On April 24, 2013, an eight-story building in Bangladesh known as Rana Plaza collapsed, killing 1,134 people, many of them low-wage garment workers who made goods for foreign companies. In the aftermath, Western retailers were widely criticized for failing to engage in international labor union negotiations and address hazardous conditions in the factories where their goods are manufactured. Bangladesh is a top clothing exporter, producing more than $33 billion worth of clothing per year, with about 62% going to Europe and 18% to the United States, according to a report from McKinsey & Company.

The large Western apparel companies had always worked independently on the issue of factory safety in Bangladesh. But following the Rana Plaza disaster, it seemed clear that the retail industry’s safety concerns had been overshadowed by the motivation to churn out clothing as quickly and cheaply as possible.

A few months after Rana Plaza, a consortium of European retailers and another consortium of U.S. retailers unveiled separate agreements aimed at improving safety conditions in overseas factories. The story of how these deals unfolded offers lessons to anyone who is trying to convince a reluctant party—or hundreds of them—to come to the table.

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A slow start on safety

Several months before the Rana Plaza collapse, IndustriALL Global Union, a federation of 50 million workers, had brought together representatives of the world’s largest retailers, including H&M, Gap, and Walmart, to push for a joint initiative to improve factory safety in Bangladesh, where workers recently had been killed in factory fires and other disasters. But only one of the companies, Inditex, committed to union negotiations toward a shared solution.

The retailers gathered for another meeting on safety on April 29, just days after the Rana Plaza collapse. Yet even as the death count rose, they balked at working together on an agreement. “I was astonished to see how complacent they were,” one labor leader told the New York Times.

In the weeks after the disaster, the apparel outsourcers faced mounting public pressure to address the problem. Labor unions turned up the heat, circulating a letter urging the companies to sign on to a legally binding safety agreement by May 15. They then focused their efforts on persuading Swedish “cheap chic” giant H&M to take the lead on safety improvements. “Get H&M on board, the thinking went, and others would follow,” wrote Liz Alderman in the Times.

Labor union negotiations make headway with a big player

According to union officials, H&M executives at first resisted the idea of signing a legally binding agreement. Then a public outcry erupted over a human-rights ad that paired a photo of H&M’s CEO, smiling, alongside a photo of an anguished woman at the rubble of Rana Plaza. The resulting negative publicity, coupled with a new commitment from the Bangladeshi government for factory reforms, marked a tipping point for H&M.

The company signed on to an agreement that would require Western retailers to invest in improving the safety of foreign workers. As the labor leaders had hoped, once H&M was on board, European retailers, including Marks & Spencer and Zara, began to follow suit.

Most large American retailers— including Gap, Walmart, J.C. Penney, and Target—remained holdouts, insisting that they could not accept the legal liability inherent in the working agreement. Yet as the agreement coalesced in Europe, American companies faced increasing pressure to act, and Gap began developing an alternate plan.

Two deals in three days

On July 8, the European consortium, which had grown to include 70 brands, unveiled its final, legally binding agreement, the Accord on Fire and Building Safety in Bangladesh. The group committed to inspecting the garment factories of members’ Bangladeshi suppliers within nine months, developing a plan to correct any safety problems found within nine months, making the dangers public, and paying workers during factory closings. Renovations were to be funded by the retailers, Bangladeshi factory owners, several European governments, and the World Bank.

Just two days later, a group of 17 North American retailers (including Walmart, Gap, Target, J.C. Penney, Kohl’s, and Macy’s) announced its own plan for factory safety in Bangladesh. The deal had been negotiated with the help of the Bipartisan Policy Center and two former U.S. senators, George Mitchell and Olympia Snowe.

The American companies agreed to contribute to a fund that would raise $42 million over five years for safety improvements in Bangladeshi factories. Under the plan, the retailers would inspect their partner factories in the country and develop plans to fix significant safety problems. The group also said it would help Bangladeshi factory owners secure any financing that they might need for renovations, the Times writes. In contrast to the European plan, the North American signatories’ promises are not legally binding, and the burden falls on factory owners to improve safety—or lose the companies’ business.

Labor groups immediately panned the North American agreement, saying it lacks the accountability of the European version and allows companies to walk away in the face of a safety problem. In response, WalMart’s chief compliance officer said his company could not sign the European agreement because of legal differences between the United States and Europe that could expose WalMart to “potentially unlimited” liability and litigation.

Getting naysayers to the negotiation table

How can you convince reluctant parties to come to the table—and, once they’re there, persuade them to negotiate a strong agreement rather than one that lacks teeth? Let’s look at the tactics that leaders in labor union negotiations used in the Bangladeshi factory safety agreements:

Capitalize on public sentiment. In the aftermath of the Rana Plaza disaster, labor and other groups kept the pressure on retailers to act quickly, understanding that their incentive to address factory safety would fall away when public outrage faded. The fact that both consortiums reached agreement in a matter of months highlights what a powerful motivator negative publicity can be.

Define your scope. When a more global agreement was being considered, the American retailers began balking at various deal terms. At this point, the lead negotiators could have decided to water down the agreement to keep the Americans in the fold. Instead, they chose to stand by their core principles, and the Americans splintered off. In your own talks, weigh the pros of an all-inclusive, more diffuse agreement against the benefits of a smaller, more targeted one.

Divide and conquer. Labor leaders correctly surmised that if they got an industry leader on board—H&M—then others would fall in line. This strategy, which Harvard Business School professor James Sebenius refers to as backward mapping, involves targeting an influential party as an early negotiating partner in the expectation that she will create a critical mass for your initiative.

Have you engaged in labor union negotiations? What tactics worked to achieve winning outcomes?

Budget negotiations aren’t always as static as they seem at first, as one of our readers discovered. Especially in a field where “low-cost” providers can race to the bottom on price, it’s important to highlight the difference between value and cost. This question came to us recently, and illustrates how vital it is to recognize a negotiation anchor and determine how to work around it.

Q: Advertisers frequently come to our advertising agency requesting services with their budget already established. This budget is often far too low for the solution or service they’re asking for. How do we ask our clients for a bigger budget without losing the business?

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How to turn budget negotiations into a winning situation for you and your client

In a world of tightening budgets and greater sophistication within procurement departments, the phenomenon described above is increasingly commonplace. The first step is for you to understand what the clients envision the project being and how they arrived at their budget for the project. If the project is significant for one or both sides, request an in-person meeting where the sole agenda item is for you to listen to what they think their needs are.

Sometimes, as the more experienced party, you may be able to help them understand what their real interests are in the negotiation. What they think needs to be customized market research may be available off the shelf, or what they think only your most-senior executives can do may be delegated to less expensive staff. This process can bridge the gap between their budget and what you can reasonably deliver; you also build goodwill with clients by proposing less expensive options.

Educating your prospective clients about their own interests gives you an inside track when the business is actually put out to bid. A few years ago I witnessed one service provider whose listening meeting was so successful that the prospective client asked the service provider to write the first draft of the request for proposal. Not surprisingly, the provider ended up getting the business.

But sometimes the listening meeting isn’t this successful, and your prospective client remains unrealistic about what they can achieve with the desired budget. In this scenario, your budget negotiations should include packages: “For the budget you have in mind, here is what we can deliver; but for this [higher] budget, which we believe to be more realistic, we can deliver the following additional components that we believe you will value.” Sometimes three or even four alternative packages are warranted.

Proposing alternative packages does a few things. First, you get your foot in the door with a package that meets their desired price point. This reduces the odds that you will flat-out lose the business to a low-cost competitor. Second, offering multiple packages explicitly identifies the cost/value tradeoff. Sometimes clients will understand what they are sacrificing with an aggressive budget only when the tradeoff is made clear to them. Third, offering multiple packages demonstrates that you are responsive to their cost concerns.

One thing you should not do to demonstrate that their budget is unrealistic is put your cost structure on the table. A few years ago this kind of “cost-plus” pricing was thought to create transparency and partnership between advertising agencies and their clients. However, clients then felt entitled to nitpick about each line item and allocation, since they were, in effect, paying for it. Cost-plus pricing quickly fell into disfavor by creating more problems than it solved.

If all else fails, ask your client for a “last look” at a competitor’s proposal before they award the business elsewhere. Often clients will be attracted to a low-cost provider while overlooking the old maxim “You get what you pay for.” Your request should be unobjectionable to the client, as you are only seeking to help educate them about what they are buying and how it matches up to their interests and expectations.

How have you dealt with budget negotiations that seemed, at first, to be unrealistic?

At the time, it seemed to be an example of coolheaded dealmaking in the midst of disaster. In 2009, hit hard by the 2008 financial crisis and changes in consumer preferences, U.S. automaker Chrysler was on the brink of collapse. The U.S. Treasury Department stepped in to run a crisis negotiation. In exchange for about $12 billion in federal loans, Chrysler entered bankruptcy and allowed its ownership to be divided.

A health-care trust for Chrysler union workers known as the voluntary employee beneficiary association (VEBA) gained 68% ownership in the company and a $4.59 billion note that eliminated the company’s health-benefit obligations to retirees. The Treasury Department took 10%; the Canadian government, 2%.

In a hasty crisis negotiation, Italian automaker Fiat was given 20% ownership and a stake in Chrysler’s board and management in exchange for small cars, engines, and technology. Fiat also negotiated an option to eventually acquire more of Chrysler. Overall, the crisis negotiation was believed to offer Chrysler a slim hope of recovery, and Fiat was portrayed as a white knight.

By 2011, however, the companies’ fortunes had reversed: Chrysler was turning a profit, and Fiat was struggling amid the European financial crisis. Hoping to save itself by merging with Chrysler, Fiat bought out the U.S. and Canadian governments’ stakes in Chrysler for $640 million.

The next year, Fiat exercised an option to buy 3.3% of Chrysler from VEBA. But Fiat and VEBA had differing valuations of Chrysler, based on whether to include the $4.59 billion note from the original bailout. In the original 2009 bailout deal, Treasury Department lawyers failed to address how the value of Chrysler should be determined, amounting to a “$4.5 billion drafting error,” writes Steven D. Solomon in the New York Times. The parties took their dispute to court and eventually agreed that Fiat would acquire all of VEBA’s remaining Chrysler stock for $3.7 billion.

Claim your FREE copy: Negotiation Skills

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

Slowing Down in Crisis Negotiation 

Speed is often the enemy of a lasting, mutually beneficial deal, but several safeguards can protect you in your next crisis negotiation.

1. Think Multiple Steps Ahead.

It’s common for negotiators to be so focused on signing a deal that they overlook the long-term challenges of implementation, write Danny Ertel and Mark Gordon in their book, The Point of the Deal: How to Negotiate When Yes Is Not Enough. This pitfall is all the more dangerous in crisis negotiations, where parties often feel desperate to quickly reach a deal at any cost.

This short-term thinking often limits us from considering what could unfold down the line. In the Chrysler negotiations, crisis negotiators failed to anticipate what might happen if they met their goal of saving the automaker. What if Chrysler thrived once again? What if Fiat began to struggle? How would this scenario affect VEBA? By thinking several steps ahead, crisis negotiators can set deals that thrive in the long run.

2. Take a Slower Pace.

In the midst of a crisis negotiation, there is value in working methodically. To see why, consider hostage negotiations, an extreme type of crisis negotiation. The perpetrators in these situations tend to be in a volatile emotional state, but their rage often subsides as time passes, writes Gary Noesner, the former head of the FBI’s Crisis Negotiation Unit, in his book, Stalling for Time: My Life as an FBI Hostage Negotiator.

Consequently, a hostage negotiator views time as their most valuable tool—and tries to stall for as long as they can. It’s hostage situation protocol for the authorities to try to gradually earn the hostage taker’s trust and encourage them to surrender.

Similarly, those involved in a business crisis negotiation are likely to be in a highly charged emotional state that can lead to irrational thinking and flawed decision making. It’s important to take frequent breaks to give everyone time to cool down and rest. 

3. Monitor the Deal-Drafting Process.

After engaging in complex crisis negotiations, business negotiators are often happy to pass off the technicalities of deal drafting to their attorneys. Unfortunately, this handoff is prone to errors. Vague, contradictory, and missing deal terms are not uncommon, and they can lead to serious problems during the implementation stage, writes Harvard Business School and Harvard Law School professor Guhan Subramanian.  

According to Subramanian, you can avoid such mistakes by communicating the motivations behind your deal to your legal team, reading deal documents carefully, and setting up a time for your lawyers to read the deal back to you in plain English, free of legal jargon. If the parties involved in the Chrysler negotiation had taken these steps, they might have noticed that they had failed to clearly specify how the automaker should be valued in the future and thus avoided problems down the line.

What other advice do you have for those engaged in crisis negotiation? 

Q: Advertisers frequently come to our advertising agency requesting services with their budget already established. This budget is often far too low for the solution or service they’re asking for. How do we ask our clients for a bigger budget without losing the business?

A: In a world of tightening budgets and greater sophistication within procurement departments, the phenomenon you are describing is increasingly commonplace. The first step is for you to understand what the clients envision the project being and how they arrived at their budget for the project. If the project is significant for one or both sides, request an in-person meeting where the sole agenda item is for you to listen to what they think their needs are. Sometimes, as the more experienced party, you may be able to help them understand what their real interests are in the negotiation. What they think needs to be customized market research may be available off the shelf, or what they think only your most-senior executives can do may be delegated to less expensive staff. This process can bridge the gap between their budget and what you can reasonably deliver; you also build goodwill with clients by proposing less expensive options.

Educating your prospective clients about their own interests gives you an inside track when the business is actually put out to bid. A few years ago I witnessed one service provider whose listening meeting was so successful that the prospective client asked the service provider to write the first draft of the request for proposal. Not surprisingly, the provider ended up getting the business.

But sometimes the listening meeting isn’t this successful, and your prospective client remains unrealistic about what they can achieve with the desired budget. In this scenario, you should propose packages: “For the budget you have in mind, here is what we can deliver; but for this [higher] budget, which we believe to be more realistic, we can deliver the following additional components that we believe you will value.” Sometimes three or even four alternative packages are warranted.

Proposing alternative packages does a few things. First, you get your foot in the door with a package that meets their desired price point. This reduces the odds that you will flat-out lose the business to a low-cost competitor. Second, offering multiple packages explicitly identifies the cost/value tradeoff. Sometimes clients will understand what they are sacrificing with an aggressive budget only when the tradeoff is made clear to them. Third, offering multiple packages demonstrates that you are responsive to their cost concerns.

One thing you should not do to demonstrate that their budget is unrealistic is put your cost structure on the table. A few years ago this kind of “cost-plus” pricing was thought to create transparency and partnership between advertising agencies and their clients. However, clients then felt entitled to nitpick about each line item and allocation, since they were, in effect, paying for it. Cost-plus pricing quickly fell into disfavor by creating more problems than it solved.

If all else fails, ask your client for a “last look” at a competitor’s proposal before they award the business elsewhere. Often clients will be attracted to a low-cost provider while overlooking the old maxim “You get what you pay for.” Your request should be unobjectionable to the client, as you are only seeking to help educate them about what they are buying and how it matches up to their interests and expectations.

As businesses increasingly branch out globally, they also face the possibility of broken contracts and strained relationships. Mediation can be an effective means of resolving disputes and getting business partners back on track, but do intercultural differences complicate the process? If so, how can disputants and mediators adjust?

Elizabeth D. Salmon of the University of Maryland and her colleagues examined this question in a recent laboratory study. The researchers paired American college students with students in Turkey and had the pairs engage online in a simulated dispute. Beforehand, the students individually answered questions designed to measure their “cultural intelligence,” or their capacity to function in culturally diverse situations, as well as the strength of their motivation to do so. The researchers
also measured the students’ trust in their negotiation counterparts, their openness to mediation, and their willingness to make concessions in negotiation.

The intercultural pairs were given about half an hour to negotiate their disputes in real time via videoconference. The pairs, who played the role of tenants in an apartment complex who were at odds on certain issues, such as noise and patio use, were divided into three experimental groups. One group negotiated their dispute without the aid of a mediator. A second group had the help of a mediator who didn’t overtly direct the parties toward a particular outcome. A third group was aided by a directive mediator who used rewards and punishments to try to help the parties come to agreement. In the past, these different mediator styles have varied in effectiveness across different contexts.

In this study, a mediator’s directive tactics resulted in higher objective and subjective outcomes for both sides in mediations involving particularly challenging disputants (as measured by their scores on cultural intelligence, openness to mediation, and so on). By contrast, when disputants were more open to the mediation process and comfortable functioning across cultures, directive tactics, such as the threat of punishment, worsened both sides’ outcomes.

The results suggest that particularly thorny intercultural disputes may benefit from a directive mediator, whereas negotiators who are more open to the mediation process and comfortable with intercultural settings will do better with a more hands-off approach.

Resource: “Cultural Contingencies of Mediation: Effectiveness of Mediator Styles in Intercultural Disputes,” by Elizabeth D. Salmon, Michele J. Gelfand, Ayse Betül Çelik, Sarit Kraus, Jonathan Wilkenfeld, and Molly Inman. Journal of Organizational Behavior, 2013.

On April 24, an eight-story building in Bangladesh known as Rana Plaza collapsed, killing an estimated 1,129 people, many of them low-wage garment workers who made goods for foreign companies. In the aftermath, Western retailers were widely criticized for failing to address hazardous conditions in the factories where their goods are manufactured. Bangladesh is a top clothing exporter, producing about $18 billion worth of clothing per year, with about 60% going to Europe and 25% to the United States.

The large Western apparel companies had always worked independently on the issue of factory safety in Bangladesh. But following the Rana Plaza disaster, it seemed clear that the retail industry’s safety concerns had been overshadowed by the motivation to churn out clothing as quickly and cheaply as possible.

A few months after Rana Plaza, a consortium of European retailers and another consortium of U.S. retailers unveiled separate agreements aimed at improving safety conditions in overseas factories. The story of how these deals unfolded offers lessons to anyone who is trying to convince a reluctant party—or hundreds of them—to come to the table.

A slow start on safety
In April, several months before the Rana Plaza collapse, IndustriALL Global Union, a federation of 50 million workers, had brought together representatives of the world’s largest retailers, including H&M, Gap, and Walmart, to push for a joint initiative to improve factory safety in Bangladesh, where workers recently had been killed in factory fires and other disasters. But only one of the companies, Inditex, committed to negotiating a shared solution.

The retailers gathered for another meeting on safety on April 29—coincidentally, just days after the Rana Plaza collapse. Yet even as the death count rose, they balked at working together on an agreement. “I was astonished to see how complacent they were,” one labor leader told the New York Times.

In the weeks after the disaster, the apparel outsourcers faced mounting public pressure to address the problem. Labor unions turned up the heat, circulating a letter urging the companies to sign on to a legally binding safety agreement by May 15. They then focused their efforts on persuading Swedish “cheap chic” giant H&M to take the lead on safety improvements. “Get H&M on board, the thinking went, and others would follow,” wrote Liz Alderman in the Times.

H&M turns a corner
According to union officials, H&M executives at first resisted the idea of signing a legally binding agreement. Then a public outcry erupted over a human-rights ad that paired a photo of H&M’s CEO, smiling, alongside a photo of an anguished woman at the rubble of Rana Plaza. The resulting negative publicity, coupled with a new commitment from the Bangladeshi government for factory reforms, marked a tipping point for H&M.

The company signed on to an agreement that would require Western retailers to invest in improving the safety of foreign workers. As the labor leaders had hoped, once H&M was on board, European retailers, including Marks & Spencer and Zara, began to follow suit.

Most large American retailers— including Gap, Walmart, J.C. Penney, and Target—remained holdouts, insisting that they could not accept the legal liability inherent in the working agreement. Yet as the agreement coalesced in Europe, American companies faced increasing pressure to act, and Gap began developing an alternate plan.

Two deals in three days
On July 8, the European consortium, which had grown to include 70 brands, unveiled its final, legally binding agreement, the Accord on Fire and Building Safety in Bangladesh. The group committed to inspecting the garment factories of members’ Bangladeshi suppliers within nine months, developing a plan to correct any safety problems found within nine months, making the dangers public, and paying workers during factory closings. Renovations were to be funded by the retailers, Bangladeshi factory owners, several European governments, and the World Bank.

Just two days later, a group of 17 North American retailers (including Walmart, Gap, Target, J.C. Penney, Kohl’s, and Macy’s) announced its own plan for factory safety in Bangladesh. The deal had been negotiated with the help of the Bipartisan Policy Center and two former U.S. senators, George Mitchell and Olympia Snowe.

The American companies agreed to contribute to a fund that would raise $42 million over five years for safety improvements in Bangladeshi factories. Under the plan, the retailers would inspect their partner factories in the country and develop plans to fix significant safety problems. The group also said it would help Bangladeshi factory owners secure any financing that they might need for renovations, the Times writes. In contrast to the European plan, the North American signatories’ promises are not legally binding, and the burden falls on factory owners to improve safety—or lose the companies’ business.

Labor groups immediately panned the North American agreement, saying it lacks the accountability of the European version and allows companies to walk away in the face of a safety problem. In response, WalMart’s chief compliance officer said his company could not sign the European agreement because of legal differences between the United States and Europe that could expose WalMart to “potentially unlimited” liability and litigation.

Getting naysayers to the table
How can you convince reluctant parties to come to the table—and, once they’re there, persuade them to negotiate a strong agreement rather than one that lacks teeth? Let’s look at the tactics that labor union leaders and others used in the Bangladeshi factory safety agreements:

Capitalize on public sentiment. In the aftermath of the Rana Plaza disaster, labor and other groups kept the pressure on retailers to act quickly, understanding that their incentive to address factory safety would fall away when public outrage faded. The fact that both consortiums reached agreement in a matter of months highlights what a powerful motivator negative publicity can be.

Define your scope. When a more global agreement was being considered, the American retailers began balking at various deal terms. At this point, the lead negotiators could have decided to water down the agreement to keep the Americans in the fold. Instead, they chose to stand by their core principles, and the Americans splintered off. In your own talks, weigh the pros of an all-inclusive, more diffuse agreement against the benefits of a smaller, more targeted one.

Divide and conquer. Labor leaders correctly surmised that if they got an industry leader on board—H&M—then others would fall in line. This strategy, which Harvard Business School professor James Sebenius refers to as backward mapping, involves targeting an influential party as an early negotiating partner in the expectation that she will create a critical mass for your initiative.

In 2007, unhappy with Amazon’s low, flat price of $9.99 for e-books, five major U.S. publishers negotiated a new business model for e-book pricing with Apple, which was getting ready to launch the iPad.

Under the prevailing wholesaling model, publishers sold their books and e-books to retailers like Amazon, which could then set whatever price they liked. Apple and the five publishers agreed to switch to a so-called agency model, which would allow the publishers to set their own prices for e-books in exchange for giving Apple a 30% sales commission. At least one of the publishers then upped the ante by threatening to delay the release of its digital editions to Amazon unless it switched to an agency model. Amazon reluctantly agreed, and e-book prices rose across the industry to about $14.99.

The publishers and Apple claimed that their goal was to increase competition in the e-book market by opening up alternatives to Amazon’s Kindle reader. But the U.S. Department of Justice didn’t see it that way and accused the parties of colluding to artificially raise e-book prices. The five publishers reached a settlement with the government; Apple did not.

Reading between the lines
In U.S. district court testimony, Apple and publishing executives portrayed the publishers’ negotiations with Apple on e-books as a typical process in which each side pushed hard for concessions. But Department of Justice lawyers argued that the publishers communicated with one another through Apple and shared information about both Amazon and Apple. Moreover, in their contracts with Apple, the publishers agreed to a so-called most-favored-nation clause requiring that no other retailer sell e-books for lower prices—a stipulation that the government argued imposed the agency model on other retailers, according to the New York Times.

On July 10, a U.S district judge ruled that Apple and the publishers had indeed engaged in a price-fixing conspiracy that resulted in consumers paying more for e-books. Apple vowed to appeal the verdict. Arguing that marketplace negotiations would have led to higher e-book prices even if Amazon hadn’t felt pressured to change its model, some observers predicted that the case could go all the way to the Supreme Court.

The question of whether the parties colluded is a complex one. But as we wrote in the article “Giving Outsiders a Voice in Your Negotiation” in the June 2012 issue of Negotiation, the story serves as a reminder that, in their zeal to reach a mutually beneficial agreement, negotiators often forget the importance of considering how parties away from the table—in this case, consumers—will be affected by the final outcome of their deal.

The risks become all the more complicated, from a legal standpoint, when your negotiating partners also happen to be your direct competitors. In the United States, any contract that restrains interstate or international trade or commerce is outlawed by the Sherman Act. That doesn’t mean that you can’t negotiate with your competitors, writes Harvard Business School and Harvard Law School professor Guhan Subramanian in his book Dealmaking: The New Strategy of Negotiauctions (Norton, 2011). But it does mean that your ultimate agreement must promote rather than stifle marketplace competition and efficiency. If it doesn’t, it could be contested in court.

Negotiating by the book
Here are three pieces of advice for negotiators seeking to avoid the legal and ethical trouble that Apple and the five publishers faced following their deals.

1. Look beyond the negotiating table. As you approach a negotiation and during the process, think about who, other than the parties involved, might be affected by whatever agreement you reach. This list might include your competitors, consumers, and society at large. Is your deal likely to create net value for society? If not, you have an ethical and perhaps legal responsibility to find ways to reduce the potential negative effects on outsiders.

2. Study relevant laws and standards. Don’t assume that you or your counterpart has a firm grasp of which laws and regulations are likely to apply to your agreement. Be sure to consult with your lawyers throughout the negotiation process. A good legal team will scrutinize your predictions of how an agreement will unfold, recognizing that you may be overly optimistic. (For tips on avoiding deal-drafting mistakes, see the cover story in this issue.)

3. Err on the side of caution. Experts disagree about whether Apple broke the law in its negotiations with the publishers, but in the end, only one opinion truly mattered: that of the judge. Skirting up to the edge of the law is a risky practice. Give yourself a wide berth by avoiding deal terms that could even suggest your agreement will result in a net loss for the marketplace at large.

At the time, it seemed to be an example of coolheaded dealmaking in the midst of disaster. In 2009, hit hard by the 2008 financial crisis and changes in consumer preferences, U.S. automaker Chrysler was on the brink of collapse, and the Treasury Department stepped in to do a deal. In exchange for about $12 billion in federal loans, Chrysler entered bankruptcy and allowed its ownership to be divided.

A health care trust for Chrysler union workers known as VEBA gained 68% ownership in the company and a $4.59 billion note that eliminated the company’s obligation to provide further health benefits to retirees. The Treasury Department took 10%; the Canadian government, 2%.

In a hasty negotiation, Italian automaker Fiat was given 20% ownership and a stake in Chrysler’s board and management in exchange for contributing small cars, engines, and technology to the U.S. automaker. Fiat also negotiated an option to eventually acquire the U.S. and Canadian governments’ stakes and up to 40% of the health care trust’s stake in Chrysler. Overall, the deal was believed to offer Chrysler a slim hope of recovery, and Fiat was portrayed as a white knight.
Fast-forward a few years, and the two companies’ fortunes had reversed: Chrysler was now turning a profit, and Fiat was struggling in the midst of the European financial crisis. In an effort to prop itself up with a Chrysler acquisition, Fiat bought out the U.S. and Canadian governments’ stakes in Chrysler for $640 million in 2011.

In 2012, Fiat exercised an option to buy 3.3% of Chrysler from VEBA. Based on its $10 billion valuation of Chrysler, which included the $4.59 billion note that Chrysler granted VEBA when the original bailout deal was struck, Fiat calculated this option to be worth $342 million. But VEBA argued that Chrysler’s value should be calculated without counting the note.
As a result, the two sides were about $202 million apart on price. They took their dispute to court and were working on a settlement at this writing.

The dispute can be chalked up to “a big hole in the language” specifying how the option price should be determined, writes Steven M. Davidoff in the New York Times. The failure of Treasury Department lawyers to address in the original 2009 bailout deal how the value of Chrysler should be determined can be considered a “$4.5 billion drafting error,” according to Davidoff.

As time has passed, several deals negotiated hastily at the height of the financial crisis have been revealed to be highly problematic. When a disaster looms, negotiators typically feel pressured to wrap up a deal as quickly as possible. Speed is often the enemy of a sound, lasting deal, but several safeguards can protect you in your next crisis negotiation.

1. Think multiple steps ahead.
It’s common for negotiators to be so focused on signing a deal that they overlook the long-term challenges of implementation, write Danny Ertel and Mark Gordon in their book The Point of the Deal: How to Negotiate When Yes Is Not Enough (Harvard Business School Press, 2007). This pitfall is all the more dangerous in crisis negotiations, where parties often feel desperate to reach a deal at any cost, and quickly.

This type of short-term thinking often limits us from considering the various eventualities that could unfold down the line. In the Chrysler negotiations, the Treasury Department and other negotiators involved were so intent on saving the automaker that they had failed to anticipate what might happen if they actually met their goal. What if Chrysler thrived once again? What if Fiat began to struggle? How would this scenario affect VEBA?

If the negotiators involved had thought several steps ahead in this manner, they might have anticipated the possibility that their draft agreement could result in Chrysler retirees getting a raw deal from Fiat down the road.

The story points to the importance of thinking multiple steps ahead in negotiation. Diagramming potential outcomes with a decision tree is one way to bring long-range outcomes into focus. Ertel and Gordon also note that managers can encourage farsighted thinking in others by (1) having negotiators articulate how their proposed contracts advance the organization’s long-term interests and (2) linking financial bonuses to progress during the early years of deal implementation (rather than offering rewards for closing).

Finally, by adding “if, then” contingencies to a deal, parties can agree to disagree by building incentives and penalties into the contract based on their differing predictions.

2. Take a slower pace.
In the midst of a crisis, you may feel you have a duty to work at lightning speed in an effort to contain the situation. Yet even as you approach the problem with intensity and a sense of urgency, there is value in working methodically.

To see why, let’s look at an extreme form of crisis negotiation: hostage standoffs. Consider that the perpetrators in these situations tend to be people who have “snapped” because of a personal crisis and taken hostages on impulse. They are likely to be in a volatile emotional state when the crisis begins, but their rage tends to subside as time passes, writes Gary Noesner, the former head of the FBI’s Crisis Negotiation Unit, in his book Stalling for Time: My Life as an FBI Hostage Negotiator (Random House, 2010).

Consequently, Noesner and other hostage negotiators view time as their most valuable tool—and they try to stall for as long as they can. Freed from deadlines, the authorities try to gradually earn the hostage taker’s trust and encourage him to surrender.

Similarly, when business negotiators are coping with a crisis, they are likely to be in a highly charged emotional state that can lead to irrational thinking. Though it can be difficult to justify slowing down, you should at least be sure to take frequent breaks to give everyone time to cool down and get a good night’s sleep. A more measured pace not only calms tempers but also reduces careless errors.

3. Monitor the deal-drafting process.
After engaging in a complex negotiation process, business negotiators are often happy to pass off the technicalities of deal drafting to their attorneys. Unfortunately, this handoff is prone to errors. Vague, contradictory, and missing deal terms are not uncommon, and they can lead to serious problems during the implementation stage, according to Harvard Business School and Harvard Law School professor Guhan Subramanian. (See the sidebar below for an example.)

Such mistakes and oversights often arise when rushed or inexperienced lawyers start working from a prior contract from their files and fail to make sufficient changes to boilerplate language. In addition, negotiators often fail to adequately communicate the motivations and intentions of their deal to their lawyers, resulting in misunderstandings. These errors are all the more common when negotiators and their attorneys are under pressure to wrap up a deal quickly.

Fortunately, there are at least three ways to avoid such mistakes, according to Subramanian. First, be sure to communicate the motivations behind your deal to your legal team. This step keeps your lawyers from having to guess your intentions and thus could save you time and money in the long run.

Second, resist the common tendency to merely glance over deal documents and file them away. Instead, read them through carefully—including drafts and memos—to determine whether they accurately reflect the negotiated terms as you understand them.

Third, set up a time for your lawyers to read the deal back to you in plain English, free of legal jargon. Ask questions about any potential ambiguities, and “stress test” hypothetical scenarios that could arise. If the parties involved in the Chrysler negotiation had taken this step, they may have noticed that they had failed to clearly specify how the automaker should be valued in the future.