The way many lawyers approach negotiation is destroying value. There is a better way.
Ever had an argument with someone? Of course you have. How did it leave you feeling? Unhappy, drained, disengaged? No doubt afterwards you saw less value in the relationship. Although you would hate to admit it you probably looked for a future opportunity to stick it to them.
The world would be a dreadful place if we started every relationship with distrust and conflict. Yet contract negotiation so often begins with polite confrontation and descends from there: Start with the most extreme positions and hope that through a combination of power, leverage and bluff you can get an advantageous legal position. This zero-sum game is the foundation of the largely unsuccessful negotiation 1.0 playbook.
They were so focused on protecting the business from risk that they protected it from revenue.
The result is frustrated counter-parties, delayed completion, increased legal workloads and disengaged stakeholders.
Oracle’s legal function was so famous for their recalcitrant approach that the business dubbed them ‘the deal killing machine’. They were so focused on protecting the business from risk that they protected it from revenue.
Research at MarketWatch Centre for Negotiation, has found that negotiators can claim up to 42% more value in a deal by abandoning zero-sum games and creating a relationship based on trust and collaboration.
In other words, by taking a more balanced approach lawyers can deliver higher output with less effort, while increasing profitability for their organisations.
One best practice our clients love is our Terms Fairness Audit. The idea is relatively simple:
- Audit your agreements to identify clauses that have a high probability of getting negotiated, frustrating the customer
- Determine if there is an alternate ‘softer’ position that has limited impact on risk or profitability
- Move to the softer clause
You can see an example of this model below:
|Clause Type||Standard Clause||Customer's Persective||-||-||Typical 'fall back'||Consequences||-||New Clause*|
|Negotiation likelihood||Customer frustration||Level of delay||Reduced deal profitability||Increased dispute risk|
|Equipment||We retain title of our Equipment. Risk passes to you upon delivery.||Low||Low||Low||Nil required||N/A||N/A||N/A|
|Use of the Service||If we supply you with third party goods in connection with the Service, we make no warranty as to the suitability of those goods.||High||High||High||Provision of a warranty.||Low||Medium||We warrant the suitability of any goods we provide in connection with the Service.|
|Limitation of Liability||Our liability is capped at the Price of the Services.||High||High||High||Liability accepted regardless of quantum of loss caused by us.||Low||Medium to High||Our liability for any harm done to any person is uncapped. Any other liability is capped at $1M.|
One of our clients see this methodology as a competitive advantage. Feedback from their clients suggest they find them easier to deal with than their competitors as a result of them taking more commercial positions.
Whether you wish to deploy a systematic approach such as the Terms Fairness Audit or just increase your ‘partnership mentality’ the evidence is irrefutable. Negotiation expert Stuart Diamond suggests that conventional wisdom negotiation gets only 25% of what is possible. It’s time for more lawyers to start playing nice.