Tuesday, December 9, 2008

Negotiation Capital

In these tough economic times let’s talk about “capital” – not true dollars, but the currency and capital you use in mediation. Think in terms of “negotiation capital.” I’ve coined this phrase to refer not specifically to the dollars that are exchanged in negotiation, but rather how easy or difficult are the steps in the negotiation. Are folks moving in very small steps early on or large steps? Is it taking a very long time between proposals such that one party is becoming impatient with the process? Has the negotiation taken so long that folks are running out of energy to do the really tough work at the end when a gap in the numbers remains? My sense is that for all of these instances, if it takes a long time for the negotiation to get to the end, then once at the end, there is little “capital” left to bridge whatever gap remains.

I routinely explain to folks at mediation of an injury claim (and most litigated claims) that there are two negotiations. The first, from the defendant (institutional) perspective is based on authority given, reserves set, and market value. From the claimant (individual), it is based on their goal for the negotiation, what they want, what their attorney tells them would be an appropriate settlement. When the respective parties get to these points, there usually remains a difference. I call it the “gap.” As you might imagine, if it only takes 4 steps to get to the gap as opposed to 10, then the participants will have more energy and generally more willingness to keep going and figure out how to bridge the gap.

I encourage folks on both sides to move in larger steps early so that the “pressure” to take a step that will be seen as significant is on the opposing side. Generally, the more one side moves, then the more likely they will also get a significant move from the other side. Of course, rarely do folks match moves; however, the main issue is whether the move is perceived as “good” by the receiving side. When I walk in to a caucus, present a proposal and folks say “that was a good step” then they generally try to do the same.

The point is that if you can get to the gap without spending all your negotiation capital, then you will be ready for the hard work ahead. You’ll be ready for the second negotiation, ready to bridge the gap and get the case settled.

In your next negotiation, consider moving in larger steps early and try to put yourself in the other sides shoes – How will they perceive your move? Remember, you can always slow down later if you want/have/need too. Save your negotiation capital for the second negotiation!

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