A detailed case study of how to use Negotiation Strategies, an application of Game Theory and Decision Tree Analysis to develop an optimum strategy for negotiating a settlement in litigation. We demonstrate a process that can: identify and assess negotiation risks; know whether th current Negotiation Strategy will fail in time to change it; and execute the most effective strategy to get the best possible outcome.

1. Litigation
Risk Management
Institute
Negotiation Strategies:
Achieving Your Objectives
Litigation Settlement Case Study
Bruce Beron, Ph.D., President
34 Coquito Court, Menlo Park • California 94028 • Phone 650.854.1914 • www.litigationriskmanagement.com • bruceberon@lrmi.com

2. The Litigation Risk Management Institute has been advising
Fortune 500 clients on settlement valuation, settlement
strategy, and litigation strategy for 30 years.
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
• Representative Assignments have included:
• Securities law class actions against a Big Four accounting firm
• A series of related cases against a builder of nuclear power plants with
potential damages greater than $10B
• A multi-venue, multiple patent intellectual property armageddon between
two international petrochemical companies with multi-billion dollar
consequences
• A high stakes patent battle between two major telecomm companies
• Expert witness in the Tribune bankruptcy regarding the fairness of a
proposed settlement
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3. We enable our clients to achieve the best possible negotiation
outcomes.
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
• We provide a process to help you:
• Identify and assess negotiation risks
• Know whether your current Negotiation Strategy will fail in time to change it
• Execute the most effective strategy to get you the best possible outcome
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4. Our approach has been particularly effective with litigation
settlements as well as in a wide range of other negotiations and
policy issues.
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
Corporate
Advisory
Contracts
Legal
Settlements
Legislative &
Regulatory
Policy
Acquisitions
Licensing
Environmental /
Toxic Torts
Banking Reform
Privatization
Joint Venture
Relations
Product Liability
Return Rates for
Utilities
Mergers
Procurement /
Sales
Patent
Infringement
Currency
Devaluation
Industry
Consolidation
Government
Contracts &
Bidding
Securities Class
Actions
Foreign Landing
Rights
This methodology has also been applied to a broad spectrum
of national and international public policy issues.
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5. Effective Negotiation Strategy is a four step process.
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
Problem
Framing and
Issue
Definition
Data
Assessment
Analysis
Strategy
Development
and Execution
Define goals
Issues for
negotiation
Identify
stakeholders
Influence/
relative clout
Salience/
focus
Current
negotiating
position
Identify
negotiation risks
Identify
opportunities
Choose initial
strategy
Refine
strategy as
negotiation
proceeds
A more detailed description of the process and inputs is available on request.
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6. Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
The first step is to know what your goals are.
Problem
Framing and
Issue
Definition
• What do you want to get out of the negotiation?
• What are the possible components of value?
• What are the consequences of getting what you want?
• “Be careful what you ask for — you might get it.”
Data
Assessment
Analysis
Strategy
Development
and
Execution
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7. You should establish a Reservation Price before commencing
negotiations.
• What is the maximum you should be willing to pay or the minimum you
should be willing to accept?
• It is the value to you of what you are buying or selling.
• In litigation it is the expected net present value of the trial outcome and
the related business consequences.
• Plus expected litigation costs if you are a defendant, minus, if you are a
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
plaintiff
• Include a risk premium when appropriate.
Problem
Framing and
Issue
Definition
Data
Assessment
Analysis
Strategy
Development
and
Execution
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8. Because of uncertainty and complexity, the answers to these
questions are almost never clear.
• Decision Tree Analysis is the best way to answer these questions —
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
before starting negotiations
• Do just enough analysis to determine your Reservation Price.
• Decision Tree Analysis strikes a proper balance between:
• Paralysis by Analysis
• Extinction by Instinct
Problem
Framing and
Issue
Definition
Data
Assessment
Analysis
Strategy
Development
and
Execution
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9. Inside and outside counsel agreed that damage findings would
exceed $300M dollars, and a settlement would cost at least $200M.
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
Case Study:
Settling a commercial litigation claim.
• The client, an auditor, was being sued by a consortium of banks that had lent
money to Cobalt’s management for an LBO.
• At the request of management, the auditor had prepared an internal use only
report on the financial state of the company, which was favorable at that
time.
• Management showed the report to the lead bank with the understanding that
it was not to be shared with others.
• The lead bank subsequently shared the document with other banks in the
process of forming the consortium.
• After the LBO, Cobalt tanked and the banks sued the auditor for $650M, the
full loan amount.
Problem
Framing and
Issue
Definition
Data
Assessment
Analysis
Strategy
Developmen
t and
Execution
This case has been disguised for confidentiality.
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10. We need three quantitative assessments for each stakeholder.
• Influence is the maximum control that a Stakeholder can exert if fully
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
focused on this negotiation issue.
• Salience is the extent to which Stakeholders choose to focus their
Influence on this issue.
• Position is the specific outcome that Stakeholders currently advocate
for each issue.
• This is not where they want to end up, or what they think they can get, but
their currently stated or implied position.
Problem
Framing and
Issue
Definition
Data
Assessment
Analysis
Strategy
Development
and Execution
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11. The data collection process is straight-forward and efficient.
Problem
Framing and
Issue
Definition
Data
Assessment
• The client was concerned that they did not have sufficient information.
• This is typical of most clients.
• In fact, clients almost always have better information than they think they
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
do.
• Where clients lack data we use a range of possible inputs.
Analysis
Strategy
Development
and Execution
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12. The explicit influence assessments show that the lead bank did not
have as much influence over the other banks as the client had
intuitively believed.
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
Problem
Framing and
Issue
Definition
Data
Assessment
Analysis
Strategy
Development
and Execution
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13. The data are entered into a proprietary model that uses game theory
and decision analysis to predict round by round changes in
stakeholder positions.
• In each round, each stakeholder’s position is modified based on
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
interactions among all the stakeholders.
• The process is repeated until there is an acceptable agreement or it is
clear that an agreement cannot be reached.
Problem
Framing and
Issue
Definition
Data
Assessment
Analysis
Strategy
Development
and Execution
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14. The model predicted a settlement of $225M if the client had
proceeded normally.
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
Problem
Framing and
Issue
Definition
Data
Assessment
Analysis
Strategy
Development
and Execution
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15. The model determines the outcomes for alternative Negotiation
Strategies.
• Once we have determined what positions, saliences and proposals are
under our control, we can shape the best combinations into executable
strategies.
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
• There are many possible strategies to consider.
• Some are simply labeled, others are more complex.
• Good cop/bad cop
• What, me worry?
• Let’s get it done — now!
Problem
Framing and
Issue
Definition
Data
Assessment
Analysis
Strategy
Development
and Execution
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16. A winning strategy was developed that had two major elements.
• The lead bank had to be isolated from the other banks.
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Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
• Filing a cross-complaint made them a codefendant.
• The client and its law firm had to be perceived as not focused on
settling — low salience.
• Senior management ignored the case, both publicly and internally .
• The law firm did not return phone calls, postponed meetings at the last
minute and appeared perfectly willing to go to trial.
• The negotiation team acted as if they had independent settlement
authority.
Problem
Framing and
Issue
Definition
Data
Assessment
Analysis
Strategy
Development
and
Execution
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17. The negotiation played out exactly as the model predicted, and the
case was settled for $40M, $185M less than anyone had thought
possible.
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
Problem
Framing and
Issue
Definition
Data
Assessment
Analysis
Strategy
Development
and
Execution
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18. Litigation
Risk Management
Institute
It has a 25-year history of accurately modelling the
outcomes of negotiations.
Subject Area ! Accuracy
• US government evaluation! Over 90%
• Journalistic evaluation! 92%!
• Evaluation by academics! Over 90%
© Bruce Beron 2014 Negot Start Lit
The approach has a proven* track record.
*References available on request.
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19. The process delivers practical answers to the key questions in high-stakes
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
negotiations.
• Should we be making side proposals?
• Who on our side, should make what proposal, to which of our opponents,
at what point in the negotiation?
• Who on the other side is bluffing, and who is the best person to
call their bluff?
• How aggressive an opening position should we take?
• Who should be at the table?
• Should we present a unified position or imply internal
differences?
Problem
Framing and
Issue
Definition
Data
Assessment
Analysis
Strategy
Development
and
Execution
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20. Clients are consistently amazed with the results.
Senior CIA Official:
The model “has resulted in accurate predictions in 90% of the situations in
which it has been utilized.”
U.S. Defense Department Official:
“Of all quantitative political forecasting methodologies of which I am aware,
the expected utility work is the most useful to policy makers because it has
the power to predict specific policies, their nuances, and ways in which they
might be changed.”
U.S. CEO:
“I will reserve a page in the Book of Prophets for it.”
This approach has been featured in:
The Financial Times, The Economist, The Independent, US News and World
Reports, International Herald Tribune, New York Times Magazine, .......
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
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21. Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
We would propose to start with a trial project.
• The first step is to choose an issue to be negotiated.
• The issue should be current and of consequence.
• The negotiation team and stakeholders should recognize the importance
of the issue and be willing to consider a new approach to their
negotiation.
• On the first issue for a new client:
• We will collect data and present the initial results.
• If you choose not to proceed at that point, then your only cost would be
our travel related expenses.
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22. Developing a Negotiation Strategy requires surprisingly little time.
Step One: ! Review Issues! 2-4 hour meeting
Step Two: ! Collect Data! 1/2 day meeting
Step Three: ! Presentation of Initial Results! 2 hour meeting
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
! and Initial Strategy Development
! ! Usually available in 3-10 days
Step Four: ! Refinement & Execution! 2 hour meetings
! of Negotiation Strategy. as needed
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23. We enable our clients to achieve the best possible negotiation
outcomes.
Litigation
Risk Management
Institute
© Bruce Beron 2014 Negot Start Lit
• We provide a process to help you:
• Identify and assess negotiation risks
• Know whether your current Negotiation Strategy will
fail in time to change it
• Execute the most effective strategy to get you the best
possible outcome
This process has saved companies
$100’s of millions.
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