The Negotiator Magazine

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The principal difficulty professional organizations have regulating the behavior of negotiators concerns the unique circumstances in which most bargaining interactions are conducted. They are usually done on a one-on-one basis in person or over the telephone. If one person is a lying scoundrel and they are accused of dishonesty by another party, they lie to the disciplinary authority. It is extremely difficult for such a body to determine which side is telling the truth. What really regulates this area is the market place. If persons behave in a questionable manner, their reputations will be quickly tarnished. When someone encounters others who will lie about what they have the right to know, they usually tell their friends and associates. Those deceivers begin to encounter difficulties when they negotiate. Individuals don't trust them. Their statements have to be independently verified, and their agreements have to be reduced to writing. Their negotiations become more cumbersome and less efficient. If they try to regain reputations for honesty, they discover how difficult it is to overcome stories about their past. Any negotiator who contemplates improper behavior during bargaining interactions should appreciate the substantial risks involved. A short-term gain may easily become a long-term stumbling block to future deals.

The three basic areas of misrepresentations concern affirmative misrepresentations, truthful statements that are incomplete and misleading, and the failure to disclose information necessary to prevent misunderstandings by the other side.

I. Affirmative Misrepresentations

Suppose my client is thinking of selling her company and another party has approached us to discuss their possible purchase of this firm. Assume that the corporate owner has told her negotiator that she would like to get at least $50 million, but might go as low as $45 million if necessary. The prospective buyer asks how much it would take to buy this firm. Can I ethically suggest $60 million? Clearly the answer is yes, because this pertains to non-material information - our settlement intentions - and is considered acceptable "puffing." They then offer $35 million and I ask if they would consider going higher. Could they ethically suggest an unwillingness to increase their offer? Again yes, since this is still "puffing."

If no one else has indicated an interest in my client's business, could I ethically indicate that other bidders are involved? Although I have had a few attorneys suggest that this type of statement is mere "puffing," I don't agree. I think this is highly material fact information that must be discussed honestly if it is mentioned at all. As a result, if I state that other prospective buyers are in the picture, I have to convey truthful information. If several other parties have expressed an interest in the same firm and have offered us $40 million, could I ethically state that we have been offered $50 million? Since I consider this to be material fact information this possible buyer has the right to rely upon, I don't believe I can make such a misrepresentation. I might, however, be able to avoid the ethical dilemma by indicating that other parties are interested in our firm and stating that someone will have to pay $50 million of they wish to purchase the company. I am not disclosing what offers have actually been received, but am only indicating - truthfully - that some offers have been tendered. Without disclosing the actual amounts involved, I am merely stating that it will take $50 million to buy the company. Even if my client is willing to sell for less, this is nonmaterial "puffing."

To what degree may I overstate the true value of the company my client is selling? May I suggest it has a rosy future, even if that is not entirely clear? May I say we are on the verge of an important product development when that is incorrect? May I indicate that we have accounts receivable of $540,000, when those accounts total only $150,000? The first statement of a wholly subjective nature is probably acceptable if I don't embellish too greatly. The other two would be improper, because they concern material fact information the other party has the right to know truthfully. While I may have no affirmative obligation to disclose these facts, if I choose to discuss them I must do so honestly.

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December 2005