When one party brings up the possibility of a lawsuit in a business dispute, the threat can become a self-fulfilling prophecy. Yet business negotiators often benefit from settling their disputes before going to court, write Robert H. Mnookin, Scott R. Peppet, and Andrew S. Tulumello in their book Beyond Winning: Negotiating to Create Value in Deals and Disputes. We describe the drawbacks of litigation and how you can increase your odds of settling out of court through proven negotiation skills.
The High Cost of Litigation
The drawbacks of involving lawyers in your dispute and preparing for a lawsuit can be considerable.
- Transaction costs. Parties can incur significant transaction costs from a looming lawsuit, including legal fees and lost time. In fact, one or both sides may try to secure concessions by trying to increase the other party’s transaction costs—for instance, by requesting mountains of documents and presenting long lists of questions. Your own legal team may also have financial incentives to drag out a discovery process to pad its fees—to your disadvantage.
- A lack of cooperation. The widespread misconception that the best lawyers are aggressive and never collaborative can lead clients to hold back their legal team from exploring creative (and money-saving) tradeoffs. For lawyers, a client’s expectations of toughness can become a self-fulfilling prophecy. It’s not uncommon for both sides to give the impression that they won’t back down under any circumstances. In this type of positional bargaining, parties tend to perceive concessions and compromise as signs of weakness and vulnerability rather than as potential value-creating moves, write the authors of Beyond Winning.
- Damaged relationships. Negotiators often fail to thoroughly consider the effects of legal action on their relationship with the other side. A divorcing couple that is able to negotiate a child-custody arrangement with the help of a neutral mediator may be more likely to build a productive post-divorce relationship, to the benefit of themselves and their children, than a couple that hires two “sharks” to attack each other’s character in court.
Keeping it Out of Court
The following guidelines can help you keep conflict from becoming a self-fulfilling prophecy and reach mutually beneficial resolutions through integrative bargaining, with or without lawyers at the table.
1. Make sure the process is perceived as fair. Before tackling your dispute jointly, negotiate key elements of the process, such as how you will choose experts and whether lawyers will be involved. Doing so will increase the odds that both sides will view the final outcome as unbiased and fair. In addition, you might suggest that you jointly hire a professional mediator to lead the settlement process instead of turning the process over to your lawyers.
2. Identify interests and tradeoffs. Even when we’re determined to settle out of court, the win-lose format of a looming litigation can encourage us to view negotiation as a battle. Unfortunately, the desire to prove we’re right can propel us all the way up the courthouse steps if our adversary refuses to meet our needs.
You can expand the pie of value in a dispute by opening up about your key interests and preferences, which can help you identify potential tradeoffs. Harvard Business School professor Deepak Malhotra advises us to revisit the following questions often during the dispute-resolution process:
- What are my true underlying interests?
- How can I best achieve them?
- How much am I willing to pay just to be able to say that I won?
It’s also important to encourage the other party to open up about her interests and to keep those interests in mind as you engage in mutual gains bargaining.
3. Insist on decision analysis. Lawyers are often hesitant to quantify their clients’ odds of winning court cases, write Mnookin, Peppet, and Tulumello in Beyond Winning. Yet you need a thorough analysis of the risks and opportunities of litigation to make informed predictions and decisions about how to move forward. Any lawyers you hire should be well versed in decision-analysis tools, such as decision trees and dependency diagrams, and ready to use them to help improve the quality of your decisions.
4. Reduce discovery costs. Disputants who are considering a lawsuit often become trapped in a lengthy and time-consuming discovery process. You should be able to reduce these expenses by negotiating a low-cost exchange of essential information, write the Beyond Winning When you can keep costs down, both sides win.
What other techniques have you used to keep the threat of litigation from becoming a self-fulfilling prophecy?