By Alan G. Fishel, Partner, Arent Fox, LLP
There are many mistakes that parties make during negotiations. Here are ten common mistakes that I see quite often.
1. Relying on the Other Party's Factual Statements
The other party's counsel is the type of person you wish you could negotiate with every time: reasonable, pleasant, smart, and responsive. The deal just closed and you are pleased. In your opinion it is a fair deal, and it was completed before the deadline set by the parties.
But now you get a call from your client. He or she never agreed to pay for X and Y, and yet the agreement provides your client is paying for both of those items. Your first thought is it is not your fault. The other party's counsel told you that the parties had agreed that your client was paying for X and Y. Moreover, your client read the agreement before it was signed and could have seen that it reflected that your side was paying for X and Y. If that was not the case, your client could have told you - before signing - that the agreement incorrectly reflected who was paying for X and Y.
But here is the truth of the matter: if this happens to you in this way, it is most likely your responsibility. Even if the other party's counsel is as honest as the day is long, that does not mean that he or she cannot be mistaken when telling you something. You always need to verify with your client what the business terms are. Moreover, you cannot just rely on the fact that your client will read the agreement before it is signed. You must point out to your client everything in the agreement that you need to verify is correct with respect to the business terms and receive your client's confirmation that those terms are, in fact, correct. You are the expert at reading and interpreting agreements, not your client. An ounce of prevention is worth a pound of cure, and that is certainly true here.
2. Failing to Ensure Your Opening Positions Give You Sufficient Room to Negotiate
If with respect to all or virtually all of the open issues your client starts the negotiation with its bottom line position, a deal may never get done. Most parties do not start with their bottom line position on at least many of the issues, and therefore it will be difficult to convince the other party that your initial positions are actually your bottom line positions on all or virtually all of the issues. Moreover, everyone in a negotiation wants to believe they have made a difference and added value for their clients. Therefore, if your client starts with its bottom line position on almost every issue, the other party's counsel will believe that he or she has not "succeeded" unless he or she is able to negotiate "compromises" off of your initial position on many issues. For this reason as well, it is critical to give yourself sufficient room to compromise.
Giving yourself this leeway also provides you with more flexibility to make compromises on one provision to either obtain a compromise or the best possible result with respect to another provision. Conversely, tying your hands on virtually every issue not only undermines the effectiveness of your negotiations in a linear way (as to each particular issue involved), but also makes it more difficult to devise creative compromises that involve multiple issues.
Avoiding starting with your bottom line position on many issues is also a good move for one additional reason. With respect to at least some of those issues, you will likely get a far better result than your bottom line position, either because the other side may not effectively negotiate the issue or it may not care about the issue.
3. Starting the Negotiations with Unreasonable Positions
One of the most important attributes of a negotiator is credibility. If the other party believes that you are not only smart, but also reasonable, it will generally accept your compromises and your analysis far more readily than if it has a different view of you. And such acceptance of your compromises can be the difference between reaching a deal and failing to do so.
There are many things you need to do to ensure you are viewed as credible by the other party, but there is only one thing you need to do to undermine your credibility - take outrageous positions that cannot be defended by any reasonable person. Often, this mistake is made at the beginning of the negotiation process through the form agreement and attempted defenses of it on the first phone call. Loss of credibility is something you can rarely ever gain back fully and yet it is so critical to your success. You should never lose it for any reason -- let alone, by taking positions that are laughable on their face. Yet, I see people do this all of the time.
Finally, if your company insists that the form agreement includes certain completely unreasonable positions, it is critical that you move off them during the first phone call whenever necessary. If you do, many people will believe you were stuck with an unreasonable form agreement that you were forced to send out, but that you as a person are credible given you backed off those positions. On the other hand, if you try to defend them, your credibility can easily be sunk.
4. Failing to Know in Advance Compromises Your Client is Willing to Accept and Using that Knowledge to Your Advantage
If you know in advance compromises your client is willing to accept, you can often bridge the gap with respect to a difficult provision by using what the other side tells you during the negotiation to persuade them to agree to the compromise. Often your best chance to reach a compromise is immediately after the other side makes a point that either supports that compromise view (even though the other side is not yet aware of the potential compromise), or gives you strong reason to believe they would accept it. In fact, many times a point the other side makes about one provision will greatly support your ability to persuade them to agree to a compromise on a different provision. You need to know as many of your compromise positions as possible going into the negotiations so that you can determine how to most effectively use the other side's statements to bridge a gap or steer the conversation so they are likely to accept your compromises.
Of course, just because you know the compromises your client is willing to accept does not mean that you should raise them too soon, which may undermine your leverage. Suggesting a compromise too early is just as harmful as raising it too late. The timing of when you raise possible compromises, and how you raise them, is critical to your success.
5. Failing to Determine if there are Truly Substantive Disagreements Between the Parties as to a Provision
Frequently, a party drafts one or more provisions far too broadly than necessary to address certain risks, either because it does not know how, or does not want to take the time and effort to determine how, to carefully craft the provisions so that they are not overly broad. As a result, these provisions, if not modified, would result in not only protecting the party against the risks it is concerned about, but they would also apply in many other situations that would cause the other side to be quite concerned.
In these circumstances, the key is for you to determine the other side's objectives and if those objectives are satisfactory to your client, to draft the provisions narrowly so that they do not produce unintended consequences. On numerous occasions, I have seen parties start debating an issue back and forth among the business people and the second I jump in and find out what they each care about, everyone realizes there is a way to draft the provision so that each side's concerns are addressed. I've also been involved in three party negotiations where the other two parties' counsel have told me that there is no way to get a deal done; yet, once I asked a few questions to each side, the other parties quickly realized they were just talking past each other, and they did not truly have a substantive disagreement. It was simply that each side initially wanted to draft the provision in a manner that was far broader than it needed.
6. Admitting Your Client's Eagerness to Complete the Deal Very Quickly
One of the most common mistakes that attorneys and their clients make in negotiating is admitting to the other side that the deal must be completed very quickly. If you or your client tells the other side that, no matter what, the deal must be completed by the end of the week, the end of the month, or some other fixed period of time in the very near future, you have undermined your ability to negotiate effectively. You can make brilliant arguments as to why certain provisions should be added, why others should be deleted, and why still others should be modified, but if the other side knows that if, no matter how it responds to your requests, your client will execute the agreement anyway, the other party generally has no incentive to compromise on anything of significance. Your admission that the deal must get done very quickly may lead to a fast deal, but not a fair deal.
7. Failing to Ask "Three Purpose Questions" and Asking Far Too Few or Far Too Many Questions
I often talk about questions that have three purposes in a negotiation. These are questions for which the other party's answers give you a better sense of how strong a negotiator the other party's counsel is, how much leverage the other party believes it has, and the other party's objectives with respect to a certain issue (and not just what its stated position is). It is critical that you ask the other side, in a non-combative tone, a number of questions during the negotiations, including a number of these "three purpose questions" early in the negotiations. But you must also intersperse these questions with your own analysis, or otherwise the other side will become annoyed or suspicious and will view the negotiation as being more of a deposition of them, rather than a give and take. So the bottom line here is you need to weave in these questions and analysis in a way that you learn everything you need to know, without making the other side feel uncomfortable.
8. Failing to Use the Other Party's Reasoning to Persuade Him or Her on Issues
Every person with whom you negotiate will try to convince you to agree with his or her client's positions on numerous issues. If you listen carefully, you can learn so much about the way in which that person thinks by how he or she tries to persuade you on issues. I have found that whatever methods a person uses to try to persuade me on issues are extremely effective methods to use on that person when you are trying to persuade him or her. Just as a coach in sports needs to base his or her strategy in part on whom they are playing in a game, an effective negotiator must do the same thing here. I have found it works virtually every time.
9. Failing to Keep the Big Picture in Mind
In the last item, I mentioned how in some ways negotiations are like sports. In another extremely important respect, negotiations are completely different than sports. In sports, one team wins and one team loses. In negotiations, if both sides are well-represented, the final result will generally be a win-win. It is not important for you to "win" and "fight" every issue to the maximum extent possible in a negotiation, and if you go all out to do this, you will likely have a "loss", i.e., no agreement. What is important, however, is getting a strong deal done in a reasonable period of time, and for that to occur, you must always consider the big picture and not get lost in the weeds of extremely minor issues that can bog down a negotiation if you are not careful.
Over the years, I have talked to many counsel who take a scorched earth approach on negotiations, and they have all told me the same thing: they are frustrated that more of their negotiations do not result in a deal. While they always blame it on the other side, the truth is that if you try to win everything on all issues, you will find yourself with a lot of deals that never get completed. Keeping the big picture in mind is critical.
10. Allowing the Other Party to Convince You that the Agreement States What You Are Not Certain it Provides
A mistake we commonly see is that one party convinces the other party that a requested change to the agreement is not necessary because the agreement already effectively provides what is requested. The reason this negotiating tactic is so effective is because many people do not want to have to confront the other party any more than necessary and want to believe they are already covered. But you should never let this tactic work. What you should do instead is make sure that the parties substantively agree on the issue and then while on the call draft the language that reflects that substantive agreement.
