Beyond Winning
Page 1
BEYOND WINNING
Robert H. Mnookin
Scott R. Peppet
Andrew S. Tulumello
BEYOND WINNING
Negotiating
to Create
Value
in Deals
and Disputes
The Belknap Press of
Harvard University Press
Cambridge, Massachusetts
London, England
Copyright © 2000 by Robert H. Mnookin, Scott R. Peppet, and Andrew S. Tulumello
All rights reserved
Printed in the United States of America
Second printing, 2000
Library of Congress Cataloging-in-Publication Data
Mnookin, Robert H.
Beyond winning : negotiating to create value in deals and disputes / Robert H. Mnookin, Scott R. Peppet, Andrew S. Tulumello.
p. cm.
Includes bibliographical references and index.
ISBN 0-674-00335-7 (cloth)
ISBN 0-674-01231-3 (pbk.)
1. Practice of law. 2. Attorney and client. 3. Negotiations. 4. Dispute resolution (Law) 5. Compromise (Law) I. Peppet, Scott R. II. Tulumello, Andrew S. III. Title.
K120.M66 2000
347'.09—dc21 00-039787
* * *
To Sophia, her parents Jennifer and Joshua, and her aunt and uncle Allison and Cory
—R.H.M.
To my father Russell, and in loving memory of my mother Rosemary
—S.R.P.
To my mother and father, with love
—A.S.T.
Contents
Preface
Introduction
Part I The Dynamics of Negotiation
1 The Tension between Creating and Distributing Value
2 The Tension between Empathy and Assertiveness
3 The Tension between Principals and Agents
Part II Why Lawyers?
4 The Challenges of Dispute Resolution
5 The Challenges of Deal-Making
6 Psychological and Cultural Barriers
Part III A Problem-Solving Approach
7 Behind the Table
8 Across the Table
9 Advice for Resolving Disputes
10 Advice for Making Deals
Part IV Special Issues
11 Professional and Ethical Dilemmas
12 Organizations and Multiple Parties
Conclusion
Notes
Index
Preface
This book makes the case that a problem-solving approach to negotiation offers the most promising means of creating value. Besides helping negotiators better understand the dilemmas they must face, the book’s goal is to help lawyers and their clients work together and negotiate deals and disputes more effectively. As the senior author, I am taking the prerogative of tracing the book’s history and the deeply collaborative nature of this Mnookin-Peppet-Tulumello enterprise. Because this project has intellectual and professional roots extending deep into my past, I also want to acknowledge some profound intellectual debts of my own that go back further.
Work on this book began during the spring semester of 1995, when both Scott Peppet and Andrew Tulumello, for independent reasons, were taking time off from law school to work at the Program on Negotiation at Harvard Law School and the Harvard Negotiation Project. Scott and Drew had come to Harvard Law School because of a special interest in negotiation, and both had been brilliant students in my Negotiation Research Seminar the year before. During the spring of 1995 we created an early draft of what eventually became Part I of the book. Recognizing their extraordinary talents and our shared belief that interdisciplinary scholarship could improve practice, I asked each to continue our collaboration after their graduation as my co-authors.
Since graduating from law school in 1996, in addition to clerking, Drew and Scott have spent time with me in Cambridge, teaching negotiation as lecturers at Harvard Law School and working with me on the book, Drew for one academic year (1997–98), Scott for three (1996–97; 1998–2000). Each was a research fellow, supported by the Harvard Negotiation Research Project, thanks in part to a grant from the William and Flora Hewlett Foundation. Drew thereafter went to work at the War Crimes Tribunal at The Hague; he now is an Associate in the Washington, D.C., office of Gibson, Dunn & Crutcher. Scott has recently accepted a position as an associate professor of law at the University of Colorado, beginning fall semester 2000. While in residence, both Scott and Drew were my full partners—doing research, developing and refining ideas, writing and revising.
My own intellectual and professional commitment to negotiation, of course, began much earlier. Issues of strategic interaction, and non-zero-sum games have fascinated me since my undergraduate days when, as a sophomore concentrating in economics at Harvard College, I was fortunate enough to have Thomas Schelling as a teacher. About a decade later, as a law professor, I investigated how the formal legal system affected the out-of-court negotiations by which most disputes have always been resolved; and later, with Lewis Kornhauser, I wrote an essay on “Bargaining in the Shadow of the Law.” Since then a good deal of my research and writing has concerned negotiation.
In 1968, when I graduated from law school, there were no courses in negotiation, and scant use was made of economics, psychology, or decision theory either in the law school curriculum or in legal scholarship. How times have changed! During the last twenty years I have had the good fortune of being on the faculty of two universities—Stanford and Harvard—both of which fostered interdisciplinary research and innovative teaching through negotiation programs. Two deans, Paul Brest at Stanford and Robert C. Clark at Harvard, each believe that the academic study of negotiation belongs in a great law school. Their encouragement made a real difference. Once again the William and Flora Hewlett Foundation played a critical role, for both the Program on Negotiation at Harvard Law School (PON) and the Stanford Center on Conflict and Negotiation (SCCN) were launched with support from the Foundation.
As will be apparent to anyone who reads this book (and the end-notes), I owe a special intellectual debt to colleagues from Stanford (with whom I have collaborated over the last fifteen years) and to colleagues from Harvard (with whom all three of us have worked during the past seven years). In 1988 I founded the SCCN with Kenneth Arrow, Lee Ross, the late Amos Tversky, and Robert Wilson. From them I learned how the insights of economics, social psychology, cognitive psychology, and game theory could all provide useful prisms for better understanding negotiation. Together we studied and then wrote about Barriers to Conflict Resolution. During the same period, Ron Gilson showed me how the new institutional economics could contribute to the understanding of deal-making, dispute resolution, and the corporate law firm, and together we wrote a series of articles relating to the legal profession.
I came to Harvard in 1993 and became chair of the steering committee of PON. Work done by PON colleagues well before my arrival in Cambridge provides part of the intellectual foundation for our book. Special thanks go to Roger Fisher, Bill Ury, and Bruce Patton, whose seminal book Getting to Yes put interest-based negotiation on the map; to Howard Raiffa, whose Art and Science of Negotiation showed how a decision-analytic framework and descriptive-prescriptive approach could combine the behavioral insights of psychology with the strategic analysis of economics to offer practical advice; and to James Sebenius and David Lax, whose Manager as Negotiator articulated the “negotiator’s dilemma” and whose title suggested a book that focused on the lawyer as negotiator.
Several colleagues—some inside the academy and others in practice—generously reviewed an entire draft of the manuscript and provided detailed written comments. We are deeply grateful to Max Bazerman, Ed Bernstein, Jennif
er Brown, Roger Deitz, Carol Liebman, Michael Moffitt, Richard Reuben, and David Ross for their help. Others helpfully commented on specific portions relating to their expertise. Ronald Gilson and Victor Goldberg focused on those portions relating to deals. Deborah Rhode commented on what became Chapter 11’s discussion of ethics. Marc Victor, an expert on litigation risk analysis, read those portions of Chapters 4 and 9 dealing with the application of decision analysis to litigation. David Hoffman, an experienced family lawyer, reviewed our divorce example.
Since 1996, Scott, Drew, and I have inflicted successive drafts on our students and on colleagues with whom we have taught. Literally hundreds of law students (at Harvard and Columbia) and scores of practicing lawyers who enrolled in negotiation and mediation workshops (offered by Harvard’s Program of Instruction for Lawyers or by the World Intellectual Property Organization in Geneva) read earlier versions of this book. Although they are too numerous to mention by name, these students, as well as our student teaching assistants, have taught us a great deal. Our faculty colleagues—who used drafts for their own teaching—have helped us immeasurably. At Harvard we are indebted to Professor Frank E. A. Sander and Lecturers Marjorie Aaron, Bob Bordone, Jonathan Cohen, Erica Fox, Sheila Heen, Michael Moffitt, Bruce Patton, John Richardson, Richard Reuben, Jeffrey Seul, and Douglas Stone. At Columbia Law School, we owe thanks to Professors Carol Liebman, Victor Goldberg, and Ronald Gilson and Lecturer David Ross. Special thanks go to Gary Friedman, with whom I have taught various mediation workshops over the years; he has profoundly contributed to my thinking about dispute resolution.
I would also like to thank those lawyers and executives for whom I have served as a neutral during the last fifteen years. As disputants, they gave me the opportunity to test and refine my ideas in practice, by working with them to negotiate successfully a variety of challenging and complex legal disputes.
Since this project began, we have been blessed with some extraordinarily capable research assistants: Brigham Smith, Hamilton Chan, Tanya Yaeger, and Alain Lempereur (now a professor of negotiation himself at ESSEC in Paris) each found sources, checked citations, and contributed ideas along the way, for which we are grateful.
Special thanks go to Susan Hackley, our colleague at the Harvard Negotiation Research Project, whose wonderful editorial sense helped us craft the introductory chapter. The remarkable eye of Kathy Holub, a former journalist who studied with me at Stanford and now a Yale Law School graduate, contributed substantially to the organization and clarity of Parts I and II of the book. Victor Fuchs helped come up with the book’s title.
Patty McGarry, Jill Isenbarger, Traci Goldstein, and Tucker Malenfant provided administrative support over the course of this project. Each could attest to just how many drafts our manuscript went through. We are grateful for their energy, diligence, and patience.
Michael Aronson of Harvard University Press, who offered longstanding enthusiasm and support for this project, made it seem altogether appropriate that HUP should publish this book. Our brilliant manuscript editor, Susan Wallace Boehmer, taught us a thing or two about negotiation. Her own suggested revisions, and those she encouraged us to make during these last four months, substantially improved this book.
I also want to acknowledge summer research during the past four years both from Harvard Law School and its John M. Olin Center for Law, Economics, and Business.
Finally, each of us would like to thank our respective families for their endurance and encouragement as we completed this project. For thirty-seven years, the love and support of my wife, Dale, have sustained me.
Robert H. Mnookin
Cambridge
May 1, 2000
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 p
lace 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.