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.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

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.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

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.

If you take part in international negotiation, your chances of success increase dramatically when you study how others have navigated similar challenges. By examining real-world examples, you can gain valuable insight into strategies that bridge cultural gaps, manage conflicting interests, and foster lasting partnerships. To that end, here are 10 well-known international business negotiation case studies that offer practical lessons and inspiration for negotiators around the world.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

10. Apple’s Apology in China

When Apple CEO Timothy D. Cook apologized to Apple customers in China for problems arising from Apple’s warranty policy, he promised to rectify the issue. In a negotiation research study, Professor William W. Maddux of INSEAD and his colleagues compared reactions to apologies in the United States and in Japan. They discovered that in “collectivist cultures” such as China and Japan, apologies can be particularly effective in repairing broken trust, regardless of whether the person apologizing is to blame. This may be especially true in a cross-cultural business negotiation such as this one.

9. Bangladesh Factory-Safety Agreements

In this negotiation case study, an eight-story factory collapsed in Bangladesh, killing an estimated 1,129 people, most of whom were low-wage garment workers manufacturing goods for foreign retailers. Following the tragedy, companies that outsourced their garment production faced public pressure to improve conditions for foreign workers. Labor unions focused their efforts on persuading Swedish “cheap chic” giant H&M to take the lead on safety improvements. This negotiation case study highlights the pros and cons of all-inclusive, diffuse agreements versus targeted, specific agreements.

8. The Microsoft-Nokia Deal

Microsoft made the surprising announcement that it was purchasing Finnish mobile handset maker Nokia for $7.2 billion, a merger aimed at building Microsoft’s mobile and smartphone offerings. The merger faced even more complexity after the ink dried on the contract—namely, the challenges of integrating employees from different cultures. International business negotiation case studies such as this one underscore the difficulties that companies face when attempting to negotiate two different identities.

7. The Cyprus Crisis

With the economy of the tiny Mediterranean island nation Cyprus near collapse, the International Monetary Fund (IMF), European Central Bank (ECB), and the European Commission teamed up to offer a 10-billion-euro bailout package contingent on Cyprus provisioning a substantial amount of the money through a one-time tax on ordinary Cypriot bank depositors. The move proved extremely unpopular in Cyprus and protests resulted. The nation’s president was left scrambling for a backup plan. The lesson from international business negotiation case studies such as this? Sometimes the best deal you can get may be better than no deal at all.

6. Dissent in the European Union

The European Union (EU) held a summit to address the coordination of economic activities and policies among EU member states. German resistance to such a global deal was strong, and pessimism about a unified EU banking system ran high as a result of the EU financial crisis. The conflict reflects the difficulty of forging multiparty agreements during times of stress and crisis.

5. North and South Korea Talks Collapse

Negotiations between North Korea and South Korea were supposed to begin in Seoul aimed at lessening tensions between the divided nations. It would have been the highest government dialogue between the two nations in years. Just before negotiations were due to start, however, North Korea complained that it was insulted that the lead negotiator from the South wasn’t higher in status. The conflict escalated, and North Korea ultimately withdrew from the talks. The case highlights the importance of pride and power perceptions in international negotiations.

4. Canceled Talks for the U.S. and Russia

Then-U.S. president Barack Obama canceled a scheduled summit with Russian President Vladimir Putin, citing a lack of progress on a variety of negotiations. The announcement came on the heels of Russia’s decision to grant temporary asylum to former National Security Agency contractor Edward Snowden, who made confidential data on American surveillance programs public. From international business negotiation case studies such as this, we can learn strategic reasons for breaking off ties, if only temporarily, with a counterpart.

3. The East China Sea Dispute

In recent years, several nations, including China and Japan, have laid claim to a chain of islands in the East China Sea. China’s creation of an “air defense” zone over the islands led to an international dispute with Japan. International negotiators seeking to resolve complex disputes may gain valuable advice from this negotiation case study, which involves issues of international law as well as perceptions of relative strength or weakness in negotiations.

2. An International Deal with Syria

When then-U.S. Secretary of State John Kerry and his Russian counterpart, Sergey Lavrov, announced a deal to prevent the United States from entering the Syrian War, it was contingent on Syrian President Bashar al-Assad’s promise to dismantle his nation’s chemical weapons. Like other real-life negotiation case studies, this one highlights the value of expanding our focus in negotiation.

1. A Nuclear Deal with Iran

When the United States and five other world powers announced an interim agreement to temporarily freeze Iran’s nuclear program, the six-month accord, which eventually led to a full-scale agreement in 2015, was designed to give international negotiators time to negotiate a more comprehensive pact that would remove the threat of Iran producing nuclear weapons. As Iranian President Hassan Rouhani insisted that Iran had a sovereign right to enrich uranium, the United States rejected Iran’s claim to having a “right to enrich” but agreed to allow Iran to continue to enrich at a low level, a concession that allowed a deal to emerge.

What international business negotiation case studies in the news have you learned from in recent years?

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

We all know them: those friends, family members, or coworkers who always seem to secure great deals in negotiations while leaving their counterparts satisfied as well.

What sets these skilled negotiators apart? Various traits—such as intelligence, confidence, and creativity—may help explain why some people consistently achieve exceptional results at the bargaining table. However, one factor that stands out in emerging research is emotional intelligence and its role in successful negotiation.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

What Is Emotional Intelligence in Negotiation?

According to researchers J.D. Mayer and Peter Salovey, emotional intelligence has four components, presented here with negotiation examples:

1. Emotion perception: the ability to recognize emotions in yourself and others. This might include noticing when you feel impatient in a negotiation or when your counterpart seems upset.
2. Emotional facilitation: the ability to use emotions to improve your outcomes, including your performance on tasks. If you register that you are feeling anxious in the week leading up to an important negotiation, for example, you might devote extra time to preparing.
3. Emotional understanding: having accurate knowledge about relationships between emotions and situations. This might mean connecting the annoyance you’re experiencing during a negotiation to your counterpart’s indecisiveness.
4. Emotional regulation: the ability to manage your own emotions and others’ emotions. In negotiation, this might mean noticing that your counterpart is upset and pausing the substantive conversation to inquire about their feelings.

Measuring Emotional Intelligence in Negotiation

Some researchers have studied emotional intelligence and negotiation by having participants self-report their level of emotional intelligence on questionnaires. For example, participants might be asked to rate their agreement on a scale from one to five with statements like this: “I easily recognize my emotions as I experience them.”

However, many researchers believe that having participants self-report their emotional intelligence leads to biased, inaccurate results. After all, most of us lack the knowledge and experience needed to assess whether we are better than others at reading people’s emotions and regulating our own emotions. And, because overconfidence is widespread, we are likely to assume we’re more emotionally intelligent than those around us. Indeed, negotiation research that relies on subjective reports of emotional intelligence has generated inconclusive results.

A better understanding of any real effects of emotional intelligence in negotiation can be reached by directly assessing people’s emotional intelligence, many researchers believe. In such studies, participants might be rated on their ability to accurately identify emotions such as disgust, anger, or surprise that people are expressing in photographs or videos. Through such methods, people’s relative level of emotional intelligence can be easily compared and then checked against their performance in negotiation exercises.

Those who score high on measures of emotional intelligence might be particularly adept at such negotiation skills as inducing cooperation in their counterparts, winning concessions, and ensuring that all parties involved are satisfied with the final outcome of a negotiation, according to researchers Ingrid Smithey Fulmer and Bruce Barry.

Emotion Recognition and Negotiation Performance

Emotional intelligence has been found to foster positive relationships between negotiating counterparts. In one study, participants who scored high on an assessment of their ability to understand emotion had more satisfied counterparts in a subsequent negotiation exercise. Their counterparts also liked these negotiators more and had a greater desire to negotiate with them in the future.

In other research, emotional intelligence has been linked to superior negotiating performance. In a study conducted in Switzerland, for example, researcher Katja Schlegel and her colleagues paired up 130 participants and assigned them to engage in a hypothetical job negotiation exercise involving eight issues, including salary and vacation days. There were opportunities for participants to cooperate, compete, and trade across issues.

Before or after the exercise, participants were measured on their general mental ability and various aspects of emotional intelligence, including their ability to recognize people’s emotions and their level of emotional understanding. Somewhat surprisingly, the results showed that general mental ability did not correlate with participants’ negotiation outcomes. However, those who scored high on emotion recognition and emotional understanding tended to achieve higher joint gains (gains for both parties) in the negotiation exercise.

Negotiators who were adept at emotion recognition also were perceived by their counterparts as more cooperative and likable. The results showed that the ability to accurately read others’ emotions was a better predictor of negotiation outcomes than a more general measure of emotional intelligence.

In a study conducted in Singapore, researcher Hilary Anger Elfenbein and her colleagues also linked emotion recognition ability to better negotiation outcomes. Specifically, those who scored high on this type of emotional intelligence “both cooperated more effectively to create greater value for the pair and also competed more effectively to capture a greater proportion of the value for themselves,” the authors write.

Together, the growing research on emotional intelligence in negotiation suggests that those who are particularly adept at reading and understanding emotions improve outcomes for everyone involved. We can all work to improve our emotional intelligence in negotiation by practicing active listening and soliciting feedback from trusted colleagues on our negotiation behavior.

We thank University of Zurich researcher Vera Hampel for advising on this article.

What other aspects of emotional intelligence in negotiation would you like researchers to study?

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

According to the Pew Research Center, women earned 82 cents for every dollar earned by men in 2022—a pay gap that has remained largely unchanged over time. The disparities are even greater when viewed through the lens of race and ethnicity: in 2022, Black women earned 70% as much as white men, while Hispanic women earned just 65%. Several factors contribute to these differences. Occupations dominated by women, such as teaching and nursing, often pay less than those dominated by men, like technology and management. Yet another important factor lies in the dynamics of salary negotiations, where men and women competing for comparable roles often experience—and approach—the process in markedly different ways.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

In particular, the degree to which incoming employees feel comfortable asserting themselves in starting salary negotiations may depend on their gender. When women negotiate for higher salaries, they must behave contrary to deeply ingrained societal gender roles of women as passive, helpful, and accommodating. As a result, their requests often face a backlash: relative to men who ask for more, women are penalized financially, are considered less hirable and less likable, and are less likely to be promoted, research by Hannah Riley Bowles of the Harvard Kennedy School and her colleagues shows. Men, by contrast, generally can negotiate for higher pay without fearing a backlash because such behavior is consistent with the stereotype of men as assertive, bold, and self-interested.

Research suggests remedies organizations and their leaders can attempt to reduce the impact of racial and gender bias in salary negotiations.

Negotiation Biases and Bargaining While Black

In a 2019 study, University of Virginia professor Morela Hernandez and her team assigned 144 working adults of different races (50% white, 27% African American, 14.6% Asian, 6.3% Hispanic, and 2.1% other), as well as 74 undergraduate students of different races, to play either a job candidate or a hiring evaluator in a 15-minute negotiation simulation over a job with a salary range of $82,000–$90,000. After they negotiated, the participants answered questions that assessed their level of racial bias.

The study results showed that white and Black candidates were equally likely to try to negotiate salary. However, evaluators who scored high for racial bias believed that Black candidates had negotiated more often than white candidates. This false perception led them to penalize Black candidates for negotiating by granting fewer salary concessions. By contrast, evaluators who scored low on racial bias had more accurate perceptions of candidates’ negotiating frequency and granted more equitable salaries. The results confirm that overt racial bias remains a significant obstacle for African Americans in the job market.

When Race and Gender Intersect

In a 2018 study, Negin R. Toosi of California State University and her colleagues explored how race and gender intersect to influence job candidates’ assertiveness in salary negotiations. In particular, they compared the negotiating behavior of white and Asian Americans.

Toosi and her team asked 980 white and Asian American men and women to imagine they had received a job offer from a consulting firm with a salary range of $31,000 to $54,000. How much would they ask for? White men and Asian women specified higher first offers ($48,247 and $47,797 on average, respectively) than white women and Asian men ($46,341 and $46,436 on average, respectively). Participants who aimed lower were more fearful of being punished for asking for too much. White women participants seemed to fear this type of backlash, but Asian women did not.

The findings suggest that when people belong to more than one minority group (such as “woman” and “Asian”), they are at risk of being overlooked. This “intersectional invisibility” can have negative consequences, such as leading certain groups to be underrepresented in organizations. Yet it may also reduce one’s likelihood of being measured against racial or gender stereotypes and falling short. Asian women participants in this experiment may have intuited this outcome and aimed high as a result.

More broadly, the research shows that race and gender need to be considered in tandem to avoid simplistic conclusions about how salary negotiations will unfold.

Promote More Equitable Salary Negotiations

To reduce the impact of racial and gender biases in salary negotiations and employment negotiations more generally, organizational and societal changes are needed. Because negotiation biases spring from faulty intuition, reducing the role of snap judgments in the decision-making process can promote more equitable job negotiations.

In her book What Works: Gender Equality by Design, Harvard Kennedy School professor Iris Bohnet recommends requiring decision makers to conduct structured rather than unstructured interviews. Noting that unstructured interviews have proven to be very bad at predicting employee performance, Bohnet explains that managers can make more rational hiring decisions by asking all candidates the same list of predetermined questions in the same order, scoring them during the interview, and then carefully comparing and weighting their answers.

Organizations would also benefit from publicizing pay-grade ranges and requiring decision makers to compare the salaries of those with comparable jobs. In addition, leaders should instruct negotiators not to ask candidates how much they earned in the past. Because women and minorities tend to earn less than white men, the question can put them at a disadvantage and perpetuate the gender pay gap. In fact, it is now illegal in many U.S. states to ask employees about their salary history.

What strategies have you found to be helpful for reducing bias in salary negotiations?

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

What exactly is a mutually beneficial agreement?

Some negotiation experts suggest it’s simply an outcome where each party takes as much as possible from a limited pool of resources and considers the matter settled.

At the Program on Negotiation, we encourage you to set your sights higher—claiming with collaborative value creation. Not because it’s the “nice” thing to do, but because it’s been proven to be the best path to a truly mutually beneficial agreement.

Negotiators often fail to reach a mutually beneficial agreement because they bring a win-lose mindset to the negotiation table. It is true that in a small number of deals and disputes, negotiators have no choice but to haggle over just one issue, and that is usually price. For example, if you are haggling over the price of a rug in a foreign bazaar, you may have trouble finding ways to expand the conversation and bring other issues to the table.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

In the vast majority of business negotiations, however, many more issues beyond price are involved. When negotiating a purchasing deal, for example, you and your counterpart might talk about not only price, but also delivery, service, financing, possible future business deals, performance bonuses, and so on.

Don’t make the mistake of viewing such complexity as a liability. In fact, the opposite is true. When multiple issues are on the negotiation table, you gain the ability to brainstorm mutually beneficial tradeoffs with your partner. Through tradeoffs, you can achieve more than you would have if you had simply compromised on each issue. In the process, you increase your odds of reaching a mutually beneficial agreement.

Suppose, for example, that getting a strong service contract from your potential supplier is very important to you. If financing terms matter less to you, you might ask for a beefed-up service contract while offering financing terms that the supplier favors. You can still push hard to claim value on each issue, but you should have a larger pie to divide than when you got started.

How does this type of value creation play out in the real world? Here are a few examples to make note of:

• After years of stalemate, the management of New York City’s Lincoln Center for the Performing Arts reached a deal in 2014 to regain lucrative naming rights to Avery Fisher Hall, home to the New York Philharmonic, by paying $15 million to Fisher’s descendants. A mutually beneficial agreement was only reached after Lincoln Center management identified and addressed the family’s key concern that a planned renovation of the hall was in line with their late patriarch’s goals.

• In 2012, Facebook CEO Mark Zuckerberg persuaded Instagram founder Kevin Systrom to sell his photo-sharing app for $1 billion. The deal came about after a series of friendly meetings between the two moguls in which they shared their business philosophies and, crucially, Systrom revealed the value he placed on maintaining Instragram’s independence from Facebook.

• After months of fruitless negotiations, Microsoft reached a deal to acquire Finnish mobile-phone company Nokia in 2013. A breakthrough came only after Nokia stipulated conditions to negotiating, including the requirement that Microsoft set up a financing source for Nokia.

How can you create value at the bargaining table and get on the path to a mutually beneficial agreement? Here are three tips from Harvard Business School’s Max H. Bazerman:

1. Share information.

Negotiators often fear they will give away too much if they express their true preferences on various issues. But expressing preferences isn’t the same as giving away your bottom line. “Our last supplier burned us with poor service, so that issue is critical to us,” you might say to a potential supplier. “What are some of your key concerns?”

2. Ask questions.

Don’t make the common mistake of viewing negotiation as primarily an exercise in trying to persuade the other party to do what you want them to do. With that mindset, you will be so focused on your talking points that you won’t listen closely enough to what your counterpart has to say. By contrast, listening actively and asking lots of questions will help you collect the information you need to develop a mutually beneficial agreement.

3. Make multiple equivalent simultaneous offers (MESO).

Business negotiators tend to present one offer at a time. If the offer is rejected, they learn very little new information that would help them to move forward. A better approach is to craft three offers that are different across issues but equally appealing to you. The other party may reject all three of the offers, but is likely to communicate which one she likes best—and put you back on a track toward a mutually beneficial agreement.

Do you have experience with a mutually beneficial agreement? Share your story in the comments.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

Sooner or later, almost all of us will face the challenge of managing conflict at work. In the office, we may find ourselves navigating tense situations with colleagues whose perspectives or priorities differ sharply from our own. To move forward productively, we need a set of strategies that can defuse emotions, reestablish clarity, and help each side address its core interests.

The following three strategies will help you learn how to manage conflict at work.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

1. Put formal systems in place.

Conflict in the workplace often arises when resentment, anger, and other negative emotions are left to fester. An accidental slight can lead into a full-blown dispute if the parties involved fail to address it explicitly. As a consequence, workplace conflict is often managed one dispute at a time, an approach that is inefficient and costly.

In recent years, organizations seeking to determine how to manage conflict at work increasingly have recognized the benefits of putting in place a formalized system for addressing conflict in the workplace. In an article in the Negotiation Briefings newsletter, Harvard Law School professors Frank E. A. Sander and Robert C. Bordone recommend that organizations engage in dispute system design—the process of diagnosing, designing, implementing, and evaluating an effective method of resolving conflicts in an organization. Those with basic experience with dispute-resolution processes such as negotiation, mediation, and arbitration, should be able to help their organization establish a dispute-resolution process.

One of the main goals of dispute system design, or DSD, should be to support low-cost, less invasive approaches to managing workplace conflict before moving on to more costly, riskier approaches. For example, an organization might encourage or require employees in conflict to engage in mediation before moving on to an arbitration hearing. In addition, write Sander and Bordone, employees should be able to tap into the dispute-resolution process at different points throughout the organization—for example, through their supervisor, an HR staff member, or some other leader—lest they avoid the system due to distrust of one person in particular.

Setting up a dispute system can be a complex process, but it will almost inevitably promote a more efficient means of managing workplace conflict than a case-by-case approach.

2. Promote better feedback.

Workplace conflict often arises because co-workers have difficulty giving one another effective feedback, or any feedback at all. When we fail to let people know how they can improve, our frustration grows as their mistakes mount. Similarly, if we give unconstructive feedback—feedback that is vague, very negative, or too personal—we can create destructive workplace conflict.

We need to learn to give more effective feedback and teach others in our organization to deliver meaningful and useful feedback as well. People who give good feedback ask questions, stay positive, give details, and describe how the situation makes them feel, writes Program on Negotiation managing director Susan Hackley in Negotiation Briefings. Leaders also need to make it easy for people to raise concerns.

In their 2014 book Thanks for the Feedback: The Science and Art of Receiving Feedback Well, Douglas Stone and Sheila Heen offer advice on accepting feedback in a constructive manner—even when the feedback isn’t delivered constructively. We all need to learn to identify personal triggers that cause us to take perceived criticism personally, for example.

3. Focus on the problem, not the people.

When deciding how to manage conflict at work, try to focus on the problem rather than the personalities involved, recommends Hackley. Because conflict tends to promote competition and antagonism, you should strive to frame the situation in a positive light. For example, focus on the potential benefits to the organization if you are able to resolve the workplace conflict rather than on the potential negatives if you have difficulty doing so.

In addition, when dealing with conflict at work, remember that people tend to view conflicts quite differently, based on their individual perspective. Our perceptions of what went wrong tend to be self-serving. With each person believing he or she is “right” and the other person is “wrong,” it’s no wonder conflicts often fester in organizations.

For this reason, it’s crucial to start off your workplace conflict resolution efforts by taking a joint problem-solving approach. Ask open-ended questions and test your assumptions, advises Hackley. Make sure that each party has ample time to express his or her views without interruption.

When figuring out how to manage conflict at work, we need to remember the importance of exploring the deeper interests underlying the other party’s positions. When you listen closely, you will go a long way toward building trust and resolving difficult situations.

Does your organization have a formal process for resolving workplace disputes?

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

The rise of artificial intelligence (AI) tools such as ChatGPT and other OpenAI innovations has touched the world of negotiation and conflict resolution in far-reaching ways. As these technologies advance, they have sparked legal disputes over how large language models and chatbots are trained. At the same time, organizations have begun using AI in procurement processes and even as real-time negotiation coaches.

Increasingly, AI is also being explored as a tool for mediating disputes. While AI-driven mediation is not yet the norm, momentum is building, and it may soon become a more integral component of dispute resolution systems. With that shift on the horizon, it is worth taking a closer look at both the risks and the potential benefits of incorporating AI into mediation.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

Risks of AI Mediation

Currently, the biggest risk of using AI in mediation is the possibility that it will introduce errors into the process. Many of us have seen comical (and sometimes frightening) news stories of chatbots behaving bizarrely, as when ChatGPT produced strange “hallucinations” in response to simple questions, unsettled a New York Times reporter with creepy declarations of love, and produced inedible Thanksgiving recipes.

With chatbots in their infancy, the risk that they will deliver inaccurate or even harmful mediation advice is real. “We have all heard about lawyers using chat-based tools to augment their writings and including ‘hallucinations’ such as made-up case citations,” writes Christopher K. Poole, CEO of alternative dispute resolution provider JAMS. When unchecked by human mediators, AI mediation risks running afoul of laws and ethical standards.

In addition, generative AI is ill-equipped to help parties cope with the strong emotions that often come up during mediation. “Mediators’ skill in managing emotions such as anger, frustration, and fear—which may be fueling the conflict—is central to the dispute resolution process, and mediators create an environment where participants can express their emotions in constructive ways,” writes Joseph Panetta for Bloomberg Law.

For these and other reasons, when designing mediation software NextLevel, mediator Robert Bergman and his team concluded that chatbots such as ChatGPT should not be entrusted with making decisions in mediation but could serve as an effective assistant, “complementing and augmenting the mediator’s capabilities.” Most current forms of AI mediation similarly assist trained mediators rather than substituting for them.

Benefits of AI Mediation

Disputes often involve large volumes of data, which AI can quickly sift through and analyze. “Generative AI tools, trained on vast data sets, have exceptional capacity for natural language processing, allowing them to rapidly search, compare, summarize, and extract insights from large volumes of text, images, and data,” according to the American Arbitration Association.

The AI tool CoCounsel, for example, was trained with OpenAI to analyze documents and complete other tasks for lawyers. AI can save mediators and disputants time and money by quickly performing tasks that would take humans hours, days, or months to complete.

Increasingly in AI mediation, chatbots are more closely involved in the negotiations themselves. For example, generative AI tools can pose questions aimed at identifying parties’ underlying interests, propose offers, and predict the likelihood that such offers will be accepted. In AI mediation, human mediators might opt to compare their own lists of questions to those generated by AI technology to make sure they haven’t missed anything.

In addition, AI could theoretically make mediation more impartial by helping to correct for the biases that affect human decision making. “Because AI systems are not influenced by emotions or personal biases, they are less likely to make decisions based on subjective factors,” according to Miles Mediation & Arbitration.

A Novel Use of Chatbots in Mediation

In one recent mediation process, parties’ apparent skepticism about AI appeared to help them break through an impasse on their own—suggesting an interesting use of chatbots in mediation.

Experienced mediator Myer Sankary was mediating a contract dispute regarding the wrongful termination of a lease, write Sonja Weisheit and Christoph Salger in a Mediate article. The landlord was seeking $550,000 from the guarantor, who refused to pay more than $120,000.

With the parties at an impasse, Sankary asked ChatGPT for advice on what number to propose to the parties. The chatbot recommended $275,000. Sankary thought this was more than the tenant would be willing to pay. Still, he asked the disputants’ lawyers if their clients would agree to accept ChatGPT’s number—which would remain unknown to them—in the event of impasse. The parties agreed.

The prospect of abiding by ChatGPT’s advice motivated the parties to resume their settlement negotiations. Ultimately, the tenant offered $270,000—just $5,000 less than ChatGPT’s recommendation—and the landlord accepted. The two sides signed their settlement agreement, then asked what ChatGPT had recommended. After hearing the number, both sides remained satisfied with their negotiated deal.

In this mediation, Sankary cleverly capitalized on AI by motivating the parties to negotiate on their own. The parties’ desire to avoid entrusting ChatGPT with their negotiation led to a mutually beneficial agreement.

What experiences have you had with AI mediation?

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

Few topics capture negotiators’ attention as much as the question of how to negotiate salary—and with good reason. Even a modest increase in pay can have a significant effect on long-term earnings, benefits, and career satisfaction. Understanding how to approach these discussions strategically can make a lasting difference. The following three salary bargaining tips drawn from leading negotiation experts, can help you maximize the value of your new-job negotiations.

1. Get Out of Your Own Way

In job and salary negotiations, we sometimes “get in our own way,” write Deborah M. Kolb and Jessica L. Porter in their book Negotiating at Work: Turn Small Wins Into Big Gains (Jossey-Bass, 2015). We may fail to recognize opportunities to negotiate, focus only on our weaknesses, and make the first concessions in our own heads before the negotiation even begins. These internal dialogues are where the first concessions in the negotiation are made, write Kolb and Porter.

Kolb and Porter suggest ways to address the question of how to negotiate salary. Begin by gathering information so that you will feel that what you are asking for is defensible. Prepare to explain the value you would bring to the organization. Develop alternatives to the current negotiation to increase your flexibility at the table, and remember that the other party’s alternatives may be less attractive than yours.

In addition, examine your vulnerabilities and plan ahead to compensate for them. For example, if you are insecure about a gap in your work history, think about the important things you were doing during that time and prepare to share them with enthusiasm.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

2. Consider the Context

Large, established companies often measure job candidates against well-defined job categories with a set range of salaries. In addition, you may negotiate compensation with recruiters or human-resources personnel rather than with your future boss. In this environment, when determining how to negotiate salary, try to figure out what pay category someone with your education level and experience would receive, then build a case for a salary at the high end of that range.

If an interviewer asks you to name your price, do you know how should you respond? In their book 3-D Negotiation (Harvard Business School Press, 2006), David Lax and James Sebenius recommend making a “non-offer offer,” or a statement that could anchor the discussion in your favor without seeming extreme.

Suppose your research suggests that you would most likely fall into the $70,000 to $80,000 pay range, but the next-highest category seems within reach. Rather than saying, “I think I deserve $80,000,” consider saying, “Correct me if I’m wrong, but I’ve heard that people like me typically earn $80,000 to $90,000.” Notice that this statement is not a demand. Yet due to the powerful impact of the $80,000-to-$90,000 “anchor”—a reference point that may or may not be relevant to the discussion—it could very well steer the numbers toward your upper goal.

Now consider how you might adjust your salary negotiation strategy to a start-up that is recruiting you to become its third employee. You obviously won’t be shuttled off to the HR department, nor will your salary be determined by existing pay scales. In this case, you may have more latitude to structure a creative package that includes stock options.

3. Adapt Your Style for Maximum Success

Individual differences in negotiating style determine how to negotiate salary and what we achieve, Michelle Marks of George Mason University and Crystal Harold of Temple University found in a study published in the Journal of Organizational Behavior.

The researchers surveyed 149 professional employees who had been hired in the previous three years about their negotiations for their current position, including their attitudes toward negotiation and risk, their negotiation strategies and outcomes, and their level of satisfaction with the process of negotiating for their jobs.

The researchers identified five types of negotiating strategies: collaborating (engaging in problem solving to reach the best possible outcome for both sides); competing (trying to maximize one’s own outcomes with little concern for others); accommodating (putting the other party’s concerns first); compromising (trying to reach middle ground); and avoiding (dodging negotiation altogether).

Independent of the power the applicants had at the table, choice of negotiation strategy turned out to be the critical factor in determining effective salary negotiation. Those who chose to negotiate salary, rather than accepting the offer on the table, increased their starting pay by an average of $5,000, primarily by using competing and collaborating strategies. Those who behaved competitively did better than those who focused on collaboration, but collaborators were more satisfied than competitive bargainers with the negotiation process. By contrast, compromising and accommodating strategies were not linked to salary gains.

The study’s authors conclude that it pays to negotiate assertively for a salary increase. They also encourage employers to recognize that giving employees wiggle room to bargain up their starting pay could help create a more satisfied and productive workforce.

 When determining how to negotiate salary, what strategies have you used?

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

The late Nelson Mandela will undoubtedly be remembered as one of the greatest negotiators in history. Harvard Law School professor and former Program on Negotiation Chairman Robert H. Mnookin described him as  “the greatest negotiator of the twentieth century,” wrote Harvard Law School professor and former Program on Negotiation Chairman Robert H. Mnookin in his influential book, Bargaining with the Devil, When to Negotiate, When to Fight.

In his chapter on Mandela, Mnookin cites Mandela’s patience, tenacity, pragmatism, and strategic thinking: “He rejected the simple-minded notion that one must either negotiate with the Devil or forcibly resist. He did both. He was willing to make concessions, but not about what was most important to him. With respect to his key political principles, he was unmovable.”

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

Mnookin noted Mandela’s ability to persuade his adversaries: “He ultimately achieved through negotiation an outcome that could never have been accomplished solely through violence or resistance.”

In examining decisions made in conflicts with evil regimes, where lives and liberty were at stake, Mnookin also compares Mandela’s decision to initiate negotiations with the South African apartheid government that had imprisoned him for life with the imprisoned Soviet dissident Natan Sharansky’s decision not to negotiate with the KGB for his freedom. The decisions may have been polar opposite, but the outcomes were equally admirable. This is why he goes down as one of the best negotiators in history.

Related International Negotiation Articles:
Famous Negotiators: Tony Blair’s 10 Principles to Guide Diplomats in International Conflict Resolution
Former British Prime Minister Tony Blair offers negotiation skills tips for resolving conflict on the international stage. In this article drawn from negotiation research, we examine Tony Blair’s ten conflict management principles and how they relate to the dynamics of negotiation and negotiation scenarios that are common at the bargaining table.

Program on Negotiation Faculty On How To End the US Government Shutdown
Program on Negotiation faculty members discuss the standoff between US President Barack Obama and congressional Republicans over the government shutdown. The negotiation scenarios facing President Obama and congressional Republicans are discussed with reference to potential negotiation strategies and bargaining tactics that each side could employ to achieve its objectives.

Bargaining with the Devil
Sometimes negotiators are faced with the unenviable task of bargaining with a counterpart they don’t like, mistrust, or even worse, think is evil. In this article, Robert Mnookin’s book, Bargaining with the Devil, is discussed with reference to conflict management and negotiation strategies that can be employed to deal with difficult people.

Who do you think is one of the best negotiators in history? Leave us a comment.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

Originally published in 2013.

When we think of win-lose negotiation examples, we often imagine situations where one side’s success seemed to require the other side’s failure. Yet in many of these cases, a win-win negotiation was entirely within reach. Too often, parties overlook opportunities to create value, and they end up with agreements that fall short of their potential. The following two win-lose negotiation examples show why negotiators so frequently default to competition rather than collaboration, to their own detriment, and how you can adopt more effective negotiation strategies that open the door to stronger, more mutually beneficial outcomes.

Amazon’s Win-Lose Auction for HQ2

Back in 2017, 238 North American cities and regions placed bids to be site of Amazon’s second headquarters, known as HQ2. The online behemoth said it would be investing $5 billion in the campus, which was expected to create 50,000 well-paying jobs. Amazon’s wish list for its winning city or region included a metropolitan area of more than one million people, a “stable and business-friendly environment,” access to strong technical talent, and a community that thinks “big and creatively,” according to CNBC.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

Some critics complained about Amazon’s request that applicants include information about tax breaks and other corporate incentives in their proposal. The implication: Cities would have to pay up to get the company’s attention. Matthew Gardner, a senior fellow at the nonpartisan Institute on Taxation and Economic Policy, told the New York Times, “[Amazon] would like a package of tax incentives for something they were going to do anyway.” University of Minnesota economist Art Rolnick called Amazon’s requests “blackmail” and “corporate welfare,” but conceded that cities had little choice but to enter the race.

Regular participants in auctions are familiar with the winner’s curse phenomenon, or the common tendency for the winning bidder in an auction for an item of uncertain value to overpay. When an auction heats up, the fact that you are the winner suggests that others reached more realistic assessments of the item’s true value.

The winner’s curse is likely to be a concern whenever you are asked to participate in an auction that appears to be centered solely on price. In such instances, you might try to convince the seller to negotiate with you one on one. Explain that you have much more value to offer than can be communicated in a single price offer and that you believe they can achieve a great deal more through win-win bargaining.

The Florida Marlins Sale

The fallout from a disadvantageous negotiation can reverberate for years to come. That’s what the City of Miami learned from its 2009 stadium deal with Florida Marlins owner Jeffrey Loria as he reached an agreement to sell the team in August 2017.

With the Marlins struggling for years to fill their stadium, Loria threatened to relocate the team to another city unless city leaders agreed to provide taxpayer financing for a new stadium with a retractable roof. Ultimately, City of Miami and Miami-Dade County taxpayers paid about 75% of the $634 million construction costs for the 37,000-seat stadium. The team itself paid just $125 million and keep almost all the revenue generated from the building. Loria agreed that if he sold the team within 11 years, he would pay the city a percentage of the sale according to sliding scale.

Opened in 2012, the new Marlins Park substantially enhanced the value of the team, but ticket sales remained stagnant and the team struggled on the field. Moreover, the burden the stadium placed on taxpayers turned out to be far worse than anticipated: a whopping $2.4 billion over 40 years, according to the Broward County Sun-Sentinel. A Securities and Exchange Commission investigation of the deal followed but ultimately was closed.

On August 11, 2017, the Miami Herald broke the news that Loria had reached an agreement to sell the Marlins to a buyers’ group led by Yankees star Derek Jeter and venture capitalist Bruce Sherman for $1.17 billion. How much of that $1.17 billion would local governments receive to help pay down the billions in taxpayer funds they invested in Marlins Park? Likely just a few million dollars.

In the business world, one negotiation often leads to another. Before negotiating, it’s important to think through the long-term implications of deal terms. Analyze the various scenarios that could play out, and then prepare for both the best- and the worst-case scenario—lest you end up on the wrong end of a win-lose negotiation.

What other win-lose negotiation examples have you encountered, and how might they be transformed to win-win deals?

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

How many times have you sat at the bargaining table and wondered, “Am I negotiating with someone who isn’t being truthful?” And, to be honest, how often have you stretched the truth yourself during a negotiation? Misrepresentation, whether deliberate or subtle, can have serious consequences. The example below illustrates how dishonesty in negotiation can lead to significant ethical and practical problems for those involved.

Back in July 2014, Jesse Litvak, the former managing director of investment bank Jefferies LLC, became the only person to date to be convicted of fraud in connection with the U.S. government’s Troubled Asset Relief Program (TARP), which used bailout funds to promote investment in mortgage-backed securities. Litvak was charged with defrauding investors of $2 million by misrepresenting how much sellers were asking for the securities and what customers would pay for them. After driving up the price, he would keep the difference for his firm, reports Bloomberg News.

Assistant U.S. attorney Jonathan Francis argued in court that Litvak’s behavior was predatory and put him in “an elite class of fraudster.” The judge in the case agreed, sentencing Litvak to two years in prison.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

Litvak and his attorney, Patrick Smith, insist that his misrepresentations were very different from the types of lies told in more typical fraud cases involving Ponzi schemes and other scams. In an appeal of his sentence, they’ve argued that Litvak’s misleading statements to bond buyers were not “material” to their decisions. Rather, his statements were typical sales tactics used in bond negotiations, they say. Moreover, they argue, Litvak’s clients were sophisticated investors who “paid a price they were willing to pay for precisely the securities they expected to, and did, receive.” In other words, Litvak’s puffery regarding how others valued the bonds didn’t prevent his buyers from getting the exact deal they were promised.

A U.S. appeals court agreed to hear Litvak’s case and delay his imprisonment while the appeal was pending. If the court overturned his conviction, a clear legal distinction would be set between misrepresentations that are typical negotiation posturing versus those that are part of a scheme to defraud, writes Wayne State University Law School professor Peter J. Henning in the New York Times.

Are you negotiating with liars?

The Litvak case raises a broader question: To what extent, if at all, can negotiators be untruthful without getting into legal hot water? Most of us aspire to be completely honest in our negotiations, yet we all know of people who distort facts to try to induce agreement, and there may be times when we are tempted to do so ourselves.

Take the story of a couple that is thinking about making a bid on a house, as related by Harvard Law School and Harvard Business School professor Guhan Subramanian in his book Dealmaking: The New Strategy of Negotiauctions (W. W. Norton, 2011). The seller’s agent informs them that another bid has come in at the full asking price.

The couple decide to bid $10,000 above the asking price, about $20,000 more than they would have bid if they didn’t believe there was another offer. The next day, the couple learns that the seller’s agent was bluffing—there was no other offer.

In this case, the buyers likely would be able to get out of the deal or successfully sue the broker for fraud, writes Subramanian, as long as they were able to prove their claim that the broker had lied to them. Notably, this can be difficult to do. Suppose the broker testifies that she claimed not that someone had made a concrete offer on the house but rather that someone had been thinking about making one. In the United States, the courts usually excuse this sort of puffery as typical seller’s talk. (Many European countries, by contrast, might view it as illegal.)

The legal line between acceptable and unacceptable misrepresentation is bound to shift slightly over time. In your own negotiations, your moral compass should be more steadfast. Remember that outright deception is a risky move, and let your conscience be your guide.

How have you handled negotiating with liars?

Adapted from “Bluffing versus Puffing” in the January 2015 issue of Negotiation Briefings.

Claim your FREE copy: Negotiation Skills

Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.