As this newsletter progresses, the subject of good negotiating skills is going to come up again and again. That is because I so often see people giving away the farm and their first born for no good reason. Many of the suggestions I will make are not original to me. I took the Karrass negotiating course and so should you if you are going to do much negotiating. It’s informative, useful, and a lot of fun!
This article is for more major agreements. Your day to day transactions may not require this level of sophistication. My suggestion is to use these techniques for any contract that is strategic to your company – strategic alliances (especially OEM agreements), core development agreements, master sales or services agreements that can make or break the company, and M&A transactions.
Effective Agreements does provide negotiation support as one of its services.
Don’t Start A Strategic Alliance with a Document
So very often, two companies work a strategic arrangement this way: the CEOs talk about the type of relationship, one says, “I’ll have my attorney create the first draft…but it will be very fair” and that document becomes the starting point. Why?
- When the parties negotiate, they may be arguing about wording before the concepts are properly agreed, as the draft is unlikely to be all that fair
- One party is playing catch up
- You are paying someone to draft a document when you do not know if you can reach an agreement on the key terms
- If the CEOs talked and came up with a general idea of what the relationship would look like, well and good, though my bet is that if you had each of them write down what was agreed to, the lists would differ
significantly and lack any detail required to make it work.
- Lock the principals, subject matter experts, and the negotiating teams in a conference room with a flip chart (and coffee and sweet rolls.)
- Include the principals at the beginning to handle the top most issues, but not for the detailed Ts and Cs.
- Have the two negotiating teams hash out every detail needed to make the relationship equitable to both parties and workable in the real world.
- Avoid errors of omission that could otherwise arise by using an outline covering all of the terms that belong in it.
- Even if he/she has been in the room, the person responsible for reducing the agreement to writing should take the pages from the flip chart and use them.
The strategic alliance is a special case, so some of the next two sections apply and some don’t. For example, it is always best to have a negotiating strategy going in, but the strategic alliance may be so amorphous at this early stage that a plan just is not practical. Conversely, some other types of agreements would benefit from a white-boarding session at the beginning and some would not.
Don’t Negotiate Without a Plan
This especially applies to the final negotiations on the written agreement.
Going into a negotiation without a negotiating plan is implicitly a decision to “wing it.” Perhaps that works for you in your personal life (it doesn’t in mine), but do you want to place the company at risk through the lack of simple preparation?
“Winging it” implies an unfocused approach to concessions given, compromises sought, necessary concessions from the other party, and to creating an organic whole agreement so the parts of the contract work together. What if you are winging it and the other side is well prepared with a thought-out negotiating strategy?
A negotiating plan must be prepared that sets out the critical elements:
- What will be conceded when and for what in return
- The critical “must haves”
- The critical “must NOT haves”
- A list of the “nice-to-haves”
- Those terms that can be traded for other more important terms as the negotiations progress – the trading chips
- Arguments to make for your position on each issue
- At what point you would walk the deal. Anyone who negotiates without a clear notion of when they should abandon the deal, based on the “must haves” and “must not haves” will lose. The other side will detect the lack of room to maneuver, and will take full advantage of it every time, scoring concession after concession. Perhaps that point cannot be identified for inclusion in the plan. That is acceptable if the negotiator has permission and the absolute right to terminate the negotiation when he/she deems it necessary
The entire negotiating team described in the next session will need to update the negotiating plan, to reflect the negotiations to date, at least once a day in long negotiations and at every break for shorter ones.
Do Not Negotiate Alone
Multi-tasking may be the rage, but it does not belong in a negotiation.
The proper negotiating team has three people (not counting attorneys – their number depends on the type of transaction.)
- The negotiator, who must focus on what he/she is saying and what to say next, while remaining aware of the negotiating plan
- Someone who just listens! This is the person in the best position to pick up on nuances in what is being said (or reflected in the other party’s body language.) He/she is also free to think several steps ahead, consider the whole picture and track the negotiating plan. When this person has a brainstorm – or panics – he/she slips the negotiator a note or calmly calls for a brief recess.
- The person that just takes notes. This does not mean notes on every back and forth. Only the actual terms that are agreed to or are specifically tabled for later negotiation needs to be recorded.
These rules may be difficult for the small company to follow, but they are more critical to them. Many small companies can be decimated by one badly negotiated agreement.