A Common Negotiating Strategy Could Get You Into Legal Trouble Abroad

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Professor George Siedel shows why the “best alternative to a negotiated agreement” tactic can sometimes backfire.

The negotiation book Getting to Yes is popular in business and law schools. It tells negotiators to develop their “best alternative to a negotiated agreement” (or BATNA) to improve their power.

A strong alternative makes it easier to end a negotiation if terms become unfavorable, a situation that improves your bargaining position.

But Michigan Ross Professor George Siedel, in an article in the Berkeley Business Law Journal, shows that BATNA strategies run into legal problems in some countries, and could even become a liability if abused in the U.S. His co-author is Gregory Marsden, dean of postgraduate study at Facultad Libre de Derecho de Monterrey in Mexico.

Siedel

“BATNA has become so embedded in the negotiation lexicon that I don’t know if anyone has really challenged the assumption that BATNA strategies, which were developed in the United States, are legal,” says Siedel, Williamson Family Professor of Business Administration and Thurnau Professor of Business Law. “We argue that you have to be very careful using these strategies globally.”

The rub with BATNA globally is that civil law countries, which include mainland Europe, differ from common law countries, such as the U.S. and the UK, in the way they govern business negotiations. Civil law countries generally assume a duty to negotiate in good faith once talks begin, unless the parties opt out. In common law countries, the parties are generally free to walk away unless they’ve agreed to negotiate in good faith.

“Under civil law you often can’t simply walk away to a better alternative,” Siedel says. “Entering into negotiations in many countries triggers a good-faith duty that in a common law country doesn’t exist. That greatly limits your ability to use BATNA strategies.”

Siedel and Marsden also observe that putting too much emphasis on BATNA strategies can cause harm even in a common-law country if parties have agreed to negotiate in good faith. They say this is what happened when PharmAthene sued SIGA Technologies over a failed merger. During the course of the negotiations, SIGA made new demands after its financial and business positions improved. But PharmAthene sued, claiming SIGA failed to negotiate in good faith, and won a large award.

Instead of the two parties benefitting from a potential $1 billion market for SIGA’s smallpox drug, both suffered financial consequences and a long legal battle, with SIGA filing for Chapter 11 bankruptcy.

Siedel says a more productive negotiating strategy is to focus on value creation through collaboration instead of power.

“When you build a strategy based on collaboration, it nudges you toward a more positive outcome,” he says. “If negotiators in the SIGA case had focused on working together to develop their product, they were looking at potentially huge revenues. Instead they both suffered financially because SIGA got carried away by a power strategy based on its improved BATNA.”

Siedel thinks that negotiators in all countries must understand these caveats.

“BATNA strategies are taught around the world and we’re trying to point out some of the challenges that arise if you don’t think about the legal context,” he says.

 

Media Contact: michiganrosspr@umich.edu