How does a regulated entity negotiate with a regulatory agency or a prosecutor? It’s a controversial subject which lends itself to never-ending debate. Longfellow wrote in the Saga of King Olaf that: “Strength is triumphant; meekness is weakness.” Is making a reasonable offer a sign of weakness? What is the psychology that drives the fear of appearing to be “weak?” Does this psychology help get a good settlement or does it stand in the way?
This problem infects entire institutions. EPA negotiators are told to figure out what a reasonable penalty is and then multiply it by a factor of ten. If you think a reasonable penalty is $100,000, why not ask for $1,000,000. Useful? Not in my opinion, when you can divide a demand from EPA by ten and determine what it thinks the case is worth. So what has been accomplished?
Everyone has his or her own negotiating style and strategy. I have developed my own approach over the years. It is premised on the belief that a prosecutor or regulatory agency, in an enforcement action, is going to make an early determination about whether you recognize the seriousness of the situation; and that determination will color the rest of the negotiation. The prosecutor is sitting there thinking: “Do they care? Do they take the situation seriously? Do they ‘get it?’ If not, then let’s beat them up some more.”
How do you show resolve to a prosecutor or regulatory agency, but also show that you “get it?” Words are important; demonstrating seriousness and responsibility is important. The corrective actions offered are important. Attitude is important. And, of course, money is important. I have felt many times that the size of a penalty was not proportionate to the violation involved. On the other hand, I have seen a bad “attitude” drive up a penalty ten-fold. In the case I’m thinking about, a party was convinced by its consultant that an initial opportunity for a “quick-strike” settlement for several million dollars was unreasonable and embarked upon a path that offended prosecutors and regulators alike—increasing, as a result, the penalty to over thirty million dollars. The party didn’t look “meek,” but the issue was money (wasn’t it)?
I believe in making a serious first offer—one that will be deemed to be serious by a prosecutor or regulator. This conveys seriousness of purpose. Of necessity, it allows less “buffer” for subsequent negotiation. I feel, however, that making a significant, initial good faith offer empowers you to be more assertive and demanding. You can be adamant as long as you have been reasonable; and part of being adamant is the ability to stick close to your initial offer.
It is also important not to insult the intelligence of a regulator or prosecutor. [I have a colleague who says that he never offends anyone who can indict him.] I sat through a presentation one time by a General Counsel of an international manufacturer whose facility had encountered repeated, serious regulatory violations. He demonstrated a series of large ring binders which contained the company’s internal environmental procedures and argued that the company had made great efforts to achieve compliance—i.e., “we really tried hard.” What was lacking was something as follows: “We screwed up. We don’t like it. We take compliance seriously. We will get to the bottom of this and we will stop it.” After the presentation, I was asked how I thought the presentation went. I said: “Badly.” The response I got was the same as I’ve heard several times in similar situations: “He is one of the most brilliant people I’ve ever known.” What I’ve learned is that what appears to be brilliance by one side of the table can be viewed as arrogance by the other. I knew what the two criminal prosecutors were thinking—i.e., how can you build a product which meets the six sigma standard and not be able to control your waste production and disposal—if you really wanted to do so? There was a massive disconnect that eventually resulted in a penalty approaching forty million dollars.
Settlement negotiations are personal and each is unique because of the facts of the case and the personalities involved. Settlement negotiations are not commercial negotiations in which traditional concepts of leverage play a critical role. That does not mean, however, that the concepts of “willing buyer” and “willing seller” don’t apply—they do. Each party needs to come away with certain “wins” and the key is to figure out what they are. Careful advance planning (as described in my previous posts) allows you to “define success” and to think strategically up front before getting into settlement negotiations; and part of thinking strategically includes identifying what both you and the other party need out of the negotiation. Bluster makes some people feel good, but it also drives up legal costs and increases, rather than decreases, the likelihood of success. As I’ve said in previous posts, there needs to be a myopic focus on outcome; everything else is a distraction—including the desire to put a stick in the other guy’s eye.