International Business Negotiations
Teaching students to be transactional lawyers requires innovation. Transaction documents provide no insight into the process of reaching agreement. Our course, in which students participate in an extended simulation exercise, brings the process of structuring and negotiating an international business transaction into the classroom. It allows students to learn how lawyers translate business concepts into legal agreements that meet their clients’ objectives, experience the demands of working collaboratively, learn about the impact of business transactions on society, and develop their negotiating skills. The simulated environment allows “mistakes” to become lessons and not malpractice. This course has been offered with the two negotiating teams located in one law school and at two different law schools.
For the past 10 years, we have been teaching a unique class at American University Washington College of Law based on experiential learning structured around an extended simulated negotiation of a business transaction. [Note that it can readily be adapted as a substantial component of a negotiations course, and that a domestic module is available for those who do not want to teach this as an international negotiation.]
Overview.The course is a practical skills class which involves a semester-long simulated negotiation of a business transaction between a U.S. multinational pharmaceutical corporation and a company in a developing African nation which has a raw material necessary for a new drug. The form of the collaboration could be a joint venture, a licensing agreement or a long term supply contract.
The course is intended for two groups of students (either in the same law school or in two different law schools) where each represents one of the two parties to the transaction for the entire semester. It has been taught in counterpart with either (i) a class at Northwestern Law School, or (ii) a class at University of Dundee, Scotland. The course has been taught over 15 times using different formats, most frequently using two classes in separate law schools, where the classes interact for live negotiations using videoconferencing and teleconferencing as well as via written communication.
All models have been successful to “bring the deal into the classroom” for academic study and instruction. While the domestic experience permits instruction on all of the international and cross-cultural issues, the opportunity to teach the class in collaboration with an international counterpart class enhances the cross-border, cross-cultural component. Furthermore, the addition of JD-MBA, LLM (usually international), or MBA students (without legal) affords the opportunity to enhance the cross-cultural and cross-discipline aspects of this module. The class being taught at Stanford is comprised of half JD and half MBA students, allowing both groups of students to benefit and challenge the other discipline and enhancing the reality of how transactional practice issues are addressed.
Team Aspect. Each of the two counterpart courses is divided into teams of students who work together to produce the written communications and to lead live negotiations. Team assignment is random to avoid the instinctive gravitation by students to work with friends. A class of 12 is divided into two teams of 6, and a class of 18 is divided into teams of 4 or 5 students. Teams rotate responsibility between writing responsibility or leading a negotiation.The team effort on these assignments further replicates actual practice and collaborative effort.
Team members generally allocate responsibility among themselves for specific issues likely to arise in a live negotiation. During live negotiations, students not on the lead team provide continual comments and suggestions to the team and among themselves through an interactive G-chat chain that includes all students and the professor. Comments are generally screened by one member of lead team to integrate into the live negotiation or discussed during breaks.
Structure of the Course. We start with three introductory lectures, one focused on negotiations skills, one focused on analysis of the factual module, negotiating positions of the parties, and possible structures for the transaction, and a third (partial class lecture) focused on financial analysis of the facts and how that information influences the structure and negotiation of the transaction.
Following the introductory classes, the instruction focuses on negotiation strategy and integrates substantive matters as issues arise, with focus on components of the various forms of agreement (joint venture, license agreement, supply agreement) as well as particular business concepts (e.g., the economics and politics of the transaction and how that may influence the focus of the various parties) and negotiations issues (e.g., psychology of negotiations, dealing with impasse; ethics of negotiation). Substantial class time is also devoted to assessing the actual progress of the negotiations and how to strategize towards an agreement. In the final two classes, the focus is on an analysis and assessment of the whole negotiation and its results, with a final lecture that reviews the legal and business topics involved in the negotiation and the negotiations skills utilized throughout the exercise.
Actual instruction in the two counterpart classes is only loosely coordinated between professors. Both professors have the same materials, which either may adapt or supplement as appropriate. Both are aware of the independent, secret negotiating instructions that set forth that party’s particular objectives and fallback positions (and are structured to permit an agreement to be achieved). The otherwise independence of instruction and guidance preserves the “reality” of the exercise, as two law firms would have the same facts but would develop their independent approaches to the transaction. Introductory lectures, philosophical approaches, business concepts, and other issues are left to the independent judgment of the professors (in the single law school, divided class model, introductory and concluding lectures may involve the entire class with the class being divided and separate instruction continuing only for the classes when actual negotiations occur).
During the semester, the professors do discuss various issues and will occasionally collaborate to bring the classes back from any unproductive or distractive discussions as part of the guidance provided throughout the exercise. Each counterpart course, however, is able to explore its own solutions to the negotiation, and no two results are ever identical.
At the final live negotiating session, time is reserved for the students to “break frame” and have a candid discuss about the exercise, their respective strategies, substantive analysis, impressions of the negotiation teams, and how it was to work together to address the issues. The only topic not permitted for discussion is the individual secret team instructions.
Upper Level / Non-Required
The goals are (i) to introduce students to transactional law, (ii) to provide negotiations training in the context of transactional practice, and (iii) to further their practical legal skills. The focus is on having students apply their legal and non-legal knowledge in the context of serving as a lawyer negotiating a “real” business transaction within the controlled environment of the classroom.
Students become immersed in the thought process of a transactional lawyer as they progress through the negotiation, learn the relevance of the facts of the transaction, explore the interface of business and law; and draw upon their intellectual and emotional resources to solve the problems that arise “real time” during a transaction as the negotiation proceeds. Most importantly, the negotiations are serial, building on each session, and students experience a transaction from beginning to end and do so in the safe haven of the classroom where any “mistakes” become lessons and not malpractice claims.
Class time focuses on negotiation skills and strategies, the legal and business issues relevant to the negotiation, how such matters are addressed in legal documents, issues of cross-cultural and developing economy negotiations, approaches for dealing with impasse and frustration, and the ethics of negotiation.
Purpose. The purpose of the course is to provide students with an opportunity to gain insight into the dynamics of negotiating and structuring international business transactions, to learn about the role that lawyers and law play in these negotiations, and to give students experience in drafting communications and actual negotiations. Students also learn about the legal and business issues that may arise in joint ventures, supply agreements and licensing agreements.
The emphasis of the class is on the process and the experience, not the outcome. Importantly, the process, experience and outcome are determined by the class’s decisions. There are no preconceived or directed results, and there are no right or wrong answers. As in real life, there are multiple viable approaches and resolutions to the issues presented. There is not even an assumption that the negotiation will be successful. Failure to conclude a transaction is a potential, and acceptable, outcome for the learning experience.
Team members are required to approach this negotiation as a collective effort, rotating among teams to draft the weekly written proposals and lead the live negotiations. The collective approach is new to some students, and often students have to defend their proposed strategies to either their team members or the entire class. Since lawyers frequently interact as part of a legal team, the team experience is an important component of this course.
The negotiation addresses many legal issues and concepts which are part of the simulation exercise, but the order in which those matters arise (and in some instances, whether they arise at all) will depend on how the negotiation develops, just as would occur in a typical transaction. Students experience a transaction “viscerally”; transactions often go through cycles of cooperation and even frustration and this exercise is no different.
Issues We Cover. This course provides a platform for exploring many of the issues related to multinationals doing business with emerging economies and the role of lawyers in furthering social change through transactional matters. As part of the negotiation exercise, the course involves extensive legal analysis of the transaction and the negotiation process, as well as the economic, social and political issues presented.
One of the initial questions posed in the class is “who has the power in this negotiation”? A multinational negotiating with an entity in an emerging economy presents a classic case for examining relative power in a negotiation and “how the lamb negotiates with the lion.” The students on both sides of this negotiation initially believe it is the multinational corporation that holds the greatest power (since it possesses the technology, the general business experience, and the capital), but through both analysis of the facts and the actual negotiations it becomes clear that there is more balance of power than originally perceived, which is an epiphany for both sides. This lesson underscores a significant issue: developing economies need not underestimate their ability to negotiate favorable transactions.
Another discussion point focuses on the reality that in many developing countries lawyers are not generally involved in contract negotiations but are often only engaged to address contract disputes, resulting in the developing economy being underrepresented and less able to negotiate the most effective transaction, which unfortunately has resulted in many one-sided transactions being entered between multinationals and developing economies. The methodology employed in this course provides an introduction to the approaches used to alter this imbalance and move towards more effective transactions in developing economies (which in the long run may also serve multinational corporations through improved image).
Other topics that may be discussed in the class are:
(i) how a developing economy may position itself to obtain the most significant benefits from the transaction, including approaches that may add significant value for the developing economy at minimal additional cost to the multinational;
(ii) what should the multinational offer as incentives (both monetary and societal) to induce the developing economy to enter into the deal;
(iii) what inducements should the developing economy offer (e.g., tax benefits, repatriation of funds, waiver of customs duties) and at what costs to attract the foreign direct investment, and what is the quid pro quo for such inducements;
(iv) what are the “externalities” in this negotiation, which include not only environmental and societal impacts in the classic economic sense, but also possible demands by one party (in this case the developing economy) for certain concessions outside the main transaction (e.g., build a medical clinic, provide educational supports, or supply AIDs drugs) as a condition to consummating the main agreement;
(v) what matters are involved in shifting an agrarian economy towards new industries by technology transfer, which includes issues of training for new skills and protection of intellectual property; and
(vi) what are the political and societal risks for a developing economy related to dealing with a multinational known to have exploited other developing economies. These matters provide a basis for an instructor to discuss both the ethics of the transaction (should a lion exploit a lamb?) and the psychology of the negotiations (what tactics will be most effective and how adamant can either party be where each has a significant need for the other and the transaction presents high stakes for each side).
An important lesson from the class is that the lawyer, through analysis of the transaction and the context in which it will occur, can serve a critical role in crafting effective requests that either the lawyer or the business team can advance in a negotiation to structure an effective win-win result for both parties to the transaction.
Course Development. This course has evolved over time in response to student input to increase the hours devoted to the live negotiations. Starting as a two-credit course that focused on negotiation of a business transaction via weekly written exchanges with one final live video conference, the class has evolved to a three-credit course that includes a two-hour weekly class and five or six three-hour video conference negotiations. Classes focus on the strategy for, and progress of, the negotiations, as well as the substantive legal, business and policy matters that impact on the negotiations. Students are overwhelmingly positive on their experience in the class, as it is unique among law school class offerings by providing an introduction to transactional law, an introduction to negotiations, and practical skills training.
Lectures / Collaborative / Cooperative / Team Learning / Group Discussion / Simulation / Socratic / Inquiry / Negotiation Skills / Legal Writing
The focus of this course is class participation and active involvement in, and understanding of, the negotiations process. Students are expected to spend time outside of class, working in teams of two or more, to prepare drafts of written communications for class review and discussion as well as preparing for the live negotiations. Students must spend significant preparation time (mostly with their teams) preparing written exchanges and strategies for negotiating sessions.Class time is used to introduce students to the substantive legal issues involved in transactional practice and which impact the negotiations.
Students are evaluated on their class participation (including live negotiations) (40%) as well as two written projects: a contemporaneous diary (30%) comprised of one entry per class and negotiating session intended to focus on the student’s impressions and thoughts about the negotiation as it progresses, and a final paper (30%) which is an analytical retrospective on the negotiation and the role of the lawyer in transactional practice (with questions/prompts provided by the professor).
Feedback is provided on draft written communications during each class session by review and discussion of the proposed communication’s content, objectives, and strategy, with each written communication then being revised by the team responsible for the draft prior to submission to the other side. During live negotiations, there are periodic breaks with additional instruction tailored to the moment, as well as discussion and assessment of progress, potential compromises, revised strategies and objectives, which would mirror internal discussion of a legal team in an actual negotiation. Materials for the class, aside from the simulation module and independent instructions to each side, include background readings on transactional practice and negotiations and sample documents.
Collaborative teaching involves a certain “choreography” in order to coordinate the collaboration among sections. Scheduling negotiation sessions with counterpart schools is challenging enough with schools within the U.S. but, becomes a greater challenge with schools on different continents – just as it is in international law practice. In order for both counterpart classes to avoid any scheduling conflicts and obtain uninterrupted three hour sessions, the negotiating sessions are held on Saturdays.
The exchange of written proposals must also be coordinated. Drafts in the WCL class are due to us from the assigned team by Sunday at noon. We review and provide comments, circulate them to the class, and prepare for discussion on Monday. After class input, the team responsible for the draft edits the written exchange Monday evening and provides revision to us by Tuesday, morning so that we submit it to the professor for the counterpart class, which meets on Wednesdays. The counterpart class provides its written exchange to my class on Friday, followed by the live negotiation session (five times per semester) on Saturday.
This class has been very successful in achieving its goals of introducing students to the legal and practical aspects of business transactional law in an international context and, as evidenced by student comments, has been extremely well received by students. See the Student Feedback under the Course and Related Materials section.
Students actually grow more confident over the semester as they develop both familiarity with the elements of the transaction and rapport with the “lawyers” on the other side. In the end, students have an appreciation for the “process” of a transaction while developing the ability to apply their legal skills. Upon completion of the course, students have developed facility with actual negotiations, an understanding of transactional practice, and an appreciation of what it means to be a transactional lawyer engaged in a cross-border or domestic transactional negotiation, learning how a legal education is utilized to achieve practical business objectives.
Currently, this course is being offered at Stanford Law School in Fall 2012 in collaboration with Northwestern Law School. WCL is also offering a single school, divided class in Fall 2012. The class is further scheduled to be adopted as a single school, divided class at another law school in Spring 2013, and will be offered at American WCL in Spring 2013 in its original, international class format with Dundee.
Other schools have expressed interest in offering the class, including law schools, business schools, and schools that have begun offering transactional LLM programs. A text book for the class is anticipated to be available in Fall 2013 (Aspen Publishers). The hope is that this course will continue to attract more schools and more collaborative pairing.
Ideally, in the future, two law schools in the same city or general area will adopt the course, which would enable live, face-to-face negotiations to replace video conferencing. We would also like to see more international collaborations, as the module is an excellent opportunity to foster cross-border and cross-cultural legal education. With more professors adopting the model, it is also hoped that a robust dialogue will develop about teaching experiences and suggestions so that the pedagogy and methodology can develop further. Ultimately, more modules will be added to enable a broader selection of teaching alternatives.