September 13, 2019 Dispute Resolution Magazine

On Professional Practice: Ethics and Negotiation

In a process that can involve deception and misdirection, what, exactly, is acceptable behavior?

Art Hinshaw

“On Professional Practice” examines how professional responsibility principles apply to our work. Sharon Press, a member of the Dispute Resolution Magazine editorial board, serves as the “On Professional Practice” editor. We encourage readers to submit ideas for future columns to Sharon Press at sharon.press@mitchellhamline.edu

As someone who studies negotiation ethics, I am always dismayed by the number of  lawyers who fail to understand the contours of acceptable behavior in negotiation. The cause of this lack of understanding lies partly in the official professional guidelines, which are trickier than need be and offer surprisingly little help. Another reason for the gap, I think, is that lawyers fail to internalize an educated understanding of the textured topic of negotiation ethics.

Nearly a decade ago, a colleague and I, as part of research for a scholarly paper, presented attorneys with a scenario in which a hypothetical client asked the attorney to engage in clearly fraudulent behavior to reap a settlement agreement that could be much larger than what the client would be entitled to receive otherwise. We expected attorneys to indicate that they would engage in various degrees of unethical behavior, and 30 percent of them so indicated. What we did not expect was that these attorneys would believe that the American Bar Association’s Model Rules of Professional Conduct allowed – or even required – them to engage in the fraudulent behavior. 

We believe that the problem of unethical negotiation behavior is probably more widespread. The attorneys participating in our study were not experiencing the pressures of a real negotiation; they were simply answering a survey question. Our worrisome conclusion, then, is that the number of attorneys who would engage in this conduct in practice is even larger.

Why are lawyers engaging in unethical conduct?

Negotiation is a process in which information-gathering leads to an understanding of what is available for trading, which, in turn, leads to a distributive task of determining who gets what. Throughout the process, negotiators on both sides might engage in some degree of deception, dissembling, and misdirection – suggesting, for example, that a client is seeking $10,000 to resolve a claim when the client has directed the attorney to accept anything over $2,000; claiming that a business was put up for sale because the owner wanted to retire when that is only partially true; or urging the other side to consider irrelevant and possibly distracting details from similar cases. Negotiators might even consider stronger deceptions to be acceptable and expected in negotiation – as long as they are not fraudulent. But this raises an important question: just how much deception, dissembling, and misdirection are “ethical” in negotiation?

The ABA’s Rules of Professional Conduct and their comments, the place where attorneys naturally look for guidance, are not nearly as clear as most people think, and they sometimes conflict with ethical norms. On top of that, ethical norms are not static, varying both from person to person and region to region. And within this swirling framework, during the heat of the moment in a negotiation, most people do not engage in thoughtful analysis of the ethicality of their actions.

Understanding the various standards

The standards established by state professional rules of conduct, all of which are based on the ABA’s Model Rules of Professional Conduct (except in California), appear to be straightforward. Generally speaking, Rule 8.4(c) defines professional misconduct as engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation as professional misconduct.  But this appears problematic because some routine negotiation tactics involve misrepresentations – exaggerated claims, statements about acceptable terms and reservation prices, and puffing about the qualities of an item. Wisely, to keep attorneys from running afoul of this standard, the rules are more specific with negotiation.

Rule 4.1, titled Truthfulness in Statements to Others, section (a) requires lawyers to speak the truth as they understand it about “material fact or law” but not about nonmaterial facts or law. A material statement is one reasonably viewed as important to a fair understanding of what is being given up and gained in the transaction. (Here’s one example of a material statement that could be made during negotiation: “My client’s share of the business being discussed today was appraised by the firm’s accountant at $2.5 million in 2015.”) There are some exceptions identified in the rule’s comments – estimates of price or value, a party’s intentions as to an acceptable settlement of a claim, and the existence of an undisclosed principal – and the comment qualifies that they “ordinarily” are not considered material facts. Thus, there are some extraordinary times when those kinds of statements are material, but the comment does not discuss that.

On the topic of speaking truth in the areas of these exceptions, my tip is simple: the more specific an attorney is when describing bases for value and price, such as the standards upon which an offer is based, and settlement intentions, such as the motivations for settlement, the more likely the statement is to fall into the material-fact category. And that means that on these specifics, lawyers should speak the truth, speak in abstractions and generalities, or avoid those topics altogether.

With regard to omissions, Rule 4.1(b) states that in representing a client a lawyer shall not knowingly “fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6,” which covers confidentiality between lawyer and client. This basically recognizes that lawyers have no general duty to inform others of relevant facts when negotiating, saying that the  duty to disclose material facts arises only if doing so avoids assisting in a client’s fraudulent or criminal conduct. In other words, if silence makes the attorney complicit in the client’s fraud by omission, then the resulting duty to disclose arises. The duty of disclosure also arises when a lawyer later finds that his or her work has unwittingly been used to further an ongoing fraud.

To understand how Rule 4.1 might come into play in real life, consider the case of an employment discrimination claim based on sexual harassment where the claimant is seeking back wages, medical expenses, and future earnings. The matter goes to mediation and does not settle, but the parties agree to reconvene a month later, after the claimant’s counsel provides additional information showing the claimant’s efforts to obtain other employment. The day before the mediation is scheduled to reconvene, the respondent’s counsel offers an extra $20,000 to settle the claim, specifically mentioning future wages as the reason behind the new offer.  The claimant’s counsel calls her client to share the good news. After hearing about the offer, the client shares her own good news: she has accepted a new position paying $15,000 a year more than her prior job. Suddenly recognizing that her new employment could impact the settlement offer, the client says, “Just take the deal, and don’t say a word about my new job.” The next day the claimant’s counsel calls the opposing counsel and accepts the offer.

The claimant’s counsel’s failure to disclose the client’s new employment would violate Rule 4.1(b). Why?  Because the respondent’s counsel’s offer is based upon the claimant counsel’s prior representations of a material fact, the future lost earnings, which have now evaporated. In fact, Rule 4.1(b) requires claimant’s counsel to disclose the new employment.

Rule 4.1’s “ethical” impact is modest at best, doing little more than prohibiting lawyers from engaging in fraudulent misrepresentations. Outside of fraudulent conduct, attorneys are allowed to be deceitful about opinions and non-material facts and law. As a result, deceptive negotiation tactics can be – and frequently are – described as “ethical.”

The Golden Rule and social norms

While understanding the standards in the rules of professional conduct is helpful, lawyers should recognize that one other major standard always comes into play during negotiation: social norms for ethical behavior.

These are the informal rules of acceptable or appropriate behavior among individuals in groups or in society at large that help regulate behavior and maintain order. In short, these norms fall under the category of how you are supposed treat people. But as anyone who has ever practiced law in multiple jurisdictions knows, these rules vary across practice areas and geographic regions and can be quite confusing. 

To help explain how ethical norms work in negotiation settings, G. Richard Shell, a Professor of legal studies, business ethics, and management at the University of Pennsylvania’s Wharton School, described three sets of norms relating to negotiation ethics in his book Bargaining for Advantage: Negotiation Strategies for Reasonable People: the idealist, the pragmatist, and the poker player.

Idealists view negotiation as they would any other interaction and believe that other people are not merely a means to an end. Idealists follow the Golden Rule – treat others as you would have them treat you – and they believe that deception is acceptable only in special situations, such as protecting others from harm or hurt feelings. Pragmatists, however, weigh deceit’s short-term benefits against its reputational costs and harm to current and future relationships to determine whether it’s worthwhile. In making their cost-benefit approach to deception, they typically find the long-term costs are not worth the short-term gains. Poker players, on the other hand, view dishonesty as an essential element of negotiation, believe that any behavior short of fraud is acceptable, and expect others to engage in cunning deceit as well. Their prime tactic is using false but difficult-to-check alternatives and standards. While each of these ethical norms is permissible under the “just don’t engage in fraud” rules of professional conduct, the differences among them are striking and form the basis for most discussions of others’ “unethical” negotiation tactics. 

Handling ethical issues and dilemmas during negotiations

Typically, ethical issues arise in large and quick-moving decision frameworks, leaving little time to engage in thoughtful ethical analysis. Instead, negotiators listen to their gut for guidance, so what negotiators need to do is improve their negotiation ethics instincts. How can they do that? They can work on internalizing an educated understanding of negotiation ethics.

First, negotiators must understand themselves and how they view ethical decisions. This begins with an understanding of Shell’s categorization of ethical norms and determining which aspects reflect their own attitudes. Along with that, negotiators should look at some deeper questions. Are they – or their clients – idealists and therefore potentially vulnerable? Do the pragmatists have a grounded sense of what is gained and lost when comparing the long run to the short run? How reliable are poker players’ senses of what constitutes fraudulent negotiation behavior? And how willing are they to accept the consequences of their behavior? No matter where they fall on Shell’s framework, all negotiators have some work to do.

Second, negotiators need a strong understanding of how the ethical rules described above operate – but not just to guide their own conduct. Because the standards in the ethics rules are so low, knowing how to defend against deceptive practices becomes paramount, particularly when the deal is more important than the relationship. In brief, start by investigating a counterpart’s reputation. A problematic reputation should signal that skepticism is necessary and that every commitment must be nailed down. Additionally, negotiators should relentlessly probe the counterpart’s statements for information to explain their statements, which means asking questions until they are answered. Focused listening makes catching evasive behavior easier and allows for direct follow-up questions until one receives a satisfactory answer or a refusal to answer the specific question. Finally, before entering any deal, a negotiator should consider strategic use of closing questions such as “is there anything we have yet to discuss that could materially impact this deal?”

Shell has observed that “ethical dilemmas are at the heart of many bargaining encounters.” We all know this to be true, but with some thoughtful investigation of ethical considerations and careful self-examination, negotiators can have a better chance of navigating the choppy waters of these encounters.

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    Art Hinshaw

    Art Hinshaw teaches at the Sandra Day O’Connor College of Law at Arizona State University, where he is a Clinical Professor of Law, the John J. Bouma Fellow in Alternative Dispute Resolution, and the founding director of the Lodestar Dispute Resolution Center. He can be reached at art.hinshaw@asu.edu.

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