Beyond Winning

by Robert H Mnookin

  A lawyer not only may have multiple clients behind the table and multiple lawyers and clients across the table but also may have multiple other attorneys acting in parallel with her. Thus, a defense attorney representing client A may have other defense attorneys representing clients B, C, D, and E working for common purposes. She not only must face her own client and the other side but also must face these parallel attorneys to coordinate strategy, share information, and attempt to work together on common goals.

  Finally, as if all of this wasn’t complicated enough, attorneys have their organizational setting—generally, their law firm—watching over their shoulder. The incentives, limits on authority, and cultural expectations that working within a firm creates can greatly influence an attorney’s negotiating behavior both with her clients and with the other side. Moreover, if her authority is limited, an attorney may constantly have to check in with her firm above her to verify that she is meeting expectations.

  Thus, often an attorney faces not in two directions but in many. She looks backward to her client, forward to the other side, to her right and left to see other attorneys working on the same matter, and above her to check in with the organization to which she belongs. When we multiply the number of parties involved and, correspondingly, the number of clients’ organizations, lawyers, and law firms, legal negotiation begins to take on structures of unbelievable complexity (see Figure 15). In such situations, lawyers and their clients must do their best to negotiate, despite the overwhelming number of demands they face.

  We believe, however, that lawyers can confer special advantages in multiparty situations. They can help to manage these complicating factors in at least two ways: by jointly representing clients and through managing procedures.

  Figure 15

  JOINT REPRESENTATION

  Lawyers can simplify multiparty negotiations through joint representation.16 At a minimum, joint representation can exploit economies of scale and reduce transaction costs by centralizing information. The class-action device, for example, is a reasonably efficient way to aggregate similar claims. In addition, and often more important, joint representation can greatly reduce the strategic problems of coalition formation and holdouts. If parties are willing to take the initial step of cooperating by retaining a shared lawyer, that attorney may be able to facilitate future internal cooperation and mediate, in a sense, between the different interests of his clients.

  The problem, of course, is that such situations can put attorneys in the position of having to manage interclient conflict. The Model Rules about joint representation accept and permit some undefined residual amount of conflict between clients who share counsel. As the Comment to Model Rule 1.7 states, a “lawyer may not represent multiple parties to a negotiation whose interests are fundamentally antagonistic to each other, but common representation is permissible where the clients are generally aligned in interest even though there is some difference of interest among them.” The difficulty lies in just how much interclient conflict the attorney can handle without violating his duties of loyalty and diligence.

  Furthermore, how should an attorney handle these differing interests when negotiating? Should the attorney discuss such issues explicitly with each client and attempt to craft an agreement with the other side that balances the internal distributive consequences? Or should an attorney attempt to reach an agreement with the other side that maximizes returns for his clients taken together, and then let them resolve their distributive disagreements internally after the fact?

  These questions have no easy answers. In many circumstances each client may want to retain its own attorney but then have these attorneys enter into an agreement to cooperate with one another in either prosecuting or defending litigation. On the defense side, for example, joint defense agreements spell out the terms of such cooperation and sometimes provide incentives for defendants to remain unified rather than settle independently with the plaintiffs. Similarly, in many multiparty actions, each plaintiff is represented by individual counsel but the attorneys agree to cooperate and share information.

  Regardless of how the intricacies of such relationships are managed, the basic point is simple. Through joint representation of some sort, lawyers may bind together parties of like interest and thereby prevent parties from splintering off and forming coalitions with the other side. This may, in the long run, simplify the negotiation and make it more like a two-party transaction.

  PROCEDURAL MANAGEMENT

  Lawyers can also help parties manage the process of adding or subtracting parties in litigation. The rules of civil procedure lay out the complex scenarios under which parties can be added to an existing dispute, how parties may make claims, cross-claims, and counter-claims against each other, and under what formalities. Civil procedure governs who may enter, how they must do so, and when entry is available to them. It is, in short, a mechanism through which to manage the multiparty nature of many legal disputes.

  Lawyers also manage the procedure of adding and subtracting parties in deal-making, however. As they structure the deal, lawyers play a huge role in deciding how and whether certain players get and stay involved. Moreover, lawyers are sometimes used to eliminate parties from nascent deals: a client may ask her lawyer to find a way to exclude a given potential party by uncovering some legal technicality that would make working with that party extremely costly to the other parties involved.

  CONCLUSION

  All of these factors add complexity to the lawyer’s role and to legal negotiations. In crafting strategy and in counseling clients, lawyers must be aware of the institutional and multiparty dynamics at work in a client’s case or deal. If these issues are ignored, they can subvert even the best attempts at problem-solving.

  Conclusion

  At its core, problem-solving implies an orientation or mindset—it is not simply a bundle of techniques. We have suggested it is an orientation where a lawyer hopes to form a collaborative partnership with his client; where he seeks to understand the interests and concerns of both his client and the other side; and where he aims to foster a collaborative process with the lawyer on the other side. Most fundamentally, it is an orientation that seeks to create value both by minimizing transaction costs and by actively and creatively searching for trades. The goal is to search for solutions that serve the clients interests well while also respecting the legitimate needs and interests of the other side.

  We recognize that some lawyers will find this orientation appealing and congenial, while others will not. For those who do, our detailed prescriptive advice offers concrete suggestions about how one might go about implementing a problem-solving orientation without being exploited. At the same time, we caution those who see problem-solving as a panacea. In particular, those lawyers who tend to avoid conflict or accommodate may think that problem-solving means focusing on value creation exclusively. This is a mistake. Our framework underlines the importance of being conscious of the distributive aspects of all negotiations and developing ambitious expectations of what you want to accomplish on behalf of your client.

  For those lawyers whose orientation is more adversarial, our advice is no less important. Even if you are primarily interested in distributive gain, the three tensions inherent in any deal or dispute must nonetheless be managed. You should recognize that a zero-sum mindset will blind you to value-creating opportunities. Learning to listen and to demonstrate understanding of the other side’s concerns can benefit your client in a variety of ways. In its approach toward the three tensions, any negotiation strategy that is too skewed in one direction or another will lead to a less productive—and less satisfying—outcome than might otherwise be possible.

  We are convinced that the analytical framework we have outlined in these chapters can be helpful whatever one’s orientation. All negotiators need to understand how the pie potentially can be enlarged and what the sources of that value creation are. All negotiators need to understand that distributive issues never go away and that the
hard-bargaining techniques many lawyers use to claim value can be effectively countered with a problem-solving strategy. All negotiators need to understand their own tendencies in the face of conflict, and they all can benefit from developing a capacity to demonstrate understanding as well as be assertive. Finally, both lawyers and clients have a stake in productive professional relationships. The most effective negotiators are self-aware; they soar with their strengths and manage their weaknesses; they make conscious choices about strategies and tactics; they are creative enough to loosen the cultural shackles and experiment with new ways of putting deals together and resolving disputes.

  ADVICE TO CLIENTS

  Our book should serve as a wakeup call to clients, alerting them to both the opportunities and risks of legal negotiations. Clients are central to the system of legal negotiation, and the client’s mindset can be part of the problem or part of the solution. While lawyers are the primary audience for our book, in this Conclusion we thought it would be useful to summarize some of the book’s implications for clients.

  Know Your Lawyer

  Seek out information about an attorney’s reputation and approach before you hire him. Lawyers differ enormously in their orientation toward negotiation and in their skills as negotiators. Before asking a lawyer to represent you in either a deal or a dispute, we suggest that you discuss explicitly how the lawyer would approach your legal matter. Don’t assume that your lawyer—even a very well-regarded or highly paid lawyer—has a problem-solving orientation.

  Encourage Your Lawyer to Problem-Solve

  If he is unfamiliar with the idea of problem-solving, you should educate him. If he understands the sources of value but isn’t used to finding value-creating trades in his negotiations, encourage him to do so. Make this part of your mandate to your attorney, and be clear that you expect more from legal representation than merely help with distributive issues. The more that clients ask for problem-solving, the more lawyers will deliver it.

  Negotiate a Good Working Relationship with Your Own Attorney

  An effective working relationship with your lawyer may be your most valuable asset. But building a strong relationship often takes time. Because the market for legal services is highly competitive, some clients think that by holding a beauty contest to decide which lawyer or firm to hire for each individual transaction or dispute, they’re likely to be able to get a better deal on fees. This may sometimes be true, but in our experience it is often very short-sighted if it sacrifices the benefits of continuity.

  ADVICE TO THE LEGAL PROFESSION

  Much of our prescriptive advice is aimed at helping a lawyer on one side change the game with the lawyer on the other side, even if that other lawyer’s initial orientation is adversarial. For reasons that should be clear, having problem-solving lawyers on both sides of a dispute or transaction can have great benefits. Here we briefly address the ways that the profession as a whole and the business community can take steps to ensure that all parties are represented by problem-solvers.

  Build Robust Reputational Markets

  If lawyers could identify themselves as problem-solvers, and clients could choose attorneys on that basis easily, this would facilitate collaboration. Even if the clients weren’t getting along, they could signal their desire to search for a solution through the choice of such a lawyer.1

  There are various ways that the profession can aid the creation of such reputational markets. For example, specialized subcommittees of the American Academy of Matrimonial Lawyers, and several informal networks of litigators in other domains, have signed pledges committing themselves to a code of conduct during negotiations based on problem-solving.2 In substance, these efforts are aimed at cultivating the type of cooperative reputation that may make it easy for each side to be confident that the lawyer on the other side has a similar orientation.3

  Given the complexity of legal disputes, the explosion in the size of law firms, and the increasing frequency with which clients switch from one lawyer or law firm to another, it is difficult for a lawyer to send unambiguous signals about his cooperative orientation. As cases become more complex, moves that lawyers make are more likely to be misinterpreted. As the size of the legal community grows, the prospects for repeat play diminish; hence, the shadow of the future shrinks. The frequency with which clients leave one law firm for another makes it easier for clients to ask their lawyers to defect, putting even greater pressure on lawyers to act in ways that are inconsistent with the cooperative reputation they are trying to cultivate.

  These challenges are formidable but not insurmountable. Over time, more communities of collaborative lawyering will likely flower. Perhaps in response to the rising costs and delay of litigation, the legal market appears to be moving away from a focus on hostile takeovers and thermonuclear war to a focus on cooperative business ventures and alternative dispute resolution. Nevertheless, we think there are a set of steps that can be taken to hasten and nurture this process.

  The general strategy is to reduce the noise that prevents collaborative lawyers from clearly signaling that they have made significant investments in their reputation. Established collaborative networks can facilitate this process by strictly monitoring and sanctioning lawyers who pretend to be cooperative but then defect. The more efficient the monitoring, the less likely it will be that adverse selection will unravel the network. Professional associations can improve monitoring and reduce noise by clarifying, amplifying, and publicizing cooperative norms. To the extent that lawyers can justify their defections by pointing to ambiguous definitions of cooperation, professional associations will facilitate cooperation by drawing bright lines that make it clear what behavior does and does not cross the line.

  Align Incentives with Problem-Solving

  Scholars and practitioners have devised a variety of ways to change institutional incentives so that problem-solving is more likely. Some have suggested the creation of cooperative boutiques that specialize in alternative dispute resolution or the formation of specialized ADR departments within existing law firms. Some law firms now have such departments. Often the goal is two-fold: first, to signal to clients that the firm is serious about alternatives to adversarial litigation and, second, to align incentives within the firm so that those attorneys within the ADR practice do not suffer financially. Some firms have begun to coach their associates on the merits of settling cases early and have sometimes provided bonuses for attorneys who manage to settle large matters creatively. And firms are beginning to incorporate bonuses into their fee arrangements with their clients so that early and efficient settlements do not hurt the firm financially.

  Similarly, groups of collaborative lawyers are springing up in various parts of the country, especially in matrimonial practice. In northern California, for example, a number of lawyers have identified themselves as collaborative and developed standards concerning what they will and will not do in negotiations. With the prior consent of their clients, the lawyers on both sides agree in advance that if a settlement is not reached, each lawyer will withdraw rather than go to trial. The client would of course be free to hire a second lawyer to litigate the case. Nevertheless, this system creates powerful incentives to search for a reasonable solution without litigation. Each lawyer knows that he cannot profit from the use of litigation; and each client knows that litigation will impose the extra costs of hiring and educating new counsel.4

  Finally, some legal contexts in which repeat play is common offer opportunities to restructure incentives to better align the various people within the system of a complex negotiation. A group recently sought approval from the Federal Trade Commission to create such a re-engineered system in the construction industry. The arrangement was basically this: because large construction projects often involve so many contractors and subcontractors, each with their own lawyer or law firm, problem-solving can be extremely difficult. The relationships between clients can sour, and if their relationships with their lawyers are weak, the lawyers can oft
en derail even relatively collaborative client-client relationships. A group of clients therefore proposed that in a large project each contractor and subcontractor would agree to use a lawyer or law firm with whom it had an established and long-term relationship. In addition, the group agreed that if all the lawyers and law firms involved in the project were well-known for their ability to problem-solve, and if each agreed to do so rather than conduct adversarial and protracted negotiations or litigation, then each law firm would agree to work on the same fixed-fee arrangement. This guaranteed that all would operate under similar incentives, thereby reducing the possibility of delay and also the temptation for one party to try to hurt the other by imposing transaction costs.

  This arrangement is a creative solution to a thorny problem. It is a structural re-engineering of the basic rules of play at work in a given legal context. Like all of these different ways to better align institutional incentives toward problem-solving, it draws upon the basic insight that negotiation is a system and that the behavior of the players within that system depends, in part, on incentives and relationships—not just personal disposition. All of these ideas can make problem-solving more likely by dampening the principal-agent incentive problems that are often exacerbated within institutional contexts.