To Break Impasse, Move Beyond Concerns about Fairness in Negotiation

Think about the last time you were in a cordial bargaining session that unexpectedly reached an impasse. Perhaps you and your counterpart were simply too far apart on price. Or maybe you couldn’t agree on who should take responsibility for a particular problem. Often, these stalemates arise because each side holds a different view of fairness in negotiation. What seems fair to one party may feel unreasonable—or even outrageous—to the other. When these competing fairness perceptions collide, progress can grind to a halt, even in an otherwise cooperative discussion.

That’s precisely what happened in 2014, when negotiators from Citigroup and the U.S. Department of Justice (DOJ) were attempting to determine what penalties the bank should accept for allegedly defrauding investors in 2006 and 2007 by selling mortgages with underwriting defects.

Citigroup made its opening offer: $363 million. Try again, the DOJ replied. Citigroup increased the offer to $700 million. The DOJ countered with a demand of $12 billion.

The gap was so wide that the odds of reaching agreement appeared slim. Matters were further complicated by the fact that the two sides relied on very different standards to assess the harm Citigroup had caused, according to New York Times. Citigroup grounded its offers in its relatively small share of the mortgage-securities market. The DOJ, by contrast, argued that penalties should reflect Citigroup’s level of culpability, as evidenced by internal emails and other damaging documentation.

As this case illustrates, the fairness standards we invoke to justify our positions can unintentionally prolong impasse. Shifting toward an interest-based approach, by contrast, can open the door to more creative and productive negotiations.

Moving Beyond Impasse

There are three fundamental ways to move beyond impasse, write William L. Ury, Jeanne M. Brett, and Stephen B. Goldberg in Getting Disputes Resolved: Designing Systems to Cut the Costs of Conflict.

First, parties can reconcile their interests—the needs, concerns, fears, and motivations underlying their stated positions. Through negotiation or mediation, disputants can probe beneath surface demands, explore creative options, and make tradeoffs across interests.

Second, negotiators can resolve disputes through power, typically by imposing costs or threatening to do so. Labor unions, for example, may attempt to strengthen their position by threatening a strike.

Third, disputants can seek resolution by determining who is right. This often involves appeals to fairness in negotiation—as Citigroup and the DOJ did—or by turning to courts or other adjudicators to decide the matter.

Our judgments about what constitutes fairness in negotiation are rarely neutral. They are shaped by our perspectives, incentives, and goals. As a result, each party can usually construct a compelling—but self-serving—argument for why its preferred standard is the fairest one.

Citigroup negotiators argued that market share was the appropriate benchmark for assessing penalties, while government negotiators viewed culpability as the fairest standard. Unsurprisingly, Citigroup’s standard supported a relatively low settlement, while the DOJ’s justified a far higher one.

When both sides insist that their chosen standard best represents fairness in negotiation, they often become entrenched—unable or unwilling to see the issue from the other party’s point of view.

Asserting rights and exercising power can be legitimate negotiation strategies. But when circumstances allow, Ury, Brett, and Goldberg urge negotiators to focus on reconciling interests. Research suggests that interest-based negotiators tend to be more satisfied with their outcomes, incur lower costs, and face fewer future disputes than those who rely primarily on rights or power. Yet in practice, most of us default to asserting rights and power more often than necessary.

From Concerns about Fairness in Negotiation to Interests

To see how negotiators can move beyond arguments over rights and fairness, consider how the Citigroup talks ultimately unfolded. After the bank increased its offer from $700 million to $1 billion, it learned through media reports that the DOJ was preparing to take the case to court. That looming lawsuit—a power move that could have definitively resolved the fairness question—prompted Citigroup to reconsider its reliance on the market-share argument.

At that point, the parties began brainstorming options more seriously. The DOJ wanted Citigroup to provide substantial mortgage assistance to struggling homeowners. Citigroup responded that, because its mortgage business had shrunk significantly since the financial crisis, it lacked the capacity to offer large-scale homeowner relief.

Noting that many people displaced during the crisis were now renters, the DOJ proposed an alternative: Citigroup would contribute $180 million toward building affordable rental housing in high-cost areas, according to The New York Times.

Citigroup, for its part, expressed a strong desire to avoid future confrontations with government regulators. In exchange for accepting higher penalties, the DOJ agreed not to pursue additional cases related to Citigroup’s pre-2008 sale of collateralized debt obligations.

A deal ultimately emerged through what the Times described as “a simple feat of accounting.” Citigroup agreed to shift a portion of the settlement from state attorneys general to the DOJ, a move that prevented the bank from claiming a tax deduction on that amount—an outcome the DOJ valued highly.

Through this combination of power, rights, and interest-based bargaining, the parties reached a mutually beneficial agreement. Citigroup agreed to pay $4 billion in cash penalties, $2.5 billion to support rental housing, mortgage modifications, and other consumer relief, and $500 million to state attorneys general and the Federal Deposit Insurance Corporation.

The impasse was broken in part by an assertion of power—the DOJ’s litigation threat—but the final agreement took shape only after both sides moved beyond abstract fairness norms and focused on underlying interests. The lesson is not that fairness, rights, or power should be ignored, but that each has its place. Effective negotiators know when to shift among them.

Do you have advice on dealing with concerns about fairness in negotiation?