Agency Issues In Negotiations Al And Bob example essay topic

Scenario: Agency Issues in Negotiations Al and Bob entered the third meeting with some confidence. As the representatives for Symbiont Services (SS), they had hammered out some detailed language with the Department of Natural Resources (DNR) that would meet all of the prior objections raised during negotiations by the agency, and would still assure SS a reasonable profit for the services that SS would provide. Al had been the primary negotiator for SS. Bob was now entering the negotiations to provide the final legal fine points to the agreement in principle, and to thereafter give the legal department's blessing to the agreement. On the other side of the table, Rhonda and Sarah unpacked their notes meticulously.

Rhonda, DNR's primary negotiator, had worked with Al to identify all the issues raised by the respective organizations and craft an agreement that weaved together all the parts into an effective agreement. Sarah had joined Rhonda for this meeting to sign off for the States Attorney Office, putting the legal seal of approval on what had been written. While Sarah and Bob unloaded their papers and books, Al and Rhonda chatted about how difficult it had been to identify all the issues raised at their respective home offices, then figure out how things could be addressed in a way agreeable to both sides, and then reduce the entire wall of post-it notes, taped copies of e-mails, and highlighted letters to a readable document. Because they are the talking links between their organizations, Al and Rhonda had to almost personally bridge the gaps between the organizations, and often it seemed they were a team of their own, arguing with the two! SS home teams. !" The last sticking point had been the issue of how much SS would discount its regular charges for services.

DNR was a very big customer and expected to get the bulk discount for services. The DNR had wanted a 50% reduction from the regular rate; SS had offered 10%, and they had finally settled on a 25% rate reduction for this contract, in the interest of providing a break to taxpayers. Both Al and Rhonda were careful to obtain e-mailed or hard copy approval of the 25% rate reduction from their bosses, because neither had the authority to set unique rates unilaterally. Sarah, representing DNR, brought the meeting to focus by reciting the issues that had been resolved, and asked SS if it had any final issues to resolve before declaring the final document completed. When SS replied that all was in proper order, Sarah dropped the bomb: She could not certify the agreement as okay from the State Attorney Office point of view unless and until SS agreed to a 33% rate reduction, not a 25%.

Sarah didn! |t offer much explanation for this abrupt change, only repeating that anything less than a 33% rate reduction was a deal breaker. Al looked at Rhonda, and Rhonda shrugged her shoulders, indicating this change was news to her. Bob commented that this was highly inappropriate, because the substantive matters had been signed off by the negotiators, and this meeting was not to plow old ground but to verify that there were no legal pitfalls that the negotiators didn! |t know about. Sarah repeated her 33% statement, and suggested that Al and Bob use the adjoining office to call their home office and get the okay for the change so that everyone could initial off on the agreement and send it to the respective CEOs for execution. An Overview of Agency Law in Negotiation There are three primary assurances that a negotiator should confirm relating to agency law in the negotiations setting. First, it is very important that the other party know that the negotiator is making this offer as an agent of some other party or organization that will actually pay for the products / services so the negotiator doesn't have to personally pay for the stuff.

Second, it is important that the negotiator have proof that he or she has the authority to act as an agent, and to what extent and scope. Finally, it is significant that the acts of the agent or the acts of others can create vicarious liability for the organization that the agent represents. Notice of Agency This is usually understood to an extent, but there are two dimensions that are not frequently clarified: limits and scope. When a corporate officer or executive sits down at the negotiation table with a supplier, customer, union, government regulator, or other stakeholder, that stakeholder understands that the officer or executive is representing the organization, not his or her personal bank account.

What is not so clearly understood is the scope and limits of the representation. If the meeting is called to determine (negotiate) what the supplier will charge to service the Ohio offices, for example, then the implied scope is just that! X cost of providing services in Ohio. The scope might be further clarified as relating to an annual contract, or to services during a special time period, like the Super Bowl. Finally, the limit of negotiation is related to the negotiation itself!

How much, how long, how approved. There may be dollar limits for the final contract, or some factor may limit the time that can be spent in negotiation, and, finally, there may be definite limits on who will finally approve and sign the agreement that is being negotiated (the one who can turn the negotiation into a contract). There are many aspects of scope and limit that deserve discussion at the outset of negotiation, but two that should be discussed carefully involve what can and cannot be agreed to, and who will have to finally approve the agreement to make it official. Discussion of the first item! What can and cannot be agreed to by the negotiator!

X serves to improve the efficiency of the negotiation process. For example, if the parties are present to negotiate what an engineering firm will do to develop a new process for a client, the engineering firm's negotiator clearly needs to explain what can! |t be negotiated. If the firm absolutely will not construct a pilot (also known as a prototype or first article test) at its own expense, it should just say so at the outset. Note that this is totally different from a situation in which the firm will do something, but has a price limit. If the firm is willing to pay up to $2 million for a prototype, it's not a smart thing to tell that to the other party, because they now know how much to demand.

The amount one is willing to pay for something is a matter of degree, not a! SSyes or no!" situation. Disclose! SSyes or no!" situations up front to get them off the table. Don! |t use those items in negotiations, then come back later and say they are non-negotiable's. That's confusing.

Discussion of the second item! Who has to sign the agreement to make it official! Xis important because the negotiator is clearly setting forth his or her limitations as an agent for a disclosed principal. The agent is a fiduciary representative for the principal. If the agent is the vice-president of marketing and represents the corporation, that agent may have the authority to hammer out an agreement, but the terms of that agreement are not finalized until the designated authority!

X perhaps the CEO! X signs the document. Benefits of Disclosed Agency with Limited Authority By disclosing that material fact, the agent / vice president accomplishes several important things. The agent clearly puts others on notice that the agent is representing another and does not have the authority to make a final decision. It also protects the agent, limiting his or her liability substantially now that the other party knows the negotiator is only an agent. The organization is also protected, not only from poor decisions of an agent, but also from the claim of the other party that!

SS we agreed to this, and now he or she is backing out! !" That claim is easily dismissed by pointing out that the agent disclosed that he or she did not have final approval authority at the outset, so no such agreement could be made. Moreover, it assures that any momentum the other party may bring to the negotiations will be stymied, because no matter how much the agent may wish to say, ! SSYes!" , he or she can! |t doit. There is no authority to finalize. All of us may have seen this benefit in action when we negotiate to purchase a new car in some high-pressure (but certainly not all) dealerships.

The sales agent will show you cars, let you drive them, ! Soup sell!" you to the best car for you, and answer your questions. The one thing the agent cannot do, however, is to make a deal on a car. The agent will write down some number on a piece of paper and may say, ! S SIf I could get the car for you at this price, would you buy it? !" If you say, !

SSYes!" , the agent will ask you to initial next to the price number, and will take the paper to the sales manager. When you put your initials by the price, you may have made an offer to buy at this price. The sales manager! Xthe agent's boss! Xis empowered to make a contract by accepting your initialed price offer, if that sales manager likes the price you offer. By doing this negotiating tactic involving the legal concept of agency, the car dealer maintains control!

Xthe sales agent can! |t sell a car at the wrong price, because he or she can! |t sell a car. Moreover, by positioning the potential car buyer to make the first offer, the sales manager, not the buyer, is empowered to close the deal by simply saying, ! SSYes. !"h Think about how the car dealership puts itself in a better position by not empowering the sales reps to be able to make an offer! Xthe customer has to start it. Does this technique work in other negotiations, too? Who has the negotiating advantage!

Xthe negotiator with near absolute power, or the one with little power? Negotiator Authority to Act on Behalf of Principal When a negotiator represents the organization (the principal) in bargaining with a stakeholder, the negotiator is acting with some form of authority. These levels of authority are important to distinguish. The authority that an agent / negotiator wants to have is express authority. This authority is conferred directly and expressly on the negotiator by the principal (the organization, or, more specifically, the CEO or other person with authority to confer such authority). It can be conferred in a letter, or in a public announcement (!

SS Bob Smith will be our chief negotiator in labor contract negotiations with the union!" ), or by any other means that authoritatively informs of the agent's status. Another form of authority is implied authority. This authority is not expressly stated, but is implied by statements of other authority. As an example, consider the case of the executive who is opening a retail site in a new city. If that is the task, and the delegation of authority, then there are many other types of authority that would be implied. The executive would impliedly be granted authority to lease or purchase a retail site, staff the operation, set up financial accounts and engage suppliers, and so forth.

All of this is implied authority! Xnot expressly stated! Xand it derives from some other express authority. Apparent authority is the authority that is conferred by the actions of the principal, but is not supported by an express statement by the principal. For example, if the executive tasked with opening a new retail site sent a report back to the CEO that listed things the executive was preparing to do, and the CEO didn! |t object, others may assume the executive has apparent authority. Note that authority can be limited by the principal.

In an oft-described example, an office worker for a financial firm was designated as the employee to go to a nearby office supply store each Friday to pick up supplies and equipment that the office needed. The financial firm (principal) had the employee show a letter to the manager of the office supply store. The letter, duly signed, stated that the employee was designated to pick up supplies and charge to the firm's account so long as the employee was in possession of this letter, and that the letter would be reclaimed from the employee if the agent authority i was revoked. This is a revocable express agency. Everything went along just fine for a couple of years. The employee would come in each Friday to purchase supplies and equipment, sometimes as much as a few thousand dollars per visit.

The workers and management of the office supply store came to know the employee, and they would even have a soft drink with him when he came over. After the first few months, the store didn! |t ask to see the letter any more, because they knew the employee on sight. After a couple of years, during a downsizing, the employee was discharged by the employer, and was asked to return the letter authorizing his purchases at the office supply store. The employee did return the letter, left the firm, and went straight to the office supply store where he purchased about $10,000 in laptops, printers, phones, and pretzels. Of course, by now the store never asked for the letter of authorization. When the office supply store presented the bill for that day's purchases to the firm, the firm said that there had been an unauthorized purchase, and that because the employee did not have a letter of authorization, it was invalid.

The store! Xnot the financial firm! Would have to eat the loss. The case went to court. The court held that while the firm had stipulated a manner by which the office supply store could verify the authenticity of the purchases, the firm could reasonably expect that the store personnel would not use that letter for verification after some time, and was under a duty to contact the store and tell the manager that the employee was no longer authorized. This case illustrates that even where the firm specifies the manner in which agency can be determined, it cannot hide from its duty to take affirmative means to announce the termination of the agency relationship.

Think about express and implied authority, apparent authority, and stipulation about how authority can be verified:" h The negotiator (s) in a business dealing can verify the level of authority that their opponent has by reviewing letters or other communication that establish the negotiations. Is this a necessary thing to do, or should the negotiator accept the other party's authority as a given?" h If other staff members accompany the negotiator, providing supporting information, do these people have negotiating authority? What if one of them makes an offer of some sort? Do you accept it as an offer or not?" h If a staff member makes a statement relating to the negotiations, and the designated negotiator does not disavow that statement, is it valid in the negotiations?

Does this mean that what the staff person said counts as an offer? What does this suggest about the behavior of people who are present in support of the designated negotiator?" h If the other party does not question the authority of staff who presume to negotiate for the other side, does that set them up the same way the office supply store was damaged in the above scenario? Negotiator Responsibility to Communicate Offers (and other information) One of the most important things a negotiator / agent can do is to promptly communicate offers and information to the principal, so the principal can provide further instructions to the agent. Even where a principal authorizes the independent actions of an agent without consultation, the courts have consistently held that an agent is a fiduciary party!

One who owes a special duty to the principal! Xand that duty requires the agent to inform the principal about things that are happening, especially if those things include offers from the other party. "h When the other side makes an offer that a negotiator knows is unacceptable, is the negotiator still obligated to convey the offer to the home office anyway? If not, could the negotiator be liable for saying, ! S SNo, !" if the home office said it would have said, ! SSYes!" ?

Conclusions on Negotiation in an Agency Environment Review the scenario at the opening of this document. Are there preventive steps that Al, Bob, Rhonda, and Sarah could have taken to improve their positions? What should the parties do now, based on your understanding of the law of agency as it applies to negotiations?