How to Deal When the Going Gets Tough

Adapted from “How to Deal When the Going Gets Tough,” first published in the March 2009 issue of Negotiation.

- As 2008 drew to a close, a struggling retailer determined that it could not afford to pay the year-end bonuses that employees had come to expect. In an era when bonuses and other rewards are no longer feasible, organizations big and small are facing the question of how to keep their top achievers satisfied.

- In late 2006, a consortium of banks agreed to finance the private-equity buyout of Clear Channel Communications. Before the deal closed in 2008, however, the global credit crisis descended, and the banks insisted on renegotiated terms. The private-equity firms sued them for reneging on their commitments.

- In mid-2008, Jackie, an information technology consultant, performed services for a marketing firm. She submitted her bill for $8,000 to the company and waited for payment. After stalling for several months, the firm cut Jackie a check for $2,000 and explained that this was all it could afford to pay because of its high number of delinquent clients.

Most business negotiators understand that by working collaboratively with their counterparts while also advocating strongly on their own behalf, they can build agreements and longterm
relationships that benefit both sides.

During times of economic hardship, however, many negotiators abandon their commitment to cooperation and mutual gains.

Instead, they fall back on competitive tactics, threatening the other side with “take it or leave it” offers and refusing to accept concessions of any kind.

Not surprisingly, this approach often ends in stalemate or in court, and partnerships are broken in the process.

In the past, we offered several suggestions for dealing with the renegotiations that an economic downturn can inspire.

By putting new negotiators in charge of an old problem, for example, organizations can stem the urge to throw good money after bad.

Here we offer three more tips aimed specifically at helping you avoid the animosity, mistrust, and broken contracts that difficult economic conditions tend to foster.

1. Deliver minor concessions.

A simple way to get tricky negotiations off on the right foot is to offer one or more low-cost concessions to your counterpart—“gifts” that are relatively easy for you to give and that she will find valuable.

When you allow the other side to achieve small gains in the opening stages of your negotiation, you help establish a foundation of trust and cooperation, according to Catherine H. Tinsley of Georgetown University and Kathleen O’Connor of Cornell University.

Suppose that you must tell a high achiever in your organization that you won’t be able to award his usual bonus this year.

How can you keep the bad news from reducing the employee’s commitment to the organization?

Explain that the lack of bonus reflects the new economic reality rather than a loss of faith in your employee.

Then discuss other, less-expensive means of showing your gratitude, such as the possibility of a more flexible work arrangement or a long-term plan for career growth. By doing so, you demonstrate that you value your employee’s contributions and lessen the likelihood that he will disengage from his job.

Another note on concessions: If you end up making significant ones, be sure to label them clearly.

“This is going to cost us a lot, but I’m willing to accept it to preserve our relationship,” you might say when absorbing a financial burden. When you label your concessions, you inspire the
other side to feel a greater obligation to reciprocate them.

2. Take advantage of time.

It’s a scene you’ve doubtless watched in many movies. An auction begins for a prized piece of jewelry or a painting.

The field quickly narrows, and two participants get into a bidding war for the
coveted object.

As the clock counts down, the atmosphere becomes more heated and the bids more extreme. The auctioneer awards the prize to the happy winner, and the loser is dejected.

In real life, however, the winners of auctions often end up feeling like losers when they realize that, in the heat of the moment, they paid much more than they intended for the prize. Negotiators often make similarly poor decisions when they’re facing intense time pressure.

The lesson: Give your counterpart ample time to make important decisions. The passage of time also has the advantage of calming tempers.

That’s what happened in the battle among the three parties involved in the leveraged buyout of Clear Channel Communications, outlined at the beginning of this article. After Clear Channel and the two private-equity firms serving as buyers sued the lenders to get them to follow through on precrisis deal terms, the parties “were hating each other so intensely” they couldn’t meet in person, one insider told the Wall Street Journal. But with the passage of time, the negotiators were able to see the dire consequences of “no deal” more clearly.

As cooler heads prevailed, the parties were able to agree to new concessions and reach a revised purchase agreement.

3. Manage audience effects.

Negotiators also tend to feel pressured when they’re performing in front of an audience, Harvard Business School’s Deepak Malhotra has written in Negotiation Briefings.

If your boss is watching your every move, if you are bargaining as part of a team, or if your negotiations are being reported in the media, you may feel added pressure to “beat” the other side—and rely exclusively on hardball tactics as a result. The negative impact of an audience is likely to be especially strong if your organization is struggling to stay afloat or if you’re facing other extreme consequences of a failed deal.

The most obvious way to override the detrimental effect of an audience is to negotiate one-on-one rather than with your entire team present.

Without disbanding the team, you could suggest that everyone might benefit from breaking down phases of your talks into pairs of negotiators.

If you must negotiate as a group, communicate that you plan to work toward creating new value in addition to claiming value for your side. You might also seek feedback from your team on your negotiation performance. In addition to gaining advice on how to do better, you may be pleasantly surprised to learn that you’re doing better than you thought.

Finally, there are times when you can use the presence of an audience, even just one individual, to your advantage in negotiation. Let’s return to the case of the IT consultant who was having trouble getting paid the full amount she was owed by the marketing firm.

Aware that Doug, an acquaintance of hers, was scheduled to do consulting work for the same company, Jackie sent an e-mail warning Doug that the firm seemed to be having trouble paying its bills.

Doug informed the firm that he knew about Jackie’s problem and was concerned that he would not be paid for the work he was about to perform. Within a week, Jackie received a check for the balance owed to her. The prospect of a damaged reputation clearly motivated the company to settle its debts.

Related Article: Do Noncompete Agreements Stand in the Way of Win-Win Deals?

When you download the New Conflict Management: Effective Conflict Resolution Strategies to Avoid Litigation you will learn how wise negotiators extract unexpected value using an indirect approach to conflict management.

Source: Harvard Law School: Program on Negotiation