Bargaining for Advantage

by G Richard Shell

  My experimental subjects taught me something. Good, solid deals and amiable working relationships are hard to come by. Most people who finish a negotiation with both are wise to value the fruits of their hard work and get on with their lives.

  What Happens if Negotiations Break Down?

  The concession-making stage of bargaining sometimes ends with no deal rather than an agreement. The parties reach an impasse. In fact, a no deal result is sometimes the right answer. No deal is better than a bad deal, after all. In addition, sometimes people deliberately trigger an impasse to test the other side’s resolve or push them to think more creatively.

  But many bargaining breakdowns are regrettable mistakes. In some cases, negotiators escalate their commitment to their prior positions and pride gets in the way of continuing with bargaining. My favorite impasse story of this sort comes out of the Korean War.

  In 1969, two negotiators representing, respectively, the U.N. Command (an American general named James B. Knapp) and North Korea (General Yi Choon Sun) met in a small hut in the demilitarized zone between North and South Korea. The North Koreans had called the meeting. And under the rules set by the Korean Military Armistice Commission, used hundreds of times since the war had ended in stalemate in 1953, meetings continued until the side calling the meeting declared them formally adjourned. In addition, neither side was permitted to leave the room until a formal adjournment had been declared.

  Seven hours into this meeting, General Knapp proposed a plan to deescalate the Korean conflict. Among other things, Knapp demanded that North Korea immediately stop all “polemic, bellicose, war-mongering public statements.”

  General Yi took issue with this demand, fell silent, then sat there, arms folded, staring at General Knapp in steely disapproval. Knapp returned the hostile glare. And there the two men remained for four and a half hours—without saying a word. Like two tigers sizing each other up, neither could blink first (or go to the bathroom) without admitting weakness.

  As the meeting reached its eleventh hour and thirty-fifth minute, General Yi abruptly rose and departed without saying a word. Knapp then declared, “In view of North Korea’s conduct, I consider this meeting to be terminated.” History does not record the speed with which he left the room.

  In addition to escalation problems, the parties may start too far apart to close the gap. Many times there are miscommunications, misunderstandings, and simple bad chemistry that the parties fail to overcome. Now what?

  Jump-starting the Negotiation Process

  Perhaps the easiest way to overcome impasse is to leave yourself a back door through which to return to the table when you get up to leave it. “In light of the position you have taken,” you might say as you pack your bags, “we are unable to continue negotiations at this time.” An attentive opponent will pick up on your use of the words “at this time” and tactfully ask you later if the time has come to reinitiate talks. This back door also allows you to contact the other side at a later date without losing face.

  If the other negotiator leaves in a genuine fit of anger, he may not be very careful about leaving a back door open. If so, you should consider how you can let him back in without unnecessary loss of face. You must, in one expert’s phrase, build him a “golden bridge” across which to return to the table. Such bridges include “forgetting” that he made his ultimatum in the first place or recalling his last statement in a way that gives him an excuse for returning.

  When miscommunication is the problem, a simple apology may be enough to get the parties back on track. If the relationship has deteriorated beyond apologies, changing negotiators or getting rid of intermediaries altogether may be necessary.

  In America, the sport of professional baseball lost nearly two full seasons in the 1990s because of an impasse in negotiations between the players’ union and the club owners. The team owners from the big cities wanted to limit the size of team payrolls. The team owners from smaller cities wanted the team owners from big cities to subsidize their franchises. The players wanted more money. It was a three-ring circus. The breakthrough came when the owners hired a new negotiator—a lawyer named Randy Levine—to represent them at the table. Levine acted in the role of mediator as much as advocate and brought a high degree of both credibility and creativity to the process that, according to one participant, “broke the dam of mistrust” that had built up between the parties. Another move that helped move the talks beyond impasse was getting all parties to agree to stop talking to the press and taking public positions that made it hard for them to compromise at the table. Chapter 2 discussed how public commitments can help you stick to your goals, but there comes a time when it is in everyone’s interest to get unstuck from their positions. In a high stakes negotiation such as a labor strike, this often means getting the parties out of the spotlight so they can work in private.

  The worst impasses are the products of emotional escalation that builds on itself: My anger makes you angry, and your response makes me even angrier. The 1969 standoff between General Knapp and General Yi falls into this category.

  The solution to this sort of collision, in business deals as well as wars, is what I call the “one small step” procedure. One side needs to make a very small, visible move in the other side’s direction, then wait for reciprocation. If the other party responds, the two can repeat the cycle again, and so on. Commentator Charles Osgood, writing about the Cold War in the early 1960s, created an acronym for this process: GRIT (Graduated and Reciprocated Initiatives in Tension Reduction).

  Egypt’s late prime minister, Anwar Sadat, used the “one small step” technique to deescalate the Arab-Israeli conflict when he flew to Jerusalem on November 19, 1977 and later met with Prime Minister Menachem Begin. By simply getting off a plane in Israel—a very small step indeed—Sadat demonstrated his willingness to recognize Israel’s existence. This move eventually led to the Camp David peace accords and Israel’s return of the Sinai Peninsula to Egypt.

  An executive once told me a bargaining story that nicely sums up how the “one small step” process can work in everyday life. Two parties were in a complex business negotiation. Both were convinced that they had leverage, and both thought that the best arguments favored their own view of the deal. After a few rounds, neither side would make a move.

  Finally one of the women at the table reached in her purse and pulled out a bag of M&M’s. She opened the bag and poured the M&M’s into a pile in the middle of the table.

  “What are those for?” asked her counterparts.

  “They are to keep score,” she said.

  Then she announced a small concession on the deal—and pulled an M&M out of the pile and put it on her side of the table.

  “Now it’s your turn,” she said to the men sitting opposite.

  Not to be outdone, her opponents put their heads together, came up with a concession of their own—and pulled out two M&M’s. “Our concession was bigger than yours,” they said.

  The instigator of the process wisely let the other side win this little argument and then made another concession of her own, taking another M&M for herself.

  It wasn’t long before the parties were working closely together to close the final terms of the deal. Call this the M&M version of the GRIT process. Any similar mechanism that restarts the norm of reciprocity within the bargaining relationship will have a similar, helpful effect.

  Overall, when parties reach an impasse, it is usually because each sees the other’s demands as leaving it below its legitimate expectations. Eventually, if the parties are to make any progress, they must change their frame of reference and begin seeing that they will be worse off with no deal than they would be accepting a deal that falls below their original expectations.

  Sometimes this transition takes time. The impasse must be allowed to last long enough that one or both parties actually alter their expectations. A final agreement must be seen as a gain compared with available alternatives.

  If all else fails, yo
u may need to call in a neutral third party such as a facilitator, mediator, or arbitrator to assist both sides in reframing the negotiation. Such professionals are specialists at helping people focus on what they stand to lose if there is no agreement. If even these people cannot unblock the impasse and the dispute is one in which legal rights play a role, the parties may have to go to court to resolve their dispute.

  Don’t Be Satisfied with an Agreement—Get a Commitment

  When two of the largest firms on Wall Street, Dean Witter Discover & Co. and the Morgan Stanley Group, announced in 1997 that they had agreed to merge their businesses, they included an interesting footnote: Each firm promised to pay the other $250 million if it backed out of the deal.

  When Boston College football star Doug Flutie landed a spectacular, six-year $8.3 million contract to play for Donald Trump’s old United States Football League team, the New Jersey Generals, Flutie’s agent got Trump to announce the agreement to the press immediately, before the parties had even formalized the deal with a written contract. Flutie’s agent was delighted to see his client’s name in print next to that $8.3 million figure.

  What do these stories have in common? They are about gaining commitment, the last step in closing a deal. In each case, the parties bound themselves to each other by taking actions that gave them extra incentives to close the deal as promised.

  The goal of all negotiations is to secure commitment, not merely agreement. You want a deal that sticks under which the other side will reliably perform. Sometimes a mere handshake will be enough to secure performance, particularly if the parties have a long-standing relationship and trust each other. Other times, more elaborate commitment devices, such as contracts, public ceremonies, and explicit penalties, are required.

  A student of mine once told a story in class that illustrates the difference between agreements and commitments better than most academic discussions I have heard. Her story also shows how knowledge of negotiation dynamics can help you improve others’ lives as well as your own.

  My student—let’s call her Theresa—was helping to run a volunteer organization that took inner-city children out to the country on Saturdays for recreational activities. She and others in her group chartered buses, got athletic equipment, arranged for adult volunteers to chaperone, brought food enough for all, and gave the kids a day away from the stress and hardship of life on the streets.

  Everything was working fine except the adult volunteers. These well-meaning people were easy enough to persuade when she and others in the organization solicited their help. But many failed to appear on their assigned Saturday. Worse still, they were usually too embarrassed to call and let Theresa know they would not be there. This left the buses short on chaperones and the games short on supervisors.

  Theresa faced a commitment problem that was threatening the whole program. How could she get volunteers to show up on their assigned day?

  Then she and her organization hit on an idea. When she called volunteers to clear their schedule and assign them a day, she gave them each an important additional assignment: to bring an essential item for the day’s lunch—hamburger meat, rolls, salad, charcoal for the fire, and so on. With this simple, additional promise, the number of volunteers who showed up skyrocketed. Why? People who had previously failed to show had apparently comforted themselves with the thought that one less volunteer would not matter on the trip. But now that they had a concrete image of what their participation meant (hamburgers are useless without charcoal, and vice versa), each person saw that his or her contribution mattered. Each was part of a team. A failure by one would mean a loss for all. The volunteer’s self-esteem and sense of responsibility, which had led him or her to volunteer in the first place, now prompted actual performance.

  As the Dean Witter, Doug Flutie, and Theresa stories make clear, the big difference between mere agreements and genuine commitments is the risk of loss faced by parties for nonperformance. An agreement to do something carries little risk; it merely signals that a person is willing, for the moment at least, to do something as promised. A commitment alters this state by making it costly for the promisors to back out of their agreements.

  Four Degrees of Commitment

  There are many devices that help guarantee performance of an underlying promise. Such things as security bonds, deposits, and down payments are all examples. Within an organization, compensation systems often link raises, bonuses, or pension vesting periods to promises to stay with a firm for a specified period of time. This gives employees something to lose if they fail to live up to their agreement to work for the agreed number of years.

  Different kinds of negotiating situations call for different forms of commitment. If you agree to baby-sit for a neighbor, your promise is the only commitment anyone expects. Your relationship secures your agreement. But a multibillion-dollar business acquisition usually involves legally binding contracts, teams of accountants, and a formal closing at which specific documents and assets simultaneously change hands. There is more at stake and less trust, so people take extra steps to protect their expectations.

  In virtually every negotiation, the commitment process begins with a simple social ritual. In the West, the favored ritual is a handshake. Other cultures use bows or similar signs of respect and trustworthiness.

  In relatively closed social groups, shaking hands (or its equivalent) and giving your word are usually taken very seriously. A failure to perform after giving these social signals may threaten both the self-esteem of the promise giver and his or her membership in the group.

  As the promise being made increases in gravity, the social rituals supporting it also increase in complexity. Many of these more complex rituals include some form of public announcement or disclosure.

  Think back to the “talking to the mountain” story in Chapter 1, the story of the Arusha people and the boundary dispute between the two farmers. The parties concluded their negotiation by sharing a ritual meal of goat and beer while publicly announcing their agreement before the entire community. The witnesses to the agreement provided a collective memory for the terms of the deal and made it less likely that either side would renege.

  Donald Trump’s press conference to announce the Doug Flutie deal may have featured French champagne instead of Tanzanian beer, but the announcement served some of the same social purposes as the Arusha ceremony. Both Trump and Flutie were more committed as a result of having told the world about their deal.

  Accountability also enhances commitment. If the promisor’s personal reputation is at risk when his or her performance falls short, he or she is more likely to perform as promised.

  Theresa’s “bring the hamburger” ploy was a subtle accountability device. Under the old regime, when Theresa had brought all the food, the volunteers had thought of themselves as anonymous and interchangeable parts of the program. Under the new regime, when the volunteers each brought a part of the lunch, they now thought of themselves as “the hamburger” or “the drinks.” A failure to show up was immediately noticeable.

  One common way to enhance commitment that also improves accountability is to memorialize an agreement in writing. By writing down what was agreed to in explicit terms, people naturally pay more attention to the content of their promises. This act also sets into motion the psychological consistency principle discussed in Chapters 2 and 3. Remember how door-to-door salespeople are taught to secure a sale? They get the customer to personally fill in the blanks of the order form. The act of memorializing what they have agreed to makes customers feel a greater sense of commitment.

  Many written agreements have the added benefit of being legally enforceable. The Dean Witter-Morgan Stanley merger’s $250 million penalty clause for failure to close was part of a legal contract. As such, it could be enforced in court by either side and thus made backing out of the agreement extremely costly.

  Because the word “contract” has legal significance, it is wise to know exactly what steps are required to make o
ne. Many contracts become legally enforceable on the basis of verbal agreements and exchanges of promises alone. One side calls the other and makes an offer, the other side accepts, they both promise to perform, and bingo, there is a legal contract. This is the legal norm in most of the world, although the terms of such contracts, being verbal, are hard to prove in court.

  However, in the United States an agreement for the sale of a good such as a car worth more than $500, a multiyear contract for such things as employment, or a contract to sell an item of real estate such as a home must normally be in writing and signed by the party against whom performance is sought. Without this formal writing, no court will enforce the agreement. And a party—even one who has made a verbal agreement and sworn to perform on a stack of holy books—is contractually free to change his or her mind and sell the car or home to someone else tomorrow.

  In some transactions, no device, legal or otherwise, is solid enough to fully secure a commitment. In these cases, it is often both prudent and efficient to use a simultaneous exchange to close the deal. In the case of a car or home sale, for example, parties typically exchange the title to the property and a check for the required payment at the same time. Their preliminary agreement may be secured by a nonrefundable deposit, but the actual transfer of title does not take place until the seller receives the money.

  Summary