What's Fair?

Published: Dec 02 , 2016
Author: Alan Smith

 

Two questions:

When negotiating, do you want the other side to act reasonably?

And,

Is it a good strategy to be reasonable when negotiating?

Most people will say yes to the first question. It would be crazy not to.

The second, however, creates a bit more of a dilemma. We are sometimes tempted to go high or low, pad and exaggerate what we really anticipate being able to achieve. Because that is what we should do, right?

The problem with going extremely high or low, being unreasonable, is that it encourages the other side to do exactly the same. You start high, they go low, the dance begins, the handbags are placed on the dancefloor, before you eventually converge on a deal that is ‘reasonable’. In the meantime, you have both spent a lot of time, energy and money, and potentially done a lot of harm to what could have been a harmonious relationship.

Would it be to everyone’s advantage to come to the table with a realistic starting position? Not soft, certainly challenging and ambitious, but with a foothold in reality, one that certainly can be explained and the basis understood.

An interesting proposition, indeed, and one that recently inspired a Final-Offer negotiation challenge by AIG. AIG are an insurance giant. Like many insurance firms they spend billions of pounds involving thousands of cases and often end up in court battles dealing with inefficient settlements. Expensive, right?

Also, like many insurance companies they build their reputation on trust and fairness. That is why people use them in the first instance. They certainly do not want to overpay on claims - commercial suicide - but they do need their customers to recognise that they want to do the right thing.

AIG created a final-offer arbitration mechanism to try to speed up dealing with claims. Essentially, parties on either side of the claim would make an offer and present them to an arbitrator who would then decide which offer was most fair. That would be the legally binding offer going forward. No splitting the difference or further negotiation.

AIG took the view that if they made an offer that was reasonable and the other side didn’t, theirs would be the one that carried the day. They also opined that this would be seen as fair to their important customers and that it would encourage them to come to the table with a reasonable offer in return. Fairness was actually built into the system.

Apparently the system has shown some degree of success.

The challenge for such a methodology in the commercial world is, of course, who decides what is fair? What margin should your bid be allowed to have built in? How many migrants should be allowed across your borders to protect free trade? What time should you be able to come home, if you tidy your room?

Fairness may just be in the eye of the beholder.

Alan Smith

 


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