Skip to content

The Purpose Of Negotiation

January 5, 2011

Many of us use the term ‘negotiating’ in a generic form, giving little thought to the variations in approach that are demanded by different circumstances.

In recent days, a couple of excellent examples have come my way and seem worth sharing. The first is from an in-house lawyer, making reference to IACCM’s annual study of the most negotiated terms.

“Proving value as in-house counsel and as a law department is a constant grind.   Should we negotiate clauses that we’ll never litigate? Do we ever litigate contracts? Or, as we say at my company, do we just “manage the suppliers to death” when they are in breach?  To wit: we rarely litigate, but we’ll negotiate firmly because (our customer) expects us to do so in order to protect the prime contract performance or security interests (export control, classified material, FCPA terms, etc.). Sometimes that makes sense, sometimes it does not. Are we “disrupting commerce” by negotiating fiercely on clauses that are never litigated or that provide very low risk margin, under the risk formula: B>P*L (does the Benefit of doing the deal outweigh the Probability times the Loss)? Relationship dynamics are key. We deal with the same customers on prime contracts over and again, and we deal with largely the same pool of subcontractors across several prime contracts. Consistency in dealing should be paramount to sustain those relationships but in a big company, our various lines of business and programs often treat both the customer and supplier vastly different. Adding value may be getting to yes, it may be in mitigating risk, and it may be in getting it just right through balanced risk.”

Adding to this set of challenging questions, IACCM member DC Toedt alerted me to an excellent (and unfortunately anonymous) blog that does a great job distinguishing between ‘a deal, or transaction’ and ‘a relationship’. Here is an extract:

“A transaction is a quick, short-lived exchange. It’s about this deal, these terms. Get a signature, and you’re done. Negotiating relationships is a process with no clear beginning or end. Your goal is to build sufficient understanding, comfort and trust between parties that you can work together now and in the future, under conditions that enable both sides to prosper.

There are other critical differences:

  • In a deal, the party you are negotiating with is, to a large extent, your opponent. In a relationship, the other party is your preferred partner.
  • Deals are about getting as much of what you want as you can carry away. Relationships are based on fair division and joint burden-sharing.
  • In a deal, you hold yourself aloof from the other party: hiding information, guarding your responses, pressing your position. In a relationship, you are more relaxed, open, and natural: sharing information and truly seeking to understand and resolve differences.
  • In a deal, you may exaggerate the strength of your position or try to trick the other side into giving in. Successful relationships are based on honesty, reliability, and follow-through.
  • Deals are static, inflexible, with exhaustive contracts intended to guarantee that every term and condition will remain “carved in stone” until the transaction is completed. Relationships are also based on fundamental agreements, but they are more accommodating, less rigidly detailed. Because relationships take place over time, change needs to be anticipated and managed constructively rather than ignored because it falls outside of the scope of the initial agreement. Relationships are dynamic, not carved in stone.”

As the blog rightly points out, not all deals require relationships in order to succeed. But often negotiators fail to distinguish their focus and behavior based on whether the desired outcome is a transaction or a relationship – and that goes to the heart of the initial quote from the in-house attorney.

This brings to mind a third quote which came to me several years ago, when researching the differences in approach to negotiation between the East and West. One of those we interviewed made the comment: “Westerners negotiate transactions from which relationships might follow; Easterners negotiate relationships, from which transactions will follow.”

That difference is quite fundamental in the style and approach it induces. In the West, we have tended to let legal risk perspectives cause us to be adversarial and ‘transactional’ in the way we approach our trading partners. Collaboration occurs in spite of the contract, not because of it.

There is no absolute of right and wrong in the way we negotiate, but I hope this blog will give all negotiators pause for thought and to ask themselves the question of how best they deliver the right value and the right outcomes for their business.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: