All relationships have at their foundation some kind of negotiation – whether that is with our employer, a business partner or even just with our families over whose turn it is to unpack the dishwasher (in my family with 4 teenagers this seems to be a daily dispute!). The value a relationship has to you will have a profound effect on how much you are willing to compromise what you want for the sake of the making the deal.
When negotiating a commercial dispute, it is equally important to understand the value of the relationship to you. An understanding of the value of the relationship will:
Here are 5 things that are worth at least considering before you come to the negotiating table in any dispute, particularly in a commercial context:
- What are your legal rights?
This is first and foremost. It is impossible to negotiate from a position of strength if you are not confident where you stand legally. The moral high ground is rarely the same as the legal position and is not a good starting position for your negotiations.
- What do you want to get out of the dispute?
You need to know what your bottom line is in any negotiation, and you also need to know what result you want in an ideal world. All negotiation involves compromise; however, it is difficult to compromise when you don't fully understand your best- and worst-case scenarios and what really matters to you. Many commercial disputes are not really about money. Sometimes non-some momentary issues may be the true driving force behind the dispute.
Here are some examples;
- Sending a message to the market that you will stand up to corporate bullies,
- Sending a message to the industry that you will pursue bad debtors.
- You want a defective product fixed or the corollary you will stand by your product
- Needing to protect your business reputation or intellectual property.
- Setting a precedent to staff that certain behaviour won't be tolerated and will be pursued until the end (this was the scenario in a case I ran involving a substantial white-collar fraud).
It is important to identify all these legitimate outcomes and tailor your negotiation strategy accordingly. There are endless combinations and it is important to know what matters to your business. In my case involving the white collar fraud, a negotiated resolution for less than the full amount stolen was not an option for my client because they wanted to make an example of the senior executives involved in the fraud and send a clear message to the staff that there would be no mercy shown for that kind of behaviour.
- What are the risks involved?
Frequently, disputes end up in court and the legal costs can be prohibitive, especially where smaller amounts of money are involved. It is important to understand the risks associated with litigation both to you and to the other side. Including understanding the risks associated with being ordered to pay the other parties' legal costs.
Some questions that are worth considering up front are:
- What would be the effect on your reputation if you are unsuccessful in the proceedings?
- What would be the effect on your business or personal reputation if the judge made findings against you or your business that aren't favourable? What is the likelihood of that? How would a finding of dishonesty affect you?
- What if you or your company lose and a judgement is ordered against you, how will that affect you or your company's ability to borrow money? Will you be in breach of your current banking covenants?
- How would you fund the other side's legal costs if you were ordered to pay them?
- If you get a judgement against the other side, what capacity do they have to pay it, or is there a possibility that all the time, effort and expense in getting the judgement will have been wasted as you will never be able to recover the judgement amount from them? (You might be surprised just how often this happens – it is not a happy ending)
- Are the risks the same for the other side or are they different and how can you use that to your benefit to negotiate a better deal?
- Who are the stakeholders in the dispute and what is your relationship with them?
This is particularly important to understand as it will guide your approach to the negotiation. If the relationship is one from which there is potentially an ongoing significant benefit to your business, then you may wish to consider giving some entitlements away to sweeten the deal and strengthen/restore your business relationship. If, on the other hand, like my client, you wish to make an example out of the relationship, you will most likely take a hard line in the negotiations.
When looking at this factor, it is important to look at your long-term business goals and not just at the dispute immediately to hand. If there are only two suppliers in the Australian market of a product that is essential to your business, getting one supplier completely off-side may not be in your long-term business interests.
- What are the elements of the deal/dispute that matter most to the other party?
Finally, it is important to understand what matters to the other party. If there are differences in what matters to them, you may be able to use these differences to your advantage. This maximises the deal to both parties and can often be the difference between resolving the dispute or not. It is worth thinking outside the box. Sometimes what is valuable to the other party comes at little cost to you and can be easily given away. For example, I negotiated a settlement in a recent dispute where my client was closing its operations. A dispute had arisen over the payment for the purchase of stock that was no longer going to be sold and was largely obsolete. My client wanted to be paid for that stock, but the other party refused to pay because it said the stock it had purchased was worthless and no longer supported in Australia. The main concern that the other party had was that there would be no spare parts, no company in Australia through which to obtain spare parts, and no company in Australia with which to make warranty claims. It would therefore be liable to its customers for their warranty claims. My clients stock was worthless to it, for several reasons, but for the other party in the dispute, it was very valuable. We were able to negotiate a settlement whereby our outstanding invoices were paid, and the other party received the spare parts it wanted to meet any warranty claims. My client got everything it wanted without having to give anything of value to it away, because we were able to think creatively about a solution to the real issue underlying the dispute.
If you are involved in a dispute and would like advice on how to resolve it, please contact Fiona Henderson at email@example.com or on (02) 4226 5711.