Negotiation – Give Reasons Before Numbers, or Let Someone Else Do It For You (aka Mediation)
A basic principle in negotiation theory, if not the opening refrain, is “give your reasons before your numbers.” This is probably second only to, “Don’t start with your bottom line.” This article will use a car accident case between a 20-something girl who was rear-ended and the defendant’s insurance company. What was most interesting about this case after it was resolved was that there was a history of negotiation between the lawyers for each side. In each parties’ mediation brief, they described the bargaining history. It went as follows:
• Plaintiff demand for 15,000.
• Defendant refusal to make offer on such a ridiculous number.
• Plaintiff lowered to 12,000.
• Defendant offered 7,500.
• Plaintiff refused to respond.
• Mediation commenced.
On reading this history, it seemed almost absurd that the case had not settled itself. After all, the parties were only $4,500 apart, which was 37.5% of the demand. This seemed an easy gap to close, especially based on the large moves made by each side up to that point. (This raises the issue of “signaling” which will be discussed in a later article.) As might be expected based on this history, early on I could tell each party would probably be willing to go to about $10,000 to settle this case. As long as they got close to that number, I felt confident either party would probably be willing to adjust by about $500 in order to avoid trial.
After two hours of mediation, the parties did agree on $10,000. As I drove home, I wondered why they hadn’t reached this result on their own. Thinking about it now it seems it was mostly because the parties were passing numbers, but not fully discussing the reasons for those numbers. A second contributing factor was probably that the plaintiff’s lawyers did not understand the dance. Each of these reasons is discussed briefly below.
As in most mediations, this one began with a thorough vetting of each side’s story in private caucus. After hearing the plaintiff’s and defendant’s cases, all this case required was “fed-ex” mediating—I simply carried numbers back and forth. However, before I delivered any number to any party, I thoroughly explained the other side’s position, their reason for that number, and where we were in the dance. While there had been some negotiations before the mediation, it was clear to me as I discussed the case with each side, that neither side had fully explained its position to the other.
In addition to explaining the reason for the number, and also before giving the number, I clarified for the party where we were in the negotiation process (i.e. the beginning where there is room for big numbers and high demands, the middle where each party must show a genuine intent to settle by indicating they will pay or accept a “reasonable” amount, or the end when it is time to make small concessions to close the deal).
The defense seemed to understand the dance very well, and seemed to understand it was a process and they were comfortable with the process and where we were in the process. The plaintiff lawyer on the other hand repeatedly said, “Well I guess we’ll be going to trial…” after I delivered a number. Though he may have been bluffing, it seemed very likely that if I said, “Yep, I guess we’re done” he would have packed up and left. This is interesting because he kept doing this even though he was not at his bottom line yet—he made this statement even when the positions of the parties were $10,500 and $9,000, a mere $1,500 apart.
Why was he doing this? He was failing to see where in the dance we were. (He was also assuming his fears to be the other side’s bottom line, which is another topic for another day). To coach him on where we were in the process, I simply asked him questions. It went like this: “Why are we done?” “Because they are too low.” “Well, are they done?” “It sure looks like it.” “How do you know? Isn’t it possible if you counter, they will move again?” “Well, they could, but I don’t think they will.” “I understand. Let’s give it a shot and see what they do.” And so it went, little by little.
In the end, this case essentially resolved itself. All it took was two very basic negotiation principles to be constantly applied, and the parties to be led through the negotiation dance. Because one party apparently did not understand that process, the negotiations had failed up to the point of the mediation. By incorporating a neutral third party to conduct the process, the parties were able to keep with the process to the resolution.