Wednesday, 28 December 2011

Negotiation: the art of compromising positions

Negotiation is an art form, not a science, and countless books have been written on the subject.

But for lawyers, the overarching rules are simple.  We have a duty to do the best job for our client.  It is a key principle of our professional code.  So we must negotiate with this objective in mind.

What does doing the best job for our clients mean in non-professional conduct speak?  I think it means, in deal or commercial agreement terms anyway, getting the deal done, within a reasonable timescale, on terms that are broadly favourable for our client and which do not expose our client to material or uncustomary risks they are not fully aware of and willing to accept.  (Apologies for the length of that last sentence, my next post will focus on top tips for succinct drafting.)

Terms that are reasonable for our client do not generally mean terms that ringfence all risk for our client.  Nor do they mean terms that leave our client exposed to the point of butt nakedness.  In most commercial negotiatons reasonable terms will be a mid-point between these two extremes.

Occasionally (for the purposes of this blog post "Occasionally" means "All too frequently") and unfortunately lawyers can mistakenly think that doing the best job for their client actually does mean ringfencing all risk for their client.  It's almost like the starting point for the negotiation is "Don't Be Negligent" instead of "Be Pragmatic".  Such a negotiation position can come across as either overly-aggressive or unduly cautious.  Worst of all, it is uncommercial.  And it is a behaviour that will influence the other party to the negotiation to behave in the same way, because they fear that taking a pragmatic approach in such a negotiation will lead to concessions being offered that are not returned.  So the lawyers dig in and it all gets a bit yawningly counter-productive.

Lawyers are good at digging in.  We're good at coming up with arguments as to why a point should not be conceded.  We can talk for a long time too.  And whilst a negotiation like this unfolds we can even tell ourselves that we're doing a good job for our clients by protecting their position.  But what can be forgotten, is that we're not protecting our client's position by making it very difficult for them to do the deal, certainly within a reasonable timescale.  Legal hot air can extinguish the oxygen in the negotiation room with near fatal consequences for the transaction.  When this happens, lawyers have forgotten their clients' instructions and arguably our professional duties - to help our client get the deal done.

Deals and commercial agreements are about risk allocation.  Of course, there are risks lawyers will always want to (and should) avoid for their client and to an extent risk allocation will depend on negotiation positions.  But negotiation is a rare example of a situation where it is not embarrassing to be caught in a compromising position.  Indeed, in a negotiation it is more embarrassing to be caught in a non-compromising position than in a compromising one.    If lawyers try to over-allocate risk to the other party to a negotiation then we actually fail to do the best job for our clients for the reasons articulated above - and that is embarrassing.

To sum up, good lawyers breathe oxygen into a negotiation, less good ones exhale hot air.  Any similarities between the behaviours referred to in this post and real life lawyers are, of course, purely co-incidental.  And if you ever catch me negotiating in a manner that is inconsistent with this post then, naturally, I assure you that will be the justified exception that proves the rule.