Member Article

Negotiations are part of our daily lives from an early age.  From haggling with teachers over homework to agreeing terms for a new job – we all negotiate regularly throughout our lives.  So why then can it be difficult to get some parties to start negotiating when it matters?

Parties are unlikely to negotiate if they believe that they can force a better result at a lower cost.  By force, we do not necessarily mean violence but rather any process, such as litigation, which will force the opponent to accede to their will.  If parties believe they can prevail without having to compromise their position, they may refuse to negotiate, since negotiations by their nature involve the exchange of concessions.  

Alternatively, parties might not want to negotiate because their relationship with their opponent has wholly disintegrated. In these circumstances, they might think that their opponent was so unreasonable that negotiation would inevitably be fruitless. Alternatively, they may now be principally motivated by a desire to do harm to their opponent rather than achieve benefit for themselves.

Equally, parties might be reluctant to propose negotiation because of a conviction that in doing so they will be the first to blink in a game of chicken. They fear that suggesting negotiation could be interpreted as a signal of weakness. An opponent might conclude that its strategy has forced the offer to negotiate, and, as a result, harden its resolve against negotiating. 

The timing of negotiations is like fruit. Pick your timing, or your fruit, too early or too late and you will most likely stay hungry. Conflicts have to develop to the point where the parties are ready to resolve them. This applies equally to commencing negotiations. Both parties must want to negotiate and, more importantly, consider that their dispute is ripe for resolution.

Getting to the table

So how can a party initiate negotiations in the face of an unwillingness to do so?

One method for ensuring at least the potential for negotiations is by building it into the framework of the on-going process. Increasingly dispute resolution terms in contracts recognise the benefit of this approach by obliging parties to participate in negotiations after a dispute arises but before litigation or arbitration commences. However, this is not the only manner in which you can use the method advantageously. In disputes, we often suggest to our clients that they extend future invitations to negotiate. For example, it is hard for an opponent to reject an offer expressed in terms such as: “it is our usual policy to schedule as a matter of course a without prejudice meeting after exchange of witness statements to explore settlement?” The offer endorses your resolve to your opponent whilst securing the opportunity of negotiations as a matter of course.

The problem of getting to the table can be compounded when there is an imbalance of power between the parties. In these circumstances, the stronger party, or the Goliath, may be tempted to conclude that it can force the issue without resorting to negotiation. Equally, the weaker party, the David, may be more alert to the risk of signalling weakness.

Research suggests that Davids can influence Goliaths to engage with them through the framing of the negotiating agenda. Specifically, in experiments Goliaths were more willing to negotiate when the Davids proposed negotiating less important issues before more critical ones. When the experimenters quizzed the Davids, they found that the Davids actually preferred the opposite – negotiating the critical issues first. However, clearly it is the Davids’ interest to agree a less favoured negotiating agenda in order to secure their opponent’s attendance at the table. Once the Goliaths have committed to coming to the table, the Davids could seek to negotiate the critical issues as well, particularly if this increased the potential for greater trade-offs. 

Staying at the table

When you have metaphorically got your opponents to the table, how do you ensure that they stay seated? 

Silence is not golden during negotiations. In the absence of information, parties will assume the worst, a result of a cognitive function called perception bias.

Perhaps the danger of silence is best illustrated with an example. In July 2008, discussions between Microsoft and Yahoo about a possible merger fell apart, reputedly because Yahoo was acting ‘weird’. In the words of Microsoft’s chief executive, Steve Ballmer, as reported in the Wall Street Journal:

“We had an offer out there that was a 100 per cent premium on the operating business of the company and there wasn’t a serious price negotiation […] until three months later. It was a little […] weird.”

In retrospect, for Yahoo to fail to respond for three months was a little strange. However, in reality the delay was probably entirely justifiable. Before Yahoo could respond, its board of directors would have had to meet. They would have had to consider advice from M&A lawyers, competition lawyers, tax accountants – in multiple jurisdictions. That can take time. But all Yahoo would have had to have done was be transparent with Microsoft about the steps they were taking and the reasons for the delay. In the absence of information, opponents usually expect the worst. 

For negotiations to flourish therefore, parties must (at least) exhibit procedural transparency.  The more transparent they are about the procedural element of negotiations, the more their opponents will come to view them as credible and dependable. They will become, at least in part, trusted. With trust comes compromise. 

Procedural transparency also enables patience in your opponent. Parties to negotiation generally need to be patient as they can be long and arduous processes. Sometimes, however, time is not a luxury that a party wants to give. Where you have warned your opponent about the time you need to progress negotiations, it has less scope to rely upon your delay as a cause for leaving the negotiation table. 

A clear understanding between the parties of the issues and procedures adopted to resolve them helps the parties progress negotiations to a fruitful resolution.  By being able to identify the negotiation process and the time frame in which to undertake it, both parties will feel not only that the other is negotiating in good faith but will also foster a feeling of patience and respect.

 

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