Your BATNA in a Dispute Resolution

Negotiation
We're now gonna continue with our analysis of a negotiation. 
The analysis that you conduct in preparing for a negotiation. 
And as I mentioned earlier there are three key questions. 
We already talked about the cluster of questions you should ask 
to complete the analysis. 
The second big question is, 
what is my BATNA when I'm involved in a dispute resolution negotiation? 
The analysis that we did earlier related to a deal making negotiation. 
So how is a dispute resolution negotiation different? 
Please try to think about that for a second. 
If you're involved in a dispute with somebody, what 
is the alternative if your negotiation fails? 
Why don't you write down your answer.
Play video starting at :1:1 and follow transcript1:01
In a dispute resolution negotiation, 
the ultimate BATNA might be litigation or an arbitration, 
which is basically private litigation.
Play video starting at :1:16 and follow transcript1:16
And as a result, to analyze your litigation BATNA, 
especially in a global economy, you should understand some basic differences between 
the litigation process in the US and the litigation process in other countries.
Play video starting at :1:32 and follow transcript1:32
So please hit pause for a second, and try to think of 
basic differences between the US and elsewhere, and prepare a list.
Play video starting at :1:45 and follow transcript1:45
Here are the key differences between litigation in the US and elsewhere.
Play video starting at :1:51 and follow transcript1:51
Six key differences, and let's go down the list, starting with contingency fees. 
In the United States, unlike many other countries, 
lawyers can be hired on a contingency fee basis. 
And what that means is that the lawyer's fee is contingent 
on the results in the litigation.
Play video starting at :2:12 and follow transcript2:12
Let's assume for example that you hire a lawyer on a 30% contingency.
Play video starting at :2:18 and follow transcript2:18
If the lawyer wins $10 million in a lawsuit, 
the lawyer's fee is 30% of the 10 million, or $3 million.
Play video starting at :2:27 and follow transcript2:27
If the lawyer loses the lawsuit, then the lawyer's fee is 30% of zero. 
The lawyer does not get paid. 
That's the contingency fee system used in the United States, 
adopted in a few other countries, perhaps spreading to other countries in the world.
Play video starting at :2:45 and follow transcript2:45
In the US, class actions have long been used in certain types of cases.
Play video starting at :2:51 and follow transcript2:51
Let's assume that a company cheats me by overcharging me $1 illegally. 
I'm probably not gonna sue the company for that $1. 
It's not worth it. 
But let's assume that the company has overcharged 30 million customers. 
Now 30 million customers can join together in a class, and 
sue the company for the 30 million.
Play video starting at :3:20 and follow transcript3:20
Guess who's the big winner in a class action?
Play video starting at :3:24 and follow transcript3:24
Given the contingency fee system, it's often the lawyers. 
The lawyers might take, let's say one-third of the 30 million, $10 million. 
The other two-thirds might go to the customers. 
So I would end up with two-thirds of a dollar or $0.66, or perhaps 
a coupon to buy products from the company that cheated me in the first place.
Play video starting at :3:49 and follow transcript3:49
Third feature of the US legal system, 
it's quite different from elsewhere, is discovery.
Play video starting at :3:55 and follow transcript3:55
There are a number of tools that lawyers can use to discover what kind 
of a case the other side has, and two of these are especially important.
Play video starting at :4:7 and follow transcript4:07
One is document discovery, where lawyers can sweep into your business, 
or if it's personal litigation, they can uncover personal documents and 
examine those documents and use them in court. 
So in other words, discovery affects everyone,
Play video starting at :4:27 and follow transcript4:27
on the job, every day, and every minute. 
Every time you create a document, every time you use email, 
every time you text, use voice mail, all of those are subject to discovery. 
You always have to be thinking about the potential for 
litigation as a result of the information you create.
Play video starting at :4:50 and follow transcript4:50
That's one form of discovery. 
The other very popular form of discovery is the deposition, where the opposing 
attorneys will force you to testify under oath before a court reporter, 
and that's a very effective way for them to gain information about the litigation. 
If you're interested in seeing what a deposition looks like, 
I have a link here to a YouTube deposition of the president of a healthcare system, 
and he is being questioned about the pricing used in one of his hospitals. 
I highly recommend that you look at this deposition for a flavor of what goes on, 
and try to put yourself into the CEO's position. 
How would you deal with the questions raised by the opposing attorney? 
It only takes about five or six minutes, but highly worthwhile.
Play video starting at :5:45 and follow transcript5:45
Jury trials are another distinction between the US and other countries. 
A number of other countries use jury trials in criminal cases. 
The US is one of a very few countries that 
use jury trials in civil cases, for example, business litigation.
Play video starting at :6:5 and follow transcript6:05
Punitive damages, another unique feature of the US system.
Play video starting at :6:10 and follow transcript6:10
In every country in the world, if you injure me,
Play video starting at :6:17 and follow transcript6:17
and I sue you, I can recover what are called compensatory damages, 
damages to compensate me for my loss. 
However, in the US, if your injury was caused by conduct that was malicious or 
intentional, then the court might tack on punitive 
damages to punish you for your outrageous conduct. 
This is sort of like a criminal fine in other countries. 
The difference is that the criminal fine goes to me, 
unless there's a local law that provides it should go elsewhere.
Play video starting at :6:55 and follow transcript6:55
And finally, in the United States, there is the so 
called American Rule regarding attorney's fees.
Play video starting at :7:3 and follow transcript7:03
And that rule provides that even if I win my case,
Play video starting at :7:10 and follow transcript7:10
you do not have to pay my attorney's fees. 
And this is different from the rule used in other countries, which is sometimes 
called the everywhere but American rule, sometimes called the loser pays rule. 
Which provides that if you lose your case, 
then you have to pay the winner's attorney's fees. 
So those are the six key features, the six key distinctions between the US and 
other countries.
Play video starting at :7:39 and follow transcript7:39
When you look at combinations of these features you can see why litigation 
might be more popular in the US than in other countries. 
For example, let's say that A sues B, they each have their attorneys.
Play video starting at :7:56 and follow transcript7:56
B immediately goes to court and has the case dismissed.
Play video starting at :8:1 and follow transcript8:01
So what does A have to pay, 
A the loser, have to pay his own attorney under the contingency fee? 
Nothing. 
What does plaintiff A have to pay to cover attorney B's fees under the American rule? 
Nothing. 
So in other words, 
there's a very low barrier to entry into the US legal system, when you look at 
the contingency fee system in combination with the so-called American rule.
Play video starting at :8:31 and follow transcript8:31
So that lays out the basic distinctions between the US and elsewhere that you need 
to think about in looking at your BATNA in a dispute resolution. 
And let's conclude this discussion by looking at an actual case. 
So here's the situation.
Play video starting at :8:47 and follow transcript8:47
We've got a grandfather driving a Dodge Caravan with a friend 
sitting in the passenger's side. 
His daughter's in the backseat with his eight month old grandson Jason, 
who's sitting in a car seat. 
A pickup truck speeding 70 miles an hour 
in a 35 mile an hour zone crashes into the rear-end of the Dodge Caravan. 
The passenger side seat in the front collapses back on top of baby Joshua, 
killing the baby.
Play video starting at :9:16 and follow transcript9:16
So those are the facts, and now we have litigation started by Joshua's parents.
Play video starting at :9:24 and follow transcript9:24
We can assume that they probably hired an attorney on a contingency fee. 
That isn't required, but that's typical for a case like this. 
And in their case they asked for punitive damages, 
a second feature of the US system. 
So they sued Daimler Chrysler, the manufacturer. 
They claimed that the Dodge Caravan seats were defective. 
Daimler Chrysler failed to warn consumers the seats were dangerous and 
therefore, the company should be liable for 
compensatory damages to compensate for the loss. 
But also for punitive damages because the company acted in an intentional, 
malicious, or reckless manner.
Play video starting at :10:6 and follow transcript10:06
So after starting the lawsuit, then the company has a chance to respond, 
and they basically said look,
Play video starting at :10:13 and follow transcript10:13
our seats were designed to protect occupants of the front seat. 
We couldn't avoid the design we used. 
The seat design met industry standards, which was true. 
The seat designed exceeded government regulations, which was also true.
Play video starting at :10:29 and follow transcript10:29
So we've got the filing of the case, we've got the response, and 
now it's time for discovery. 
Now other countries, as well as the US, use discovery, but 
the United States is more liberal in allowing the parties into 
the records of other companies in searching for evidence. 
So in this case, the parents' attorneys searched 
the company's records, and developed this evidence. 
First of all, they found an expert who testified that the current seat design 
was not necessary to protect occupants of the front seat, as the company claimed.
Play video starting at :11:12 and follow transcript11:12
And they found evidence that the company knew of their seat design problems for 
20 years. 
The company had formed a minivan safety leadership team 
with employees from a variety of functions. 
And the team concluded that the seat design was unacceptable and 
inadequate to protect consumers. 
So what did the company do? 
They ordered the chair of the leadership team to destroy the minutes, 
and they disbanded the leadership team and fired the chair. 
So this is the evidence that then went to the jury, 
another feature of the US legal system. 
And the questions faced by the jury were, number one, 
should the company be held liable for compensatory damages? 
Did they do something wrong? 
Number two, should they also be held liable for 
punitive damages to punish the company for conduct that was intentional, malicious, 
or reckless, especially if they knew of the design problem and didn't correct it? 
And then, how much would you reward in punitive damages? 
So let's assume you're sitting on the jury. 
You know the facts, the same facts that the jury had.
Play video starting at :12:26 and follow transcript12:26
Please write down your answers to these three questions.
Play video starting at :12:30 and follow transcript12:30
Do you think the company should be held liable at all for any damages? 
Yes or no? 
Do you think the company should also be held liable for punitive damages? 
Yes or no? 
And then if you were on the jury, how much would you award in punitive damages?
Play video starting at :12:50 and follow transcript12:50
These are the results in the case.
Play video starting at :12:53 and follow transcript12:53
The jury decided that the company and 
the pickup driver who rear-ended the Dodge Caravan should be liable for 
$5 million In compensatory damages, 50% each for the wrongful death.
Play video starting at :13:8 and follow transcript13:08
And in addition, the company should write a check for 
$98 million to the parents as punitive damages. 
After the jury verdict, the trial court 
reduced the punitive damages from $98 million to $13 million because 
of the very large discrepancy between the actual damages and the punitive damages. 
And then the case was appealed to the Tennessee Supreme Court. 
And this court decided, in 2008, that the trial court was correct, 
that the parents were entitled to compensatory and punitive damages because 
the company covered up evidence of the deficiencies of its design seat while 
advertising the Caravan as a vehicle that put children's safety first.
Play video starting at :13:54 and follow transcript13:54
So this illustrates various features of the US legal system that you need to 
consider, at least in the United States, when analyzing your BATNA. 
This particular case also applied the American rule, although it was not 
discussed in the case, which means that the winners, the parents, were not 
allowed to recover attorney's fees from the losers, which is Daimler Chrysler.
Play video starting at :14:21 and follow transcript14:21
So in conclusion, if you can't negotiate the settlement of a dispute, 
either directly or with the help of a mediator, 
your BATNA might be litigation or arbitration. 
And in analyzing your litigation BATNA, especially in a global economy, 
you should understand the basic elements of the litigation process and how they 
differ, especially the difference between the United States and other countries.

Key ideas:

 In a dispute resolution negotiation, the ultimate BATNA might be litigation ‫دعوا‬or

an arbitration ‫ داوری‬, which is basically private litigation. And as a result, to
analyze your litigation BATNA, especially in a global economy, you should
understand some basic differences between the litigation process in the US and
the litigation process in other countries.
 There are key differences between litigation in the US and elsewhere.
o In the United States, unlike many other countries, lawyers can be hired on
a contingency fee basis.
o In the US, class actions have long been used in certain types of cases.
o Third feature of the US legal system, it's quite different from elsewhere, is
discovery.
 There are a number of tools that lawyers can use to discover what kind of a case
the other side has, and two of these are especially important.
 o One is document discovery, where lawyers can sweep into your business,
or if it's personal litigation, they can uncover personal documents and
examine those documents and use them in court.
o The other very popular form of discovery is the deposition, where the
opposing attorneys will force you to testify under oath before a court
reporter, and that's a very effective way for them to gain information about
the litigation.
 Jury trials are another distinction between the US and other countries. A number
of other countries use jury trials in criminal cases. The US is one of a very few
countries that use jury trials in civil cases, for example, business litigation.
 Punitive damages, another unique feature of the US system. In every country in
the world, if you injure me, and I sue you, I can recover what are called
compensatory damages, damages to compensate me for my loss. However, in
the US, if your injury was caused by conduct that was malicious or intentional,
then the court might tack on punitive damages to punish you for your outrageous
conduct. This is sort of like a criminal fine in other countries. The difference is
that the criminal fine goes to me, unless there's a local law that provides it should
go elsewhere.
 And finally, in the United States, there is the so called American Rule regarding
attorney's fees. And that rule provides that even if I win my case, you do not have
to pay my attorney's fees.
 So in other words, there's a very low barrier to entry into the US legal system,
when you look at the contingency fee system in combination with the so-called
American rule.

Using Decision Trees to Complete Your

BATNA Analysis
>> We're looking at the unit on preparing for negotiation, and 
at a very important question, which is how can I conduct a negotiation analysis? 
We looked at a list of questions that you should ask in completing any analysis. 
We then looked at a specific problem that 
arises with dispute resolution negotiation. 
And that is, that your BATNA often is litigation or perhaps arbitration. 
And therefore it's important to understand what goes on in a litigation and 
some fundamental differences in a global economy between US style 
litigation and elsewhere.
Play video starting at ::51 and follow transcript0:51
Now we're dealing with a final question relating to analysis of a negotiation. 
And that is, how can I use decision trees to complete my BATNA analysis? 
A decision tree is a very useful tool in doing the BATNA analysis and beyond. 
It's, it's a very useful tool for making all sorts of business decisions. 
So I hope that this segment will be useful to you. 
Not only in negotiation, but 
also in other aspects of your personal life or your business life. 
So let's start with this example.
Play video starting at :1:31 and follow transcript1:31
This happens to be a dispute resolution example, but 
I'll look at a deal making example in a few minutes. 
Let's say your company has sued a supplier for $4.6 million. 
There's a 50-50 chance your company will win. 
Future legal and other expenses to litigate the case total $400,000. 
During negotiations, the defendant has offered to settle the case for 
two million. 
Should your company accept the offer? 
Now think about that for a second. 
What does your intuition tell you? 
If you use pure logic in answering that question, you didn't use emotion. 
You didn't consider your attitude towards risk. 
Pure logic.
Play video starting at :2:13 and follow transcript2:13
Would it make sense for you to accept the $2 million offer or 
to continue on with your litigation where you might win $4.6 million? 
Okay, write down your answer. 
You would accept the settlement, or continue with the litigation.
Play video starting at :2:32 and follow transcript2:32
Now, let's look at how you can analyse this question by using a decision tree.
Play video starting at :2:40 and follow transcript2:40
A decision tree looks very much like a tree on its side.
Play video starting at :2:45 and follow transcript2:45
And the decision in a decision tree is represented by a square or rectangle. 
So we have here, the decision is do you continue with the litigation or 
do you settle? 
And then uncertainties in your decisions are represented by circles. 
And the uncertainty is if you continue, will you win or lose? 
So you start your decision tree analysis with 
step one by drawing a picture of the decision.
Play video starting at :3:14 and follow transcript3:14
And this is a very useful tool even if you never add numbers. 
It's very useful for clarifying your thinking. 
I use this tool constantly. 
If I'm in a meeting and the conversation is drifting in different directions and 
it's unclear what this decision is or 
what the uncertainties are, I find it very useful just in 
the back of an envelope to sketch out a decision tree to lay out the options. 
But in this case, we're going further than this. 
We're going to step two, which is to add the numbers. 
So, here are the numbers.
Play video starting at :3:49 and follow transcript3:49
There's a 50/50 chance of winning. 
So you, you plug in the probabilities. 
If you win, you will net $4.2 million after deducting attorney's fees. 
If you lose, you lose $400,000. 
Whereas the settlement offer is $2 million. 
And then step three, the final step, is to calculate weighted averages. 
So in this case, 50% of 4.2 is 2.1 minus 50% of 400,000. 
Brings you to a weighted average of 1.9 million, 
which is the expected value of continuing. 
And you can see here that's less than accepting the settlement offer. 
Therefore logically you should accept the settlement offer, absent other factors. 
So this gives you a nice tool for analyzing your BATNA 
in a dispute resolution type negotiation such as this. 
Decision tree analysis is also a very useful tool for 
doing a BATNA analysis when you're involved in negotiating a deal. 
And here's an example.
Play video starting at :5:6 and follow transcript5:06
Let's assume that you're making a decision. 
Should you acquire Company A, which has a $21 million value, or 
Company B which has a $15 million value. 
The price is the same for both companies. 
Now if you stopped there, the decision would be easy. 
Of course you would acquire Company A if the price is the same as for 
Company B, because of the different valuation.
Play video starting at :5:33 and follow transcript5:33
However, the problem is that if you acquire Company A, 
there's a 90% chance the government will challenge the acquisition, and 
a 60% chance the government will win.
Play video starting at :5:45 and follow transcript5:45
If the government wins, 
a value of A drops to 14 million because of legal fees plus sell-off costs. 
Even if the government loses, the value drops to 19 million because of legal fees. 
Where as if you acquire company B, 
there's not going to be a government challenge, we know that.
Play video starting at :6:5 and follow transcript6:05
So before you do a decision tree analysis, what would be your gut reaction? 
What, what does your intuition tell you about this decision? 
Would you negotiate to acquire company A or negotiate to acquire company B? 
Please write down A or B.
Play video starting at :6:28 and follow transcript6:28
When I ask this question in class, 
a large majority of the class usually picks company B.
Play video starting at :6:36 and follow transcript6:36
Now let's try a decision tree analysis of the same decision. 
So you know now how to do a decision tree analysis. 
Remember the decision is the square and 
the uncertainties are represented by circles. 
The decision tree looks like a tree on its side. 
So, draw a picture of this decision, which is step one.
Play video starting at :7:1 and follow transcript7:01
Plug in the numbers and calculate the weighted average. 
Please hit Pause while you do this, and then we'll compare results.
Play video starting at :7:14 and follow transcript7:14
This is what my decision tree looks like for this decision. 
The decision is, do you acquire company A, or company B?
Play video starting at :7:24 and follow transcript7:24
And if you acquire Company A, then you have two uncertainties. 
Will the government challenge the acquisition? 
And if the government does challenge, will the government win or lose? 
So that's the drawing of the tree. 
And then you plug in your numbers, 90% chance the government will challenge. 
10% chance no challenge. 
60% chance the government will win. 
40% chance government loses.
Play video starting at :7:51 and follow transcript7:51
If the government wins, the value drops to $14 million. 
Even if the government loses, the value does drop a little to $19 million. 
Whereas if there is no government challenge, company A is worth $21 million. 
So you plug in the numbers and then you do your weighted average calculation. 
60% of 14 plus 40% of 19 is 16. 
90% of 16 plus 10% of 21 is 16.5. 
So the weighted average, or the so 
called expected value of acquiring company A is $16.5 million, 
which is still quite a bit higher than the value of company B. 
So if you use just a decision tree analysis, you know, 
forgetting about emotions, forgetting about attitude toward risk, 
the logical decision would be to acquire company A.
Play video starting at :8:48 and follow transcript8:48
So, in conclusion, decision trees are valuable tools for 
analyzing your BATNA in both dispute resolution and deal-making negotiations. 
And, this is a tool that you should also use for 
making other complex business decisions.

Key ideas:

 A decision tree is a very useful tool in doing the BATNA analysis and beyond. It's,
it's a very useful tool for making all sorts of business decisions.
 And the decision in a decision tree is represented by a square or rectangle. And
then uncertainties in your decisions are represented by circles. And the
uncertainty is if you continue, will you win or lose? So you start your decision tree
analysis with step one by drawing a picture of the decision. And this is a very
useful tool even if you never add numbers.
 So, in conclusion, decision trees are valuable tools for analyzing your BATNA in
both dispute resolution and deal-making negotiations. And, this is a tool that you
should also use for making other complex business decisions.