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.

Imagine sitting down with two managers, Tim and Mindy, to negotiate a major sale on behalf of your company. Tim stresses his commitment to addressing your interests, while Mindy abruptly counters with an offer that feels outrageous, even insulting. Tim then nudges her to make a concession, positioning himself as reasonable and cooperative. Before you realize it, Tim starts to feel like a trusted ally, and you find yourself following his lead, working hard to close the gap with Mindy and even offering concessions you never planned to make. What just happened? You have unknowingly fallen victim to the classic good cop, bad cop negotiation strategy.

In a good cop, bad cop negotiation, two individuals or parties, working as a team, extend a series of rewards and punishments with the goal of gaining an advantage over their counterpart. A well-known interrogation room technique in law enforcement, the good cop, bad cop negotiation strategy in the business world involves one “cop” acting in a “threatening, hostile, and abusive manner,” while the other adopts a “non-threatening, friendly and sympathetic manner,” writes Curtis H. Martin in the Nonproliferation Review. The “nice” negotiator aims to gain the target’s trust and win a concession, lest the target is stuck with the unappealing offer of the tough negotiator. A good cop, bad cop negotiation poses considerable challenges in negotiation and bargaining.

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Why We Fall for the Good Cop, Bad Cop Negotiation Tactic

Why is the good cop, bad cop negotiation strategy often so effective? The tactic preys on our tendency to like people who agree with us and seem similar to us, an effect that’s heightened by the presence of a good guy’s demanding partner. The contrast between the two partners’ negotiating styles “makes the ‘carrots’ offered by the good cop seem even sweeter and the ‘sticks’ offered by the bad cop even harsher,” writes Stanford professor Robert Sutton in a blog post about good cop, bad cop negotiation.

In one experiment, researchers Susan Brodt of Duke University and Maria Tuchinsky of INSEAD found that the good cop, bad cop negotiation strategy can be very effective at helping parties claim value from their target—but only if the bad cop starts the negotiation and the good cop follows.

That doesn’t mean you should try it, however. Like most types of negotiation tactics aimed at manipulation, the good cop, bad cop negotiation tactic can ultimately destroy trust between parties and harm your reputation—not to mention, damage your self-respect.

Recognizing a Good Cop, Bad Cop Negotiation

In a 1991 article, Sutton and Professor Anat Rafaeli of the Technion Institute in Israel identified the following four negotiation techniques and tactics that are variations on the good cop, bad cop negotiation routine:

1. Sequential good cop, bad cop: The classic strategy in which the good cop and bad cop take turns interacting with their target.
2. Simultaneous good cop, bad cop: The good cop and bad cop argue with each other over how good of a deal to offer the target.
3. One person as both good cop and bad cop: A solo negotiator uses a mixture of good cop and bad cop techniques, such as switching from friendly to impatient or being indecisive about what to offer.
4. Good cop warning about a future bad cop: A negotiator might warn that he’s giving you the best deal possible and that if you come back tomorrow, you should expect to get a worse deal from his boss

How to Address the Good Cop, Bad Cop Negotiation Strategy

Now that you are familiar with the good cop, bad cop negotiation strategy, you should be able to recognize it. How should you address it? Head-on, writes G. Richard Shell in his book Bargaining for Advantage: Negotiation Strategies for Reasonable People (Penguin, 2006).

Returning to our opening scenario, you might say to Tim and Mindy: “It looks to me as if Tim’s the good guy here and Mindy’s the bad guy. I’m used to negotiating in a more straightforward manner. Can we try to work together more collaboratively?” Be aware, though, that if it turns out that you are wrong, and the two negotiators are merely revealing their true personalities and concerns, they could be offended by your accusation. Therefore, you might want to avoid naming the good cop, bad cop negotiation tactic and instead simply encourage greater cooperation with the goal of creating new sources of value.

 Have you ever faced a good cop, bad cop negotiation, and how did you cope?

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Imagine you receive a salary offer for a new job that falls short of your expectations, or a client presents you with a blunt “take it or leave it” ultimatum. Although negotiators can find plenty of guidance on how to make the first offer in negotiation, far less attention is paid to how to respond once an opening offer is on the table. That omission is costly, because the way you handle a counterpart’s initial proposal can strongly shape the negotiation’s ultimate outcome. The following deal-making techniques can help you craft counteroffers that are both strategic and effective.

1. Resist Their Anchor.

In a negotiation first offer, the first number or other figure mentioned tends to serves as an anchor that pulls counteroffers in its direction. When receiving a first offer, it’s typically very difficult to ignore the anchor, even if it is completely unreasonable.

For example, suppose you receive a salary offer of $40,000 per year for a job that, based on your research, you believe should have a salary of about $50,000. If you had proposed a salary first, you might have asked for $55,000. But after the hiring manager drops the $40,000 anchor, you are likely to make a lower counteroffer, such as $45,000. Because of this anchoring effect, negotiators are often advised to try to make the first offer.

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Wondering how to counteroffer without being anchored? First, resist the urge to respond immediately to the other party’s offer. Ask for time to think it over, and give yourself plenty of time to strategize. Second, make sure you know your BATNA—your best alternative to a negotiated agreement, or the path you’ll follow if you can’t reach a deal with your current counterpart—as well as your target. Aiming for your target, and being sure not to accept anything less than your BATNA, will help lessen the impact of your counterpart’s anchor.

2. Try Making Multiple Counteroffers.

Simultaneously delivering multiple offers that you value equally, rather than just one offer, can be a useful strategy in negotiation. When you make multiple offers simultaneously, you convey flexibility and gain valuable information about your counterpart’s interests.

For example, after being offered a salary of $40,000 along with two weeks of vacation and three weeks of work travel, you might make three offers that vary on salary, vacation time, and travel. When crafting multiple offers, be sure that you value them equally as your counterpart could end up accepting any one of them on the spot. More likely, you’ll continue haggling further. But presenting multiple offers can be an invaluable way of determining what issues matter most to the other side—and sets you up for creating value in negotiation by making tradeoffs on issues you value more.

3. Provide a Strong Rationale.

When considering how to counteroffer, don’t overlook the value of a strong rationale. A persuasive rationale can help you re-anchor the discussion and avoid impasse.

In their research, Alice J. Lee of Columbia Business School and Daniel R. Ames of Columbia University compared the effectiveness of two common types of rationales that buyers use when responding to a seller’s opening bid: (1) constraint rationales and (2) disparagement rationales.

A constraint rationale focuses on the buyer’s own limitations, which are often financial. For example, you might respond to a service provider’s high bid by saying, “That’s way over my budget and won’t work for me.” By contrast, a disparagement rationale critiques what the seller is offering. For example, “My understanding is that your services are pretty no-frills. Given what you’re offering, your price seems much too high.”

In their experiments, Lee and Ames found that sellers were significantly more swayed by constraint rationales than by disparagement rationales. Relative to those who received disparagement rationales, sellers who were given constraint rationales also were more optimistic about the odds of reaching agreement and were more likely to recommend their counterpart to a friend. By contrast, sellers may find disparagement rationales to be inaccurate and rude—or they may take buyers at their word when they say they simply can’t afford the deal on the table.

The takeaway: When responding to a seller’s offer, you are likely to get a better deal if you accompany your counteroffer with information about your financial constraints than if you try to diminish the value of what’s being sold.

What other strategies have you employed when determining how to counteroffer?

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Negotiators preparing to pursue conflict resolution in personal or business disputes should be mindful of cognitive biases in negotiation, especially when a judge will be making the final decision. Before heading down that path, it is worth considering what psychologists, political scientists, and legal scholars have learned through negotiation research and social science: judges, like all decision makers, are susceptible to error and cognitive bias, and those tendencies can influence outcomes in meaningful ways.

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Cognitive Biases in Negotiation and Three “Blinders” to Rational Decision Making

Obviously making a fair judicial ruling can be difficult when the law is murky or the facts are contested. But even when the law is clear and the relevant facts have been fully developed, judges can still have trouble accurately applying the governing principles. Specifically, they face three types of “blinders” – attitudinal, information, and cognitive – that are largely unacknowledged by the legal system.

Because judges are susceptible to misjudging, your outcome in court may not be as fair or predictable as you might expect.

If the expense and hassle of a lawsuit aren’t enough, the research on misjudging provides yet another reason for you to turn to in negotiation to resolve your disputes.

Ideology and Misjudging: Negotiation Strategies and Bargaining Techniques for Overcoming Common Negotiation Mistakes Caused by Cognitive Biases in Negotiation

Whether elected or appointed, judges come to the bench with political views – attitudes or predispositions that can lead them to rule in ways consistent with their underlying ideology. These attitudinal blinders can bias their decisions.

In their book Politics and Judgment in Federal District Courts (University Press of Kansas, 1996), Robert Carp and C.K. Rowland assessed the impact of attitudinal blinders on trial judges.

Specifically, the legal scholars assembled a database of more than 45,000 district court rulings issued over more than half a century (1933-1987) involving more than 1,500 judges. They discovered that Democratic appointees ruled in the liberal direction 48% of the time, and Republican appointees ruled in the liberal direction 39% of the time.

When they compared appointees of particular presidents, they found the gulf was even wider; for example, Johnson and Carter’s appointees reached liberal decisions in 52% and 53% of their respective cases, and Reagan and George H.W. Bush appointees reached liberal decisions in only 36% and 33% of their respective cases.

Overall, in instances where judges have discretion and where the issues in a case have a clear political dimension, such as employment discrimination cases, political science research suggests that attitudinal blinders can distort judicial decision making.

How have cognitive biases affected the way you have handled past negotiations? Have you made any of these common negotiation mistakes? Share your story in the comments.

Related Conflict Resolution Article: Why We Succumb to Deception in Negotiation

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Adapted from “Blind Justice? Think Twice Before Going to Court” in the April 2007 issue of the Negotiation newsletter.

Originally published on June 9, 2013.

Imagine you are about to negotiate with a competing firm over a potential merger and know you will need to manage emotional triggers.

You walk into the conference room and are greeted by a reasonable, fair-minded representative from the other company, someone with whom you have reached mutually beneficial agreements in the past. Yet you are in a foul mood. On the way to work, you were rear-ended by a distracted driver talking on his cell phone. As you take your seat at the table, your mind drifts to the inconvenience of repairs and insurance claims. Even as the frustration lingers, you feel confident you can keep your anger and emotional triggers separate from the negotiation at hand. But can you?

Probably not. Emotions of all types alter our thoughts, behavior, and underlying biology. In negotiations, the fact that integral emotions—feelings triggered by the negotiation itself—affect outcomes is well documented. For instance, if you found yourself negotiating with an old nemesis, you would experience integral anger. We now know that incidental emotions, or feelings unrelated to the negotiation at hand, also can have a significant effect on negotiations.

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The Impact of Feelings and Emotional Triggers on Decision Making at the Bargaining Table

Whenever we make a decision, most of us assess our feelings to some degree. If we can label the source of an incidental emotion, then it is significantly less likely to affect our negotiation decisions. In a clever negotiation research study, researchers Norbert Schwarz of the University of Michigan and Gerald Clore of the University of Virginia had half of the participants answer on a sunny day a phone survey about life satisfaction; the other half answered the survey on a rainy day. As you might expect, participants who received calls on a rainy day reported significantly less life satisfaction than did participants who received calls on a sunny day. But when researchers began the call by asking, “By the way, how is the weather down there?” participants in the rainy condition responded as positively as participants in the sunny condition. Acknowledging the bad weather defused its impact on their evaluations.

How to Defuse Your Emotional Triggers Before Negotiation

To recognize and defuse your own incidental emotions, start by identifying your  emotional triggers. A nationwide study led by Nobel Laureate Daniel Kahneman of Princeton University showed that Americans become most distressed when commuting or when talking to their bosses. Could these triggers be affecting your negotiations (see also, bias in negotiations)? Awareness of this possibility will improve your odds of recognizing the effects of such triggers in the heat of the moment.

Bargaining Strategies to Defuse Your Counterpart’s Emotional Triggers During Negotiation

To recognize and defuse an incidental emotion in your counterpart, remember that her mood may have nothing to do with you. If you suspect that the other side’s feelings are incidental to the negotiation, encourage her to draw a connection to the source of these feelings. Open-ended questions such as “Terrible day out, isn’t it?” or “How was the drive over?” can go a long way toward minimizing the influence of negative emotions on judgments and choices.

How do YOU control your emotional triggers for effective dispute resolution or bargaining purposes?

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Adapted from “Negotiating Under the Influence,” by Jennifer S. Lerner, Professor, Harvard Kennedy School of Government, first published in the Negotiation newsletter.

Originally published in 2009.

What impact does forgiveness have on business negotiations and interpersonal relationships?

In business negotiations, when a counterpart apologizes for causing harm or offense, should you forgive and move on? And what if forgiveness feels out of reach? Conflict resolution research by Ellen Waldman and Frederic Luskin offers guidance on how to navigate these moments and decide what moving forward can realistically look like.

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Conflict resolution advice from The Negotiator’s Handbook

In a chapter in The Negotiator’s Fieldbook (American Bar Association, 2006), Ellen Waldman and Frederic Luskin write that forgiveness isn’t an essential component of negotiation; you may be able to get to the finish line despite resenting or disliking your counterpart intensely. But when you’re suffering from a grievance, you could get trapped in a cycle of anger, self-pity, and resentment that puts you at risk for further conflict as well as emotional and physical stress.

Because simply remembering a hurtful experience triggers a biochemical stress response, moving beyond blame can help you better regulate your emotions and even lower your blood pressure, researchers have found. The health benefits offered by forgiveness can have a transformative impact on conflict, write Waldman and Luskin.

In one of its studies, the Stanford Forgiveness Project brought together people on both sides of the conflict in Northern Ireland who had suffered personal losses, including the deaths of loved ones, for a week of forgiveness training. When assessed six months later, the participants’ rating of the intensity of their hurt had declined significantly.

Overall, conflict resolution training has been found to encourage people to experience greater empathy toward their offenders and to change their story of victimization to one of overcoming adversity.

In the context of negotiations, the forgiveness inspired by a sincere, well-timed apology can potentially improve the odds of settlement and repair relationships.

That’s not to say that forgiveness is always achievable or even desirable. In particular, the greater the trauma people have suffered, the less open they will be to reconciliation. Studies of judicial initiatives in Rwanda and post-apartheid South Africa suggest that victims must feel a sense of economic and psychological stability before they can summon the strength to forgive those who have harmed them.

But if the prospect of moving on psychologically from a grievance appeals to you, how can you increase your own capacity to forgive? Your willingness to forgive someone who has hurt you may depend on your beliefs about human nature, according to the results of a 2010 experiment by Michael P. Haselhuhn of the University of Wisconsin-Milwaukee and Maurice E. Schweitzer and Alison M. Wood of the University of Pennsylvania.

The researchers had participants square off against an opponent who repeatedly violated their trust in a computerized negotiation before apologizing. Participants who believed that moral character can change over time were more likely to trust their counterparts following the apology than were participants who believed that moral character is fixed.

The results suggest that you can increase your capacity for forgiveness by allowing for the possibility that a counterpart who expresses a seemingly heartfelt apology is capable of personal growth.

What conflict resolution tips do you have to share with our readers? Leave a comment below.

Related Article: Conflict Resolution: When Forgiveness Seems Elusive

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In the summer of 2014, U.S. President Barack Obama and other world leaders grappled with how to persuade Russian President Vladimir Putin to pull back from his aggression toward Ukraine. Writing in a Wall Street Journal editorial, Ken Adelman, who served as U.S. President Ronald Reagan’s ambassador to the United Nations and arms-control director, argued that recently declassified accounts of negotiations between Reagan and Soviet leader Mikhail Gorbachev contained valuable lessons. Those historical exchanges, he suggested, could offer guidance to Western leaders seeking a more effective approach to negotiations with their Russian counterpart .

According to Adelman, on his way to accept the 1980 Republican nomination, Reagan told an adviser that the primary reason he wanted to be president was “To win the Cold War.” Having set this overarching goal, Reagan tenaciously pursued it throughout his two terms in the White House.

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Reagan reportedly took a “We win, they lose” approach to negotiations with the Russians. During the key nuclear-arms summit in Reykjavik, Iceland in October 1986, Gorbachev complained to Reagan at least 10 times that the Russians were making all the concessions and the Americans were making none. The observation was accurate, according to Adelman.

At Reykjavik, Reagan laid out a clear plan to achieve his goals. His decision to build up U.S. military power, in part by launching the so-called “Star Wars” Strategic Defense Initiative, infuriated Gorbachev, writes Adelman.

When Gorbachev tried to convince Reagan to back down on the Star Wars program, he refused. Ultimately, the two leaders left Reykjavik without an agreement. However, the meetings gave them insights into new points of discussion, such as human rights, and they were able to reach a sweeping nuclear-arms reduction the following year. The Soviet Union collapsed in 1991.

In business negotiations, a “We win, they lose” attitude seals parties off from possibilities to discover tradeoffs and opportunities that they hadn’t previously considered. Yet when you are negotiating with counterparts who dig in their heels and refuse to engage in collaborative strategies, setting clear limits can be especially important, lest “red lines . . . begin to fade and then turn green,” in Adelman’s words.

Business negotiators would be wise to follow Reagan’s strategy of laying out an overarching vision prior to engaging in a critical negotiation. Negotiators who cultivate a strong best alternative to a negotiated agreement, or BATNA, prior to sitting down at the table will be well-positioned to stand firm when confronted with difficult counterparts and be willing to walk away from a subpar deal.

Share your most difficult negotiation story in the comments.

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A series of aviation crises tied to aerospace giant Boeing has prompted renewed scrutiny of the company’s ethical leadership. The 2018 crash of Lion Air Flight 610, followed months later by the crash of Ethiopian Airlines Flight 302, brought serious flaws in the Boeing 737 MAX to light, issues the company was widely criticized for addressing too slowly. More recently, in 2024, a fuselage panel blew off a 737 MAX during flight, and Boeing’s Starliner space capsule left two astronauts stranded in orbit, further intensifying concerns about safety, accountability, and leadership at the company.

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In fact, these are only the most recent in a “long list of ethical and criminal transgressions” by Boeing that date back to the late 1970s, according to Andy Pasztor, a reporter who covered Boeing for the Seattle Times for decades. These transgressions include illicitly procuring classified Pentagon documents, stealing a competitor’s rocket development documents, and committing quality-control violations.

The problems at Boeing fell into a dangerous pattern: After every scandal, the company’s top executives would express contrition and promise improvements, only for another violation to crop up soon after—followed by “even more fervent pledges to reform” from the top brass, according to Pasztor. That pattern has caught up with the company, which, as of October 2024, was $58 billion in debt and hemorrhaging $1 billion a month.

What explains the apparent dearth of ethical leadership at Boeing? A broken corporate culture has been to blame, with “slogans, public relations efforts and bureaucratic shuffles” taking the place of meaningful change, writes Pasztor.

In particular, an emphasis on short-term profitability and a move away from an “engineering-led culture toward more centralized corporate control” made Boeing engineers fearful of voicing their concerns about safety issues with managers, write Andrew Tangel and Jon Sindreu in the Wall Street Journal. “Time and again, Boeing executives emphasized they would focus on safety, engineering, and quality,” they report. The failure to maintain this focus highlights key issues relevant to ethics and leadership.

Threats to Ethical Leadership

Why did safety goals so often fall by the wayside at Boeing? Not because executives had ill intent but more likely because they were susceptible to common psychological processes that affect us all—and that are a particular threat to ethical leadership.

“Cognitive biases allow nice people to engage in unethical behavior without realizing that they are doing so,” write Don A. Moore and Max H. Bazerman in their book Decision Leadership: Empowering Others to Make Better Choices. “This lack of awareness constrains willful control over our ethical decisions, leading to bounded ethicality”—that is, “ethically questionable behaviors that fall short of [our] own values,” according to Moore and Bazerman.

Through a process that researchers Ann Tenbrunsel and David Messick have referred to as ethical fading, the ethical dimensions of our decisions can easily disappear from view in organizational decision making and compromise ethical leadership. “Common features of organizations can blind us to the ethical implications of a decision, leading us, for example, to classify a decision as a ‘business decision’ rather than as an ‘ethical decision’ and thus increasing the likelihood that we will behave unethically,” write Bazerman and Tenbrunsel in their book Blind Spots: Why We Fail to Do What’s Right and What to Do about It.

The Risks of “Stretch Goals”

Consider the roots of the Boeing 737 MAX disasters. In 2011, American Airlines told Boeing, its longtime airplane supplier, that it was considering placing an order with Boeing archrival Airbus for its next-generation aircraft, write Moore and Bazerman. To try to keep American’s business, James McNerney, then Boeing’s CEO, scrapped plans to develop a new, time-intensive airplane model and instead decided to update its 737 model. Executives set tight deadlines for the project, pushing engineers to complete their work in half the usual time.

“In setting goals for the new 737 MAX, Boeing behaved as if speed to market was the key performance metric,” write Moore and Bazerman. “In doing so, it neglected other legitimate concerns, including product safety. The result, we now know, has been devastatingly costly.”

“Stretch goals” that encourage workers to meet extremely ambitious targets often lead to flawed decisions and contribute to failed ethical leadership, according to Moore and Bazerman. That’s because leaders often frame stretch goals too narrowly. In the case of the 737 MAX reboot, the focus was on meeting a very tight deadline. This appeared to lead other important goals to fade from view, most notably quality and product safety. The U.S. Federal Aviation Administration enabled Boeing’s overly narrow focus on speed to market by allowing the company to make key testing and certification decisions.

“The biggest stretch goals also come with a substantial probability of failure,” warn Moore and Bazerman. Further, they advise leaders to avoid unwittingly encouraging unethical behavior by demanding results at any cost. Employees need to know that they will be praised rather than punished for putting on the brakes and raising red flags about safety issues, rule breaking, and other signs of trouble. Leaders can put in place incentives that reward workers for speaking up. They can also better conform to ethical leadership by prioritizing and articulating ethical concerns when setting goals.

How do you promote ethical leadership in your organization?

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What makes a good mediator? And how is it that mediators—despite having no authority to impose a solution—are nonetheless able to guide even bitterly divided parties toward agreement? These questions sit at the heart of effective dispute resolution and point to the subtle skills, strategies, and judgment that allow mediators to help adversaries find common ground where none seemed possible.

Of course, serious mediation training and substantive expertise are critical, as is keen analytic skill. But according to a survey by Northwestern University law professor Stephen Goldberg, veteran mediators believe that establishing rapport is more important to effective mediation than employing specific mediation techniques and tactics.

To gain parties’ trust and confidence, rapport must be genuine: “You can’t fake it,” one respondent said. Before people are willing to settle, they must feel that their interests are truly understood. Only then can a mediator reframe problems and float creative solutions.

Goldberg’s respondents could report only their own perceptions about why they succeed, of course. A detached observer or the parties themselves might have very different explanations. Indeed, one of the tenets of mediation practice is to work subtly so that parties leave feeling as if they have reached accord largely on their own, a strategy that is meant to deepen their commitment to honor the agreement.

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In an earlier study by mediator Peter Adler, his colleagues explained their success by discussing “the breakdowns, breakthroughs, and the windows of opportunities lost or found.” By contrast, participants in the same cases remembered the mediators only as “opening the room, making coffee, and getting everyone introduced.”

This research offers two lessons for negotiators—including those who must resolve disputes and make deals without the help of a third party. One is the importance of relationship building, especially in contentious situations. Some measure of trust is required before people will open up and reveal their true interests. The other is that a hallmark of an artful process is that others do not feel maneuvered or manipulated.

What do you think makes a mediator good? Let us know in the comments.

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Adapted from “Rapport Comes First,” first published in the Negotiation Briefings newsletter in 2010.

You might say you would never lie in a negotiation. Your ethical standards are firm—or so you believe. Ethics in negotiation matter deeply, yet they are often tested in subtle, high-pressure moments.

Imagine this scenario: after months of searching for a new job, you receive an appealing offer to become the director of innovation at a fast-growing start-up. As discussions move forward, the hiring manager asks whether you have other offers. In reality, you do not. Still, you find yourself saying you have “several concrete offers.” When pressed for specifics, you go further, claiming those other offers are “significantly higher” than what her company has proposed.

While salary negotiations are intense, high-pressure bargaining situations, you had no intention of deceiving a prospective employer and may not have even noticed you were engaging in deceptive negotiation strategies. So why did you? Ethics in negotiations can bring up a lot of scenarios we never imagined ourselves in.

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Dilemmas with Ethics in Negotiation

In past issues of Negotiation Briefings experts have described dilemmas related to ethics in negotiations and offered tips on detecting an opponent’s deception. Adding to this discussion, we will identify four forces that may tempt you to behave unethically when you negotiate and suggest ways to overcome their influence.

4 Ways Your Ethics in Negotiations Will Be Challenged at the Bargaining Table

The forces behind deception

Despite your best intentions, one or more of these four forces might lead you to have compromised ethics in negotiations:

Negotiation Ethical Challenge #1. The lure of temptation.

Whether or not negotiators lie depends in part on how lucrative the rewards are, Ann E. Tenbrunsel (one of the authors) has found. In one of her studies, participants played the role of a partner in a two-partner firm that was being dissolved. They were asked to provide “honest” estimates of the market share of their products to help determine how to divide the firm’s equity between the two partners.

Some participants were told that if they were awarded the most equity, they would receive $1; others were told they would receive $100 in the same instance. Those promised only $1 misrepresented their “honest” estimates 41% of the time; by contrast, those promised $100 misrepresented their estimates 69% of the time. The higher reward provided a significant temptation to lie.

Similarly, the larger the bribe, the more likely we are to take it, Harvey Hegarty of Indiana University and Henry Sims of the University of Maryland found.

Returning to our opening story, the more desirable the job, the more likely you would be to lie about having better offers. It seems our ethical standards are more fluid than we would like to believe.

Negotiation Ethical Challenge #2. Uncertainty’s attraction.

Uncertainty increases the likelihood that we will be unethical, Roy J. Lewicki of Ohio State University and other researchers have noted. Uncertainty about the material facts in a negotiation can inspire unethical behavior.

In another study using the two-partner situation described above, Tenbrunsel led negotiators to be either fairly certain or fairly uncertain about the honest estimate of the market share of their products. Rather than providing more cautious estimates, uncertain negotiators actually provided more aggressive, less honest estimates than the more confident group.

It seems that in a job negotiation, uncertainty about the possibility of a better offer could increase the likelihood that you would falsely claim to have other offers.

Negotiation Ethical Challenge #3. The power of powerlessness.

“Power tends to corrupt and absolute power corrupts absolutely,” said historian Lord Acton, yet studies show that a lack of power is more likely to lead us to behave unethically.

Consider that outside alternatives to agreement are a strong source of power in negotiation. In their research, Tenbrunsel and David Messick of Northwestern University found that a lack of outside options increased negotiator deception. In one study, participants acted as managers negotiating with potential clients. When managers were told they had relatively few other potential clients, they were more likely to misrepresent information than when they were told they had plenty of potential clients. No wonder, then, that a job applicant lacking other solid offers might be tempted to claim that she has many.

Negotiation Ethical Challenge #4. Anonymous victims.

Suppose your job negotiation is with several people—a recruiter, the human-resources manager, the division president, and the director of sales. When negotiating with this group, you’d be more likely to lie than when negotiating with one person, our research with Charles Naquin of DePaul University suggests. In one study, participants were presented with an ethical dilemma and were faced with whether to lie to their opponent. For half the participants, that opponent was an individual, and for the other half, that opponent was represented by a group of individuals. Participants with a group of opponents lied to them about the amount in the pot 73% of the time; those with individual opponents lied only 36% of the time.

Probing further, we found that negotiators perceive interactions with groups to be less personal than interactions with individuals, a perception that they believe justifies increased unethical behavior when dealing with groups.

What issues have you faced with ethics in negotiations?

Related Dealing with Difficult People Article: Win-Win Negotiation: Managing Your Counterpart’s Satisfaction
 – Satisfying your needs, as well as satisfying the needs of your bargaining counterpart as best you can given that framework, is at the heart of integrative negotiation strategies. But what if the counterpart you need to satisfy sits with you on the same side of the negotiation table? In this article drawn from negotiation research, we offer ways in which you can insure your bargaining counterpart’s satisfaction by presenting win-win negotiation scenarios in which at-the-table and behind-the-table concerns are addressed.

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Originally published in 2015.

What is negotiation? In The Mind and Heart of the Negotiator, Northwestern University professor Leigh Thompson defines negotiation as “an interpersonal decision-making process necessary whenever we cannot achieve our objectives single-handedly.” Her definition highlights the central role of interdependence, reminding us that negotiation arises precisely because our outcomes are linked to the choices and cooperation of others.

Narrowing in on this definition, when preparing to negotiate, business professionals often wonder what types of negotiation are available to them. In this article, we offer business negotiation solutions by introducing you to the main types of negotiation practiced in business settings as well as the situations in which they tend to be used.

• Distributive negotiation. A distributive negotiation is a negotiation in which parties are haggling over a single issue, most typically the price of a given commodity or service. Parties engaged in a distributive negotiation bargain over a fixed amount of value—that is, they aim to slice up the pie. When you are negotiating with a merchant in a foreign bazaar over the price of a rug, or negotiating over the price of a used car at a dealership, you may be engaged in a distributive negotiation.

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• Integrative negotiation. An integrative negotiation is one in which more than one issue is at stake—ideally, many issues. When multiple issues are available for discussion—such as salary, benefits, and start date, in the case of a job negotiation—negotiators have the potential to make tradeoffs across issues and create value. That is, if you care little about a particular issue that your counterpart values more, you might propose making a concession on that issue in exchange for a concession from your counterpart on an issue that you value more. Negotiators often make the mistake of assuming that a negotiation is distributive when in fact additional issues can be added to the discussion to make it an integrative negotiation.

• Team negotiation. A team negotiation is one in which at least one of the parties is made up of more than one person. More typically, in a team negotiation, there are at least two teams involved, sometimes more. Examples of team negotiations include contract negotiations between company management and a union, or two organizations negotiating a possible merger. Negotiators typically team up when they believe their different talents, skills, and knowledge will make them stronger. Indeed, research shows that when there’s at least one team at the bargaining table, negotiators are likely to create more overall value. When setting up your negotiation team, it is wise to negotiate what role each person will play, plan your negotiating strategy in advance, and take frequent breaks during the negotiation to discuss how things are going and work out any disagreements that emerge in private.

• Multiparty negotiations. A multiparty negotiation is one in which three or more parties are negotiating among each other, whether as individuals or as part of negotiating teams. When three friends are deciding where to go for dinner, they can be said to be engaged in a multiparty negotiation. And when the nations of the world meet to try to reach an agreement on climate change, they also are engaging in a multiparty negotiation. Clearly, multiparty negotiations often also encompass team negotiations, if various teams are at the bargaining table. Business professionals are often daunted by the complexity of multiparty negotiation, but in fact, that complexity can bring immense benefits. The more issues, parties, and concerns there are on the table, the more opportunities there are to create value by making tradeoffs across issues. But because multiparty negotiations sometimes splinter into divisive factions, they need to be managed carefully.

• One-shot vs. repeated negotiations. Some negotiations are “one shot”—that is, parties meet for a single negotiation with no intention of negotiating together in the future. Such a negotiation may occur in more than one meeting, as in the case of negotiators who discuss the price of a used car online, meet in person for a test drive, and then conclude the negotiations a week later, but the expectation is that they will go their separate ways when the negotiation is over. One-shot negotiations often carry a risk of unethical behavior and hard bargaining if parties believe they have no need to build a trusting relationship. By comparison, negotiators who hope to engage in repeated negotiations tend to work harder to create a sense of mutual trust, and their negotiations may be more cooperative and collaborative as a result.

What other types of negotiation have you engaged in?

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