“What do we really need in almost every agreement, from a negotiation perspective?” This critical question points to the core of many negotiations. After all, if you can’t achieve your “must haves” in a negotiation – you’re usually better off walking away and not doing the deal.
So what should be a “must have” in most, if not all, of your deals?
1. Elements satisfying everyone’s interests
It’s natural and necessary to ensure our deals satisfy our most fundamental interests. If selling a business, does the final price bring in sufficient financial security to justify losing the growth potential and annual income over time?
Does that new job provide enough potential and responsibility to warrant a cross-country move? Is the neighborhood for that new house child-friendly?
What’s less natural, but still necessary, is to evaluate whether the deal satisfies your counterpart’s minimum interests. Why are they willing to sign?
Of course, you can’t always know for sure, especially if they hold their cards close to their vest. But if your agreement doesn’t appear to be in your counterpart’s interests – yet they still seem willing to sign – it’s a red flag. Investigate more. Something may be going on that could destroy the deal later.
2. Incentives to ensure everyone’s compliance
Make sure the agreement includes clear provisions incentivizing the parties to comply with their commitments. No one can predict the future. But circumstances change and commitments made today may not be so appealing tomorrow.
So include incentives – financial and otherwise – significant enough to account for future changed circumstances. A legal right to enforce an agreement is one thing. An unambiguous clause spelling out the consequences if your counterpart does not do A, B and C – thus materially breaching the agreement – is another.
And make those consequences worse for your colleague than complying.
A colleague recently found out his Fortune 500 partner on a major deal decided to pull out of the deal. It did so knowing it was a breach. Fortunately, my colleague had insisted in their agreement on a clause spelling out the specific financial consequences of such a breach. While not ideal, my colleague ended up with a much better result than if no such clause existed.
And the lawyers didn’t end up eating up everything with their fees.
3. Parties’ psychological commitment to deal
Secure, long-lasting deals occur when everyone feels like they got a decent deal. Not perfect. Sufficient. You don’t want the other side resenting the deal the day after, because then they will immediately start looking to undermine or get out of it.
How can you do this? Don’t insist on getting every single penny out of them, even if you can. At the least, make the last concession. This will let them feel like they got a bit of a win at the end.
4. Appropriate legal language
Most significant deals involve lawyers and specific legal language and provisions. Don’t underestimate their impact. While these may seem insignificant at the time of the deal, the specific language and details can be hugely important down the line. Make sure you understand them and the risks associated with them.
Latz’s Lesson: Insist on satisfying your mutual interests in long-term deals – now and, if circumstances change, in the future.
Published February 1, 2015 The Arizona Republic