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LEFT BRAIN APPEALS
The Negotiation “Coach” (cont'd)
Assisting the parties in setting the amount of their opening positions
After one has established one’s preliminary settlement goal, the next step is to tentatively set the amount of one’s opening position. This is one of the most important steps in the negotiation process, and it is as much art as science. The mediator’s role is to make sure that the parties do not make any missteps that operate to derail the negotiation at this early stage of the process.
In establishing one’s opening position, one should keep in mind the two conflicting principles of distributive bargaining: “give ‘em hope” and “hold back territory.”
If one does not “give ‘em hope” that settlement is achievable, one may cause the opposing party and its counsel to simply pack up and leave. This principle would seem to suggest that one should almost immediately cut to one’s bottom line goal to give the other side the maximum “hope” that settlement may be achieved.
This would be true but for the conflicting principle that at every step of the negotiation, up to the end of the process, one must “hold back territory” so as to be able to make additional concessions and still get to the range of one’s goal.
Deciding how much “territory” to hold back
This is usually a much more difficult question for the plaintiff to decide than for the defendant.
Where a case involves damage elements that are subjective in character (e.g., emotional distress damages), a plaintiff will usually make an opening demand that permits him/her to fall a multiple of the dollars coming down in relation to the number of dollars that the defendant comes up.
This is primarily a result of the fact that the plaintiff is free to place his/her opening number at virtually any level, while the defendant has trouble making an offer of less than zero and must back up any offer it chooses to make with dollars.
Sometimes, a plaintiffs’ attorney takes the “hold back territory” principle too much to heart, and makes an opening demand that is not only 5 or 6 times greater than his/her goal, but more than his/her “best possible day in court.”
A plaintiffs’ attorney who makes such an opening demand loses credibility because it suggests that he/she does not know the value of his/her case, lacks an understanding of the negotiation process, or both. More importantly, such an attorney loses “face” when he/she is compelled to drop his/her client’s demands by 5 or 6 dollars for every dollar the defendant puts on the table to get into a range where the case can settle. The necessity of making such drops frequently results in a lower settlement than if the plaintiff had begun the process with a more reasonable opening demand.
Other plaintiffs’ attorneys give little deference to the “hold back territory” principle, and operate pursuant to a “buck for a buck” negotiation strategy.
Under this strategy, one typically sets one’s opening demand at precisely twice the amount one is willing to accept in settlement, and then gives up a single dollar for every dollar the defendant offers.
This strategy frequently fails because it violates the conventions of the negotiation process.
The adjustment of the expectations of one’s adversary is part of the negotiation process. In making an opening demand so close to one’s settlement goal, one sends a signal that one is willing to come below that goal by the end of the day.
When one refuses to come below that goal, the negotiation often ends, not because the goal was unreasonable or unachievable, but because one negotiated poorly.
The best approach for a plaintiffs’ attorney is to set an opening demand that: (a) permits him/her to drop from 1 ½ to 3 dollars coming down to his/her goal for every dollar the defendant puts on-the-table; but (b) is below a “high recovery” for the case at trial.
From the defense attorney’s perspective, the issue of where to place the defendant’s opening offer turns in large measure on how reasonable he/she regards the plaintiff’s opening offer.
The more reasonable the plaintiff’s opening offer, the more the principle of “give ‘em hope” should come into play.
The defendant should not send a false signal, however, as to how high it may be willing to go in the negotiation.
A generous initial offer, followed by penurious subsequent moves, usually leads to a failed negotiation.
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