Pick the rules carefully or adjust your expectations

Pick the rules carefully or adjust your expectations

I approach almost every situation — and, clearly, every “negotiation” — with a very straightforward (but not necessarily simple) premise: the rules of the game determine the outcome. The lawyers with whom I practice (and my clients) have heard it so many times that they groan — audibly — when I repeat it, but it is a powerful statement because it focuses my attention where it belongs, on the outcome. Clients hire advisors because they have a vision of an outcome they want to see realized. The outcome is what matters, but the rules that are established to effect that deal will inevitably determine that outcome. Make sure the rules you create (as reflected in your deal points) are consistent with your objective and, more importantly, don’t actually create an incentive or likelihood for an outcome that is different than the one you intend.  

The “rules of the game” concept shows up in virtually all aspects of life, and you need to be cognizant of both the “written” and “unwritten” rules. Teenagers are masters at this (If mom never lets me use the car, but dad is another story, then Rule #1 is always ask dad for permission to use the car, and Rule #2 is never ask mom for permission in case dad asks whether mom said it was okay.). However, I can assure you, this is something to focus on in all circumstances!

Often clients will say that they want to achieve one result, but when we start discussing the “rules” it becomes clear that the rules they have envisioned (e.g., how the executive’s bonus compensation is set up, the management agreement’s performance test or incentive fees) may not be aligned with their desired outcome. The rules they want to establish need to be more accurately aligned to deliver their desired end result. When considering a transaction, check yourself to make sure that the incremental rules that you are creating (written and unwritten) are consistent with what you believe your objective to be. Conversely, if the outcome you desire requires you to accept conditions and terms that are completely unpalatable to you, perhaps you need to adjust your expectation of what the desired outcome should be. The important thing to keep in mind, however, is that outcomes don’t just happen; they are the result of dozens if not hundreds of incremental decisions and rules that you establish along the way.