In Monty Python's Life of Brian, a market vendor instructs Brian, the buyer, on how to haggle. The vendor won't sell him an artificial beard without engaging in the ritualised formalities of bartering, even though Brian is desperate to escape the approaching Roman legion. Away from the world of cinema, it remains the case that market traders instinctively seek an offer from prospective buyers to gauge their depth of pocket or even their naivety.
The dynamics of cordial negotiation have intrigued business for centuries. Even in the more refined surroundings of a modern day mediation room, negotiating parties will often try to resist making the opening offer. Nevertheless, there is growing evidence that going first is the more effective strategy.
Yet the natural tendency is to stand firm and wait for the counterparty to make an initial proposal; to make the other side show their hand. Parties to a dispute may feel vulnerable about revealing their position first, or simply feel that it is an act of weakness to make the first offer. Waiting to respond to a figure gives them a reference point for making a robust counter offer.
But what happens if the other side takes the initiative and tables the first offer? Provided that that offer is in a credible range, experts say that by waiting to go second, parties risk being influenced by that initial ‘anchoring’ offer, if only subliminally.
Adam Galinsky, Professor of Business at the Columbia Business School at Columbia University, says in an article for Harvard Business School that an opening offer can have a profound influence on the direction of a negotiation: ‘Research into human judgment has found that how we perceive a particular offer's value is highly influenced by any relevant number that enters the negotiation environment.’ He goes on to say: ‘In situations of great ambiguity and uncertainty, first offers have a strong anchoring effect—they exert a strong pull throughout the rest of the negotiation. Even when people know that a particular anchor should not influence their judgments, they are often incapable of resisting its influence.’
Nevertheless, the negotiation rituals prevalent in mediation tend to follow the pattern established in litigation, whereby the claimants make a demand to which the defendants respond. This tendency, however, almost invariably shifts parties back to the likely polarised positions maintained in litigation. The reason being that if the claimant was to make an opening offer different to their previous formal demand, they would, in effect, be bidding against themselves.
There again, somebody has to go first, and more experienced parties to mediation increasingly see advantages in doing so. Bill Wood QC, of JAMS International, and one of the UK’s leading mediators, says making the first move gives parties the opportunity to ‘claim the moral high ground’. It gives them a chance to set the agenda, to set the tone, and to anchor the negotiation. It sends the counterparty a message that you are willing to compromise, assuming that the offer is reasonable and convivial.
As to the level of the offer, Charles Flint QC, also of JAMS International, suggests that the opening offer should not be ‘transparently ridiculous’, but Wood indicates that even a classic lowball offer can be effective if it is delivered with a show of ‘intent to negotiate’.
In his experience, there is too much attention paid to who goes first or second and that mediators can do more to nurse the opening part of the process, so that neither side feels alienated. Often, the preservation of a commercial relationship can be prioritised over hardball battle over monetary compensation.
In this instance, an ‘objectively justifiable’ opening offer can be enormously effective. The negotiation is anchored and the other side is often influenced by that opening figure, whether they consciously recognise it or not. Jane Player, a partner at King & Spalding, who acts as mediator and as mediation counsel, says that mediating parties are becoming ‘more and more sophisticated’ and increasingly are ‘recognising the benefits of going first’.
She suggests that it is now rare for mediations to persist into the early hours of the morning, because parties are more ‘honest and realistic’ at the outset. Mediation, she believes, is becoming cooperative, rather than a mere extension of courtroom skirmishes. She explains: ‘All I can say is that people are much better prepared and in control, and by making early moves they see the success of it and then are prepared to use that strategy again.’
This post was written by Chris Crowe who is a freelance journalist. He can be contacted at firstname.lastname@example.org