The following question about contingency contracts was posed to Katherine Shonk, editor of Negotiation Briefings and a Harvard Kennedy School and Harvard Business School Research Associate.

Contingency Contracts and Negotiation

Question:

Lately I have been hearing a lot—both in the news and on the job—about companies using contingencies in contracts. Given that I sometimes negotiate deals that entail a lot of risk regarding how future events will play out, I am interested to know how contingencies work and how I might use them.

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Answer:

Contingent contracts have, indeed, been in the news recently, and you are correct to view them as a tool for managing risk. Negotiators often try to overcome their differences of opinion about how future events will unfold through persuasion techniques. A more fruitful approach might be to “bet” on your differing views. By adding incentives or penalties based on future performance to your contract, you protect both parties against risk.

When bidding for Groupon late last year, Google tried to hedge against uncertainty regarding the Internet deal company’s future performance by structuring a high percentage of its $6 billion offer as “earn-outs”—payments Groupon would receive only if it hit certain performance targets. Ultimately, this contingency was insufficient to bridge the gap between the two companies when Groupon balked over possible antitrust delays.

Mergers and Acquisitions Negotiations and Contingency Contracts

Here’s another recent high-profile mergers and acquisitions (M&A) negotiation you may have read about. In October 2010, the Paris-based international pharmaceutical company Sanofi-Aventis SA made an $18.5 billion, $69-per-share takeover bid for the American biotechnology company Genzyme Corp.

Sanofi was hoping to boost revenues, as patents on some of its key products were expiring. Genzyme shunned the offer, saying it was too low, and refused to open its books to Sanofi.

In particular, Genzyme felt Sanofi was undervaluing its star pipeline product, a potential multiple sclerosis (MS) drug. Based on an encouraging midstage research trial, Genzyme predicted that Campath, originally a leukemia drug, would capture one-quarter of the $13 billion global MS market. By contrast, Sanofi estimated the drug would sell about $700 million annually, the Wall Street Journal reports.

The differing predictions set the stage for a contingent contract in which Sanofi and Genzyme could bet on Campath’s success in the MS market. Breaking months of impasse, financial advisers for both companies began to negotiate contingent value rights (CVR) that would give shareholders an added benefit if Genzyme hit a future benchmark tied to sales of Campath.

By late December, after unsuccessfully shopping itself to other pharmaceutical firms, Genzyme reportedly was warming to Sanofi’s bid. At this writing, analysts were predicting that Sanofi would raise its bid to about $75 per share. If talks ultimately fail, Sanofi has threatened to pursue a hostile takeover by attempting to replace Genzyme’s board with members who are more friendly to its offer.

When two parties legitimately disagree about future outcomes that affect their deal, they should be willing to bet on their beliefs by negotiating a contingent contract.

Contingency contracts are common in M&A, professional athletics, and building projects. But negotiators in many other realms could benefit from betting on their differing predictions by structuring incentives and penalties rather than resorting to persuasion techniques that have low odds of success.

Have you ever had to Agree to Disagree? Let us know in the comments.

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Adapted from “Agreeing to Disagree,” first published in the March 2011 issue of Negotiation.

Originally published in 2013.

The Program on Negotiation at Harvard Law School
and the Future of Diplomacy Project at Harvard Kennedy School
are pleased to present

The 2014 Great Negotiator Award Program

honoring

Ambassador Tommy Koh

Thursday, April 10, 2014
1:30 – 5:00 PM
Ames Courtroom, Austin Hall, Harvard Law School

The event is free and open to the public. No registration is necessary. Refreshments will be served.

Program Details:

1:30 – 3:00 PM – Multiparty Deals: The Law of the Sea, the Rio Earth Summit, and the Future of Large Conference Negotiations

Panelists:  Professor James Sebenius, Harvard Business School & Susan Hackley, Managing Director, Program on Negotiation

3:00 – 3:30 P.M.- Break & Refreshments

3:30 – 5:00 P.M.- Bilateral Deals: Trade and Regional Conflicts

Panelists: Professor Nicholas Burns, Harvard Kennedy School & Professor James Sebenius, Harvard Business School

We invite you to join us Thursday, April 10th,  for a conversation with Ambassador Tommy Koh of Singapore, the recipient of the 2014 Great Negotiator Award. This public program will feature panel discussions with Ambassador Koh and faculty from the Program on Negotiation and the Future of Diplomacy Project.

Ambassador Koh is the eleventh recipient of the Great Negotiator Award, awarded jointly in 2014 by the Program on Negotiation at Harvard Law School and the Future of Diplomacy Project at Harvard Kennedy School. The award recognizes Ambassador Koh for his work as chief negotiator for the United States-Singapore Free Trade Agreement, for chairing the negotiations that produced a charter for the Association of Southeast Asian Nations (ASEAN), for key actions that resolved territorial and humanitarian disputes in the Baltics and Asia, and for successfully leading two unprecedented global megaconferences: the Third U.N. Conference on the Law of the Sea and the U.N. Conference on the Environment and Development, also known as the Rio Earth Summit.

A graduate of Harvard Law School as well as the Universities of Malaya and Cambridge, Ambassador Tommy Koh served as Singapore’s Permanent Representative to the United Nations for a decade, and for six years as Singapore’s Ambassador to the United States. He is currently Ambassador-At-Large at the Ministry of Foreign Affairs for Singapore and Chairman for the Centre for International Law at the National University of Singapore.

To read more about Ambassador Koh’s background and accomplishments, click here for a paper by Professor James K. Sebenius and Laurence A. Green.

For additional information or questions, contact Polly Hamlen at mhamlen@law.harvard.edu or (617) 496-9383.

About the Awardee:

Ambassador Tommy Koh is currently the Ambassador-At-Large at the Ministry of Foreign Affairs for Singapore; Director, Institute of Policy Studies; and Chairman of the National Heritage Board. He is also Chairman of the Chinese Heritage Centre.

Ambassador Koh was the Dean of the Faculty of Law of the University of Singapore from 1971 to 1974. He was Singapore’s Permanent Representative to the United Nations, New York, from 1968 to 1971 (concurrently accredited as High Commissioner to Canada) and again from 1974 to 1984 (concurrently accredited as High Commissioner to Canada and Ambassador to Mexico). He was Ambassador to the United States of America from 1984 to 1990. He was President of the Third UN Conference on the Law of the Sea from 1980 to 1982. He was Chairman of the Preparatory Committee and the Main Committee of the UN Conference on Environment and Development from 1990 to 1992. He was the founding Chairman of the National Arts Council from 1991 to 1996 and Director of the Institute of Policy Studies from 1990 to February 1997. From February 1997 to October 2000, he served as the founding Executive Director of the Asia-Europe Foundation. He was also Singapore’s Chief Negotiator for the US-Singapore Free Trade Agreement.

Ambassador Koh was appointed by the United Nations Secretary-General as his Special Envoy to lead a mission to the Russian Federation, Latvia, Lithuania, and Estonia in August/September 1993. He was also a member of three WTO dispute panels, for two of which he served as Chair.

Ambassador Koh was the Second Arthur & Frank Payne Visiting Professor at the Institute for International Studies, Stanford University, USA, for 1994/95. He is a visiting Professor at Zhejiang University. He serves on the Board of Directors of the Institute for the Study of Diplomacy at Georgetown University. He is a member of the International Council of The Asia Society (New York) and a co-convener of its Williamsburg Conference. He is also a member of the International Advisory Committees of the Korean Federation of Industries.

Ambassador Koh received a First Class Honours degree in Law from the National University of Singapore, has a Masters degree in Law from Harvard Law School, and a post-graduate Diploma in Criminology from Cambridge University. He was conferred a full professorship in 1977. In 1984, he was awarded an Honorary Degree of Doctor of Laws from Yale University. He has also received awards from Columbia University, Stanford University, Georgetown University, the Fletcher School of Law and Diplomacy, and Curtin University. On 22 September 2002, Ambassador Koh was conferred an Honorary Degree of Doctor of Laws from Monash University.

For his service to the nation, Ambassador Koh was awarded the Public Service Star in 1971, the Meritorious Service Medal in 1979 and the Distinguished Service Order Award in 1990. Ambassador Koh was appointed Commander in the Order of the Golden Ark by HRH Prince Bernhard of the Netherlands in March 1993. He received the award of the Grand Cross of the Order of Bernardo O’Higgins from the Government of Chile on 3 April 1997. He also received the 1996 Elizabeth Haub Prize from the University of Brussels and the International Council on Environmental Law on 17 April 1997. He was awarded the 1998 Fok Ying Tung Southeast Asia Prize by the Fok Ying Tung Foundation in Hong Kong on 29 May 1998. On 22 February 2000, he was awarded the “Commander, First Class, of the Order of the Lion of Finland” by the President of Finland. On 2 May 2000, he was conferred the title of “Grand Officer in the Order of Merit of the Grand Duchy of Luxembourg” by the Prime Minister of Luxembourg. On 6 August 2001, he was conferred the rank of Officer in the Order of the Legion of Honour by the President of the French Republic. On 5 May 2003, he was awarded the Peace and Commerce Medal by the Department of Commerce, USA.

Founded in 1983, the Program on Negotiation at Harvard Law School is a pioneer in the fields of negotiation, mediation, and alternative dispute resolution.

In commemoration of the program’s 30th anniversary this year, the Program on Negotiation is proud to present a video describing many of PON’s various educational and research activities.

According to Chair Robert Mnookin, at its core the Program on Negotiation is devoted to improving the theory and practice of negotiation and dispute resolution.

PON is also dedicated to educating, training, and fostering future scholars, students, and practitioners of negotiation and alternative dispute resolution (ADR).

Program on Negotiation Chair Robert Mnookin explains that while conflict is inevitable, a fair resolution of such conflict isn’t always a foregone conclusion.

Because conflict is prevalent in human society, the skills and knowledge obtained through the research and instruction provided by the Program on Negotiation have been instrumental in changing how many people think about and approach conflict.

In addition to its academic activities, each year the Program on Negotiation honors an accomplished negotiator for his or her achievements in the field of negotiation and alternative dispute resolution with the Great Negotiator Award.

Professor James Sebenius highlights the diversity of conflicts negotiated by the Great Negotiator Award winners. For example, PON honored George Mitchell’s work leading negotiations between Northern Ireland’s Catholics and Protestants and former Secretary of State James Baker‘s work forming the Gulf War Coalition.

Program on Negotiation faculty member Gabriella Blum describes the Program on Negotiation’s unique approach to conflict resolution as the need for integrative bargaining (win-win) solutions rather than solely distributive bargaining (win-lose) solutions.

What this means is that it is important to keep in mind that negotiation is rarely a zero-sum game; rather, it is a process of collaboration and relationship building in areas of mutual interest.

Tufts University Fletcher School of Diplomacy and PON faculty member Jeswald Salacuse and Massachusetts Institute of Technology (MIT) professor Lawrence Susskind describe the history of collaboration between Tufts, Harvard, and MIT and the unique opportunities  that such an arrangement affords a research program like PON.

In addition to instructing students at Harvard, Tufts, and MIT, the Program on Negotiation also offers executive education courses geared toward training professionals who either currently work in the field of alternative dispute resolution (ADR) or who utilize negotiation as a regular part of their job.

Professor Mnookin highlights that we live in an increasingly interconnected world and that it is essential for us all to learn how to navigate conflict and work with others to achieve a successful resolution:

In the 21st century, what is plain is that peoples all over the world are ever more independent. It is going to be essential that we know how to communicate with and resolve our differences with people who are very different from ourselves. We are no longer isolated. And in fact, in this world, I think the work of conflict resolution and dealing with people fairly and efficiently becomes even more important.

Some of our most heated negotiations and disputes stem from value conflict tied to our deepest convictions—our personal moral standards, our religious and political beliefs, and our family’s welfare. Because these issues touch on who we are and what we stand for, they can quickly elevate tensions and make compromise feel especially challenging. Understanding the nature of value conflict is an important first step toward navigating these emotionally charged negotiations more thoughtfully and effectively.

Consider these value conflict examples:

• Business partners clash over the ethical standards they expect each other to uphold.
• A negotiator refuses to do business with a potential counterpart she deems unsavory on moral grounds.
• Parents bar their teenager from attending an event they think might be dangerous.

These types of value conflict, which highlight our norms, beliefs, and identities, can be incredibly difficult to resolve. When our most deeply held beliefs and principles are at stake, we often ratchet up value conflict out of a desire to be heard, refuse to make any concession that would appear to compromise our values, or categorically refuse to negotiate. Drawing on new research, we present three strategies for negotiating value-based conflict.

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1. Assess Whether the Value Is Truly Sacred

Value conflict often arises because one or more of the parties involved consider a value to be sacred and nonnegotiable. In some cases, our values truly are sacred and not open to compromise. In other situations, however, our values turn out to be “pseudo-sacred”—that is, we are willing to negotiate them under certain conditions, notes Harvard Business School professor Max H. Bazerman.

For example, in one study, negotiators with little power were more likely to compromise on a seemingly sacred issue than were negotiators with greater power, Notre Dame University professor Ann E. Tenbrunsel and her colleagues found in their research. A lack of alternatives led low-power negotiators to become more flexible.

Before refusing to budge on an issue you deem sacred, try to envision an outcome that would allow you to abide by the spirit of your values even as you make concessions on the specifics. Similarly, if a counterpart insists a particular issue is sacred, you might make a proposal that honors their values while also bringing you closer to agreement.

This doesn’t mean putting price tags on your most cherished beliefs; rather, it means thinking creatively about how to meet broader goals. Imagine, for example, that you adamantly oppose your sibling’s intention to sell some of your late parents’ possessions. But what if you donated your share of the proceeds from the sale to a charity your parents supported? You might prefer this outcome and avoid a protracted value conflict.

2. Offer a Concession on a Core Value

You may be able to induce cooperation from a reluctant counterpart in a value conflict by making a difficult but symbolic concession on a key principle.

In a 2007 study, Jeremy Ginges of the New School for Social Research and his team presented various proposals for resolving the Palestinian-Israeli conflict to citizens residing in the West Bank and Gaza: Jewish-Israeli settlers, Palestinian refugees, and Palestinian student supporters of Hamas. All three groups rejected proposals that would require their group to make a concession on a core issue in exchange for peace. And when each side was also offered significant economic aid, they were repulsed by the idea of trading their sacred values for cash.

However, when asked whether they would accept the peace deal if accompanied by a significant concession from the opposing side on one of its sacred values, all three groups became willing to negotiate. The Israeli settlers agreed to make concessions if Hamas accepted Israel’s right to exist. The Palestinian refugees grew more flexible if Israelis would relinquish their claim to the West Bank. And the Palestinian students became ready to bargain if the Israelis were willing to officially apologize for Palestinian suffering in the conflict.

When sacred values are at stake, we are likely to be offended by the suggestion that our support can be “bought.” Proposing a meaningful sacrifice on one of your own core values may demonstrate your seriousness, inspire reciprocation, and avoid a value conflict.

3. Affirm the Other Side’s Positive Qualities

In a value conflict, thinking about qualities you appreciate in your counterpart, such as trustworthiness or deep convictions, can help parties create value, researchers Fieke Harinck of Leiden University in the Netherlands and Daniel Druckman of George Mason University found in their research.

This result dovetails with findings from University of California at Los Angeles professor Corinne Bendersky showing that negotiators can soften their counterpart’s firm stance on a seemingly sacred value by making statements that affirm the counterpart’s status, such as “I have a lot of respect for people like you who stand by their principles.” It seems an opponent’s affirmation of our status buffers us against the identity threat we’d suffer if we compromised on a core issue and makes us more open to value creation in the process.

What other strategies have you found to be effective in resolving value conflict?

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In early 2022, just as much of the world was beginning to emerge from strict Covid restrictions, Russia’s unprovoked war on Ukraine sent shockwaves across the globe. The Program on Negotiation’s Top 10 Notable Negotiations of 2022 highlight the diplomatic efforts aimed at ending the conflict and mitigating its consequences, along with a range of significant government and business negotiations that shaped the year.

10. Bringing Brittney Griner home. In government negotiations to secure the release of Women’s National Basketball Association star Brittney Griner from Russia, where she was imprisoned for bringing cannabis oil into the country, U.S. president Joe Biden faced wrenching choices. The Kremlin insisted it would trade only Griner for notorious Russian arms dealer Viktor Bout, imprisoned in the States, and would not include former U.S. Marine Paul Whelan, serving 16 years in Russia on espionage charges. In a deal that highlights the challenges of negotiating with ruthless opponents like Russian president Vladimir Putin, Biden opted to bring Griner home.

9. Complicitors in the downfall of FTX. Early in 2022, Sam Bankman-Fried raised $500 million from investors for FTX, his cryptocurrency exchange, by making a “take-it-or-leave-it offer,” the New York Times reports. Without leaving room for negotiation, Bankman-Fried told investors he planned to run the company with little oversight and encouraged them to “support him and observe,” according to one investor who heard the pitch. By the end of the year, FTX had collapsed, and Bankman-Fried had been arrested for wire fraud, money laundering, and other charges. The fact that so many seasoned investors fell for FTX’s claims highlights the risk of becoming complicit with wrongdoing in negotiation.

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8. A surge in strikes. As in 2021, labor shortages gave workers leverage to demand better treatment from their employers. When New York City and several states moved to reduce the persistent earnings gap between men and women by requiring employers to include salary ranges in job ads, numerous companies started doing so voluntarily. Many workers successfully voted to unionize, including employees at 200 Starbucks stores. In addition, strikes were up 39% in 2022 over last year. The University of California reached a tentative agreement to end a strike by about 36,000 employees, promising wage increases of up to 55%. These trends show the power individuals can gain by forming coalitions intent on change.

7. Consolidation is blocked in publishing. In the realm of M&A negotiation, the Biden administration continued its efforts to curb corporate consolidations and promote competition. Most notably, in October 2022, the Justice Department won its bid to block publisher Penguin Random House’s planned $2.18 billion acquisition of rival Simon & Schuster. The outcome had some experts wondering if Amazon would be the next target of the government’s efforts to promote competition in publishing.

6. Elon Musk’s Twitter debacle. Most of 2022 was consumed with the question of whether Tesla CEO Elon Musk would buy Twitter. After he finally did, in October 2022, the rest of the year was taken up with the question of whether Twitter would survive Musk. The leader’s disastrous postdeal moves—from laying off key personnel to crowdsourcing pivotal business decisions in Twitter polls—shine a spotlight on a common negotiation mistake: focusing more on closing a deal than on what will happen when it does.

5. An ambitious global agreement on biodiversity. In December, all nations but two—the United States and the Holy See—approved a sweeping United Nations agreement aimed at safeguarding 30% of the Earth’s land and oceans by 2030 and taking other actions to prevent biodiversity loss. The nonbinding agreement is an attempt to stem a projected extinction of one million plants and animals in the decades ahead as a result of climate change, agriculture, overfishing, pollution, and other factors attributed to humans. U.S. participation was blocked by Republicans, who appeared to view the talks as a win-lose negotiation between business and environmental interests.

4. A rail strike averted. The specter of a strike or lockout loomed over a high-stakes labor dispute between U.S. freight rail companies and their employees’ labor unions. With almost one-third of U.S. freight carried by rail, an interruption in service was expected to devastate the economy. The parties reached a deal, but a majority of union members then rejected it, angered by a requirement that they use unpaid leave to attend medical appointments. Congress swooped in, voting overwhelmingly to impose the agreement and avoid a work stoppage.

3. Congress passes a gun-safety deal. Against long odds, the U.S. Senate passed a bipartisan gun-safety bill, which Biden signed into law on June 25. In the aftermath of mass shootings in Buffalo, New York, and Uvalde, Texas, 15 Republican senators were willing to make concessions on their party’s steadfast resistance to gun-control measures. The behind-the-scenes maneuvering offers advice to those working on closing the deal in negotiations, including the importance of selling your agreement to constituents and framing the deal for maximum impact.

2. A modest—but critical—agreement between Russia and Ukraine. After Russia blockaded the Black Sea at the start of its war on Ukraine, most of Ukraine’s abundant grain harvest was trapped in silos. Without it, famine and political unrest were real risks in East Africa and the Middle East. A three-month international negotiation process led to a July agreement between Russia and Ukraine to bring more grain to market. Russia briefly withdrew from the deal in October 2023, after accusing Ukraine of using the maritime corridor to stage military attacks, but the parties managed to extend the deal, which has eased food prices worldwide. It was a small sign of hope amid a brutal conflict.

1. The West unites on Russia sanctions. Just days after Russia attacked Ukraine on February 24, the European Union, Canada, the United Kingdom, and the United States announced they would unleash the most punishing sanctions package ever deployed against a single country—the result of feverish negotiations that caused the Russian ruble to collapse. The determination and tenacity of the Ukrainian people and their leader, President Volodymyr Zelensky, inspired the usually fractious parties in the West to come together. Sanctions haven’t stopped Putin’s war, but they have hampered his ability to fight it.

What other negotiations would you add to this list of Top 10 Notable Negotiations of 2022?

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A key element of moral leadership is motivating others to uphold both their own ethical standards and those of the organization, even when temptations to behave unethically arise. Past research has found that women are generally less accepting of unethical behavior than men and tend to act more ethically across a wide range of contexts. But does this pattern extend to negotiation as well? The answer may shed valuable light on the role of leadership in negotiation and how ethical influence operates at the bargaining table.

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Overall, women have been found to be less tolerant than men of a wide array of unethical negotiating strategies. In a study by Michael P. Haselhuhn and Elaine M. Wong of the University of California, Riverside, for example, 25% of men used deception to negotiate a deal as compared with only 11% of women.

In their 2017 Organizational Behavior and Human Decision Processes article “A Social-Cognitive Approach to Understanding Gender Differences in Negotiator Ethics: The Role of Moral Identity,” Jessica A. Kennedy (Vanderbilt University), Laura J. Kray (University of California, Berkeley), and Gillian Ku (London Business School) looked more closely at possible gender differences in negotiator ethics. The study’s nuanced findings can inform those aspiring to moral leadership. 

Relationship Goals

As compared with men, women are more likely to be socialized to view themselves as interdependent with others and to be more attuned to relationships and others’ emotions. Generally speaking, men are socialized to define themselves as more independent and less reliant on others.

Consequently, Kennedy, Kray, and Ku hypothesized that women internalize morality into their identities more strongly than men do. “Because being moral helps people build and maintain relationships,” Kennedy and her colleagues write, “women are likely to adopt goals and values that promote the welfare of others. Over time, these goals and values may translate into identifying strongly as a moral person.” Because people with stronger moral identities tend to behave more ethically, the researchers hypothesized that women also would be more ethical negotiators.

Moral Disengagement

In several experiments, the researchers found some support for their theorizing—but only up to a point.

In one experiment, the researchers measured participants’ sense of moral identity, in part by asking how important it was for them to have certain characteristics associated with morality, such as being caring, fair, generous, helpful, and so on. Next, participants read a negotiation scenario involving the sale of a used car that had one minor and one major mechanical problem. The researchers then measured participants’ degree of moral disengagement—the extent to which they rationalized away unethical decisions—and assessed how committed participants were to negotiating ethically with a potential buyer of the used car.

Female participants internalized moral traits more strongly than male participants. They also were less likely than men to morally disengage from unethical negotiating practices and were significantly less supportive than the men of unethical negotiating tactics.

When Money Trumps Ethical Concerns

Interestingly, however, women’s negotiation behavior was not morally superior in a follow-up experiment by Kennedy, Kray, and Ku. In the experiment, participants played the role of a hiring manager negotiating the salary of a job candidate. The participants were told that the job would be eliminated in six months due to a restructuring, a fact that the candidate did not know.

Would women be more likely than men to reveal this fact to the candidate? When participants did not have explicit financial incentives to reveal the information, women were more forthright than men about the short-term nature of the job in the simulation that followed. However, when participants were told they would receive $100 for negotiating the lowest salary, women were just as likely as men to behave unethically.

Overall, the findings suggest that women may be socialized to be more ethical negotiators than men. However, when financial incentives to lie or cheat loom large, women may be just as tempted as men to focus on maximizing profit at the expense of their morality.

These results have implications for organizational leadership. In particular, when following principles of moral leadership, it would be a mistake to assume that male employees are more likely to behave unethically than female employees. No matter a person’s gender, financial incentives can tempt them to take ethical shortcuts. To encourage more ethical behavior, highlight the ethical concerns that surround upcoming negotiations and reduce financial incentives to behave unethically.

What other leadership qualities and practices of moral leadership have you found to be useful in negotiation?

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Having a BATNA, your best alternative to a negotiated agreement—is one of the three primary sources of negotiating power at the bargaining table, according to negotiation researcher Adam D. Galinsky and New York University’s Joe C. Magee:

1. A strong BATNA.

Your best alternative to a negotiated agreement, or BATNA, clarifies your options, strengthens your confidence, and helps you make more informed decisions throughout the negotiation process.

By cultivating a strong outside alternative, you gain the power you need to walk away from an unappealing deal.

BATNA Example: A homebuyer could improve her power in a negotiation with a seller by finding another house she likes just as much.

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2. The importance of role power.

Power can come from a strong role, title, or position, such as a high rank in an organization.

When negotiating with your boss, for instance, you sometimes may need to cede to his preferences because of his high status.

3. Psychological power can change negotiation outcomes.

Negotiators can bring a sense of psychological power to the table—the feeling that they’re powerful, whether or not that’s objectively the case.

Simply thinking about a time in your life when you had power can bolster your confidence and improve your outcomes, Galinsky and Magee have found.

Regardless of its source—a strong BATNA, a powerful role, or a feeling of power—power has the same consistent effects described in this article.

When preparing for a negotiation with a powerful counterpart, try to increase your own sense of power on as many of these levels as possible.

Related Dealmaking Article: Six Strategies for Creating Value at the Negotiation Table: The following six haggling strategies can give the skilled negotiator the upper hand in negotiations with sellers over a product. Read the following negotiation skills tips and negotiation strategies to learn how to maximize value at the bargaining table through distributive negotiation methods such as haggling.

Related Negotiation Skills Article: Are You Ready to Negotiate? – In negotiation, success and preparation go hand-in-hand. Follow these three negotiation skills tips to learn how the skilled negotiator prepares for her upcoming session at the bargaining table and how these three negotiation tips can improve your agreements.

Related Business Negotiations Articles:
Advice for Bargaining Abroad: Tips on How To Overcome Cultural Barriers: How to handle difficult negotiations with a counterpart that is at a distance? The following negotiation skills tips can be applied to any business negotiation as well as any negotiation involving a fellow negotiator who is not physically present at the bargaining table.

The Deal is Done – Now What? – How to build long-term, sustainable relationships long after the negotiation agreement is signed. Many negotiators focus on the negotiation at hand, however, the best negotiators recognize that the current deal is a cornerstone in a potentially long-term relationship. Learn how to build value-creating, sustainable relationships with your negotiating counterparts and how the first deal can set the tone for all future interactions between negotiators. Whether business negotiations or in international negotiations, the ability to sustain a value-creating, mutually beneficial relationship is the hallmark of all skill negotiators.

What other tips could our readers use to improve their BATNA? Let us know what you think in the comments.

Related BATNA Article:  What is BATNA? How to Find Your Best Alternative to a Negotiated Agreement

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Adapted from “Enhance Your Power,” first published in the August 2011 issue of Negotiation.

Originally published in 2014.

Dealing with difficult people, including those who may not always be honest, can pose a significant challenge in negotiation. Yet negotiating opportunities often arise from precisely these complicated situations: a family member with a history of unreliability who now promises to do better, a business competitor proposing a joint venture, or a tough boss with whom you hope to build a more constructive working relationship. Learning how to navigate these encounters skillfully can open the door to agreements and relationships that might otherwise seem out of reach.

How should you deal with potential negotiating partners who are dishonest negotiators, or whom you don’t entirely trust—or should you deal with them at all? The U.S. government faced this question in the hope of convincing North Korea to abandon its nuclear-weapons program. The aftermath of an agreement between the two nations suggests precautions for those of us looking to make headway with our own rogue counterparts.

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A Very Brief Negotiated Agreement

In light of President Trump’s visit to Singapore back in June of 2018, it is interesting to take a look back at past negotiations with North Korea. Beginning in 2011, the United States negotiated for many months with the erratic, secretive leadership of North Korea. The drawn-out talks began in the era of Kim Jong-il and, after his death, resumed under the new regime of his son Kim Jong-un, who was also proved to be one of the most dishonest negotiators.

On February 29, 2012 the countries announced that they had reached an agreement: North Korea promised to freeze its enriched-uranium weapons program and its long-range-missile activities in exchange for large amounts of desperately needed U.S. food aid.

It took only 17 days for North Korea to sabotage the deal: in March 2012, it announced plans to launch a satellite using a long-range missile in mid-April. The United States said the decision violated a U.N. Security Council resolution that bars North Korea from launching missiles or rockets. Moreover, U.S. negotiators had warned North Korea during their talks that a satellite launch would be a “deal breaker,” according to The New York Times.

According to some analysts, hard-liners in Pyongyang may have upended the February deal by insisting on a satellite launch to mark the centennial of the birth of the nation’s founder, Kim Il-sung. A common North Korean negotiating tactic is to abuse loopholes in an agreement to gain leverage or even kill the deal, Choe Sang-Hun writes in The New York Times.

On March 26, 2012 President Obama joined other world leaders at the Global Nuclear Security Summit in Seoul, South Korea. During a speech in Seoul, Obama warned North Korea that to “continue down the road you are on” would lead to “more of the same, more broken dreams, more isolation,” as reported by NPR’s Mike Shuster.

And in a meeting, Obama also urged Chinese president Hu Jintao to use his influence to convince Pyongyang leaders not to proceed with the satellite launch.

But on April 13 of the same year, North Korea launched its rocket, which exploded almost immediately in midair and landed in the Yellow Sea.

Dishonest Negotiators: Deal or No Deal?

Did the United States err in negotiating with North Korea, given the country’s well-known reputation for being unreliable and provocative?

Consider that after Kim Jong-il’s death in December of 2011, it became an open question whether his son Kim Jong-un would continue to steer North Korea on its course of isolation or go in a more cooperative direction.

Daniel Sneider of Stanford University’s Asia-Pacific Research Center told Shuster that the negotiations had been a “useful” means for the United States to test whether the new North Korean government was ready to shift its policy. By breaking the agreement so quickly, the country communicated that it was not.

How do you handle difficult people and dishonest negotiators?

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Adapted from “When They Fail the Trust Test,” first published in the June 2012 issue of Negotiation.

Most negotiation advice focuses on the common mistakes we all tend to make at the bargaining table. Yet individual differences in personality, intelligence, and worldview can also shape how we approach negotiation and how others respond to us. Recognizing these personal factors can help you better understand your own tendencies and adapt your strategy to achieve more effective outcomes.

Do individual differences also matter in negotiation, and if so, how do they play out? In this article, we explore emerging research that links individual traits to negotiation outcomes and suggest ways you might use this knowledge to improve your relationships and your results.

Imagine how you would approach negotiations with the following people:

• A manager who becomes hostile whenever anyone questions her ideas.
• A neighbor who is known for putting others’ needs before his own.
• A lawyer who was the class valedictorian at a prestigious university.

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Based on these quick profiles, you might expect the first negotiator to try to bully you, the second to be a pushover, and the third to outwit you. Some of their traits could also remind you of your own negotiating tendencies—such as conceding too much to preserve relationships. It’s natural to believe that individual differences matter in negotiation. At home and on the job, most of us have encountered shrewd negotiators who always seem to get what they want, as well as those who constantly get taken for a ride.

Yet most writing and research on negotiations have focused on the similarities among negotiators. We’ve learned that almost all of us make snap judgments that can cost us money and that our expectations predictably affect what we get at the negotiation table.

A Closer Look at our Differences in Negotiation

Much of what we’ve learned so far about how negotiation styles vary has a lot to do with gender and cultural differences. We know, for example, that men tend to negotiate more often than women for career opportunities in certain environments, a gender difference that contributes to inequities overtime. Similarly, personality traits such as agreeableness and extraversion could harm you or help you depending on what country you’re negotiating in. What other differences could potentially lead to different negotiating outcomes?

Here’s a list of five major areas in which people differ from one another, identified in the Journal of Research in Personality article by Hillary Anger Elfenbein (Washington University in St. Louis), Jared R. Curhan And Lucio Baccaro (Massachusetts Institute Of Technology), Noah Eisenkraft (University Of Pennsylvania), and Aiwa Shirako(University of California at Berkeley):

1. Positive beliefs about negotiation, such as comfort with negotiation skills and the belief that you can improve.
2. Conflict style, such as the inclination to collaborate rather than compete, and ethical tendencies, including willingness to make false promises.
3. Intelligence and creativity, as measured by diagnostic tests.
4. Personality traits, including conscientiousness, openness, and self-esteem.
5. Observable characteristics, such as gender, age, and physical attractiveness.

Do such differences predict negotiation outcomes, and if so, to what degree? To answer these questions, Elfenbein and colleagues subjected a group of nearly 150 MBA students to a battery of surveys that measured these differences.

Next, the students were divided into groups of four or five. Group Members then negotiated in pairs until each group member had engaged in a different simulation (including a merger and a car purchase scenario) with every other member, and each person’s ability to claim and create value was scored. This Round-robin method allowed the researchers to assess how consistently individuals behaved across several negotiations.

The final results? A whopping 46% of scoring variations could be tied to consistent individual performance differences across interactions. In other words, differences among negotiators were responsible for almost half of their outcomes. These differences influenced both their own behavior and their counterparts reactions—and mattered a great deal to the outcome of their negotiations.

How do you think personality and individual differences affect negotiation skills? Do you have an experience to share? Leave us a comment and let us know your opinion.

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Adapted from “In Negotiation, How Much Do Personality and Other Individual Differences Matters?,” first published in the December 2008 issue of the Negotiation newsletter.

Originally published in 2014.

Contract bargaining in labor relations is one of the most complex areas of negotiation and dispute resolution. There are rarely clear cut or mutually agreed upon notions of what a fair salary and benefits package would be, so employers and workers, either individually or collectively, often find themselves at odds. Furthermore, contract bargaining in a unionized setting is rarely limited to questions of compensation. Working conditions, safety concerns or questions about worker rights, regularly surface and must be resolved. Appropriate negotiation and dispute resolution techniques can help all parties engaged in labor and workplace-related negotiations achieve mutually advantageous outcomes.

The Teaching Negotiation Resource Center (TNRC) offers a variety of role-play exercises to help parties engaged in negotiations and labor-related dispute resolution hone their skills and prepare for upcoming contract negotiations. The Brachton Collective Bargaining Exercise focuses a traditional contract negotiation in which groups representing a municipal school committee and a teachers union must reach agreement internally on a range of contentious issues, and then negotiate with each other. In Costless Warehouse, an individual recently fired following accusations of embezzlement and his advocate face off against a large company, claim that the real reason for the firing was racial prejudice. In the MAPO Administration Negotiation, a police union and municipal representatives negotiate over salaries and benefits for police officers. Finally, in Collective Bargaining at Central Division union and management representatives in the telecommunications industry have an opportunity to move away from the traditional hard-bargaining that has characterized their relationship towards a more problem-solving approach to contract bargaining. PON faculty have used several of these role play simulations to help parties worried about upcoming negotiations to explore options for previous adversarial battles that led to strikes.

Brachton Collective Bargaining Exercise

This four hour, two-team, multi-issue employment contract negotiation involves three teachers’ union representatives and three school committee representatives. It requires internal team meetings prior to external negotiations. The Brachton Teacher’s Union has been negotiating with the city’s School Committee over teacher contracts which will y expire shortly. Brachton public schools and teachers, funded largely through local property taxes, have come under fire from some segments of the community. Both teachers and school administrators fear that community support for the Brachton schools is diminishing. There is pressure on the school committee, headed by the mayor, to impose a moratorium on all city salaries, including teachers. The issues that need to be bargained have been identified. All that is left is for the two sides to hammer out an agreement. Major lessons that can be taught using this exercise include:

• Failure to resolve internal conflicts prior to external negotiations can create problems when it comes time to ratify carefully crafted agreements.
• To maximize joint gains, it is necessary to listen closely to the interests of the other side prior to staking out an opening position.

Download a free Brachton Collective Bargaining Teacher’s Package to learn more about the exercise.

Costless Warehouse

This two hour, five-person negotiation focuses on an employee’s claim of discriminatory firing and the employer’s claim of illegal conduct. Andy Appros is a well-qualified and efficient employee of Costless, a consumer outlet chain, who quickly advanced within the company hierarchy. After three years at Costless, Appros was fired following allegations of embezzlement. Appros claims that his firing was based solely on his supervisor’s racial prejudice. He is now suing the company for discrimination. Both sides wish to avoid a trial and the accompanying publicity, so they have each hired someone to negotiate on their behalf to settle the dispute. Each side possesses undisclosed information which may bear on the outcome of the settlement, and it is up to the clients to determine how much of this information to divulge to their respective negotiators. Major lessons that can be taught using this exercise include:

• How does internal conflict manifest itself in verbal and nonverbal behavior?
• What differential effects do alternative negotiation and dispute settlement techniques have on the level of conflict? Are partisan perceptions strengthened by some approaches to negotiation while greater understanding promoted by others?
• This case provides an excellent opportunity to plan, practice, and test skills in “separating the people from the problem,” and dealing with disputes on their merits.

Download a free Costless Warehouse Teacher’s Package to learn more about the exercise.

MAPO Administration Negotiation

This three hour, two-team, multi-issue collective bargaining negotiation involves three police union representatives and three municipal representatives. The focus is on police salaries, benefits, and working conditions. Negotiations between the Metropolitan Association of Police Officers (MAPO) and the Administration of Mayor Holmes of Metropolis are about to begin. Discontent police are demanding an increase in the police budget, which is essential in their view if the police are to provide adequate protection for the community. Rising crime rates now rank Metropolis as the 10th most dangerous city in the nation. The MAPO leader has threatened “some kind of protest activity” if the budget is not increased substantially. Proposition 6, which will limit municipal budget increases for any department to a maximum of 6% over the previous year’s allocation, is on the ballot in two months. The mayor’s budget can be enacted before then. The Mayor (who is seeking another term) is anxious to have the police budget settled before the election and has arranged a meeting between his representatives and MAPO. In addition to overall budget increases, specific issues likely to be addressed include: starting salaries, maximum salaries, vacation days, sick leave, holidays, life insurance, pension benefits, health insurance, weapons upgrading, and drug testing. Major lessons from this exercise include:

• Using objective criteria; Standards can be developed from careful analysis of the data provided in the exercise as well as from other data collected through outside research.
• Finding Pareto-efficient solutions.
• Preserving a good working relationship while pressing hard for what might be seen as substantive concessions. This tension is exacerbated by the temptation on both sides to try to use the media to enhance their bargaining power.
• Deciding how authority agents should have, whether they can really speak for their principals.
• Meeting design: how should teams be organized?

Download a free MAPO Teacher’s Package to learn more about the exercise.

Collective Bargaining at Central Division

This three hour, two-team, multi-issue contract negotiation involves three union representatives and three management representatives in a telephone company. The union and management bargaining teams for American Phone Company are preparing for upcoming negotiations. The last round of negotiations in 1986 was disastrous; there was a strike and relationships were damaged. The leadership on both sides would like things to go better this time around and has indicated that they want to work toward a more cooperative relationship. Trust between the two groups has eroded over the years. Any attempt to propose a mutual gains approach to contract bargaining is likely to be opposed by factions on both sides. They have got to address wages, employment security and medical benefits. Major lessons of this exercise include:

• There are often legitimate differences within bargaining teams. These internal conflicts must be worked out before serious contact bargaining can begin.

• The significance of relationships and trust-building can be studied in the context of collective bargaining. The impact of impact of past and future relationships on implementation of negotiated agreements can be explored.

• Issues of representation can be examined, since each of the players represents a group or institutional constituency. Each representative has a mandate which aids or constrains his or her ability to negotiate.

Download a free Collective Bargaining Teacher’s Package to learn more about the exercise.

Take your training to the next level with the TNRC

The Teaching Negotiation Resource Center offers a wide range of effective teaching materials, including

• Over 250 negotiation exercises and role-play simulations
• Critical case studies
• Enlightening periodicals
• More than 30 videos
• 100-plus books

TNRC negotiation exercises and teaching materials are designed for educational purposes. They are used in college classroom settings or corporate training settings; used by mediators and facilitators seeking to introduce their clients to a process or issue; and used by individuals who want to enhance their negotiation skills and knowledge.

Negotiation exercises and role-play simulations introduce participants to new negotiation and dispute resolution tools, techniques and strategies. Our videos, books, case studies, and periodicals are also a helpful way of introducing students to key concepts while addressing the theory and practice of negotiation and conflict management.

Which negotiation exercises have helped you? Let us know in the comments.

Check out all that the TNRC has in store >>

When disputes arise, negotiators must confront the difficult decision of whether to work toward a settlement on their own or hand the outcome over to a judge, jury, or arbitrator. As Robert H. Mnookin, Scott R. Peppet, and Andrew S. Tulumello explain in Beyond Winning: Negotiating to Create Value in Deals and Disputes (Harvard University Press, 2000), parties often stand to gain by resolving their disagreements before they reach the courtroom. Yet disputants and their lawyers frequently underestimate the financial, emotional, and strategic costs of pursuing a legal battle. Here, we explore why those costs are so often overlooked, how you can improve your chances of settling out of court, and the circumstances in which litigation may, in fact, be the wiser path.

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Settling out of court vs. the costs of going to court

Settling out of court can eliminate any number of barriers to negotiation. The drawbacks of involving lawyers in your dispute and preparing for a lawsuit can be considerable.

1. Transaction costs.

Parties can incur significant transaction costs from a looming lawsuit, including legal fees and the loss of their precious time. In fact, one or both sides to a dispute may try to persuade the other party to make concessions by deliberately attempting to increase the other party’s transaction costs—for instance, by requesting mountains of documents and presenting long lists of questions that take many billable hours to answer. Your own legal team may also have financial incentives to drag out a discovery process to pad its fees—to your disadvantage. And when estimating likely legal fees, disputants often fail to factor in the time and expense of further litigation if they end up in court and the “loser” decides to appeal the court’s decision.

2. A lack of cooperation.

The widespread misconception that the best lawyers are aggressive and rigid, and never collaborative or accommodating can lead clients to hold back their legal team from exploring creative (and money-saving) tradeoffs. For lawyers, a client’s expectations of toughness can become a self-fulfilling prophecy. It’s not uncommon for both sides in a dispute to begin puffing up their positions and claims and to give the impression that they won’t back down under any circumstances. In this environment, parties unfortunately tend to perceive concessions and compromise as signs of weakness and vulnerability rather than as potential value-creating moves, write the authors of Beyond Winning.

3. Damaged relationships.

Negotiators often fail to thoroughly consider the effects of legal action on their relationships with the other side and with other interested parties. “Disputes may strain relationships,” writes Harvard Business School professor Deepak Malhotra in a past Negotiation Briefings article, “but litigation tends to destroy them.” To take an obvious example, a divorcing couple that is able to negotiate a child-custody arrangement with the help of a neutral mediator may be more likely to build a productive post-divorce relationship, to the benefit of themselves and their children, than a couple that hires two “sharks” to attack each other’s character in court.

These drawbacks of litigation aside, it can sometimes be the best means of helping you meet a particular set of goals.

When litigation is the best option

Though negotiation (whether conducted through lawyers, mediators, or on your own) should lead to better outcomes for disputants in most cases, litigation may be preferable in the following situations, writes Jeffrey R. Seul in a chapter in The Handbook of Dispute Resolution (Jossey-Bass, 2005):

• An uncooperative counterpart. If your adversary stalls or refuses to negotiate in good faith, you might turn the case over to courts to ensure that it will eventually be resolved (though not necessarily in your favor). Court-ordered discovery will also legally compel a recalcitrant counterpart to supply information he might have held back during a dispute-resolution process.
• A desire for openness and publicity. If you want to draw attention to your counterpart’s behavior or clear your name, you might choose to pursue a litigation process in which the outcome may be publicized, instead of private negotiations.
• Deterring false charges. If you have been the repeated victim of false claims and opportunism, taking such cases to court may (if you win) deter others from targeting you in the future.
• Settling legal questions. If deciding a dispute according to established legal norms or potentially setting new precedents is important to you, you might prefer to give decision-making authority to the courts.

Settling out of court

The following guidelines can help you settle out of court and reach creative, mutually beneficial resolutions to your disputes, with or without lawyers at the table.

1. Make sure the process is perceived to be fair.

Before tackling your dispute jointly, negotiate key elements of the process with your counterpart, such as how you will choose experts and whether lawyers will be involved in negotiations. Doing so will increase the odds that both sides will view the final outcome as unbiased and fair. In addition, you might suggest that you jointly hire a professional mediator to lead the settlement process instead of turning the process over to your lawyers.

2. Identify interests and tradeoffs.

Even when we’re determined to settle out of court, the win-lose format of a looming litigation can encourage us to view negotiation as a battle. Unfortunately, the desire to prove we’re right can distract us from pursuing our underlying interests. It can also propel us all the way up the courthouse steps if our adversary refuses to meet our needs.

Just as in business dealmaking, you can expand the pie of value in a dispute by opening up about your key interests and preferences, which can help you identify potential tradeoffs. Revisit the following questions often during the dispute-resolution process:

• What are my true underlying interests?
• How can I best achieve them?
• How much am I willing to pay just to be able to say that I won?

It’s also important to encourage the other party to open up about her interests and to keep those interests in mind as you negotiate.

3. Insist on decision analysis.

Lawyers are often hesitant to quantify their clients’ odds of winning court cases, write Mnookin, Peppet, and Tulumello in Beyond Winning. Yet you need a thorough analysis of the risks and opportunities of litigation to make informed predictions and decisions about how to move forward. Any lawyers you hire should be well versed in decision-analysis tools such as decision trees and dependency diagrams and ready to use them to help improve the quality of your decisions.

4. Reduce discovery costs.

Disputants who are considering a lawsuit often become trapped in a lengthy and time-consuming discovery process that includes searching through reams of data and conducting depositions. You should be able to reduce these expenses by negotiating a low-cost exchange of essential information with your counterpart, write the Beyond Winning authors. When you can keep costs down, both sides win.

Do you have experience settling out of course? What happened? Leave a comment below.

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Wise negotiators understand the importance of both collaboration and competition at the bargaining table. They look for opportunities to expand the pie of value for everyone—often by uncovering differences across issues and making thoughtful tradeoffs. At the same time, they draw on distributive bargaining strategies to ensure they claim a fair share of that enlarged pie for themselves.

What are distributive bargaining strategies? Distributive bargaining refers to the process of dividing up the resource or array of resources that parties have identified. In many negotiations, that means haggling over issues such as price. By comparison, integrative bargaining involves collaboration or integrating across multiple issues to create new sources of value.

People often think that distributive bargaining strategies require adversarial bargaining, such as making tough demands, threats, or bluffs. But in fact, the most effective distributive bargaining strategies do not require you to sacrifice your integrity or resort to dirty tricks. Rather, they require you to set aside plenty of time before your negotiation to engage in clear-eyed preparation.

Putting Distributive Bargaining Strategies to the Test

In one study, UCLA School of Law professor Russell Korobkin and UCLA School of Law Empirical Research Group director Joseph Doherty had law school students engage in a settlement negotiation simulation that drew on an example of distributive bargaining.

Pairs of students playing the roles of plaintiff’s and defendant’s attorneys were told to attempt to negotiate a settlement of an age-discrimination lawsuit, based on a real case, in which the plaintiff was suing his former employer for $100,000. Both sides received the same information about the merits of the case and the relevant legal standards. The “facts” gave neither side an edge.

What distributive bargaining strategies were most effective? The best predictor of “winning” outcomes in this distributive negotiation—claiming the lion’s share of the bargaining range—were negotiators’ estimates of the other side’s bottom line. The more accurately a negotiator estimated his counterpart’s bottom line, the more money that negotiator successfully claimed.

The study identified other important factors that may improve your settlement outcomes in the real world, including setting high aspirations (or “targets”), making an aggressive first offer, and being willing to go to court if necessary.

A Checklist of Distributive Bargaining Strategies

The distributive bargaining strategies identified in Korobkin and Doherty’s study should be effective in any two-party negotiation. Review the following checklist before you engage in any negotiation where you will be competing for scarce resources:

1. Estimate their bottom line. Most negotiators understand the value of evaluating their own bottom line—the least amount they would accept before walking away from the bargaining table. But we often overlook the importance of estimating our counterpart’s bottom line. To do so, research the other party’s bargaining strength and interests, which may include examining the outcomes of her past negotiations and her likely best alternative to a negotiated agreement (BATNA). Once at the table, ask lots of questions to determine her interests and constraints as well.
2. Set high aspirations. Another important part of your negotiation preparation is to set an ambitious yet realistic aspiration level or goal. That doesn’t mean making outrageous demands; rather, prepare arguments that will make your ambitious aspirations seem reasonable.
3. Anchor aggressively. The negotiator who makes the opening offer in a price negotiation typically gets the better deal, considerable negotiation research shows. Why? Because of the first figure named in a negotiation “anchors” the discussion that follows. If you are well informed about the value of the commodity you’re negotiating, prepare to drop an ambitious first anchor.
4. Identify a strong BATNA. When you have a strong BATNA, you will be in a good position to reject a mediocre agreement. As a result, a strong BATNA is typically your best source of power in a negotiation. After identifying your BATNA, you should take steps to improve it, when possible, by conducting negotiations on multiple fronts.

In the end, when it comes to effective bargaining strategies, the difference between distributive and integrative negotiation is not great. Both aspects of negotiation require you to engage in significant reflection and research before you sit down at the table. The more you know about the issues at stake, your counterpart’s interests and constraints, and your own preferences and limitations, the better positioned you will be to successfully deploy distributive bargaining strategies and claim value in your next negotiation.

What distributive bargaining strategies have you found to be most effective in negotiation? 

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Whether before or after a contract is signed, business negotiators are often caught off guard by bad news that threatens the viability of a deal or partnership. When deciding how to negotiate a business agreement, organizations benefit from shifting their mindset—from simply trying to close the deal to carefully considering how the partnership or other key outcomes are likely to unfold over the long term.

In late 2016 and early 2017, news stories abounded of companies that were having second thoughts about planned mega-mergers. Abbott Laboratories began looking for ways to exit its acquisition of Alere, citing investigations of the medical test maker, for example. And Verizon started rethinking its acquisition of Yahoo! following a data breach at the tech company.

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In their 2004 book Predictable Surprises: The Disasters You Should Have Seen Coming, Max H. Bazerman and Michael Watkins write that there are steps that individuals and organizations can take to ward off unwelcome surprises. But cognitive, organizational, and political barriers often prevent us from recognizing a looming surprise.

One way for business negotiators to avoid being predictably surprised is to overcome the cognitive biases associated with intuitive thinking. A particularly pernicious cognitive bias in negotiation is the tendency to discount the future. Research consistently shows that when making decisions, we tend to focus on short-term considerations and discount the future in a way that we regret later. Concerned about maximizing short-term shareholder value, for example, business leaders sometimes rush headlong into “quick fix” solutions, such as merging with another company.

How can business negotiators avoid being predictably surprised and bring long-term concerns to the bargaining table? Here are three guidelines for those looking for new guidance on how to negotiate a business deal:

1. Add long-term considerations to the conversation. You may understand the value of discussing what will happen during the implementation stage of a business contract, but you may have to convince leaders in your organization and your counterparts across the table to give future concerns the same attention. If short-term concerns—such as a current financial slump—are looming large, try to counter them through your negotiation behavior. Vividly portray the potential risks of rushing into an ill-thought-out deal, such as a broken agreement, bankruptcy, and so on. Seek unbiased advice from financial and legal experts about the risks of a deal. In addition, try to set deadlines for your negotiation that will give all parties plenty of time to weigh the pros and cons of a deal.

2. Take time to build rapport. The more time you spend getting to understand your counterparts and their organizations, the better equipped you will be to assess whether your partnership is a good idea or not. Even if you get along well with those seated across the table, seek out information about the organization’s culture and share information about your own. What values and norms are employees of both firms encouraged to ascribe to? How are employees selected, trained, and assessed? Spend time visiting one another’s headquarters and speaking to employees in different areas. If you are thinking of merging, discuss how your workers would be combined and what challenges you might face. Even if you are hammering out a simpler deal, such as a purchasing agreement, it pays to know whom you’ll be working with.

3. Prepare for adverse circumstances. Another common cognitive bias that exacerbates short-term thinking is the tendency to be overly optimistic about the future. Our unrealistic expectations about how a deal will play out lead us to search only for information that confirms our existing views and overlook information that might challenge them. This error explains why so many new businesses quickly fail. Negotiators need to envision not only best-case but also worst-case scenarios, including the possibility that conflicts will arise during the course of their partnership. You may be able to head off conflicts through two deal-design First, agree in advance to regular check-in meetings throughout the life of your contract to address any disagreements, dissatisfaction, or misunderstandings that arise. Second, prepare to handle such conflicts efficiently by including dispute-resolution clauses in your contracts that mandate the use of mediation.

In the flush of dealmaking, it’s easy to focus single-mindedly on closing the deal in negotiations. By playing devil’s advocate, you can teach yourself and your counterparts how to negotiate a business deal: by looking more realistically at the challenges that lie ahead and preparing to face them.

Effective negotiation strategies in business are critical. If you don’t know how to negotiate a business deal, get the information you need to succeed today by downloading our free special report, written by some of the nation’s foremost experts in negotiation, Business Negotiation Strategies: How to Negotiate a Better Business Deal. It will teach you how to negotiate a business deal and gives you the tools you need to navigate even the stickiest business deals.

How do you ensure long-term concerns are factored in when negotiating business deals?

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