reaching an agreement.
- A versatile negotiator is able to adopt different styles of negotiating as the circumstances warrant.
- When negotiating, lawyers can choose from a variety of types of bargaining.
- Negotiating over the division of property is a “distributive” negotiation.
- “Integrative” bargaining involves “expanding the pie” by introducing more than a single term or trade-off into negotiations.
- “Interest-based” bargaining focuses on compensation the parties are willing to accept.
- “Interest-based” bargaining involves three steps: (1) identifying the parties’ interests, (2) prioritizing their interests and (3) developing settlement terms that promote the parties’ most important interests.
- “Lateral thinking” refers to creative, intuitive, non-traditional, non-linear thinking that can be helpful in generating settlement options.
- “Brainstorming” is a process where negotiators think of a settlement option and immediately evaluate whether it is viable, workable or affordable.
- There are several specialized communication techniques that are beneficial to negotiation, including “restating” or repeating a speaker’s point.
- “Summarizing” is a communication technique used in negotiation that involves recapping several points accurately, completely and neutrally.
- “Reflecting” is a communication technique used in negotiation where a listener mirrors emotional content conveyed by a speaker, e.g., “So that made you feel frustrated.”
- “Reframing” is a communication technique used in negotiation to postpone dealing with an issue.
- “Assimilation bias” is a cognitive barrier to negotiation referring to the tendency of people to filter out information that is unfavorable.
- The “endowment effect” is a cognitive barrier to negotiation that involves a person’s tendency to inflate the value of something in which s/he has a property interest.
- While individual cases are unique, negotiation is a process featuring an identifiable structure (preparation, negotiation, implementation), a variety of types of bargaining (distributive, integrative, positional, rights-based and interest-based), and identifiable methods for generating options for agreement (two-step brainstorming process and lateral thinking).