Improve Your Negotiations With The 5 Golden Rules.   LEARN THEM

A client recently sent me a list of negotiation “games” its counterparts regularly use. The list ranged from lying about certain facts to falsely pretending not to understand critical issues.

After we discussed how to counter these “games,” my client asked me which I would recommend it use. Fair is fair, right?

Wrong. I would never recommend or use certain negotiation “games.” Yet parties should not unilaterally disarm.

What should you do? How and where should you draw the line in answering tough ethics issues?

Decide based on the tactic’s legality, its impact on the negotiation and your own moral compass.

To start, make sure the tactic is legal. If it will – or may – subject you to legal liability, don’t do it.

Note, however, that this legal baseline only provides the floor. Your sense of right and wrong and your evaluation of the tactic’s effectiveness usually will – and should – further limit your conduct.

So what’s legal? In most negotiations, as noted by G. Richard Shell, author of “Bargaining for Advantage,” the legality of the conduct will revolve around whether it’s fraudulent. (Of course, one might be liable under other legal theories. But those are more rare.)

Most states consider conduct fraudulent if it includes: 1) a knowing 2) misrepresentation 3) of a material 4) fact 5) that is reasonably relied upon by your counterpart, and 6) causes damages.

Susan the art seller will be liable for fraud if she intentionally lied about the originality of a painting and a buyer reasonably relied on her statement, thus paying more for the painting.

Knowing this, what rules of thumb can you use to stay on the right side of the law?

1) Honorable intentions make a difference. If John says his car has never been in an accident – but later discovers a previous owner crashed it – he probably will not be liable for fraud. He did not intend to defraud.

2) Silence is usually golden. Fraud generally involves affirmative lies and misrepresentations. You usually will be safe if you don’t make positive misrepresentations.

Expert negotiators thus are silent and avoid lying or making misrepresentations on critical harmful issues. This practice gave rise to the phrase “buyer beware.”

Of course, silence will not always keep you safe. Sometimes, parties have an affirmative duty to disclose. This is true in some real estate and environmental contexts and for those in fiduciary relationships, like partnerships.

Also avoid statements that, while possibly technically accurate, become misleading when viewed in the overall context. Susan should not talk about the rapid appreciation of Joe Artist’s original paintings if she knows the painting under discussion is a fake.

3) Bluffing about your bottom line and your interests usually is legally acceptable. If you bluff by saying you “cannot pay more than $250,000 for the house” – when in truth you can pay $275,000 – you generally will not be liable for fraud. Likewise, you can bluff by saying you’re extremely interested in one thing, but really want something else.

These types of statements are generally not “material.” Nor are irrelevant “little white lies.” You won’t be liable if you say you’re feeling fine even if you feel horrible.

What about a bluff in which you make up a better alternative? In negotiating for a mattress, you say, “I can get it cheaper at ABC Mattress,” even though this is untrue.

Are these statements fraudulent? It depends. Shell largely concludes that such statements likely will be more likely fraudulent if a) the “victims (are) small businesses (or) consumers … pressured unfairly by professionals,” and b) the “made-up offers (are) … specific, factual, coupled with ultimatums, and impossible to investigate.”

So, what’s the bottom line? Don’t make up a good, specific alternative and use it to get a better deal from a less powerful party.

4) “Puffery” couched as opinions and statements about the future most often don’t cross the legal line. Fraud applies to statements of fact. Generally, you’re pretty safe if you limit your puffery and exaggeration to statements of opinion or statements about the future, like predictions or intentions.

Susan could say, “I consider Joe Artist the most brilliant desert painter in the West.” This is opinion.

Don’t overreach, though. There must be a sufficient factual basis for your statement. If your statement substantially masks the true situation, you may be in trouble.

5) The more sophisticated your counterpart, the better your position. Fraud requires that the damaged party reasonably relied on his or her counterpart’s statement.

If Ellen Expert knows that Susan the art seller is lying about the originality of a painting, Susan will not be liable for fraud. Why not? Ellen cannot reasonably rely on Susan’s statement given her own expertise.

6) No harm, no foul. Finally, if no damages are caused by the alleged fraudulent statement, there is no fraud.

Be careful, though, as parties’ questionable conduct often falls into unclear legal areas. If in doubt, seek legal advice.

This constitutes your legal limits. In my next column, I will address the morality and effectiveness of questionable tactics.

Published June 6, 2003 The Business Journal

Share This