8/8/2019 Should You Sign Your Term Sheets? The Power of Commitment and Consistency - by Harry Boadwee - Technology …

http://slidepdf.com/reader/full/should-you-sign-your-term-sheets-the-power-of-commitment-and-consistency- 1/2

Harry Boadwee’s

 No. 5

In this Newsletter•  Should You Sign Your Term Sheets? The

Power of Commitment and Consistency

Should You Sign Your TermSheets? The Power of Commitment andConsistency

I recommend using term sheets for most dealsother than the simplest ones. Clients often ask 

me, “Should we sign the term sheet?”

Previously, I told them it really doesn’t matter.

From a legal viewpoint, if the term sheet states

that it is not a legally binding contract, then itisn’t a contract, and signatures are irrelevant. I

said, “Although it doesn’t matter legally, sign it

if the parties want to show their commitment to

the deal.” I would add, “It also can be useful if the company requires internal approvals for

deals. Signing a term sheet can help you get

the approvals and show that you got them.”

My recommendation today is stronger: if you

want to commit the parties to a deal – even if the commitment is not legally binding – then

sign the term sheet. The reason is not legal,

and not to memorialize internal approvals.

The reason is to trigger the psychologicaldrives of commitment and consistency.

In his book, Influence: The Psychology of Per-

suasion, social psychologist Robert B. Cialdini

explains how people can be persuaded to moveto higher levels of commitment to an action or

issue. They do this out of a desire to beconsistent with what they have already done.

According to Cialdini, the tactic is to start with

a small request in order to gain eventual

compliance with related larger requests.

One tactic is the foot-in-the-door technique.

Psychologists Jonathan Freedman and Scott

Fraser tested and demonstrated its

effectiveness. A researcher went door to doormaking an outrageous request of homeowners

to place a public service billboard on their front

lawns. “They were shown a photographdepicting an attractive house, the view of 

which was almost completely obscured by a

very large, poorly lettered sign reading DRIVE 

CAREFULLY.” Understandably, 83% refused

the request for the giant sign.

However, 76% of a particular group agreed to

the request. Two weeks before, this group had

first agreed to a small request: to display a

three-inch-square sign reading BE A SAFEDRIVER. Cialdini explains that they agreed to

the large request to maintain consistency with

their prior agreement to the small request.

For another sample group, a researcher asked

homeowners merely to sign a petition for“keeping California beautiful.” Approximately

50% of that group later agreed to display the

giant DRIVE CAREFULLY sign.

Cialdini observes that “What [these] findingstell us, then, is to be very careful about

agreeing to trivial requests …. I am rarely

willing to sign a petition anymore, even for a

position I support.” He goes on to discuss the“committing power of written statements,”

such as written goals and objectives. See the

book for an explanation of why the drives forcommitment and consistency may work, and

descriptions of circumstances where they may

be particularly strong.

www.BoadweeLaw.com  1

8/8/2019 Should You Sign Your Term Sheets? The Power of Commitment and Consistency - by Harry Boadwee - Technology …

http://slidepdf.com/reader/full/should-you-sign-your-term-sheets-the-power-of-commitment-and-consistency- 2/2

By the thinking of Cialdini, and the research of 

Freedman, Fraser and others mentioned in the

book, the term sheet can become the smallcommitment that grows into the larger

commitment of a definitive contract. Signing

the term sheet helps trigger the drives of commitment and consistency.

That is well and good if you are the personpushing for a definitive deal on your terms. If you aren’t, how do you defend against this

strategy?

First, Cialdini recommends calling out the

person who is using the strategy: “I don't try

to deny the importance of consistency; I justpoint out the absurdity of foolish consistency.”

I would add that consistency itself can be

molded: lawyers can “interpret” or “construe”

wording in a term sheet or contract in order topay lip service to consistency.

Second, obtain a review by persons who do

not feel the tug of commitment and

consistency. In large companies, seeking

approvals by persons “up the ladder” or byfunctional groups (such as a finance, legal or

procurement department) means that personswho are not psychologically committed will

review the deal. Startups rely on their board

members, investors and outside lawyers forthis. (This approach uses the forces of 

“authority” and “social proof” that Cialdini

describes elsewhere in his book.)

Third, if the term sheet is not legally binding,

remind yourself as much as needed that it is

not a contract. “The deal isn’t done until bothparties sign the definitive written agreement.”

This undercuts the force of the original

commitment.

Finally, be wary of people – even on your

own team – who mischaracterize your deal. Many will call a vague handshake a “done

deal” when it has barely begun. Others do this

to ram through internal approvals. This risks

losing flexibility and necessary changes to thedeal. On the other hand, many organizations

lack momentum and a drive to close

transactions, and too much review can slowly

kill a transaction. Strike a balance. Smoke out

the true blocking issues, resolve them and signthe definitive agreement, or move on.

Term sheets are excellent tools to define yourdeals. Keeping in mind the powerful drives for

commitment and consistency, sign them with

care.

All the best,

- Harry

Please visit my newsletter archives at

www.BoadweeLaw.com/newsletter.html 

Harry Boadwee's Technology Law Letter is published by theBoadwee Law Office, legal advisers to innovative companies in

the fields of technology transactions, software and internet law.

I appreciate your referrals. Please pass along or forward this

newsletter (without modification). For other uses, contact me.

To receive your own subscription to this newsletter, visit

www.BoadweeLaw.com/subscribe or send an email to

Subscribe@BoadweeLaw.com

Copyright © 2009 Boadwee Law Office. All rights reserved.

20370 Town Center Lane, Suite 100, Cupertino, CA 95014. Tel:

(408) 253-6100. Fax: (408) 253-6200.

This Newsletter is for general information purposes only, and is

not provided in connection with rendering of legal or otherprofessional advice. It is subject to the Terms of Use of theBoadwee Law Office (www.BoadweeLaw.com/terms.html) and

may be Attorney Advertising in some jurisdictions.

www.BoadweeLaw.com 2