Corporate executives and Human Resources professionals sometimes find themselves representing their employer during mediations. I’ve been not only a mediator, but also a corporate representative and an attorney during mediations. In all these roles, I came to see the importance of preparing for the mediation.
Just as you would for any negotiation, it is important to know what you and your company are trying to achieve. (If you’re an attorney reading this, it is just as important that you know what your client needs to achieve.
There are lots of materials written about knowing your BATNA (Best Alternative To a Negotiated Agreement) before settling a case. But how do you decide what your best alternative to settling the case is? Remember that your BATNA cannot be dependent on anything the other party in the case does—it must be something that you can control or that you think will probably happen regardless what the other party does.
Determining your BATNA can’t be done in a vacuum. It is often easier to start by determining your WATNA — the worst alternative to a negotiated agreement. Sometimes, the worst alternative is the company goes bankrupt. Other times, it’s a huge PR debacle. Or maybe the worst that can happen is only that the company loses some money, but it isn’t a significant hit to the bottom line.
Only by deciding the maximum amount at stake can you decide how important this case is, and thereby decide how much to throw into settlement. (Note that though I might talk in terms of money, there are often other important resources at stake also—reputation, intellectual property rights, etc. Those must be put in the equation when valuing the case also.)
Other important considerations in determining the BATNA are LLATNA and MLATNA. I have seen parties to mediations get hung up on the least likely outcome in the case—their LLATNA (Lease Likely Alternative To a Negotiated Agreement). They see a 2% chance of winning big, and that’s all they can focus on. But your LLATNA should not determine your BATNA.
By contrast, the MLATNA is the Most Likely Alternative To a Negotiated Agreement. It is a much more useful concept.
For example, If the outcomes to an employment lawsuit could range from the employer winning its attorneys’ fees (with a 2% likelihood of occurring) to losing $1 million plus the plaintiff’s attorneys’ fees of $150,000 (with a 5% likelihood of occurring), the MLATNA might be losing $100,000 plus the plaintiff’s attorneys’ fees of $150,000 as well as your own (with a 40% likelihood of occurring). Or the MLATNA might be winning the case, but having to pay your own attorneys’ fees of $150,000 (also with a 40% likelihood of occurring). Now you have a range to work with—the case is worth at least $150,000 and up to at least $400,000 (the damage award of $100, plus $300,000 to cover both sides’ attorneys’ fees.)
Clearly, it is important to have some advance discussions with your attorney about the range of outcomes in a case and the likelihood that each might happen. Attorneys will not commit to specific outcomes, but they should be knowledgeable enough to talk in ranges both of verdicts and probabilities. Only after assessing the possible outcomes in the case—as well as the likelihood that each might happen—can you decide what you are willing to settle the case for.
You might go with a simple weighted average of the possibilities for your walkaway point. Or you might decide that the WATNA is so bad that you will lean toward settlement at (almost) any cost short of that. Or you might feel optimistic and look only at cost of defense as the settlement value of the case. But the point is, you need to consider all the possibilities.
Once you’ve looked at the range of outcomes, what do you do?
You and your counsel should discuss your mediation strategy. Where do you want to start your settlement offer? How do you get the other party talking in your settlement range? What do you have to offer that has no cost or is of little importance to you, but very important to the other side?
Then take your planning to the next level: What do you disclose to the other party in a general session? What do you disclose to the mediator in caucus? Who should be present at the mediation to maximize your credibility and persuasiveness to the other side?
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The purpose of this post is to emphasize the importance of planning prior to a mediation. When planning, you need to consider and evaluate the possible outcomes of the case. Then set your strategy to land you in the settlement range you desire.
But be flexible. You don’t know what you don’t know. You might learn new facts during the mediation that cause you to rethink the possibilities.
When have you planned effectively for a mediation or other settlement discussion? What worked for you?