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.

If you work with others, sooner or later you will almost inevitably face the need for conflict resolution. You may need to mediate a dispute between two members of your department. You might feel angered by something a colleague reportedly said about you in a meeting. Or you may need to resolve a conflict with a client over a missed deadline. In organizational life, conflict is unavoidable—and effective conflict management tools are essential.

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What Is Conflict Resolution?

Conflict resolution refers to the informal or formal processes that two or more parties use to address disagreements and reach a peaceful, workable solution. In the workplace, conflict resolution aims not only to end disputes but also to preserve relationships, maintain productivity, and reduce the emotional and financial costs of ongoing conflict.

Why does conflict escalate so easily? A number of common cognitive and emotional traps—many of them unconscious—can intensify disagreements and increase the need for formal conflict resolution.

Common Traps That Fuel Workplace Conflict

Several predictable patterns tend to make conflicts harder to resolve:

• Self-serving fairness interpretations. Rather than judging fairness from a neutral standpoint, we tend to define what is fair in ways that benefit us—and then justify those preferences as objective. Department heads, for example, may each believe they deserve the largest share of a limited budget. These competing fairness claims often lead directly to conflict.
• Overconfidence. People are frequently overconfident in their judgments and predictions. In disputes, this bias can lead parties to overestimate their chances of winning a lawsuit or “being proven right,” causing them to reject negotiated solutions that would save time, money, and relationships.
• Escalation of commitment. Whether dealing with a labor dispute, a merger disagreement, or an interpersonal conflict at work, parties often double down on failing strategies. After investing time, money, or pride, they feel compelled to justify those past investments—even though such “sunk costs” should not influence future decisions.
• Conflict avoidance. Because strong emotions are uncomfortable, people sometimes avoid addressing conflict altogether, hoping it will fade on its own. In reality, unaddressed conflict often deepens over time, making resolution more difficult and costly when it can no longer be ignored.

Given these and other pitfalls, how can you create a constructive conflict resolution process when dealing with conflict at work in other professional settings?

Approaches to Conflict Resolution

Conflicts can be addressed in several ways, depending on their complexity, stakes, and relationship dynamics. Common conflict resolution methods include negotiation, mediation, arbitration, and litigation.

• Negotiation. Negotiation is often the first—and most flexible—approach to conflict resolution. The same collaborative principles used in dealmaking apply here. Effective negotiators seek to uncover the interests underlying each party’s stated positions, such as a desire to avoid negative publicity or to repair a strained working relationship. Negotiation also requires a clear understanding of your best alternative to a negotiated agreement, or BATNA—what you will do if no agreement is reached, such as finding a new partner or pursuing legal action. By brainstorming options and exploring tradeoffs across issues, parties can often reach a mutually acceptable solution without involving third parties.
• Mediation. In mediation, disputants work with a trained, neutral third party who helps facilitate dialogue and problem-solving. Rather than imposing a decision, mediators encourage parties to explore their underlying interests and communicate more effectively. Professional mediators may meet with parties together or separately, guiding them toward a resolution that is voluntary, nonbinding, and designed to be durable over time. Mediation is particularly useful when relationships matter and parties want to retain control over the outcome.
• Arbitration. Arbitration resembles a simplified court proceeding. A neutral arbitrator hears arguments and evidence from each side and then renders a decision that is typically binding and confidential. Although arbitration decisions generally cannot be appealed, parties often have flexibility in designing the process, including selecting the arbitrator, determining whether lawyers will participate, and agreeing on rules of evidence. Arbitration can be faster and less public than litigation, but it also limits parties’ control over the final outcome.
• Litigation. In civil litigation, a plaintiff and defendant present their case before a judge or a judge and jury. Evidence and arguments usually become part of the public record, and legal counsel plays a central role throughout the process. Litigation is often the most formal, time-consuming, and expensive conflict resolution method. Notably, many lawsuits end in negotiated settlements during the pretrial phase, after parties gain a clearer sense of their risks and costs.

Choosing the Right Conflict Resolution Process

In general, it makes sense to begin with less formal and less costly approaches—such as negotiation and mediation—before committing significant time and resources to arbitration or litigation. Investing in conflict-resolution training can further strengthen your ability to manage disputes effectively, helping you address conflict early and resolve disagreements before they escalate.

What conflict resolution methods have you tried before? Leave us a comment.



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Trust in negotiations may develop naturally over time, but negotiators rarely have the luxury of waiting for trust to emerge on its own. As a result, it can feel safest to structure cautious deals with few tradeoffs, limited concessions, and minimal information sharing. Yet playing it safe often means leaving significant value on the table. For this reason, building trust in negotiations—often quickly—is a critical managerial skill.

The first step in fostering trust in negotiations is to demonstrate trustworthiness. Regardless of context or industry, negotiators can apply the six strategies below to shape how others perceive their reliability, competence, and intentions at the bargaining table.

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1. Gain Trust in Negotiations by Speaking Their Language

Several years ago, an airline seeking to modernize its ticketing system invited consulting firms to bid on the project. At the kickoff meeting, airline executives described the limitations of their existing system and outlined their needs. When discussion opened up, representatives from consulting firm X—new to the airline industry—noticed frequent references to “lifts.” Confused, they asked for clarification.

The room fell silent. Airline paper tickets, everyone knew, were called lifts. By revealing their unfamiliarity with this basic industry term, firm X committed a serious misstep. One innocent question—and the firm was suddenly out of contention.

Speaking the other party’s language goes far beyond mastering technical jargon. It also involves understanding cultural references, industry norms, and the subtleties behind how words are used. When you invest time in learning the other side’s history, culture, and perspective, you signal commitment to both the negotiation and the relationship—an essential foundation for trust. This fluency also reassures others that you’re capable of following through on any agreement reached.

Of course, mistakes happen. Early preparation can soften their impact. At the outset of negotiations, acknowledge that you’ve worked to understand the other party’s perspective, while also recognizing that learning will continue as discussions unfold. Express the hope that inevitable misunderstandings will be treated as part of a shared learning process rather than as evidence of bad faith.

2. Gain Trust in Negotiations by Managing Your Reputation

In negotiation, your reputation often arrives before you do. A poor reputation can derail talks before they begin, while a strong one can help bridge impasse. Savvy negotiators treat reputation not as background noise, but as a strategic asset.

You can strengthen your reputation by offering references from mutually trusted third parties who can attest to your integrity and competence. In some cases, a third party may communicate with the other side in advance—or even serve as an intermediary during negotiations. You can also point to evidence of past success, such as trade publications, case studies, or long-standing partnerships that demonstrate your reliability.

3. Gain Trust in Negotiations by Making Dependence a Factor

The more dependent people are on one another, the more likely they are to extend trust. At its extreme, this dynamic appears in Stockholm syndrome, where hostages come to trust their captors more than outside negotiators. While negotiation contexts are far less dramatic, the underlying psychology is similar: people cope with dependence by believing in the trustworthiness of those they rely on.

In negotiation, trust increases when both parties recognize that they need one another to achieve their goals and that alternatives are limited or costly. You can activate this trust-building mechanism by highlighting the unique value you bring to the table and by clarifying what both sides stand to lose if talks collapse. This approach can be especially powerful when a stalemate looms and walking away would be painful for everyone involved.

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4. Gain Trust in Negotiations by Making Unilateral Concessions

Negotiations between strangers or adversaries tend to be highly calculative, with each side closely tracking gains and losses. By contrast, negotiations rooted in long-term relationships are less transactional. A carefully designed unilateral concession can help bridge that gap.

A true unilateral concession requires no immediate reciprocation. It should impose minimal cost or risk on the giver while delivering meaningful value to the recipient. Beyond signaling goodwill, such concessions demonstrate competence by showing that you understand what the other side values. When done thoughtfully, unilateral concessions can quickly transform the tone of a negotiation.

5. Gain Trust in Negotiations by Labeling Your Concessions

Actions may speak louder than words—but in negotiation, actions are often ambiguous. Concessions only build trust if the other party recognizes them as such. Because negotiators are often motivated to downplay the other side’s contributions, concessions can go unnoticed, undermining goodwill and escalating tension.
Richard E. Walton and Robert B. McKersie illustrate this risk in A Behavioral Theory of Labor Negotiations (1991). After enduring a series of grueling contract talks, a manufacturer opened the next round with a take-it-or-leave-it offer—and made it unusually generous. Instead of reacting positively, the union requested a caucus.

The manufacturer was stunned. But the union, accustomed to drawn-out bargaining, inferred that if the opening offer was so strong, further concessions must be forthcoming. The mismatch in expectations ultimately contributed to a strike.

The lesson is clear: don’t assume your actions will speak for themselves. When you make a meaningful concession, explain what you’ve given up and why it matters. Doing so clarifies intent, encourages reciprocity, and strengthens mutual trust.

6. Gain Trust in Negotiations by Explaining Your Demands

When negotiating with someone new, expect skepticism. If you push for a better deal, the other party may assume you’re greedy, unfair, or indifferent to their concerns. Often, however, firm positions reflect external constraints—budget limits, organizational policies, or stakeholder expectations.

Psychological research shows that people interpret their own behavior generously while judging others more harshly, particularly in conflict. For this reason, explaining the rationale behind your demands is essential for maintaining trust.

An opening offer that appears extreme can erode trust. An offer that is clearly explained and justified, however, is far more likely to preserve—and even enhance—it.

Consider an author negotiating with a literary agent. When the agent mentions that her commission is higher for international deals, the author bristles. It sounds arbitrary—until the agent explains that international commissions must be split with foreign agents, leaving her with a lower net percentage. The explanation doesn’t change the author’s earnings, but it reshapes his perception. Trust grows.

Maximizing Joint Gain

Believing that the other party is both competent and principled enables negotiators to take the calculated risks required to create and implement strong agreements. When profit, security, or long-term cooperation depend on another party’s actions, trust in negotiations becomes indispensable.

As these strategies show, trust need not be left to chance. Negotiators can actively build the credibility and confidence necessary for agreements that maximize joint gain—and endure long after the deal is signed.

Share a story about a time when you’ve gained value by having trust in negotiations.

Related Article: Plant a Trust Landmine

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Adapted from an article by Deepak Malhotra for the Negotiation newsletter.

How does mediation work in a lawsuit? It’s a common question, and an understandable one. Few people relish the idea of going to court. Litigation is expensive, time-consuming, and often leaves parties frustrated, exhausted, and on worse terms than when they started.

So how does mediation work in a lawsuit, and is legal mediation actually a better alternative?

As with most things in dispute resolution, the answer is: sometimes.

Avoiding Litigation Through Court-Sponsored Mediation Programs
A comprehensive study of court-affiliated mediation programs by Roselle L. Wissler of Arizona State University College of Law offers a nuanced picture. Wissler found that settlement rates in court-sponsored mediation programs varied widely, ranging from 27% to 63%. In some jurisdictions, mediated cases settled at higher rates than nonmediated ones; in others, mediation made little measurable difference.

Several additional studies point to another important benefit: compliance. Parties are generally more likely to comply with mediated agreements than with court-imposed orders. That said, researchers found no significant difference in compliance rates between mediated agreements and privately negotiated settlements).

In other words, mediation can help—but it is not a guarantee.

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One surprising finding from the research is that court-sponsored mediation does not always reduce transaction costs compared to litigation. This may be because many cases settle “on the courthouse steps,” after lawyers have already invested heavily in discovery, motions, and other pretrial maneuvering.

Despite the costs, participant satisfaction with court-sponsored mediation tends to be high. Depending on the program, between 5% and 43% of litigants reported that mediation helped improve their relationship with the other party—a notable outcome in adversarial disputes.

Not All Legal Mediation Is Created Equal
One key takeaway for managers—and their lawyers—is that the effectiveness of mediation depends heavily on how the program is designed and implemented.

When court-sponsored mediation programs are underfunded or introduced late in the litigation process, mediation can feel like just another bureaucratic box to check before heading to trial. In contrast, jurisdictions that invest serious resources in mediation and intervene earlier often see stronger results.

The biggest benefits of mediation tend to occur early, before disputants become entrenched in rigid positions and before litigation costs spiral out of control. Early mediation can spare parties not only money and time, but also damaged relationships and lost opportunities for creative problem-solving.

Beyond the Courthouse
The mixed results of court-sponsored mediation tell only part of the story. In many cases, disputants may be better served by actively pursuing settlement on their own—sometimes with the help of a private mediator—before a lawsuit is ever filed.

Handled proactively, mediation can offer flexibility, confidentiality, and a greater chance to craft solutions that address underlying interests rather than just legal claims.

How does mediation work for you? If you’ve participated in lawsuit mediation, share your experience in the comments.

Related Articles:

• A Closer Look at Court-Sponsored Mediation – How do alternative dispute resolution processes such as mediation work in the legal system? In this article, we examine the efficacy of court-sponsored ADR processes like mediation in reaching negotiated agreements in dispute resolution scenarios.
• Negotiation and Nonviolent Action: Interacting in the World of Conflict – How does negotiation reconcile differences and help avoid violent conflict? What alternatives do processes like negotiation offer for a world prone to violence and discord? In this article, the basic principles of nonviolent action are examined in light of integrative, win-win negotiation strategies. The challenges of nonviolent action aimed at peace-building and reconciliation are discussed in light of well-known international conflicts.
• What are the Three Basic Types of Dispute Resolution? What to Know About Mediation, Arbitration, and Litigation – What are the differences between the three basic dispute resolution processes, mediation, arbitration, and litigation, and how do they differ from one another? In mediation, a neutral third-party negotiator helps parties reach agreement while in arbitration a decision is imposed upon the two parties through a neutral third-party arbitrator. Litigation, the most well-known dispute resolution process of the three, is when negotiators turn to the court system to resolve disputes. Learn about the advantages, and disadvantages, of each dispute resolution style in this article.
• Top 10 Best Negotiations of 2014: Negotiation Case Studies Drawn from Negotiation Examples in Real Life – Hindsight is 20/20, and, as these negotiation case studies from 2014 demonstrate, the gift of hindsight translates into foresight at the bargaining table. Here is a list of our top 10 best negotiation case studies, news stories, and research findings for the year 2014.
• Lessons for Business Negotiators: Negotiation Techniques from International Diplomacy – What do the arts of dealmaking and diplomacy have in common? In this article drawn from negotiation research, the world of diplomacy is used to infer negotiation strategies and negotiation tactics useful for business negotiators.

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Originally published in 2012.

When Art Buchwald sued Paramount Pictures in 1998 over the Eddie Murphy film Coming to America, the widely reported outcome was often framed as a victory for the late, beloved humorist. In reality, however, Buchwald lost—and so did Paramount. Both sides paid heavily for choosing litigation over negotiation. The case remains a stark reminder of how quickly disputes can escalate and how costly bypassing negotiation can be for everyone involved.

Buchwald and his partner, Alain Bernheim, sued for nearly $6.2 million, alleging that Coming to America was based on their screenplay treatment King for a Day. Buchwald ultimately was awarded $150,000, but after three years of litigation, he was already $200,000 out of pocket. Paramount, meanwhile, spent nearly $3 million defending the case. There were no winners here—unless you count the lawyers.

In a litigation dispute like this, it’s common to hear that lawyers can sometimes do more harm than good. Yet when large sums of money—and reputations—are at stake, how can you possibly proceed without lawyers?

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At the Harvard Program on Negotiation, we’d argue that’s the wrong question. A more productive one is this: How can you get the most out of your lawyer(s)?

In Beyond Winning: Negotiating to Create Value in Deals and Disputes (Belknap Press of Harvard University, 2000), Professor Robert Mnookin and his co-authors Scott Peppett and Andrew Tulumello argue that lawyers and clients frequently miss opportunities to turn disputes into deals. They identify several recurring patterns.

Why Litigation So Often Goes Wrong

1. Cases are tried that should be settled. Some disputes—like Buchwald’s—reach trial even when settlement would clearly be cheaper and more effective. Early posturing (“Your case has no merit!”) makes it difficult to shift gears later without appearing weak or losing face.

2. Settlement comes too late. When cases do settle, it is often after legal costs have spiraled past the point of no return. A common tactic is a war of attrition during pretrial discovery, with each side hoping the other will run out of money or patience. That approach may make sense in pure win-lose situations—but not when both sides face meaningful risk.

3. Money crowds out other interests. A narrow focus on dollars can blind parties to value-creating deals. In a sexual harassment case, for example, the plaintiff may demand financial damages, but what she truly wants could be an apology, accountability, or workplace reform—outcomes litigation may not deliver.

A Better Way to Handle Disputes

If you find yourself facing a situation like Buchwald’s, consider a different approach—one that uses lawyers strategically rather than reflexively.

• Examine dispute resolution options early. Before heading to court, ask your lawyers to demonstrate why litigation would be better than mediation or negotiation.
• Look for ways to turn disputes into deals. Don’t focus solely on money. Identify all of your interests—including reputational, relational, and emotional concerns.
• Use analytical tools to assess risk. Decision trees and dependency diagrams can clarify whether litigation makes sense. If there’s a 90% chance a judge will admit crucial evidence, suing may be wise. If the odds are closer to 45%, negotiation may be the better option.
• Be candid with your lawyers. As the saying goes, “To a hammer, every problem looks like a nail.” Lawyers litigate—but not all disputes are purely legal. If family members are business partners, or if trust and emotion are central issues, make sure your lawyer understands the full picture.
• Align incentives. Don’t hesitate to tie compensation to outcomes. You might say, “Resolve this dispute within 120 days and I’ll increase your rate—but drag it out past a year and we’re done.”
• Use different lawyers for different phases. When the war ends, the soldiers go home and the diplomats take the field. After litigation positions are established, consider bringing in a lawyer who specializes in settlements.
• Negotiate information exchange. Lawyers often acknowledge that roughly 10% of discovery yields 90% of the useful information. Rather than paying for exhaustive discovery, negotiate targeted information trades.

Sometimes litigation is unavoidable—to signal toughness, protect a principle, or create leverage. But far more often, negotiation produces better, faster, and less costly outcomes.

Negotiation is not a talent you are born with.

It’s a skill that you can learn.

Is there a time you have avoided litigation by using a mediator? Share you experience in the comments.

Related Business Negotiations Article:Finally, A Win-Win Deal from Congress

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Negotiation research suggests that handling negotiations over email often creates more problems than advantages, particularly when it comes to relationship building, information exchange, and reaching high-quality outcomes in conflict resolution negotiations scenarios. While email can be efficient, the medium also amplifies misunderstandings and makes it harder for trust to take root.

One immediate challenge is the difficulty of establishing social rapport via email. Without nonverbal cues—tone of voice, facial expressions, posture—and with few shared norms governing how email should be used in negotiation, messages can easily come across as curt, inattentive, or even hostile. This absence of visible empathy often leads negotiators to be less polite and less attentive to the other side’s concerns, increasing the likelihood of tension or escalation before substantive issues are addressed.

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Email negotiations are also especially vulnerable to misunderstanding because emotion and intent are hard to convey accurately—and because negotiators frequently fail to consider how their messages will be interpreted. Compounding the problem, people tend to be unaware of just how limited email communication can be.

In a study by Justin Kruger of New York University, Nicholas Epley of the University of Chicago, and Justin Parker and Zhi-Wen Ng of the University of Illinois at Urbana-Champaign, participants were asked to communicate statements expressing sarcasm, seriousness, anger, or sadness to either a friend or a stranger. The messages were delivered via email, over the phone, or face-to-face.

Across conditions, individuals consistently overestimated how accurately recipients would interpret their intended tone. This overconfidence was present whether the recipient was a friend or a stranger, but it was strongest in email communication. As a result, email negotiations often suffer from reduced information exchange, higher rates of impasse, and less efficient agreements compared with negotiations conducted in person or even by phone.

How Do You Grapple with Concealed Information in Business Negotiations?

In our related conflict resolution article, Concealed Information in Business Negotiations, we discuss a negotiation role-play simulation, Bullard Houses. Business negotiators not only learn how to deal with counterparts that are concealing information at the bargaining table, but also how what, and when to reveal critical information during tense, real-life negotiation scenarios.

Drawn from the latest in bargaining research, Bullard Houses is part of the Teaching Negotiation Resource Center’s set of negotiator’s role-play simulations developed to perfecting bargaining and negotiation skills.

Bullard Houses can be run as a one-on-one negotiation simulation between two negotiators or it can be expanded into team building exercises pitting two groups of competitive negotiators against one another in a contentious housing dispute.

The following themes are addressed by Bullard Houses attorney/client relations:

• A negotiator’s best alternative to a negotiated agreement (BATNA)
• The role of confidentiality in business negotiations
• Information exchange and strategic disclosure
• The use of agents in negotiations
• Interpreting and analyzing counterpart messages
• Grappling with misrepresentation and intentional obfuscation
• Evaluating objective criteria
• The impact of political and organizational constraints
• Managing negotiations involving undisclosed principals

Together, these lessons highlight why negotiators should be cautious about relying too heavily on email—especially when trust, nuance, and complex information are at stake.

Do you have any stories to share about negotiations over email? How have they worked out for you?

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Originally published in 2012.

“A huge mistake.” “A shot in the dark.” “An audacious move.” No matter what negotiation techniques you employ, major deals are almost guaranteed to provoke strong—and conflicting—reactions. Those phrases were just a few of the media’s characterizations of wireless carrier AT&T’s acquisition of media and entertainment firm Time Warner, announced in October 2016 for $85.4 billion.

Some analysts believed the deal could help both companies grow. AT&T would become the first U.S. wireless carrier positioned to compete nationally with cable companies by offering an online video bundle—akin to a cable-TV package—featuring Time Warner networks such as CNN, HBO, and TNT, along with Warner Bros. productions. Time Warner, long tethered to traditional cable distribution, would finally gain a foothold in the wireless world.

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Still, reactions to the announcement were mixed, with several pivotal issues drawing scrutiny. Together, they offer useful lessons for negotiators facing high-stakes, high-visibility deals.

1. The effect on outsiders. U.S. regulators were expected to scrutinize the merger closely, concerned that industry consolidation could reduce competition and raise prices for consumers. Los Angeles Times columnist David Lazarus predicted that the Justice Department and the Federal Communications Commission would impose consumer-protection conditions to safeguard AT&T customers.

In dealmaking, top negotiators look beyond the parties at the table to consider how a proposed agreement will affect outsiders—customers, competitors, regulators, and the public. This perspective is especially critical in mergers and inter-industry partnerships, where decisions reverberate widely. Anticipating third-party effects not only promotes ethical decision-making but can also help negotiators prepare for regulatory scrutiny and public backlash.

2. A possible culture clash. Another unresolved question was whether AT&T’s and Time Warner’s markedly different cultures could coexist. Time Warner subsidiaries such as HBO—described by The New York Times as “freewheeling”—appeared worlds apart from AT&T’s more “buttoned-up” corporate culture.

AT&T executives reportedly reassured leaders at HBO and other entertainment divisions that they would retain creative control and receive sufficient funding. Still, skepticism remained. As part of their negotiation techniques, professional negotiators examine not only financial synergies but also how organizations will integrate people, processes, and cultures once the ink dries.

3. A high level of uncertainty. Given the rapid disruption of the media and communications industries, many observers viewed the long-term prospects of the AT&T–Time Warner merger as uncertain. New York Times technology columnist Farhad Manjoo labeled the agreement “speculative,” calling it a “Hail Mary pass” intended to gain traction in an unpredictable future.

In negotiations clouded by uncertainty, parties can often reduce risk through contingent contracts—“if, then” agreements that specify actions based on future events. AT&T and Time Warner included contingencies to protect themselves during the pre-closing period, outlining payments if regulators blocked the deal or if Time Warner accepted a superior offer.

Contingent contracts can also manage risk during implementation. If you doubt a partner’s ability to meet an aggressive delivery schedule, for example, you can build in incentives for on-time completion, penalties for delays, or both.

4. A possible “winner’s curse” situation. In auctions and competitive bidding, the winning bidder often pays more than the asset is ultimately worth—a phenomenon known as the winner’s curse. As anticipated benefits fail to materialize, the “winner” may come to regret the victory.

In an interview with Fortune, Zacks Investment Management president Mitch Zacks characterized the AT&T–Time Warner deal as a textbook example: “Essentially, what is happening is AT&T is paying more for Time Warner than any other entity is willing to pay. . . . So by definition, it’s overpaying.”

Legendary dealmaker Bruce Wasserstein, who died in 2009, advised negotiators to guard against the winner’s curse—or “winner’s dilemma,” as he preferred to call it—by asking whether they possess a comparative advantage that justifies a premium bid. Such advantages might include unique data, capabilities, or strategic positioning. AT&T argued that its wireless scale and distribution capabilities gave it a distinctive edge in extracting value from Time Warner’s content. Whether that advantage proved real—or illusory—was a question only time could answer.

What are your thoughts on the negotiation techniques used in this high-profile case?

This is an excerpt from an article in the February 2017 issue of the Negotiation Briefings newsletter.

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When considering various leadership models to emulate, leaders have a wide variety to choose from, including participative leadership, charismatic leadership, directive leadership, authoritarian leadership, and paternalistic leadership. In this article, we take a closer look at servant leadership theory, an aspirational but somewhat understudied model of leadership rooted in lofty goals. 

What Is Servant Leadership Theory?

In an influential 1977 article, “Essentials of Servant Leadership,” Robert Greenleaf, an AT&T executive and management researcher, proposed a leadership style in which leaders put the needs, aspirations, and interests of their followers above their own. These leaders seek to help their followers “grow healthier, wiser, freer, more autonomous, and more likely themselves to become servants,” Greenleaf wrote.

If the primary goal of traditional leadership is to further the organization’s goals, the purpose of servant leadership is to “serve others to be what they are capable of becoming,” write Sen Sendjaya and James C. Sarros of Monash University in Australia in a 2002 article. In this view, organizational success is not ignored—but it is pursued indirectly, through the development and well-being of people.

Greenleaf developed servant leadership theory after reading the novel Journey to the East by Hermann Hesse, which describes a group of men on a mythical journey whose servant, Leo, “sustains them with spirit and song.” When Leo disappears, the group falls apart. Later, Leo is revealed to be a “great and noble leader” who only posed as a servant—an insight that profoundly shaped Greenleaf’s thinking about leadership and influence.

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The roots of servant leadership extend far beyond modern management theory. More than 2,000 years ago, ancient monarchs also practiced forms of servant leadership, “acknowledging they were in the service of their country and their people,” though their actions often fell short of these ideals, write Sendjaya and Sarros. The authors also cite the biblical story of Jesus Christ washing his disciples’ feet as a concrete and enduring illustration of servant leadership in action.

In contemporary organizations, a servant leadership style contrasts sharply with the traditional image of leaders issuing top-down directives. Herb Kelleher, co-founder of Southwest Airlines and its CEO from 1981 to 2009, is frequently cited as a successful servant leader. Under his leadership, Southwest became known for its fun-loving, employee-centered culture and long-term employee loyalty.

“I have always believed that the best leader is the best server,” Kelleher once said. “And if you’re a servant, by definition, you’re not controlling. We try to value each person individually and to be cognizant of them as human beings—not just people who work for our company.”

10 Servant Leadership Characteristics

“Servant leadership seeks to involve others in decision making, is strongly based in ethical and caring behavior, and enhances the growth of workers while improving the caring and quality of organizational life,” writes Larry C. Spears in a 1992 article.

• Listening—A commitment to listening intently to others, paired with reflection and thoughtful response.

• Empathy—An effort to understand, empathize with, and accept others for who they are.

• Healing—A focus on helping others overcome emotional wounds and move toward wholeness.

• Awareness—Both general awareness and self-awareness, contributing to insight into power, ethics, and values.

• Persuasion—in contrast to authoritarian leadership, a reliance on influence and reason rather than coercion or manipulation. 

• Conceptualization—The ability to think beyond day-to-day realities and imagine broader possibilities.

• Foresight—Efforts to “understand lessons from the past, the realities of the present, and the likely consequence of a decision for the future.”

• Stewardship—Acting with the understanding that leadership is a trust held for the greater good of society.

• Commitment to the growth of people—The belief that people have intrinsic value beyond their measurable contributions as workers. 

• Building community—A desire to foster genuine community within organizations and institutions.
  Together, these characteristics paint a picture of leadership grounded in humility, ethical responsibility, and long-term human development. 

Criticisms of Servant Leadership Theory

Servant leadership theory has faced criticisms over the years. Feminist scholars, including Pennsylvania State University professor emeritus Deborah Eicher-Catt, have noted that servant leadership theory is based on patriarchal approaches to leadership. And in a 2012 article, Brenda L.H. Marina and Debora Y. Fonteneau point out that servant leadership discourse has ignored the long history of Black servants being subjugated and mistreated. Indeed, the term servant leadership can seem insensitive when applied to women, people of color, and others who historically have faced marginalization and mistreatment in the workplace and society more broadly. 

Moreover, few empirical studies have been conducted to test the propositions of servant leadership theory and validate its effectiveness. And as researchers Jan G. Langhof and Stefan Gueldenberg of the Universitat Liechtenstein write in a 2021 article, servant leadership theory may not always promote ethical behavior, as it relies on the moral framework of individual leaders and followers rather than on broadly agreed-upon moral standards.

Despite these shortcomings, servant leadership theory continues to offer ideas that many leaders find worth emulating. Its emphasis on employee growth, open communication, ethical reflection, and community-building remains especially relevant in organizations seeking to balance performance with humanity.

To what extent do you think servant leadership theory can benefit or hinder organizations?

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What are BATNA examples in negotiation? In their bestseller Getting to Yes: Negotiating Agreement Without Giving In, Roger Fisher, William Ury, and Bruce Patton (Penguin, 1991) described BATNA—your best alternative to a negotiated agreement—as the course of action you’ll take if you fail to reach agreement in your current negotiation.

Understanding your BATNA protects you from accepting a deal that’s worse than what you could achieve elsewhere—and, just as important, from rejecting an agreement that actually improves on your alternatives. If you’re enthusiastic about a strong job offer, for example, you can bargain more confidently in negotiations for another position, knowing you have a viable fallback.

A common question in negotiation planning is whether—and when—you should reveal your BATNA to the other side. BATNA examples in the news offer insight into this tricky judgment call. Consider former British prime minister Theresa May’s decision in August 2018 to publicly outline contingency plans for exiting the European Union (E.U.) if Brexit negotiations reached an impasse.

May’s move was designed to reassure the public that failure to reach agreement would not lead to immediate chaos, while also signaling to E.U. negotiators that the United Kingdom was prepared to walk away from a deal that failed to meet its interests. Failure to reach agreement “wouldn’t be the end of the world,” May said at the time, according to Sky News.

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The British government’s decision to reveal what would happen if Brexit talks failed raises important questions about the role of BATNA in business negotiation strategies. The following five do’s and don’ts will help you manage your BATNA thoughtfully and strategically.

1. Don’t Reveal a Weak BATNA.

Never share your BATNA with the other party if it is hopelessly weak. A poor BATNA is sometimes referred to as a WATNA, or worst alternative to a negotiated agreement. Telling a supplier, for instance, that you’ve just ended a relationship with your last partner and urgently need a new deal practically invites the supplier to inflate prices and resist concessions.

You’ll also want to avoid signaling desperation in subtler ways. Appearing rushed, stressed, or overly available—such as revealing a wide-open schedule—can act as a tell that you lack strong alternatives and may be willing to accept unfavorable terms.

2. Don’t Bluff about Your BATNA.

What if the other side asks you directly about your BATNA? A safe and ethical response is to say—truthfully—that you are exploring several possibilities but would prefer to focus on the negotiation at hand.

Resist the temptation to exaggerate or fabricate a BATNA to increase your leverage. Doing so risks your credibility and reputation if the truth comes out. In negotiation, trust can be difficult to build and easy to lose, particularly when exaggeration crosses the line into misrepresentation.

3. Don’t Reveal Your BATNA Too Early.

Revealing a strong BATNA too early in a negotiation can backfire. Rather than inspiring cooperation, it may be perceived as a threat: If you can’t beat this, I’m walking away. Threats tend to trigger competitive instincts and can shut down the collaborative exploration of tradeoffs that might otherwise create value for both sides.

Even if your BATNA is solid, consider holding it in reserve. It may prove far more useful as leverage in the later stages of a negotiation, once other options for agreement have been fully explored.

4. Do Work to Actively Improve Your BATNA.

As BATNA examples like the Brexit negotiations illustrate, it’s not enough to merely identify your BATNA—you should actively work to strengthen it. For Prime Minister May, that meant directing government agencies and private firms to prepare for an orderly transition in the event of no deal.

For a job seeker, improving a BATNA might involve continuing to pursue leads through your professional network, applying for additional roles, or even considering alternative paths such as further education or contract work. The stronger your alternatives, the more confident and flexible you can be at the bargaining table.

5. Don’t Let Them Talk You out of Your BATNA.

If your counterpart disparages your BATNA, recognize the tactic for what it is. By casting doubt on your alternatives, the other side hopes to weaken your resolve and steer you toward a less favorable agreement.

While it’s wise to investigate any legitimate concerns raised about your BATNA, remember that your counterpart has strong incentives to undermine your confidence. Evaluate criticism carefully—but don’t allow strategic skepticism to overshadow objective assessment.

What BATNA examples can you share that shed light on when to reveal or conceal?

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Inevitably in negotiation, we encounter counterparts who view “white lies” and other ethically questionable tactics as acceptable tools of competitive bargaining. Complicating matters further, many dubious persuasion tactics fall squarely within the bounds of the law, making them difficult to challenge or prevent outright. Recognizing these realities is essential for negotiators who want to protect their interests, maintain ethical standards, and steer talks toward fair and constructive outcomes.

A classic example comes from 1989, when Sony Corporation was negotiating its $5 billion purchase of Columbia Pictures. As part of the deal, Sony entered separate talks with film producers Jon Peters and Peter Guber about running its new film division—a side arrangement reportedly worth $200 million. Peters and Guber wanted the job badly, but they faced a significant obstacle: both were under contract with Warner Brothers and needed time to negotiate their release.

Rather than focusing exclusively on this legitimate concern, the producers introduced two additional issues they didn’t actually care about. An all-night negotiation ensued, during which all three issues were debated at length. By morning, Peters and Guber “conceded” on the two phony issues and asked Sony to concede on timing. Sony took the bait, granting them a month to negotiate with Warner.

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In his book Bargaining for Advantage: Negotiation Strategies for Reasonable People, G. Richard Shell analyzes this episode—drawn from Nancy Griffin and Kim Masters’s book Hit & Run: How Jon Peters and Peter Guber Took Sony for a Ride in Hollywood—as a vivid illustration of the unethical negotiation tactics people sometimes use to get what they want. Below are several tactics from Shell’s “rogues’ gallery,” along with strategies for neutralizing them.

1. The Red Herring

Like the producers in the opening story, negotiators sometimes introduce extra issues they don’t truly value. After pressing hard on all fronts, they eventually retreat on the bogus issues and then ask for concessions on the one or two issues that actually matter to them. This tactic often succeeds because it makes the negotiator appear flexible and cooperative.

If a counterpart insists that all issues are equally important, don’t accept the claim at face value. One effective way to uncover their real priorities is to present multiple, equivalent, simultaneous offers, a technique recommended by Northwestern University professor Victoria Husted Medvec and Columbia Business School professor Adam D. Galinsky.

For example, if a prospective client claims that price, delivery time, and contract length matter equally, offer three different packages that vary across those dimensions but that you value equally. If the client resists choosing or narrowing the options, explain that you’re open to further discussion but want to focus negotiations productively. Their reactions—and eventual preferences—can reveal which issues truly drive the deal.

2. Authority Ploys

In car dealerships, salespeople sometimes claim they lack authority to finalize a deal. When they disappear briefly and return with their manager’s “approval,” you may feel relieved—and even grateful—enough to accept mediocre terms.

The implied endorsement of a higher authority can make an unremarkable deal seem more appealing, a psychological effect that skilled negotiators sometimes exploit. To protect yourself, suggest before negotiations begin that both sides secure a clear mandate from anyone who may need to approve the agreement.

Conversely, negotiators may claim authority they do not actually possess. Lawyers, agents, and brokers sometimes assert—falsely—that they cannot accept an offer because it doesn’t meet a client’s threshold. When possible, Shell advises, try to negotiate directly with the principal. Because intermediaries’ incentives may diverge from those of their clients, going to the source can clarify priorities and speed agreement.

3. The Good Guy/Bad Guy Routine

Imagine sitting down with two sales associates, Tim and Mindy. Tim greets you warmly and emphasizes his desire to meet your goals. Mindy follows with an outrageous demand. As negotiations stall, Tim urges Mindy to soften her stance. Suddenly, Tim feels like an ally—and you find yourself offering concessions you never intended to make.

This is the classic “good guy/bad guy” routine. According to Shell, it exploits our natural tendency to trust people who appear agreeable and aligned with our interests, especially when contrasted with a more abrasive counterpart.

Once you recognize the pattern, addressing it directly can be effective. Shell suggests naming the dynamic aloud: “It seems like Tim’s the good guy and Mindy’s the bad guy here. Could we try working together more collaboratively?” That said, proceed carefully. If the two negotiators are not coordinating but simply expressing genuine differences in personality or perspective, your observation could offend them. As with many negotiation moves, judgment and timing matter.

What other unethical negotiation tactics have you learned to defuse?

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Would Elon Musk buy Twitter or wouldn’t he? In mid-2022, that was the $44 billion question at the center of a high-stakes legal battle between the Tesla and SpaceX founder and the social media platform now known as X. Yet a deeper question went largely unexamined: amid the turmoil the parties created, was a mutually beneficial resolution still possible? A proposal from Program on Negotiation chair Guhan Subramanian, an expert in M&A negotiation strategy, suggests that it was.

An Impulse Purchase

In April 2022, Musk, then the world’s richest person, signed a legally binding agreement to purchase Twitter for $54.20 per share, or $44 billion. A prolific Twitter user and longtime fan of the site, Musk was so eager to buy the platform that, eschewing M&A negotiation strategy best practices, he waived his due-diligence rights.

Musk said he planned to dramatically increase Twitter’s users and revenues, pursue “free speech” on the site, and reduce the number of bots. While some cheered the prospect of a shake-up at the stagnating site, others worried about the mercurial and impulsive Musk’s potential influence on Twitter, such as the possibility of an increase in hate speech and disinformation.

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The Deal Sours

Soon after the deal was reached, tech stocks, including those of Musk’s own Tesla, experienced a major sell-off. Twitter shares plunged more than 20%. Musk seemed to suffer a prepurchase version of buyer’s remorse. In a July 8 regulatory filing, his lawyers moved to cancel the agreement, saying Twitter hadn’t provided sufficient data on bot accounts for him to reach an accurate estimate of their number. The filing accused Twitter of being in “material breach of multiple provisions” of the deal agreement, the New York Times reports.

Twitter responded by suing Musk to force the acquisition to close. He was using the bot issue as an excuse to get out of the deal after his own personal fortunes changed, Twitter argued.

Applying M&A Negotiation Strategy to Dispute Resolution

Most corporate law experts expected Twitter would prevail and that Musk would be forced to acquire the company. This would leave the company with “an unwilling and mercurial owner of the global town square,” according to Subramanian.

A better outcome was possible through the creative pretrial settlement negotiations, argued Subramanian. Musk could try to negotiate a discount from the agreed-upon $54.20 share price by offering an appealing incentive.

“The carrot that Musk should offer is guardrails on his right to regulate speech on Twitter,” Subramanian proposed. That is, Musk could agree to “permanently and irrevocably delegate all content-moderation decisions on Twitter to a panel of third-party experts,” Subramanian suggested, in exchange for a discount from the current deal price.

Twitter’s board would then need to choose between settling for a lower sale price along with guardrails on Musk’s ownership or fighting in court to maintain the higher sale price. “Accepting $48 plus guardrails would be good for society, while $54.20 with no guardrails would be good for Twitter shareholders,” said Subramanian.

If Twitter were to take the lower price plus guardrails on Musk’s involvement, it would likely face a lawsuit from plaintiffs’ lawyers for leaving money on the table. But the Delaware Chancery Court could have carved out a narrow exception to the requirement that boards maximize value when selling the company, argues Subramanian. Given Twitter’s role as a quasi-public utility, “the Delaware Chancery Court should not punish Twitter for doing the right thing for society,” Subramanian said.

Opportunities Lost

Rather than following this type of innovative M&A negotiation strategy, Musk opted to move forward with the acquisition at the previously negotiated price of $54.20 in exchange for Twitter dropping its lawsuit. Musk’s legal team apparently calculated that they would not be able to make a persuasive case that Twitter had breached its contract.

Immediately after the deal closed on October 27, 2022, Musk threw the company into chaos, laying off about half its workforce, which prompted many more employees to resign. Musk began restoring banned accounts, relaxing hate-speech policies, and charging users to verify their accounts. In July 2023, he changed the platform’s name to X. A year after the acquisition, the company revealed it had lost about half its value, down to about $19 billion from Musk’s purchase price of $44 billion. Advertising revenue had dropped by 60%, and usage had declined by 15% to 16%.

As Subramanian’s proposal suggests, disputants in business negotiations often have opportunities to move beyond win-lose outcomes and fashion creative deals. In both negotiation and dispute resolution, the first step in moving beyond adversarial posturing is to see the possible benefits that can come from exploring each other’s interests. Musk’s M&A negotiation tactics failed to capitalize on such opportunities—and his deal has proved disastrous.

 What lessons have you learned from other examples of M&A negotiation strategy?

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