If you could pick the perfect negotiating situation, what would you pick? If you are like most of us, you’d probably pick a relaxed room with conformable chairs, good lighting, and no time pressures in which to apply your negotiation styles and negotiating techniques. However, as we all know, all too often we find ourselves in the opposite of this situation – uncomfortable chairs and under lots of pressure. Negotiating is all about making the right decisions at the right time. When we are under pressure, this starts to become very hard to do. What do negotiators need to know about pressure and how it impacts their decision making process?
The Problem With Making Decisions Under Pressure
As a negotiator, you understand that nobody likes to make a decision under pressure. There are some classic examples of decisions that were made under pressure during a negotiation that didn’t turn out the way that the negotiator thought that they would. A good example of this is all the way back in 2009 when Chrysler was on the brink of collapse. Understanding how bad this would be, the Treasury Department stepped in to negotiate a deal. In exchange for about $12 billion in federal loans, Chrysler entered bankruptcy and allowed its ownership to be divided up.
In a hasty negotiation, Italian automaker Fiat was given 20% ownership and a stake in Chrysler’s board and management in exchange for contributing small cars, engines, and technology to the U.S. automaker. Fiat also negotiated an option to eventually acquire the U.S. and Canadian governments’ stakes and up to 40% of the healthcare trust’s stake in Chrysler. Overall, the deal was believed to offer Chrysler a slim hope of recovery, and Fiat was portrayed as a white knight. Fast-forward a few years, and the two companies’ fortunes had reversed: Chrysler was now turning a profit, and Fiat was struggling in the midst of the European financial crisis. In 2012, Fiat exercised an option to buy 3.3% of Chrysler from VEBA. Based on its $10 billion valuation of Chrysler, which included the $4.59 billion note that Chrysler granted VEBA when the original bailout deal was struck, Fiat calculated this option to be worth $342 million. But VEBA argued that Chrysler’s value should be calculated without counting the note. As a result, the two sides were about $202 million apart on price. They took their dispute to court.
The dispute can be chalked up to “a big hole in the language” specifying how the Chrysler option price should be determined. The failure of Treasury Department lawyers to address in the original 2009 bailout deal how the value of Chrysler should be determined can be considered a $4.5 billion drafting error. When a disaster looms, we know that negotiators typically feel pressured to wrap up a deal as quickly as possible. So how can we deal with the challenge of pressure during a negotiation?
Take Time To Think Multiple Steps Ahead
During a negotiation it’s common for negotiators to be so focused on signing a deal that they overlook the long-term challenges of implementation. This pitfall is all the more dangerous in when we are involved in a crisis negotiations, where parties often feel desperate to reach a deal at any cost, and quickly. This type of short-term thinking can often prevent us from considering the various eventualities that could unfold down the line. Diagramming potential outcomes with a decision tree is one of the best ways to bring long-range outcomes into focus. Negotiators can encourage farsighted thinking in others by (1) having other negotiators articulate how their proposed contracts advance the organization’s long-term interests and (2) linking financial bonuses to progress during the early years of deal implementation (rather than offering rewards for closing). Note that if we add an “if, then” contingencies to a deal, then both parties can agree to disagree by building incentives and penalties into the contract based on their differing predictions.
Find Ways To Take A Slower Pace
So how fast do you normally negotiate? I’m willing to be that in the midst of a crisis, you may feel you have a duty to work at lightning speed in an effort to contain the situation. However, even as you approach the problem with intensity and a sense of urgency, there is value in remembering to work methodically. A good example of why this is important to do comes in the form of a hostage standoff. Consider that the perpetrators in these situations tend to be people who have “snapped” because of a personal crisis and have probably taken hostages on impulse. They are likely to be in a volatile emotional state when the crisis begins, but their rage generally tends to subside as time passes. Consequently, in cases like this you would have to view time as your most valuable tool. This means that you would want to try to stall for as long as you can. In a case like this, once you were freed from deadlines, you could try to gradually earn the hostage taker’s trust and encourage him to surrender.
Always Monitor The Deal-Drafting Process
After we’ve engaged in a complex negotiation process, we are often happy to pass off the technicalities of deal drafting to our attorneys. Unfortunately, this handoff can be prone to errors. Vague, contradictory, and missing deal terms are not uncommon in deals that we’ve created, and they can lead to serious problems during the implementation stage. Such mistakes and oversights often arise when rushed or inexperienced lawyers start working on the current contact from a prior contract from their files and fail to make sufficient changes to boilerplate language. In addition, negotiators often fail to adequately communicate the motivations and intentions of the current deal to their lawyers, and this results in misunderstandings. Even worse is the fact that these errors are all the more common when negotiators and their attorneys are under pressure to wrap up a deal quickly.
Fortunately, there are at least three ways to avoid such mistakes when you negotiate. First, make sure to communicate the motivations behind your deal to your legal team. This step can keep your lawyers from having to guess your intentions and thus could save you time and money in the long run. Next, resist the common tendency to merely glance over deal documents and file them away. Instead, take the time to read them through carefully. This includes drafts and memos in order to determine whether they accurately reflect the negotiated terms as you understand them. Finally, set up a time for your lawyers to read the deal back to you in plain English, free of any legal jargon. You’ll want to ask questions about any potential ambiguities, and “stress test” hypothetical scenarios that could arise.
What All Of This Means For You
I want a deal and I want it now! Negotiating is never an easy job and when we find ourselves in situations where we are under pressure, it can be even more difficult to do. I think that we all understand that there is a risk in trying to negotiate a deal when we are under pressure. We can easily make mistakes and we can agree to things that we really don’t agree with. What is the best way for a negotiator to deal with pressure during a negotiation?
There have been a number of classic cases of bad decisions that were negotiated under pressure. The federal bail-out of Chrysler Corporation is one such deal. If we want to deal with the pressure that comes with a principled negotiation, the first thing that we need to do is to find a way to take things slower. A good example of negotiators who know how to do this are police hostage negotiators. Next we need to make sure that we monitor the deal drafting process. This is important because the lawyers involved in drafting the deal may be inexperienced or not know what you wanted to get out of the deal.
There is nothing that we can do about pressure when we are negotiating. It’s part of the package. However, we need to keep in mind that we are operating under pressure. Because of this there is a very good chance that we might end up making poor decisions. If we know this, then we can take steps to alleviate the effects of the pressure that we are facing. By doing this, we can make good negotiating decisions even when we’re operating under pressure.
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™
Question For You: Do you think that taking breaks during a negotiation could help lower the amount of pressure that you are feeling?
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What We’ll Be Talking About Next Time
I think that most mediators view mediation as a type of failure. I mean, we were unable to negotiate a deal with the other side and now it’s come this – we have to bring in a mediator. However, perhaps a better way to view mediation is simply as being yet another step in the negotiation process. If we can view this way, then perhaps we can understand that not all mediations are the same. In fact, mediation comes in a number of different flavors. What this means for us as negotiators is that we need to be aware of what types of mediation are available and know which one to choose in a given situation.