Litigation
Jul. 30, 2002
Having a Numbers Plan Helps in Mediation Talks
Column by Bill McDonald - It is time for you to file your mediation brief. Assume there have been no negotiations on financial matters or exchange of settlement figures. Who makes the first proposal? Should you?
It is time for you to file your mediation brief. Assume there have been no negotiations on financial matters or exchange of settlement figures. Who makes the first proposal? Should you?
Do you intend to start at a reasonable level? If so, your ability to make concessions will be limited. What are the expectations of the other side?
Do you intend to make a more aggressive initial demand? If so, you will have more room to make concessions.
If you put the first number out, what is your plan in this case for realizing the settlement you want?
Never say never, and never say always. The circumstances of each case, including the person negotiating for the other side, should dictate what tactics you use.
Who puts out the first number?
Normally, the plaintiff is expected to open settlement negotiations. However, this is not an ironclad rule.
Some writers suggest that, if the plaintiff holds back, sooner or later the defense will beg for a demand and often will resort to making an offer because the defense needs to justify its expenditures on each case, and a demand is what is used to do that.
Query: Your case has a $500,000 value. You delay and get the defense to offer you $25,000 to settle. Have you gained anything? If its initial offer is too extreme, do you have any incentive to bargain? The same question applies to it if your opening demand is too extreme.
Sooner or later, someone will have to be the first to declare, and sooner or later, in the great majority of cases, someone will make a reasonable proposal.
The number you propose at each stage should be justifiable according to your planned scenario. If you are confident in your ability to evaluate the range of your case - whether from published jury verdicts summaries or verdicts and settlements personally obtained by you in similar matters - you should consider in each case the psychological benefits of making a first offer.
Benefits from making the first demand
Keep in mind that research by professor Howard Raifa of Harvard indicates that the first number proposed that is not absurdly high, from a defendant's standpoint, or absurdly low, from a plaintiff's standpoint, will set the zone of bargaining: The final number usually falls midway between the two extremes.
Many negotiators in mediation believe it is important not to make big moves early in a high-stakes negotiation.
Why? The theory, labeled "concession devaluation," is that large moves early in negotiations confuse the other side. If they are traditional negotiators, the message that they hear from big moves is that you are anxious to settle the case.
Further, they believe the issues or money conceded must not have been that important to you because they did not have to fight very hard to win the concession.
What we obtain too easily we do not value very highly. This is a principal reason to consider making your initial demand within reason and not make a large demand in the stratosphere followed by significant early reductions.
A plaintiff's first number should be at the higher range of the zone, and the defendant's first number should be at the lower range.
Many believe that you gain an advantage by establishing a reasonable range at the outset because of a principle known as "anchor and adjustment."
Putting forth a high number within the zone of acceptance in the initial demand sets the anchor from which the other side unconsciously starts to deal. Beware of an opening number totally outside the zone of acceptance, one that cannot be objectively justified, generally will not get an "anchor and adjustment" reaction from the other side and often will be counterproductive.
Charting your concession
Each party at a mediation wants to believe not only that he or she settled but also that he or she got a deal, in fact a "good deal." To secure a "good deal," both sides need to negotiate.
If you do not build in room for your opponent to negotiate and feel good about the deal, success may be more elusive. Another fear is that, if you negotiate too fast or too far, you will fail to get any surplus value available.
In negotiations involving money, haggling over the amount is the rule, not the exception. It is a competitive situation. The parties, the adjusters and the lawyers involved are competitive. You should look down the road, consider what your later demands will be, and plan step-by-step concessions.
Some negotiators want to open at the lowest justifiable number, hold for some significant period, all the while indicating a willingness to bargain, and then make a series of progressively smaller concessions as they close in on their target amount.
Many traditional negotiators mentally track and map the negotiation exchanges in an attempt to determine the opponent's tactic.
In response, they carefully and purposely make smaller concessions, thereby hoping to send a signal that they are getting close to the point when they are going to say no. Remember, this is simply a tactic.
Assume one round of negotiations has taken place, and the defense has offered a relative low number. You, in response, propose a high settlement number; however, your number is supportable by reasonable evaluation standards.
A dynamic known as the "norm of reciprocity" can come into play. If you and I are bargaining in good faith and you make a concession to me, I feel compelled psychologically to respond accordingly and make a concession to you. So, after your demand is countered and you further counter with a more reasonable demand, I am induced to say "yes" - or at least feel a need to make a more reasonable response.
Brian McDonald is a full-time mediator in San Francisco. He is affiliated statewide with ADR Services.
Next week, in Part 2, McDonald discusses strategies for the middle and endgame of mediation negotiation.
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