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International Business Negotiation with Jay Finkelstein

International Business Negotiation

International Business Negotiations is a course taught by STL Visiting Professor Jay Finkelstein every Quarter Four. The purpose of the course is to provide students with an opportunity (i) to experience the sequential development of a business transaction over an extended negotiation, (ii) to study the business and legal issues and strategies that impact the negotiation, (iii) to gain insight into the dynamics of negotiating and structuring international business transactions, (iv) to learn about the role that lawyers and law play in these negotiations, (v) to give students experience in drafting communications, and (vi) to provide negotiating experience in a context that replicates actual legal practice.  This course will also give participants the opportunity to work across cultures with students from a different country.

LI Chaoqing (“L” in the following text): So shall we start from the background? How did you start the class?

Prof. F: Yes. I started to teach about 20 years ago. The reason I began teaching was that I was frustrated by the fact that my legal education – which was a very fine legal education –  taught me nothing about what I do as a practicing transactional lawyer. I was concerned that law school should not only do a good job in helping to think through various legal issues but also prepare for practicing.

But as a transactional lawyer, I needed to have a skill set of how to memorialize client agreements, and hold up; and the ability to obtain goals, to avoid disputes, to create working environments or a framework through contracts that clients could operate to achieve their objectives.

And I saw those skills are completely lacking in law school. I had no introduction to contracts other than contracts that had gone wrong. It frustrated me that when I went into transnational practice, I didn’t know where to begin. That’s why I wanted to start teaching, to try to create a classroom environment in which the transaction process could be studied, could be learned, and could be learned in a way that you could explore the process as you were going through it and you could examine it through experiential learning embedded. It was done in a safe haven, a safe environment where you can’t make a mistake because there’s no one to be harmed. You can learn from fits and starts and how you approach it, and you can change your approach. In the examination, students would act as a young associate being handed a set of facts and being told we’re gonna negotiate. The examination requires students to walk through the entire process, from how do we approach this, how do we understand the facts in a way that we can use them to negotiate a transaction – understanding the other side, the obstacles – to create workable solutions, and then how to memorialize those in an agreement.

By studying each step, students will become familiar with the transaction. This could expand the law school education to encompass what many practicing lawyers do which is to put deals together rather than taking deals apart that enter disputes. I wanted to get into the situation that a law student could walk away from a class and understand the transaction process. I used an international transaction because it was a vehicle for showcasing so many of the issues that lawyers encounter. We could do it safely and discuss it and therefore cover a very large amount of information in a controlled way.

L: Our negotiations course is so unique. At least for me, I know few universities in China have such a course that offers opportunities for practicing negotiation. I know negotiation is an important part of a transaction and (important) for transaction lawyers. But how do they matter for law students?

Prof. F: Negotiation skills are the cornerstone of transnational practice because transactions come together or agreements that are reached through the process of negotiations, which involved in business negotiations and legal negotiations. When I went to law school, negotiation was not a topic that was taught at all. In the early 1990s, negotiation started to be studied and examined in a way that you could understand the process in the psychology of negotiation and better understand the skills you need to be able to enter effective negotiation. It is the skill to understand people and how people react and how to reach consensus. So you need to understand the psychology of people and also the complexities of issues that are always dealt with in the context of a negotiation, because business transactions are complicated, getting involved in the integration of business knowledge with legal knowledge.

Also, you need to understand what do you do when you reach an impasse – that the parties are struggling to figure out how to reach an agreement in the tools that you can utilize. Since the early 1990s, more law schools are starting to teach at least basic negotiation classes, basic skills and building blocks of negotiations. Those classes are a good place to start. The challenge of those classes is that to teach certain skills, they tend to be focused on small negotiations. Today, we’re going to negotiate an employment agreement. Next class, we’re gonna negotiate a non-disclosure agreement. After that, we’re gonna negotiate some other form of agreement. These are one-time, short negotiations – 30 minutes or 1 hour. With colleagues in your class, you can practice negotiations. They are very constrained, confining.

What I’ve tried to do with the complex negotiation and the single transaction that is studied for the entire class and negotiated through multiple rounds of the entire class is to create complexity. It is cumulative. You start with whatever happens in the first session and carry them into the second session and the third session, and you build relationships among people. The negotiation at STL is partnered with another international university so you don’t know the counterpart and you don’t know who you’re negotiating with. You’re working with similar facts. But you’ve never met them. Part of the process is getting to understand who they are and what do they value and therefore, you are experiencing what is more like a real negotiation environment over some time, what you’re likely to confront as a young lawyer. With someone that you don’t know or you get to know, you build rapport.

L: Okay, sure. It’s comprehensive. The next question is about the book, the book is created by yourself, right? (D. Bradlow and J. Finkelstein, “Negotiating Business Transactions” (2d Ed., 2018, Wolters Kluwer))

Prof. F: I have a co-author. The other co-author is Daniel D. Bradlow. The book has been created around the module with the idea that the book provides the background and the tools necessary for understanding the fact pattern in preparing for a negotiation. So the skills are described and the elements to think about are all presented. Then we also discussed this in the class. So the book is a reference and a tool, but it’s also a prelude to our more detailed conversations. And we have to talk about it in class and elaborate on some of the components that are in the textbook. But the textbook was designed to be able to facilitate the class.

L: Sure. Are there any other similar or comparable courses or books out there right now?

Prof. F: Actually, no. There is not.

One reason why this class has turned out to be so popular is that it isn’t offered in any other way. The class had now been adopted by over 40 law schools. At STL, we partner with international law schools in the US. There are many different ways that we’ve been able to construct the class. We do it in about 3 weeks at STL. I have used a portion for professional training, as short as 4 days.

Because it is so unique, it’s been adapted in multiple ways. Many of the classes around the world are taught by people that I’ve trained. I do know that it’s also taught by other faculty members who had adopted the class for their purposes and integrated the material into their teaching of business transactions for negotiations. I’ve been very gratified by the fact that the class has become so popular – literally across the world.

L: Good to hear this. I also agree that this course should be popular.

Prof. F: The class is taught around a module that involves a developing country in Africa. And I used the class format and materials to teach government lawyers in east Africa. I’ve done that over about the past 10 years because it is real. It is exactly what they are dealing with in negotiating contracts for their countries. It is, as I said before, it’s just close to real as we can create and still keep it in a classroom. When we do the international negotiation, as we do at STL, it does involve cross-cultural components. That is the nature of international practices – you’re dealing with people that come from different backgrounds. Most of the time, people who are using English as a second language, which create their complexities. Particularly if someone using English as a second language is negotiating with someone who is a native English speaker, there can be multiple opportunities for misunderstanding. Even though they’re using the same words, it isn’t always a point of “being a common understanding”.

The important thing about the classes is that you get to experience things that then resonate time and time again. As you go into more advanced practice and study, you’re able to draw back on many of the lessons that we can talk about in the first instance in a class like this. So the idea of the class is really to open a framework of thinking about these types of matters that allows you to apply that again and again to other situations that you will encounter. It is not so fact-specific as it is building a structure for understanding.

Just like if you’re gonna do a dispute, you understand the process that you go through the court or with the arbitrator, this course is to develop the process that you go through in negotiating a transaction. I always say that there are only two takeaways from the class. (1) One is the process of how do you approach this complex fact pattern and prepare yourself for what you need to do during the negotiation? What questions do you need to ask? How are you gonna prioritize your issues? And then how are you gonna memorialize that into an agreement? (2) The second key component is the experience of doing that. And they will stay with you as you are in practice. Because of the use of experiential learning, it is the way of embedding the skill set most effectively.

L: I remembered that one highlight of the course is the business context of the fact pattern, including how the international market of raw materials and different structures of the joint venture may change the dynamics of the transaction. Why the business context is important is a negotiation?

Prof. F: As I said, to do transactions practice, you need to understand the business context in which the transactions take place. And it’s different if you’re negotiating in different industries. For example, high-tech industry has different interests than the manufacturing industry. When you understand the business, you understand what can go wrong and what are the risks. That brings a lot of the issues that you want to deal with in a negotiation. I do stress that to be a transaction lawyer, you have to be able to understand the business context of your client, which will help you understand what are the objectives and what are the risks, and also how you can try to mitigate those risks so that they have little impact in achieving the objectives. And you’re trying to create a framework in which the client can achieve the goals.

And keep in mind also that there has to be a mutual benefit in the context of a transaction agreement. Both parties have to feel that they are taking away a benefit. We call this a win-win structure of a negotiation. Sometimes it’s difficult for law students to appreciate the fact that you can represent your client, and both parties can feel satisfied with the result of the negotiation, unlike a dispute, which is typically a win-lose. In a good transaction effort, you can create a situation where both parties benefit. The reason the parties are coming together to do business is that they see upside from both parties’ perspectives. The lawyers are trying to make sure that they can achieve that in the most efficient and least risky way, by mitigating the risk and creating ways to work through difficulties smoothly.

I also say we do talk about this in class that one of the tools of a transaction lawyer is understanding financial analysis. And we talk about how we can use financial information to understand the parties to a negotiation. I can give many real examples from my practice about how being able to understand the financial information and the message conveyed. Just through a top-level review of financial statements, I can glean a lot of information about the parties, and I can understand what may or may not be an issue that I need to focus on in a negotiation. We don’t try to teach accounting in this class, but we talk about it as being a tool of a transaction by a lawyer. That’s a skill that a transaction lawyer can and should acquire at some point in time, to be able to enhance their effectiveness in working with business points. The business aspects are key and how they integrate with legal analysis and documentation.

L: I still think it’s impressive to learn the financial analysis in the course, which is very concise but very useful.

Prof. F: Good. That’s what I intended to try to create, in other words, to put the course in a context where a lot of the topics we talk about can be explored in much greater depth. And just mentioning them and discussing them briefly in class are enough to create the suggestion that these are important. As you develop as a transactional lawyer, you will deal with these in greater depth. But the key element is not to be surprised when you first hear about it.

When you go into a partner’s office and they say we’re gonna negotiate a transaction, you won’t have a blank stare saying “what does that mean?” Instead, you can go in and say, I understand what we have to do. And we go back to the framework that we talked about in class that provides you a guideline as to how to approach it and how to organize your thoughts, and then how to be an effective participant in that overall process. That’s what we’re trying to achieve. We’re trying to achieve a level of understanding to avoid the first surprise and because we’re negotiating, we’re doing it in real-time with counterparts that we don’t know. Yes, there may be some mistakes made in that negotiation. However, when you see the way people react to the way you say something, or you react to the way people say something, and there’s a misunderstanding, you take that lesson away and know how to deal with that content. So again, you’re not seeing it for the first time in practice; you’re seeing it in a controlled environment of the classroom.

L: This is why the negotiation practices are really valuable. We don’t have such practice in another way. When we get into law firm, and suddenly all the decisions we make would have effects, which would put junior associates under pressure.

Prof. F: The junior associates are in the best position to sort of translate all of these, because now they’ve been practicing and they’ve been seen how this does play out on behalf of real clients. They also see how to interact as part of a team.  Negotiations have team dynamics because they are done in a team.

That is another unique aspect because most law school assignment is done individually. And team dynamics is another component of actual practice. Experiencing negotiations within your team is the best way to proceed. So that you’re looking at another dimension of actual practice. Your side of the table, which have to reach some consensus and then try to reach consensus across the table with people you don’t know. And those which have human dynamics, psychology, business elements, and the facility of understanding – are a key to being able to communicate effectively, because you can bring it back to the context of the business relationship trying to be established.

L: I do agree. My first experience is that teamwork in a negotiation read differently from other paperwork. Everybody in charge of one part of one section is not like everybody will be talking about its issue and they will say you should not make such a decision because it will have some impact on the clients’ interests like everybody is concerned about the negotiation and would like to talk about that. It’s so dynamic.

Prof. F: Certainly. In any group, you have people who are more outspoken than others and people who are better writers than others. The skills get divided often along the lines that people feel comfortable, and people are acknowledged to have stronger skill sets. But it’s also important that you feel comfortable enough in a team environment if you think the team is going in a wrong direction, that you’re comfortable speaking up, and being able to say, have we considered this aspect – and that can be challenged. It’s building confidence as well in your thought process and ability to analyze that a key development aspect of being a lawyer.

L: What are the impressive moments for you in teaching this class?

Prof. F: What I love about this class is that I can watch students develop from the time that we start the class to the time that we finish the class. I can watch students go from being tentative to being confident. There’s a point in the class when I realize that the students have adapted and embedded many of the lessons in the middle of the negotiation, but they’ve developed enough confidence to be able to carry the negotiation forward. I literally can step back, be a guide and a consultant, and let the students control it.And I can see that moment happen.  It’s at the time they’ve already been working with their team. So the team dynamics are starting to work and they’re starting to understand the other side, and they’ve lived with the facts long enough that they’ve been able to understand the nuances of the facts, the facts are layered and sometimes conflicting. Now they see that there is a path forward.

It’s unusual in a class environment that you can watch students go from basically from not understanding a subject to totally grasping it and embedding it and developing confidence within themselves. It’s that realization, the fact that I’ve been successful in conveying the skill set that is the most rewarding.

And then, as you did in your last EMAIL, I will get an EMAIL from a student years after they’ve been in my class, saying something truly resonated in me, that something they were doing in practice is easier. It’s that which is rewarding from a teaching perspective that it’s been a skill so that is useful and that the students start to realize that they can apply it and make themselves more effective as lawyers. And that’s what we’re seeking to do – to create a practical element of skill utilization within the classroom that could be a starting point for developing as a professional lawyer and representative of clients.

L: It echoes with the background of creating this course – having a course that is close to real-life practice.

Prof. F: I teach what I practice. I utilize what I practice to embellish my teaching. There’s complete integration between what I do as a practicing lawyer and what I discussed in the classroom. I try to illustrate points with even current transactions for issues that I have encountered in actual practice to showcase how real the skill set is.

L: Yes. The final question: as a practicing lawyer, also an experienced professor, could you give some advice for students as for preparing for their future career, especially for a transactional lawyer career?

Prof. F: For preparing for a transactional lawyer, take as many substantive courses that relate to business practice, including Tax, Securities Regulation and Secured transactions, which were being components of the transaction practice, and anything about Mergers and Acquisitions. To learn the framework, and then to take classes that allow you to apply and build a skill set, like clinics, like my class, which are simulations that put you in a situation where you have to utilize your skills. Much of law school is taught in silence. Today we’re studying environmental and tomorrow we’re studying labor law. But in a transaction, you need a lot of knowledge and you’re blending it. It’s multi-disciplinary. Transactions are not silent. You need to be able to understand that you’re applying almost an entirely new education in doing each client representation, you need to have that broad skill set, but you need to be able to draw upon it in a multi-disciplinary way to be able to be the most effective.

That’s part of what we’re doing in a class – like bringing everything together. You bring your skillset together and you will apply it. And therefore, you learn how to utilize the law, not just learning it. It’s being able to use it effectively to achieve clients’ objectives.

L: Yeah, I think there are more and more courses like this coming out.

Prof. F: Of course. Since I started teaching, there has been a more deliberate effort to develop classes that can teach the skills that we talked about. Though there may not be a class identical to the one that I teach, there are other classes that teach similar skill sets. Some classes look at real contracts in real transactions and try to understand the components. There are transactional drafting classes. More negotiation classes are being offered. Law school has gotten better. It still has a way to go before transaction practice has the same amount of coursework available as dispute resolutions. But it is progressive.

There are more people out teaching transaction skills now than when I started to practice. And that’s positive. I am very pleased to see that is indeed starting to happen more and more across law schools.

L: it’s valuable for us to build a skill set before we come into a law firm and are asked to do what we don’t know if without this course.

Prof. F: Absolutely. If you are interviewing with a law firm, in the conversation you can show that you understand the transaction, which might surprise the interviewer. Because they’re not used to seeing students who understand the transaction process.

Another value is that it’s an opportunity to see how you can use a legal education in different ways. Because of the emphasis on dispute resolution in law school, many law students think that they have to deal with the litigation environment. But there are other ways to use legal education in the context of transactions of business generally, and it opens many more doors and avenues of how you will take your professional career, in directions that you may enjoy. In other words, another benefit is just showing that there’s more than one thing you can do. As I said, most of my practice is trying to create frameworks that avoid disputes, as distinguished from having to deal with disputes. I get to use law in a creative way to think through how the future will play out and try to avoid problems instead of trying to apply the law to something that already went wrong.