A couple of weeks ago I wrote about why sales managers (sometimes) don’t want me to do a good job. The quick version is that they want contracts done quickly, which is an aim that I can best achieve by agreeing to everything that the other side wants.
That was a quick piece, a squib if you like (and you’re visiting from the nineteenth century). I set up a binary question – who’s right, me or the sales managers? – and, as with most such questions, things are a bit more complicated than that.
So I always had in mind that I would do a couple of follow ups exploring the issues in more detail. My decision about which one comes first is made easy by the anonymous commenter on the earlier post:
Srlsy bro, you could redo this mathematically and figure out how much YOU are costing your clients by insisting on a hedge for ridiculous events that will never occur, when what they are trying to do is push product and beat a competitor.
There is an optimum, and it probably is not hedging everything. I suspect your clients have a far greater understanding of this real world scenario than do you, the eager beaver “Now I am Become Law, the Destroyer of People.”
It’s not that they want you to do a bad, job, it’s just that you yourself and your legal trivia matter very little, and they got shit that needs to get done.
This is a fair challenge, I think. It’s important for commercial lawyers to ask themselves whether the points they raise in a negotiation are the ones that actually matter, or whether they are trying (as my commenter says) to “hedge for ridiculous events that will never occur”.
As it happens, I’m sure that most commercial lawyers, and most of their clients, would agree that they should take a risk-based approach to contract negotiations. But the tension comes from the different way that people perceive risk.
There’s tons of literature on this, and you can take your pick of anything from Sutherland’s Irrationality to Taleb’s Black Swan. The main theme is that people are bad, and often spectacularly bad, at assessing both the likelihood and impact of any given event.
For example, people tend to worry far more about rare incidents that receive lots of media coverage (such as plane crashes) than they do about frequent events that don’t (such as car accidents), even though there is far more chance that they will be involved in the latter. And people tend to assume that events that haven’t happened in the remembered past (such as a global credit crunch) have very little chance of happening in the future.
These are general habits of thought, and are obviously present to a greater or lesser degree in individuals according to their personalities. Some people might worry obsessively and irrationally about unlikely events, whilst others might be blasé about even the biggest risks.
In a contract negotiation, then, one might reasonably suppose that the salesman (who tends to be optimistic) downplays genuine risks while the lawyer (who tends to be pessimistic) talks up remote possibilities. This is no doubt a gross generalisation, but I’ve certainly seen this dynamic a fair few times.
It’s not unheard of, for example, for a salesman to start rolling his eyes when a negotiation turns to a technical or complex point like intellectual property or limitation of liability. But if the former is your competitive advantage, or if a bad result on the latter can threaten the viability of the business, it seems hard to argue that they are entirely theoretical points.
On the other hand, I’ve seen plenty of lawyers argue the toss for hours on points that on any reasonable analysis will never become an issue in practice. My favourites are the discussions where ever more extreme what ifs are proposed in an attempt to hold onto a point that should have been conceded after 30 seconds.
How then should one decide what are the genuine risks that the client needs to mitigate for a successful negotiation, and what are the remote possibilities that one can (as the lawyers’ phrase has it) take a view on?
One way that an in house lawyer can approach this challenge is to agree with interested parties from around the business, including the sales team, what are the key risks that need to be addressed in its contracts. In theory this means that all of the negotiating team, and their stakeholders back at the farm, will be on board with most of the points taken in the negotiation (there will always be some individual issues that are unique to a specific transaction, and therefore lie outside of the framework).
This is the approach that my team has taken. All of the risks covered in our framework (there are about 15, which seems reasonable for contracts that can be worth a few tens of millions) are based on either real business drivers, such as order book or profitability, or on things that we know from experience are likely to be practical issues in day to day service provision.
This helps us to focus in negotiations on what matters, and to avoid taking largely theoretical points. It also gives us the ability to explain why we’re bothered about the points that we raise, because we’ve been challenged on and justified them in internal discussion first.
It’s not a perfect system, and (this was the context of my original post) it’s not unknown for a sales manager to try and get us to ignore one of our key risks for the sake of a quick completion. Salesmen will be salesmen, after all, and there’s those pesky incentives.
And I’d be lying if I said that I’ve never fallen into the trap of trying to best the other side on every point, whether or not it really mattered. Once, in a break in a particularly long and gruelling day of negotiation that I thought I’d pretty much got the upper hand in, my sales colleague took me aside and in a pleading whisper asked me, “Can’t you let them have just one thing?”
Well, I learnt from that, and in every negotiation since I’ve tried to dial down the legal trivia and focus on what’s really important. Srsly, bro.