Introduction
Frank Bello, the owner of Frank's Deli, was furious when he arrived at his lawyer's office. His landlord had just sued him. Dropping into a chair, Frank told his story. His deli was located in a small strip shopping mall consisting of four stores. The deli was not thriving. In fact, it was barely profitable. Frank's competitor across the street, Nelson's Deli, now wanted to open a diner in the same mall--in a vacant storefront just two doors down from Frank's! Frank's landlord, of course, was eager to fill the vacancy and approached Frank last week to discuss the matter. The conversation quickly turned, as both men knew it would, to the provisions of Frank's lease. The lease clearly stated: "Landlord shall not rent space in the mall to any restaurant selling substantially similar food products." After a rather tense discussion between the two men, Frank refused to waive the lease provision and the landlord walked out. A few days later, Frank was served with legal notice that the landlord had filed suit against him, asking a state court to declare that the vacant store could be leased to Nelson's Deli.
"Can you believe the arrogance of that bully?" Frank raged, brandishing a copy of his lease. "I won't give in, and I don't want you to, either. The lease still has 27 months to run and it's airtight. If he wants to fight, let's go to court and beat him."
The lawyer, Jamie Shapiro, took the lease from Frank's hand and examined it closely. This was Jamie's first meeting with Frank, who had been referred to her by another client. Instead of commenting on the lease, however, Jamie spent the next hour learning more about Frank and his business. Frank readily explained why he was afraid of more competition. He sold only cold foods--sandwiches, salads, and desserts-- and was open only during lunchtime hours. His lease prohibited him from installing a stove or any other cooking equipment, so he couldn't prepare bacon, eggs, hamburgers, stews, or other hot-food items that would bring people in for breakfast and dinner. The deli grossed about $15,000 a month. The rent was $2,500 a month. After meeting this and other expenses, Frank netted less than $30,000 a year. With a sigh, Frank also indicated that he was tiring of the deli business and really wanted to go to graduate school in a few years--if he could afford it. He would love to sell the deli, he explained, but the lease ran only 27 more months; therefore, its going-concern value was minimal and Frank had nothing of substantial value to sell.
This is a true story (though the names have been changed), and it took a turn that Frank did not expect. After reviewing the lease, Jamie gave Frank her preliminary assessment of the opportunities and risks of litigation, including the probable legal costs. Frank had a reasonably strong case, Jamie said. But first, before they committed themselves to a litigation strategy, Jamie thought it was worth calling the landlord's lawyer and trying to negotiate a solution. Frank agreed, although he was not optimistic. A few weeks later, after several conferences back and forth, Shapiro and her counterpart reached the following agreement: Frank would be permitted to install--at his own expense--a grill, a fryer, and an oven so that the deli could serve hot food; Frank's rent would be lowered to $1,800 a month; Frank would receive two five-year options to renew the lease at the same monthly rent; the landlord would drop the lawsuit; and Frank would consent to the diner moving in two doors down. Soon after Frank added hot-food items to his menu and extended his hours, his volume nearly tripled. His profits increased by an even greater margin because of the increased volume and lower rent--even with the diner just two doors away. In a final irony, Frank sold the restaurant at a profit 15 months later and used the proceeds to go to law school.
A SUPERIOR OPPORTUNITY
Negotiation is central to lawyering, and as this story reveals, lawyers play a critical role in many of society's negotiations. Because of their skills and experience, lawyers have what Abraham Lincoln described as a "superior opportunity to do good." They can be peacemakers. They can help people construct fair and durable commitments, feel protected, recover from loss, and resolve disputes. Lawyers also have the ability to do considerable harm. They can aggravate hostilities and run up substantial transaction costs.
Given a choice, most of us clearly would choose to do good. So why don't we? The answer is often something along the lines of "The system won't allow it." People place the blame on the culture of law firms, the adversarial nature of our judicial system, the temptation to act out of self-interest, the rewards of playing hardball, the inflated expectations of clients, and the constraints of bargaining in the shadow of the law. The incentives to act combatively, selfishly, or inefficiently can be compelling. As we all know, however, the costs of adversarial tactics can be ruinous. Deals blow up. Cases don't settle. Expenses escalate. Relationships fail. Reputations suffer. Court dockets jam up. Commitments fall apart. Justice is delayed. And opportunities to create value--to make both sides better off--slip away.
We wrote this book primarily for lawyers who feel sickened by the trench warfare and exhausted by cases that drag on unnecessarily for years, lawyers who want to change the way things work but don't know how--lawyers who even wonder whether they picked the right profession. But lawyers cannot get the job done alone. They are part of an intricate system that includes clients, who must share responsibility for bringing about change. So while we address our comments to lawyers, we hope that people who hire lawyers will listen in on the conversation. Whether you are a businessperson structuring a joint venture or a plaintiff embroiled in a civil suit, understanding the pressures and incentives a lawyer faces can help you work effectively within the legal system to achieve more satisfying results.
We are optimistic realists. This book is not about a utopia that does not exist; it is about the real world in which men and women practice law, conduct business, and order their personal affairs. We divide that landscape into two sectors--dispute resolution and deal-making--and offer prescriptive advice to help lawyers become more effective negotiators in both domains. We recognize that negotiation inevitably involves distributive issues--who gets how much--and that some negotiations provide only limited opportunities for value creation. Moreover, collaborative problem-solving may be difficult if the opposing party or his lawyer doesn't have the same approach. We contend, however, that even distributive issues can be resolved in ways that create value and discover joint gains. Whether people are making deals or settling disputes, conflict is inevitable. None of us can control that. What we can do is offer a new way to look at these conflicts that will minimize costs and create value for both parties. To us, there is no more important work.
We begin with a framework for understanding the tensions inherent in negotiation generally, and then move on to complexities that make value creation especially challenging in legal negotiations. Part I develops the central idea that negotiation requires the management of three discrete tensions, which are ignored at the negotiator's peril. They are the tensions between creating and distributing value (Chapter 1), between empathy and assertiveness (Chapter 2), and between principals and agents (Chapter 3). Much as one might like to think otherwise, making the right moves or using good technique will not cause these tensions to disappear. They are present in most negotiations, from beginning to end, and should be consciously and thoughtfully considered.
In Part II we move from a general theory of negotiation to the world of legal negotiations--where tort cases, real estate sales and leases, intellectual property licenses, custody battles, corporate mergers, and countless other deals and disputes are negotiated in the shadow of the law. What comparative advantages do lawyers bring to these negotiations that so often make them essential players? The good news is that in both dispute resolution (Chapter 4) and deal-making (Chapter 5) lawyers have special opportunities to create value that would not otherwise be available to their clients. The bad news is that in many negotiations lawyers, urged on by clients, engage in wasteful and costly distributive battles. Indeed, we suggest that legal culture--the implicit expectations that lawyers and clients may hold about how the game is played and how they are expected to perform--can have a profoundly negative impact at the bargaining table (Chapter 6).
As a framework for understanding these challenges, we develop the core idea that every legal negotiation involves a system of relationships. The simplest system consists of four individuals (two clients and two lawyers) engaged in four key relationships (the relationship between the two clients; the relationship between the two lawyers; and two sets of lawyer-client relationships). While each individual brings different beliefs, expectations, and perspectives to the table, to understand the system underlying legal negotiations it is most helpful to focus on the relationships rather than the individuals. Each relationship, if healthy, can support the process of legal problem-solving. If any one of the four relationships is troubled, it can prove to be a barrier.
To complicate things further, these relationships interact (Figure 1). The relationship between the two opposing lawyers, for example, can be a source of strength or can itself become part of the problem. If the relationship is good, the lawyers can act as a bridge between clients who cannot effectively communicate. On the other hand, if the lawyers' relationship is hostile, they may become deal-breakers rather than deal-makers, whose short-sighted moves and countermoves do not serve either client's long-term best interests. Even if contentious lawyers eventually settle a case or close a deal, their adversarial behavior may have escalated transaction costs and rancor between their clients.
The lawyer-client relationship has its own dynamic. A lawyer can provide special information and skills that help a client make informed legal decisions and act on them efficiently. Or a lawyer can manipulate a client by withholding information or by framing the discussion in a way that inflames emotions and prolongs disputes. A client, for his part, may enjoy making his lawyer feel insecure, may impose unrealistic demands, or may withhold relevant facts. And when it comes to fees, professional boundaries, orientation, and strategy, neither the lawyer nor the client may be skilled at communicating their expectations and limits.
The entire system of relationships among lawyers and clients in a legal negotiation has inherent communication problems. As in the child's game of telephone, messages become garbled as they pass through the chain of independent perceptions. At each point in the exchange, one player or another may lose, change, or filter information--innocently or deliberately--and thereby create a great deal of strategic uncertainty for the other players in the system. To the extent that value creation demands accurate and nuanced information exchange, these communication uncertainties may compound the difficulty of finding and exploring creative solutions to a problem.
We believe that more collaborative and productive legal negotiations--what we call problem-solving negotiations--are possible.1 Part III provides concrete advice to lawyers about how they can change the traditional game from adversarial bargaining to problem-solving without exposing themselves or their clients to an unacceptable risk of exploitation. Using the example of a divorce negotiation, we begin by making the case that a strong lawyer-client relationship is the bedrock of effective negotiation (Chapter 7). We offer comprehensive guidelines on how to achieve such a relationship, including ways to define and allocate roles, explore interests, evaluate legal opportunities and risks, identify decision points, design an efficient process, and manage expectations.
Once lawyers have laid the groundwork behind the table with their clients, they need to establish a strong working relationship with the lawyer across the table. In Chapter 8 we discuss how to create a problem-solving environment with the other attorney, which can include playing an educative role. We also show lawyers how to protect themselves when faced with hard-bargainers and how to negotiate a workable process for going forward. Against this backdrop of advice about how best to manage relationships both behind the table and across the table, we offer specific advice about how to settle disputes (Chapter 9) and close deals (Chapter 10) without running up crushing transaction costs or leaving value on the table.
Part IV introduces and briefly addresses the professional and ethical dilemmas that legal negotiations pose (Chapter 11) and the added complexities of negotiating with organizations and multiple parties (Chapter 12). Negotiations with a neighbor over the backyard fence are complicated enough--negotiations between two corporations involving large teams of lawyers, experts, and executives are more complicated still. Jamie Shapiro, Jennifer Savin, Tony Watson, and the other lawyers named in this book are fictitious, but the problem-solving approaches they use with their clients and with attorneys on the other side have been tried and tested over and over again in the practical world of legal negotiation.
Our confidence in the ideas developed in this book stems from many sources--scholarly and applied. The academic and research tradition we draw on is rich and varied, and deeply interdisciplinary. This book weaves together insights from economics, game theory, psychology, and of course law.
Our goal, however, was to produce a book that not only would help people better understand the dilemmas facing lawyers and clients but also would help lawyers and clients negotiate more effectively. We developed, tested, and refined these ideas both in the classroom and as practitioners. In the past five years, the three of us have taught negotiation to hundreds of law students and practicing lawyers at Harvard Law School and have used this material in a variety of workshops and consulting engagements throughout the world. In addition, as a neutral mediator and arbitrator, Mnookin has used the theories presented here to help resolve many complex, commercial disputes.
In a culture where disgruntled clients, burned-out attorneys, failed deals, and destructive lawsuits are commonplace, a positive change in the way legal negotiations are conducted will not occur overnight. This book is not intended to be a manifesto for overthrowing current practices in the legal or business community. Its goal is much more pragmatic: to help lawyers, and the people who hire them, understand legal negotiation more fully and make their own negotiations more productive and rewarding--by solving clients' problems one case at a time.
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