Beyond Winning

by Robert H Mnookin

  Under the Model Rules, this is nonsense. Rule 1.3 requires “reasonable diligence” on behalf of a client.15 Comment 1 to Model Rule 1.3 states that “a lawyer should act with commitment and dedication to the interests of the client and with zeal in advocacy upon the client’s behalf. However, a lawyer is not bound to press for every advantage that might be realized for a client. A lawyer has professional discretion in determining the means by which a matter should be pursued.” This comment suggests that attorneys retain significant flexibility in defining the bounds of zealous representation. The client’s interests, conceived broadly, may be better served by a more constrained and reasoned approach to negotiation than by initiating a contest of wills or a war of attrition. So long as the client understands the risks and benefits of a problem-solving stance, there is no inherent contradiction between problem-solving and advocacy. Indeed, sometimes blindly going to war—even if the client insists upon it—may disserve the client’s broader interests. As Elihu Root once said, “About half the practice of a decent lawyer consists in telling would-be clients that they are damned fools and should stop.”16

  CONCLUSION

  To some extent, the rules of professional conduct create a baseline, not a ceiling, for negotiation behavior. As we’ve seen, the Model Rules prohibit attorneys from making some false statements of material fact or law, but they make exceptions for two critical negotiation topics: statements about the value of a claim and representations about a client’s intentions vis-à-vis settlement. It appears that the drafters of the Model Rules saw lying about these two issues as central to the negotiation game, and believed that it was conventional wisdom that such lies are not really lies at all. Moreover, more-stringent ethical rules would be very difficult to enforce. For example, if attorneys were barred from making false statements about a client’s settlement intentions, could an attorney be prosecuted if he said “My client won’t accept less than $100,000” and then two weeks later the client accepted a settlement of $50,000? If so, how could one prove whether the lawyer had intentionally made a false statement or whether the client had merely changed her mind, much to the lawyer’s surprise? If the ethics rules set such high standards, those very standards might become one more weapon in the adversarial arsenal, with each side threatening to bring ethics violation charges against the other. To some extent, the minimal nature of Rule 4.1 codifies not only conventional wisdom but also a system that is at least somewhat enforceable.

  At the same time, the bar set by these basic rules is often raised by informal norms about what is acceptable behavior in a given legal community. If you are caught lying to another lawyer, it is rarely very persuasive to fall back on a technical reading of Model Rule 4.1 or the law of fraud. Your deception may still taint your negotiations and your ability to represent your client.

  12

  Organizations and Multiple Parties

  Throughout this book we have focused on legal negotiations in which two individual clients each hire an attorney, thereby creating a four-person system with lawyers in the middle. We have used that four-person structure to keep our analysis simple and clear, but reality is rarely so kind. Legal negotiations are often more complicated than this, and in fact a more complex structure to legal negotiations may be the norm, not the exception.

  THE COMPLICATIONS OF ORGANIZATIONAL SETTING

  Our first complicating factor is organizational setting: the corporations, partnerships, government agencies, and other structures in which both lawyers and clients work. These different institutional contexts provide individual lawyers and clients with incentives, interests, and constraints that can profoundly impact their negotiations in both deal-making and dispute resolution.

  Almost half of all attorneys work in law firms or partnerships, and the number is growing.1 This means that any time these attorneys represent clients, they do so against the background of their firm’s needs, norms, practices, and interests. They must act as ambassadors of their firm as well as representatives of their clients. This sets up yet another agency relationship. Lawyers in firms, partnerships, and other institutions must constantly measure their actions by the needs of both of their principals. A partner in a law firm, for example, may feel constrained about pursuing certain negotiation strategies that his client might prefer, if those strategies could damage the law firm’s reputation in the business community.

  Clients are also often drawn from organizational settings, of course. Although many legal disputes and deals—including criminal matters, simple real estate transactions, and basic tort cases—do involve individuals acting on their own behalf, in a huge number of instances the client is a corporation or institution. The individuals with whom the lawyer is working—typically officers, directors, or employees of the institution—are themselves agents of this client. These individuals work in the shadow of their own organizational setting. And if this is true on one side of a dispute or deal, it is also often true on the other side. Thus, rather than our now-familiar four-person negotiation system, the picture begins to get more complicated (see Figure 14).

  We believe that organizational context can have at least five important effects. It can:

  • Change the incentives operating on both lawyer and client

  • Impose limits on the authority of both lawyer and client

  • Provide a local culture that influences negotiation style, strategy, and expectations, for better or worse

  • Create conflicts of interest because the organization’s interests may not be the same as those of the individuals with whom the lawyer is dealing

  • Create coordination problems within firms and between organizations

  Incentives

  Having organizations in the background can change the incentives operating on individual lawyers and clients. Consider, for example, the impact that the race for partnership can have on a legal associate’s negotiation behavior. Most large law firms are structured on an up-or-out basis, in which associates must either be promoted to partner or eventually leave the firm.2 In this system, associates are required to produce high-quality work, maintain their visibility and reputation with a range of partners within the firm, and build the experience and client contacts needed to be considered seriously for partnership. These concerns may affect an associate’s thinking about how to approach a given negotiation.

  Figure 14

  For example, in firms that highly value trial expertise, an associate may seek to delay settlement in hopes of proceeding to trial and gaining experience. Conversely, if a firm rewards expediency, associates may push their clients toward settlement and perhaps skew, even unconsciously, their assessments of the likely opportunities and risks of litigation in favor of reaching a negotiated agreement. Similarly, a corporate associate may try to earn a reputation for being tough, even if his deal-making client would prefer a problem-solving approach. The same associate may push to close a deal in order to look successful, even if a more experienced attorney would know that the client would be better off not accepting the amount of risk the deal entails.

  Law partners are also affected by the internal incentive structures used to allocate compensation and status within law firms.3 If a firm compensates its partners solely or primarily based on the amount of work done for clients they control, there may be little incentive for partners to spend time consulting with one another about their work. Doing so would reap little or no financial reward to the consultant and would prevent him from spending time on his own revenue-generating clients. Thus, in “eat what you kill” firms, partners may not collaborate with one another but instead get support only from associates working for them.

  To understand her attorney’s behavior, a client must consider the organizational incentives operating on that attorney, and vice versa. In addition to the incentive effects created by fee structures and monitoring arrangements, one must also consider the organizational context.

  Authority

  A lawyer must operate within the author
ity delegated to her by her client and within the bounds of what her firm permits. A junior associate at a large law firm probably shouldn’t begin negotiations with the other side of a legal dispute without first consulting with a more senior attorney. Although the client might authorize such action, the associate’s employer might not. Such constraints on authority operate even at the highest levels of law firms and other institutions in which lawyers work. Partners, for example, need to seek the approval of the rest of the partnership before issuing opinions for the firm.

  Similarly, the individuals within a client organization may have constraints imposed on their negotiation authority. An attorney’s client contact may be able to decide negotiation strategy and provide the attorney with relevant information but not be able to commit to a negotiated agreement without seeking further authorization from higher up in the organizational hierarchy. Often there can be conflict within the organization, and at times the lawyer may receive contradictory instructions. This can complicate the lawyer’s job and may frustrate or confuse the other side, which may interpret inconsistent behavior at the negotiation table as a strategic ploy.

  Culture

  Just as the Bronx is different from Manhattan, and Boston is different from San Francisco, law firms have different cultures. If a firm relishes its reputation for scorched-earth litigation, it will be particularly difficult for a single attorney within that firm—whether an associate or a partner—to negotiate in a problem-solving manner. Internal economic rewards may be meted out, in part, based on whether lawyers meet the firm’s hardball expectations. Informal interpersonal sanctions—comments in the hallways or jokes at the firm’s annual dinner party—may also keep attorneys from straying far from their firm’s preferred negotiating style.

  The same is true of corporate cultures. A client’s organizational context can powerfully influence the behavior and attitudes of individual employees. Corporations often have codified and shared norms of behavior, guidelines for effective management, and a vision of how the corporation’s members should interact. These ideals may motivate corporate clients to behave in certain ways and to pursue certain negotiation approaches. And, again, these internal cultural influences may be completely invisible to the other side.

  Moreover, both lawyers and individuals working for their clients may have internalized the unspoken cultural rules that govern the organizations in which they work. While these tacit guidelines may not be posted on inspirational posters in corporate meeting rooms, they nevertheless may be the real but undiscussable beliefs that affect behavior within the organization. For example, members of a law firm may say that they have an open-door policy, under which anyone can approach anyone else for help at any time, but everyone within the firm may know that this means associates’ doors are always open and partners’ doors are approached at your peril. Within a corporation, everyone may understand that although the espoused norm is to engage internal conflict productively, the actual practice is to cover up internal disagreements. A corporation may announce as a matter of official policy that early settlement is to be encouraged in order to save outside legal costs, but within the organization’s various departments individual managers may believe that taking responsibility for a settlement is risky in terms of one’s career within the company.

  These implicit expectations can exert great influence. If a client comes from a corporate culture that emphasizes quick decisions, a cautious and careful lawyer may have a difficult time developing an effective lawyer-client relationship. The lawyer must educate herself about the client’s context and come to understand how it influences the client’s expectations and behavior. Clients sometimes report that their corporate culture clashes with their law firm’s culture. Many tales are told about the stunned mutual disbelief when some big-time 50-year-old New York lawyer, dressed in a dark blue suit, meets in Palo Alto with a 30-year-old Silicon Valley CEO dressed in a T-shirt and blue jeans.

  Of course, sometimes a rebel can change his firm’s culture. A friend of ours was a litigator for several years in a large New York law firm after leaving law school. This old white-shoe firm had very strong behavioral norms, including the expectation that young associates would be diligent, obedient, quiet, and respectful and would not talk to clients unless instructed to do so. Our friend didn’t quite fit in. He was boisterous and eccentric. He cracked jokes in meetings, raced his friends up and down in the elevators during breaks from work, and tried to organize social events for young associates. The old guard in the firm began to label him a troublemaker—someone who wouldn’t make it in the firm. But then an interesting thing happened. Clients, with whom our friend was his naturally warm, funny self, began to request specifically that he be assigned to their cases. One client told the most senior partner in the firm, “He’s the only lawyer you have who treats me like a human being. I wish more of your attorneys could be like him.” Suddenly, the labels changed. The troublemaker was now a rainmaker, and everyone marveled at how crafty our friend had been to woo clients in this unconventional way.

  But most people don’t meet with the kind of success our young friend did. Organizations bring with them strong norms and expectations that can limit an attorney’s freedom to behave as he ordinarily might. And such norms can impede an attorney’s ability to understand the motivations and constraints under which the other side might be operating as well.

  Conflicts

  When organizations are involved, there often is confusion about the identity of the client or the lawyer. Is the client the corporate entity? Is it the inside lawyer within the organization who hired the law firm? Or the manager who is making the deal? And where a law firm is involved, who is the lawyer—the firm, the individual senior associate doing most of the work and meeting with the managers, or the partner who is the “billing attorney”?

  In theory a lawyer knows that the corporate entity is the client. This means that if there is a conflict between the interests of the individual within the corporation with whom the lawyer is working and the corporation itself, the lawyer should take the issue further up the corporate hierarchy, even to the board of directors if the conflict involves the CEO. In practice, however, a lawyer may find this difficult for a variety of reasons: ambiguity about the corporation’s interests; loyalty to the individual with whom he is working; self-interest, because that individual may be the person who hired the lawyer and might control future business; and fear, because going over that person’s head may jeopardize the relationship with the corporation. Faced with choosing between the interests of that human being and the more abstract interests of the corporation as a whole, many attorneys feel great pressure—internal and external—not to question the interests articulated by the person they know and work with. What should be clear by now is that principal-agent tensions within the client organization complicate issues of representation and sometimes pose difficult conflict-of-interest issues for the lawyer.

  Coordination

  Clients often have several and sometimes many lawyers working on different aspects of a deal or dispute. A complex deal may involve two lawyers who work in-house as well as the general counsel, a securities lawyer from a large firm, a tax specialist from a boutique, and a regulatory expert from a D.C. firm. In disputes, a corporation may face products liability claims in many jurisdictions, involving different local counsel, a national law firm responsible for strategy, and several in-house lawyers presumably coordinating.

  Having multiple lawyers involved in a negotiation raises a series of difficult and sometimes frustrating issues:

  • How should lawyers working for the same client exchange information and attempt to eliminate duplication of effort?

  • How can information exchange be achieved without incurring large costs?

  • How can a client and its various lawyers or legal teams determine and keep clear who is in charge of and responsible for particular legal issues or tasks?

  • How can everyone in the system manage the relatio
nships between lawyers or legal teams so that each has a productive working relationship with both the client and the other lawyers that the client has retained?

  Each of these issues—information exchange, coordination costs, allocation of responsibility, and relationship-building—can make working with many lawyers challenging. The problems of coordinating in-house and outside counsel provide perhaps the most familiar example of the frustration that clients feel when two groups of lawyers, each highly paid and supposedly professional, cannot work together effectively because of personality conflicts, relationship problems, and other unending disagreements and squabbles.

  Clients, of course, despise these conflicts between their lawyers. The initial idea behind hiring many lawyers was to get better legal representation, not additional headaches. Nevertheless, experienced clients recognize that information and coordination problems are inevitable when multiple lawyers get involved in a case. The difficulties of coordinating multiple lawyers—like the other four problems associated with organizations (incentives, authority, culture, and identity)—are complications of the standard agency pitfalls that one finds in any lawyer-client relationship. They must be addressed early and often.

  MULTIPARTY NEGOTIATIONS

  If organizations were not enough to muddy the waters of legal negotiation, we must complicate the picture further by multiplying the number of parties to a deal or dispute. This fascinating area of negotiation theory—multiparty bargaining—has rarely been explored in the legal domain.