Steering the Art of Deal-Making
Mastering Negotiation: Achieving Agreement Without Giving In
Profit margins are tighter than ever. In-house counsel are under increasing pressure to place more work in the hands of outside counsel and push more work downstream to vendors or outsourcing. All this would seem to lead to a contractual "race to the bottom" over fees. Yet, companies across the country are managing to negotiate contracts without cutting margins down to the bone. So how do they do it? The short answer is they master the art of negotiation.
It is no secret that companies that enter into contracts with outside vendors such as law firms negotiate the terms. Less often does one hear that there are companies that manage to not only negotiate the terms but protect their margins by achieving agreement without giving in. In our ongoing series on the business of law, we explore why this art of negotiation can be learned. By acquiring three basic skills, you too can protect your bottom line all while building and maintaining strong relationships with vendors.
Why negotiate? Some of the advantages of successful negotiation include:
Successful negotiation requires an understanding of the history and theory behind it . You may be surprised to learn that it really is rocket science. The theory of negotiation is built on the works of several disciplines including economics, psychology and game theory. For instance, game theory (think chess) has been used by the Defense Department for decades to establish an equilibrium between itself and its contractors.
An important corner of the negotiation puzzle is the essentialist view of negotiation which posits that negotiators are guilty of "cognitive traps." Cognitive traps arise when negotiators move away from their targets (i.e. BATNA, ZOPA, reservation price). As best practices, renowned negotiation experts Fisher, Ury, and Patton, in their textbook Developing Agreements Below the Pie, offer suggestions to avoid the problem of cognitive traps discussed below.
Cognitive traps arise because negotiators fail to address the problem at hand or focus on the wrong number instead of pushing the real party’s interests to the forefront of the discussion. The authors suggest that negotiators engage in what they call "slicing the pie." Slicing the pie means finding out the interests of the other parties and seeing how they intersect with yours and therefore, can be added to the deal to make it sweeter for all involved.
Negotiation Strategies and Tactics
Finding a way to come to an agreement in a major negotiation while preserving your own interests can be difficult. However, there are numerous strategies that help partners to reach a negotiation for the ages, to the satisfaction of both. Once you have prepared yourself and established a base for your negotiation, you will want to select from the following options.
Active Listening
As a key strategy in negotiation, listening is often overlooked by negotiators who are focusing on presenting their case and discrediting the case of the other party. Active listening requires that you not only hear what the other party is saying, but that you listen and respond appropriately, communicating that you understand their position.
One great way in which you can utilize active listening to enrich a negotiation is by paraphrasing what the other party has said, either as a question or a statement of understanding. This will show that you are open to dialogue and willing to proceed with the agreement.
Building Rapport
Building rapport with another party prior to or during negotiation is a key strategy for ensuring that you maintain a negotiating position that meets your desired goals. Your negotiator should be able to focus in on building a relationship, or rapport, with the other attorney in order to secure a reasonable agreement.
Two of the best ways to build rapport with the other attorney include doing things to establish value for the other party, or using the other party’s name frequently during the conversation. While these two techniques may seem small, they can have a significant impact on establishing a connection and helping to negotiate a fair deal.
Of course, not all negotiations will go smoothly, or at all. When such a problem arises, it will be necessary to engage the services of a lawyer with expertise in negotiating fair legal agreements.
Common Obstacles to Agreement
Throughout negotiations, it’s far too easy to become embroiled in little details, or to let the temperature or tension level of the discussion rise to the point that neither party is able to think clearly enough to make a smart decision. There are certain run-of-the-mill obstacles to successful negotiation that you can expect to encounter and should therefore be prepared to over-come.
Power imbalance is one common hurdle to successful negotiation. When one party knows that its negotiating position is stronger than the other party’s (or one party is aware of specific facts outside of the negotiation that the other party is not privy to), the deal-maker without an additional powerful leverage point may feel the need to proceed cautiously in order to avoid a loss. The best thing to keep in mind is the principle that settlement is always possible. Trying to avoid possible loss by ensuring a win will in fact cause a loss.
Another common negotiation obstacles is communicating the appropriate level of urgency. Many negotiators have been told "we are on a time crunch," only to learn later that a deadline is more of a preference than an absolute necessity. There are a number of reasons for this, including the fact that once parties dive into a negotiation, they will often find themselves in a stalemate, and those who are deeply entrenched in their positions will do so because they have a strong preference which is usually more emotional than meritorious. Either way, a preference is not a necessity. Unfortunately, an imminent deadline very often causes people to act against their own interest for no good reason. In fact, in many instances where someone acts in a way that seems unwise, when the "psychological factors" are taken into account, their behavior makes perfect sense.
It’s also easy to get distracted by peripheral deals that have little or no bearing on the issue at hand. A sure fire way to make yourself miserable is to spend time and effort negotiating away from the central point.
If you can avoid these three pitfalls, will be closer to not just successfully completing a deal, but doing so in a way that benefits both sides.
Don’t Negotiate Without Your Toolkit
As you would expect, there are a myriad of negotiation tools and resources available to the willing lawyer, executive, human resource professional or anyone who has need to negotiate for a variety of reasons. Most of these require some investment to purchase or pay to attend and draw from the broadest of sources. Some are created by lawyers (among other professions or industries), some by human resource professionals or even trained psychologists. The nature of the deal or subject matter of the argument may also determine whether a legal, human resource (or other) professional is most valuable to assist the parties in the area of interest at hand. There are any number of free sources available on-line, whether articles or e-books. We have included some of those resources at Appendix 4. A few of the key tools and books that we have found particularly helpful are listed below in the drop down menu. Most important is to consider installing general negotiation software on your computer or, more appropriately yet, an application on your smartphone (or simply remember to keep your smartphone with you at all times), which will allow you to access the tool at any time during the negotiating process. Perhaps the most recognized book on negotiations (and one that has enjoyed a 30-year run and has sold over 2 million copies) is Getting to Yes, Negotiating Agreement Without Giving In, by Roger Fischer, William L. Ury and Bruce Patton, first published by Penguin Books in 1991, rather than the much-rumored-updated version of Getting to Yes . In it, the authors discuss the principal ways to negotiate and reach agreement with others while not necessarily giving in to their demands. The Bargaining Worksheet, Form IL-50 JF is a resource that sometimes becomes necessary in negotiations to fairly and impartially allocate the dollars of personal injury damages. Sometimes in negotiations, the parties fail to reach a resolution because of their inability to determine the other party’s willingness to pay. A Bargaining Worksheet is a useful tool to isolate, summarize, and assign values to various elements of a claim so that the parties can agree on those elements without necessarily pinning down the exact amount that the opposing party is willing to pay for those elements. Another needed tool is the Litigation Strategy Worksheet, Form IL-50 JG. This is a simple chart that assigns a numerical value to each element of a claim so that the general damages can be compared. It is based on each party’s jury prediction and each party’s assessment of the odds of winning the case, or their jury-selection, script, and civil-reward models, determining the dollar amount that should be assigned to each item of damages if litigation were to occur. Keeping this strategy worksheet on your computer would allow you to adjust your overall settlement value as the case evolves, just as quickly as you can access the information. You would be well served to read the other resources that we have suggested that can be found at Appendix 4.
Negotiation in Real-World Contexts
To illustrate the collaboration mindset in practice, let’s consider a couple of real-world case studies.
Case Study 1 – Resolving Disputes
In a negotiation between TELUS Corporation and Communications, Energy and Paperworkers Union of Canada, arbitrator Keith Marceau released a decision in October 2012 whereby he ordered an unfit employee to return to work and provided a very detailed analysis of how and why he had reached this decision. It is worth noting that in this decision, the arbitrator referred to the difficulty the employee had with managing their stress, the fact that the employee was undergoing counselling and that the employee had not gone to work for two years. The arbitrator also placed great emphasis on the evidence of several other employees who provided sound and affordable solutions to deal with the employee’s allegations. Similarly, the arbitrator also placed importance on the fact that TELUS had not responded to the majority of the union’s communications and only did so at the hearing. For the arbitrator, the self-proclaimed "disinterest" he had towards both the union’s and TELUS’s positions was somewhat shocking given that both represented a large portion of the Canadian economy. The arbitrator concluded:
"From my review of the evidence, I cannot conclude that any of the specific employability issues raised by and on behalf of TELUS are supported by the objective evidence. Further, those generally unreliable conclusions, did not change the fact that the grievor represents a complimentary and distinct body of knowledge and experience on the most senior or principal BTO positions. While I cannot say that the grievor is qualified to perform as a Principal Project Coordinator, there is sufficient well supported evidence to conclude that he could return to work in a productive capacity if he chose to do so."
What makes this case compelling from the perspective of the collaboration mindset is that TELUS and the union were able to work to each of their advantage in a third-party setting without compromising their respective interests because their attention focused on what they had in common: namely the issue of a project and the wide variety of solutions available to help each of them obtain a resolution.
Case Study 2 – Corporate Transformation
The transformation of Ontario’s electricity market from a regulated model to a competitive model was largely attributed to the Ontario Electricity Competition Plan, which more commonly came to be known as the Electricity Restructuring Act, 2004 (ER). To address concerns about the affordability and reliability of securing new investment in generation, the ER brought together independent power producers and generators for the first time. This legislation represented a new beginning for the industry and the partnerships that emerged are well known today. In a recent publication, The Hydro-Osiosy Company remarked that:
"The Ontario Market and Policy Culture is one of grabbing at opportunities and making them realities…. It is one of generating opportunities and then making them happen."
What is interesting to note about the electricity market transformation is that power generation companies were offered substantial incentives to invest, yet the focus was kept on the economic future of the province and what options were available that would facilitate investment for the long-term benefits of everybody involved. As noted by the Minister of Energy, "Given the critical importance of critical infrastructure, especially electricity, to Ontario’s economy, the transformation and how it is communicated, requires careful attention."
Thus, in these case studies, the parties involved were able to reach agreements without compromising because they pitched their efforts at addressing a common concern, not a specific motivation. Because the parties remained respectfully committed to resolving the issue at hand, they were able to make the seemingly impossible, possible.
Negotiation Tips and Techniques
With our society’s increasing focus on conflict and divisiveness, it’s important to remember that negotiation is a key life skill that we use in every aspect of our personal and professional relationships. Once you have an understanding of how to work toward positive outcomes in negotiations, you’ll be able to implement that strategy everywhere you go.
- Make Opening Offers Competitive. Research shows that if you make an offer in negotiations that is near the mid-point of where you hope to end up, you’re less likely to get the result you want than if you make a more extreme initial offer. Across the board, even in situations where other side has more experience or power than you on paper, they’re going to negotiate more competitively if faced with a lower initial offer from you than if you made a higher initial offer. Get used to making offers that the other side will perceive as being too high, and you’ll notice a difference over time in your ability to hold ground and secure results that are closer to where you wanted them to be in the first place.
- Remember the Fact-of-Life Dissatisfiers. The fact-of-life dissatisfiers are things that you can’t control, such as the law, inflation, money supply, industry trends, etc. These are overlooked at times, and can significantly impact your negotiations whether you observe and account for them or not, so that’s why it’s so important to pay close attention to them. Let’s say the stock market crashed soon after you negotiated the salary for a new position you were hired for, and the company wasn’t able to give you the raises or bonuses that they had intended as a result of the market condition. It is not a fair representation of your work, or your worth, to blame you, the individual, for the overall performance of the company on the whole. Put aside those extraneous factors as much as you can, and focus on what you’ve earned and on merits (or not) that can be more directly linked to you as an individual. If you’ve been successful, and you know that your results are being held against you due to factors outside of your control, push back and focus on what you can control, rather than worrying about what you can’t .
- Prepare to Give the Other Side What They Want, But on Your Terms. Often times, in order to get what you want, you have to be prepared to allow your competition or counterpart to get what they want, but on your terms. This is how you shape negotiation outcomes. You do the work to analyze what is important to you, and don’t leave so much value on the table that you fail to get what you set out for. Some people will walk away from the opportunity simply because the timing isn’t right. That’s okay. There will always be another opportunity. Additionally, especially in today’s market, you may find that another role, within the same organization, is a better fit for you. Look for that opportunity instead, and don’t be afraid to ask.
- Learn to Be Uncomfortable. Oftentimes, the parties involved in negotiations are all too comfortable with their respective positions, and don’t challenge themselves. As a result, their positions (that we know are often articulated just to draw the counter party out, and which, usually, are intentionally extreme) are not really tested. What does this mean? If you want an increase in pay, but are not willing to risk the potential loss of a job that comes with that (and don’t have any savings), then you probably aren’t really ready to accept the possible consequences of your desires. Similarly, if you want more perks, but are also unwilling to move without compensation package that’s comparable to what you’re currently receiving, then maybe your desires aren’t as intense as you think. Really dig into, and grapple with, the implications of what you’re negotiating for a day or two, and even write down your responses and thoughts if it helps to process all of the variables at play.
- Be Sure to Ask Questions. You’ve heard it before . . . listen (or read) twice as much as you speak, and you’ll go far. Questions allow you to dig deeper – to learn about the other side’s motivations – and they will also put your counterpart at ease so they aren’t feeling bullied by your position.