This past November, word got out that toy maker Hasbro was in advanced talks to purchase DreamWorks Animation. Purchasing an animated-film studio would move Hasbro CEO Brian Goldner closer to his goal of transforming the successful toy company into a global entertainment powerhouse, as the Lego Group has done in recent years, write Andrew Ross Sorkin and Michael J. de la Merced in the New York Times.
But beyond the negotiating room, the news wasn’t received well. Hasbro shares fell nearly 5% in the two days after reports of the talks emerged. Investors reportedly viewed the deal as a poor one for Hasbro, given DreamWorks’ recent string of underperforming films and its failure to transition its hits into franchises. Moreover, the Walt Disney Company reportedly let Hasbro know that it was displeased that Hasbro was considering a merger with Disney’s main cartoon rival, according to the Times. Licenses for Disney characters and films compose about 30% of Hasbro’s business, and Disney had taken its lucrative princess line away from toy maker Mattel and given it to Hasbro just weeks before.
As a result of the backlash, Hasbro did something that many negotiators are loath to do: It walked away from the talks.
In both our personal and our business negotiations, “getting to yes” is typically the ultimate goal. Negotiation research and advice tend to focus on identifying the conditions that can help people overcome their differences, relax hard-line positions, and reach harmonious terms that, with any luck, will lead to a mutually fulfilling long-term relationship.
This mind-set risks downplaying the fact that many business deals simply aren’t worth doing. Business partnerships and mergers have notoriously high failure rates. Purchasing deals and employment contracts often end in disappointment.
Most of us understand that if a proposed deal doesn’t meet or exceed the value we could gain from our best alternative to a negotiated agreement, or BATNA, we should move on. Yet we often fail to accurately assess the value of the agreement on the table relative to our BATNA. As a consequence, we may go along with a deal for reasons that are far from practical.
In a new study published in the journal Negotiation and Conflict Management Research, researchers Taya R. Cohen (Carnegie Mellon University), Geoffrey J. Leonardelli (University of Toronto), and Leigh Thompson (Northwestern University) explain why it can be so hard to walk away from a subpar agreement and show that a team approach may offer an antidote.
Equating agreement with success
Negotiators can fall victim to the agreement trap—the common tendency to consent to a deal that is inferior to one’s BATNA—for several reasons, according to Cohen and her colleagues.
First, one party may successfully conceal the fact that the proposed agreement is disadvantageous to the other party. For example, in negotiations for an unpaid internship, a candidate might assume that the position could later lead to a paying job. If the hiring manager avoids mentioning outright that this is not the case, the burden falls on the candidate to ask probing questions. If she fails to do so, she could agree to an internship that’s inferior to other positions she’s considering.
Pitfalls of team negotiations
Though teams perform better than solo negotiators in many dimensions of negotiation, including their ability to solve complex problems, there are some drawbacks to working as a team, write Taya R. Cohen and Leigh Thompson in a chapter in the book Research on Managing Groups and Teams: Negotiation and Groups (Emerald Group Publishing, 2011).
First, teams are more self-interested than individuals and consequently are more likely to engage in deception at the bargaining table, research has shown. Group members tend to feel a strong sense of loyalty to other team members that can lead them to devalue the concerns of out-group members—other negotiating teams—and treat them unfairly. Similarly, negotiating teams are less trusting of others than solo negotiators are, and people are more suspicious of the motives of negotiating teams than they are of people negotiating on their own.
These findings suggest that teams should devote extra effort to building trust prior to engaging in substantive negotiations, as the United States and China did in their recent climate change negotiations. (See this issue’s cover story.) Greater trust should promote more ethical behavior and a willingness to collaborate to improve everyone’s outcomes.
Second, parties may be reluctant to walk away from a subpar deal because of the significant time, money, and energy they’ve invested in the negotiation process, a phenomenon known as escalation of commitment. Basic economic principles tell us that because such resources are sunk costs that can never be recovered, we shouldn’t consider them when deciding whether to commit further in a negotiation. However, abundant research suggests that we will be driven to try to recoup our losses by continuing to negotiate. This trap can be especially pernicious in highly competitive negotiations.
Third, negotiations often foster a sense of interdependence between parties that leaves them feeling beholden to each other. A desire to pursue the relationship and gain acceptance from the other party may prevent us from comparing the current deal with our BATNA and recognizing that it’s time to walk away.
Fourth, negotiators may irrationally pursue agreement for fear of harming their reputation as dealmakers as opposed to dealbreakers. After all, “the common expressions ‘failure to reach agreement’ and ‘failed to come to terms’ smack of personal and social shortcomings,” write Cohen and her team.
The benefits of teamwork
You may be able to avoid the agreement trap simply by choosing to negotiate as part of a team rather than on your own, Cohen and her colleagues find in two experiments.
In one of the experiments, more than 1,000 MBA students engaged in a simulated real estate negotiation between a seller and a buyer in which the parties’ interests were incompatible—that is, impasse would have been the most rational outcome for both parties. The students negotiated either one-on-one, two-on-two, or three-on-three. Teams were more likely to reach impasse (the more rational choice) than solo negotiators, the results showed. Two- and three-person teams were equally skilled at knowing when to walk away. A second experiment found that teams are better than solos at avoiding the agreement trap because of their greater judgment capabilities.
The findings align with ample research pointing to the benefits of a team approach in negotiation. Teams have been found to be more effective than solos at crafting win-win agreements, particularly in complex deals with a lot of information that can be shared. Teams ask more questions and reach more accurate judgments of their counterparts’ interests, preferences, and priorities. When deciding whether to accept a deal, teams may feel less bound to a disappointing agreement than solos do because their relationships with other team members trump their bonds with their counterparts. That said, solo negotiators do perform better on certain key measures of negotiation success, as discussed in the sidebar.
A new attitude toward impasse
The following recommendations, derived from Cohen, Leonardelli, and Thompson’s research and the work of other negotiation experts, can help us avoid the agreement trap and overcome our fear of impasse:
1. Don’t go it alone. Because two (or more) heads can be better than one in negotiation, think about recruiting a trusted colleague or friend to be your teammate. One of you might explicitly play the role of devil’s advocate when it comes time to decide whether to do a deal.
2. Keep your BATNA at the forefront. In the thick of a negotiation, outside alternatives often fade into the background. That’s why it’s important to regularly weigh the current deal against your BATNA. And because BATNAs fluctuate, be sure to monitor your best alternative and work to improve it.
3. Ignore sunk costs. Don’t accept a deal simply because you feel that you’ve invested too much in it to walk away.
4. Change attitudes toward impasse. In your own negotiations and in your organization, work on breaking the habit of equating impasse with failure. Require negotiators to monitor their BATNA and analyze the decision to close a deal. Reward them based on the quality of their decision process rather than on their ability to close a deal.