When Managing Risk- Change Matters

One of the main drivers of my success over the years has been the ability to “change”.  If you look around you, change is everywhere.  In fact  it is the only constant in life.  Everything changes whether we like it or not, just as in the picture showing the new Seoul Train Station and the old one in the background. (more…)

When negotiating any transaction, dispute or potential problem, the Pre Negotiation Stage is important.  Do you know your BATNA?  But the other two stages ( the Negotiation Stage and Post Negotiation Stage) are of course important as well and can be seen as extensions of the Pre Negotiation Stage.  A little bit about them below.

The Negotiation Stage 

The negotiation stage or middle stage of the negotiation process involves numerous decisions too. Once parties have finalized the pre-negotiation stage, decisions still have to be made involving such issues as when, where, and how negotiations will take place.

For instance, parties may start negotiations via e-mail to negotiate minor items before concluding negotiations over the phone. Or they may start negotiations over the phone and wrap up with face-to-face negotiations. Or they may start with using email to negotiate minor items, phone conferences to settle some other items and then meet face to face to conclude the most important items and issues. Therefore, decisions have to be made on how to negotiate to one’s own advantage.

During the negotiation stage, internal and/or external parties and stakeholders may play a part in the outcome. Decisions must be made whether to include them or not. If third parties are involved in negotiations, one or both of the main parties may try to develop coalitions. Third parties may, in fact, add more problems and issues to negotiations or at least bring an added dimension to the discussions.

Parties must also decide upon a venue for negotiations. Many parties prefer a neutral site. However, those negotiators in a strong position may prefer negotiations to be held in their own office. It is all about tactics and to a certain degree perception of the other party’s position.

Post-negotiation

An equally important stage is the last stage of negotiations or the post-negotiation stage. This stage results in an agreement or resolution. Hopefully an enforceable one at that.

Parties must also decide whether to reduce an agreement to writing or leave it verbal—or a little bit of both. There are several sub- processes in this stage, such as concluding an agreement, drafting it in writing, and having the parties review it and approve it. Of course, each party may need its home office or upper management to approve the agreement as well.

Parties may want their respective Law Departments or outside lawyers to review the negotiated agreements. Agreements need to be reviewed to determine if they indeed resolve the dispute, and if the agreements are enforceable. A non-enforceable agreement usually does not solve the matter in dispute.

Miscellaneous Issues 

There are a number of miscellaneous issues that parties need to consider when using negotiations as a legal risk management or LRM tool. As negotiations are in fact voluntary, they require the informed consent or assent of the parties. This leads to a number of questions that must be asked.

• Do you resolve the dispute now or wait until a later date? Is  now the right time to resolve the dispute?
• Do you use this as an on-going process or see it as an onetime event?
• How many people will participate in the negotiations? Will there be several teams?
• What do you really hope or  want to achieve?
• Does the other side want to come to the table?
• What does the other side really want or hope to achieve?
• What is the other side’s BATNA? Can you find it out? Can you guess it ?

So both parties must decide if they want to negotiate, and if so, when, where, and how. Maybe delays will benefit one or the other party or maybe not.

It is obvious that negotiation is an important LRM tool. However, to be adequately used as a method to decrease risk of litigation, the parties on both sides (of the negotiation) must be adequately trained in negotiation techniques and must have a proper negotiation mind-set. If the parties come to the table properly prepared, ready to negotiate and seek an amicable outcome, negotiation can be a powerful resolution process and risk mitigation tool.  If not, it may lead to a lost opportunity and an unfavorable result.

What Are Negotiations?

 Negotiations are an often underutilized Legal Risk Management (LRM) tool. Used as a dispute resolution mechanism, negotiations can be used to resolve disputes, internal and external to a corporation, prior to such disputes turning into litigation. It is another tool to avoid the risk of litigation or arbitration and can minimize legal costs and expenses that might otherwise occur. 

Negotiations can be simple or complex, depending on the subject matter. International negotiations are the most complex as they involve different cultures, languages, legal systems, and viewpoints. Nonetheless, all negotiations, whether domestic or international, will involve strategies, knowledge of the facts and issues, an understanding of the other side’s viewpoints, and, above all else, an understanding of the problems and risks at hand. 

Stages of Negotiations 

Negotiation can be defined primarily as a decision-making process whereby two or more parties resolve their disputes or differences by advancing their interest’s vis-à-vis each other. Negotiations may be broken down into several distinct stages: 

The beginning or pre-negotiation stage

The middle or negotiation stage

The final or post- negotiation stage 

All three stages are crucial to successful resolution of a dispute or potential dispute that could lead to the risk of litigation.  

The beginning stage is just as important as the middle or final stage and deserves some consideration. 

The  Pre-negotiation Stage 

Prior to negotiating with the other party or disputant, a party must understand the facts, identify the issues involved, and map out a strategy to deal with negotiations. Though it may seem easy, this stage actually involves numerous steps. Each step may involve several processes or sub-processes as well. The basic steps are as follows: 

Determining the problem at hand

Determining the interests of all parties involved

Identifying possible solutions

Deciding upon negotiation strategies

Understanding your best alternative to a negotiated agreement—sometimes called the BATNA. 

Knowing your BATNA sets the bottom floor of any deal, as it will set the range of a possible settlement. No party will agree to a negotiation that offers less than the party’s BATNA. 

Many people fail to consider their BATNA before entering into negotiations.  Only when one truly knows his or her BATNA, can one enter into effective negotiations.  After all, how can you really negotiate if you don’t know your BATNA?

For example- if you are trying to buy a new car and are relying on trading in your used car for the down payment, you need to know the true value of your used car before you negotiate the purchase of the new car.  If you are thinking of buying a house but are relying on the proceeds of the sale of your current house to fund the down payment, you can’t really negotiate the purchase of the new house without knowing the approx. value of your current house. 

Therefore, when a company or organization negotiates a contract, it must first understand its BATNA before it negotiates with its counterpart.  Only when you understand your alternatives do you really understand what the floor  or the bottom is. Afterall, why negotiate a deal for less money than your best alternative- or BATNA?

Remember- knowing your BATNA ensures you won’t leave money on the table.  Take the time to understand your BATNA.

E-discovery- Document Protocols

One of the most onerous facets of US litigation is E-discovery.  Many non US companies are unaware of the requirements of E-discovery which places a non US company at a distinct disadvantage if it is involved in US litigation.  Though some non US companies are forced to learn about E-Discovery because of numerous lawsuits in the US, many companies outside of the US still do not understand the basic concepts.  However, as more and more international companies are finding out, the cost of doing business in the US happens to be the cost of litigation.  More and more foreign companies doing business in the US are embroiled in lawsuits.  And more and more companies are having to deal with E-discovery.  The problem is that failure to follow E-discovery rules when involved in US litigation can not only lead to sanctions and fines but to the loss of the lawsuit itself.

What is discovery?  It is the process of exchanging information and documents between parties in litigation.  What is E-discovery? It is the process of exchanging electronic documents and information in litigation.  As I point out above, E-discovery in the US is subject to certain requirements, many of them onerous, that if not complied with can lead to burdensome and invasive sanctions by the court.  Therefore, it is extremely important that a detailed E-discovery process be implemented prior to litigation as part of an overall legal risk management process.

I suggest that companies need to follow a number of steps to ensure compliance with E-discovery rules but to have a good handle on the document production process.  What are the basic steps?

Initial Steps

1. Hold Memorandum- when the company learns it is a named party to a lawsuit, the company must issue a Hold Memorandum to its employees.   The Hold Memorandum specifies the length and scope of document preservation required by the lawsuit. At this point, if the company has an auto-deletion program to delete electronically stored documents- that program must be suspended. All relevant documents including electronic documents must be preserved.
2. Data Preservation- at this point, the company must begin preserving potentially relevant electronically stored documents.  It is a normal rule of thumb to save and preserve all electronically stored documents that are potentially relevant in the litigation.
3. Interviews- the company must identify those custodians of the relevant records and interview them to determine the relevancy of the records.
4. Data Storage Locations- possible locations of all potentially relevant electronically stored information should be identified and efforts must be made to preserve the complete contents of the storage media.
5. Formulate Retrieval, Search, Review and Production Methods- in order to comply with US E-discovery rules, the company needs to work with an outside E-discovery vendor to ensure the retrieval, search, review and production methods are properly put into place.
6. Technical Requirements- the litigation may put a strain on the IT department.  The company needs to determine whether E-discovery demands will require additional IT resources.
7. Formerly Request Data-the company’s law department may have to formerly request access to data, especially of it involves obtaining data outside of the US

Collection

Besides the above steps, additional steps must be put in place to ensure proper collection of documents.

1.  Confirm Retrieval Requirements- the company must work with its outside vendor to confirm requirements for and methods of gathering the required electronic documents.
2.  Identify Systems for data retrieval- the company and outside vendor needs to determine which data systems should be searched for relevant electronic data and how those systems will be searched.
3. Prepare Collection Plans- the company needs to notify the records custodians and respective department heads (if any) that data will be copied form the record custodian’s computers, external hard drives, and other places where electronic data is stored.
4. Perform Quality Control Checks- throughout the collection process steps must be taken to make certain that the data collected is actually intact and in the proper format.
5. Backup- for safety reasons backup copies of the data collected must be made.

Staging

1. Review Environment- the selected review environment will be crucial in the efficient and accurate review of the collected data.  A decision must be made as to the review platform.  E-discovery vendors can help in this process.

Review

1.  The data must be reviewed to determine whether the data is indeed relevant and subject to discovery or not relevant and not subject to discovery.  Also data must be reviewed to determine if it is privileged and not subject to production.  To decrease actual human review and the associated expenses, automated review systems should be used.  The E-discovery vendor can help determine what process to use.
2. Reviewers- if there is a large amount of data, reviewers must be uses. They also must be properly trained against unintentional production of data.
3. Attorney reviewers- attorney reviewers will eventually be needed to review documents.  They must be picked either by the E-discovery vendor or outside law firm.
4. Privilege Review- the final review of documents must determine which documents are privileged and not subject to release to the other party and which documents are not privileged and must be handed over to the other party.

Production

1. A decision must be made on the format for production. Which format will be used? This is normally decided by the parties after the initial discovery conference takes place.
2. Copy Production- the files that will be produced must be copied onto media
3. QC- the copies to be produced must go through a QC process
4. Delivery -   the documents to be produced are actually copied onto media in the format agreed upon and are physically delivered to the opposing counsel.

These are the basic steps of E-discovery.  As you can see it is quite complicated.  In order to adequately handle handle E-discovery in US litigation it is important to retain an E-discovery vendor or outside provider that can provide E-discovery solutions and help with the collection of ESI. This however, must be part of a E-discovery process.   Failure to implement an E-discovery process as part of an overall Risk Management plan can spell disaster, especially for those companies involved with US litigation on a regular basis.

I found myself wandering around Seoul today.  I stumbled upon a backstreet of Itaewon filled with European restaurants, new coffee shops, boutiques with coffee shops, boutiques with restaurants and even a boutique that would take care of your dog while you shopped.  One coffee shop had a French bakery inside and another coffee shop was inside a French bakery. (more…)

Recently the news is filled with M&A activity.  Companies are acquiring or merging with other companies on a global scale.  What some companies fail to do, however, is to consider the FCPA implications of a M&A transaction.

The FCPA?

Yes, the Foreign Corrupt Practices Act (FCPA) plays a major role when considering the acquisition of another company, especially a foreign owned company.  Specifically, due diligence needs to cover FCPA concerns. There are several reasons for this:

1. If a company’s foreign subsidiary or affiliate includes inaccurate entries on its books and records in violation of the FCPA and that is reported up within the parent for purposes of consolidated financials, the parent may have violated the FCPA.
2. Successor in interest- a successor company in an M&A transaction will also in most cases inherit the liability of the target’s FCPA violations, if any.
3. Agency implications- under the agency concept, the parent will be liable for the actions of its subsidiary or JV partners as they are considered agents of the parent.

What may seem to be a reasonable acquisition may turn to be a nightmare of government fines and investigations if the acquiring party fails to adequately investigate a target company’s potential FCPA violations.   Anti-bribery laws, especially the US FCPA and the UK Anti-Bribery Act  are now very important and must be considered in the context of a merger or acquisition. Not only are U.S. companies liable for the acts of non US affiliates when it comes to the FCPA, but if they  a successor in interest to a non US company that has committed FCPA violations, they may very well inherit liability for FCPA violations.  And sanctions levied by the DOJ for FCPA violations may be very invasive.

So, make certain your due diligence covers the FCPA.  Make certain your due diligence covers the target’s 3^rd party vendor relationships and agreements, especially if they operate in high risk jurisdictions.  Look at the target’s FCPA rules if any?  Has an assessment been done on the effectiveness of the FCPA policies? What accounting controls are in place?  What FCPA training, if any, was performed at the target company?  Do they even know what the FCPA is?

Remember, when considering  M&A transactions, especially involving a foreign owned company or a company that does business in high risk jurisdictions, FCPA due diligence is a must!

Therefore, when structuring your Legal Risk Management processes for M&A transactions, I highly recommend due diligence processes that also consider potential FCPA issues.  FCPA due diligence these days is a given!