Former Executive Vice-President and General Counsel to The Walt Disney Company, entertainment law heavy-weight Lou Meisinger is not only breathing new life into Sheppard, Mullin’s entertainment practice, but also mediating and arbitrating the same kind of high-stakes, complex commercial and entertainment disputes he spent nearly forty years litigating.
During a recent conversation with Lou about negotiating the resolution of commercial litigation, he said one of those things that can change your negotiation strategy (and hence, your life) forever.
Finessing Impasse by Changing the Deal
“One of the best ways of breaking impasse during the mediation of a litigated case,” Lou casually observed, “is to finesse it by transforming the litigation into an opportunity to make a deal.”
I’d just finished digesting “negotiation leverage belongs to the party who can best afford the consequences of a failed negotiation,” and now Lou was delivering the holy grail of Breaking Impasse for mediators. It was like being given a third lung. I could breathe again.
“Transform the litigation into an opportunity to create a business deal.” What did that mean?
Though Lou had lots and lots of examples (what a generous man he is!) I don’t want to steal his stories, all of which I’m sure he’s putting to excellent use when parties to sophisticated, complex commercial litigation have the good sense to hire him a a mediator. I do have a story from the negotiation academics, however.
Three Dimensional Negotiation
On the same day I had this impasse transformation conversation with Lou, I started reading 3-D Negotiation by Harvard Business School Professors David A. Lax and James K. Sebenius.
Lou’s advice to “finesse the impasse by changing the deal” is discussed in great, articulate and academic detail by Lax and Sebenius. Before going there, it’s important to know what they mean by the three dimensions of a deal. Those dimensions, they counsel, are tactics, deal design and set-up.
Briefly, “tactics” are strategies exercised at the bargaining table, such as improving communication, building trust, countering hardball plays and bridging cross-cultural divides.
At its simplest, deal design involves the invention and structuring of agreements that create greater value for all parties, meet the parties’ objectives better than easily conceived alternatives and are more durable.
Finally, set up is the architecture of the deal that ensures the most favorable scope, by involving the right parties, addressing the right issues, and considering all no-deal options. It also involves negotiation sequencing and basic process choices.
On to the use of at least two of these three negotiation dimensions.
Staples Finesses Impasse with the Venture Capitalists
I won’t tell Lax and Sebenius’ entire Staples office supply store story. You’ll have to read the book to get the rest of it. But it’s a great example of Lou’s advice to finesse impasse by changing the deal.
Staples was the original big-box office supply store. Like all wildly successful early entrepreneurial successes, Staples soon had a formidable competitor, Office Depot. To ward off the competition, Staples needed expansion capital and it needed it fast. All of the venture capital firms and the investment bankers were valuing Staples at pretty much the same price point, a price point its founder considered unacceptable. So he went to the top — Harvard Business School Professor Bill Sahlman, an expert on venture firms and start-up financing.
Sahlman recommended breaking the impasse by changing the deal-design and the set-up by finding new players and re-sequencing the negotiation. Together, he and Staples founder identified other investors who were flush with money and potentially interested in better ways to deploy it.
Sahlman suggested contracting the limited partners in the venture capital firms who were then holding firm on pricing — pension funds and insurance companies. Wealthy individuals, he suggested, might also pay more for the opportunity to obtain a piece of Staples’ action.
Because the VC firms charged hefty management fees (usually 20% of the profits) by offering the deal directly to a VC’s investors, Staples could offer 100% of the profits for the same share of their investment in the Staple’s pie, increasing the actual value of each share by 20%.
As Lax and Sebenius stress, this result could not have been achieved by negotiations “at the table” or even with the originally identified stake-holders. What Staples did was to “favorably reset the table with right new parties whose interests were far more aligned with the deal he wanted to do.” Then it sequenced the process by going back to the VC’s and the investment banks, saying, “this thing is filling up fast; do you guys want to play or not?”
How, you ask, can this paradigm be applied to litigation where the players are already fixed and can’t simply walk away if they do not reach a deal? By transforming the litigation into a business opportunity as Lou suggests.
If the parties to commercial litigation realize their lawsuit can serve as one of many bargaining chips that either party can deploy to create a business opportunity for both, what originally looked like a brick wall of impasse is transformed into dozens, even hundreds of doors to a more profitable and productive future. That’s the way you get yourself and your clients out of the litigation lock-box. Just walk out the door.
Lou has an example of just such a deal and I’m sure he’ll tell it to you when he’s mediating that complex piece of commercial litigation you think simply can’t be settled. As he notes, the more working parts a deal-maker has to play with, the more likely he will be able to find a resolution that satisfies more of the players most of the time. Deal making at this level also brings the parties themselves back into the game they play best — creating business opportunities for a successful future rather than fighting over the unproductive past.
On a personal note, I want to thank Lou again for so generously sharing his time and his wisdom with someone who only two years ago was operating on the original two negotiation rules taught to her by her mentors — never make the first offer (wrong) and never negotiate against yourself (most often resulting in the premature termination of negotiations).
It’s wonderful to be learning again!
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