Facilitation, Conflict Management and Dispute Resolution
Joseph P. McMahon Jr.  

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Originally published in The Colorado Journal, November, 2000--Reprinted with Permission

The Settlement Negotiators’ Worst Enemy: Themselves

By: Joe McMahon

The Wall Street Journal (Sunday) recently ran a short and good article by Jonathan Clements called "Investors’ Worst Enemy: Themselves" (Sunday, September 24, 2000, WSJ, page 4). The theme of the article is obviously adaptable to many ventures other than investing – such as engaging in settlement negotiations.

In investment, Clements argues that you may need to forget about investment risk because you cannot control the market, but you can control yourself and you can "avoid foolish mistakes." How true also in negotiating settlements!

To parallel his ideas on "six ways we shoot ourselves in the foot," I suggest the following six errors that are so common in settlement negotiations – whether in mediation or elsewhere. So I propose that you spend less time wondering what the opposing party is likely to do, and work to avoid "shooting yourself in the foot" when negotiating settlements. In making these suggestions, I am presuming that the negotiator has done a thorough job of preparation, and the goal is to avoid errors.

Look forward, not backward. You and your client have engaged in settlement negotiations to see whether trial can be avoided, and a better future arrangement or resolution negotiated. The money you or your client has already spent on litigation is spent – it’s gone. Don’t say to yourself – "If I settle this now, what about the $100,000 I have spent preparing for trial." Those are sunk costs, and not relevant to the decision you now face – "go to trial or settle." Looking backward draws you to past. This may bring to mind "vivid" events that may unconsciously affect your ability to accept a favorable settlement. The goal of settlement negotiations is to look forward and avoid the stereotypes that may have arisen about your opponent. Of course, in looking forward, you must use good judgment – and only accept terms that are preferable to your trial outcome.

Don’t be overconfident in your own judgment. It is appropriate to be well prepared and fully ready to negotiate. But it is not appropriate to hang on to unrealistic concepts of how good your case is. I do not suggest that you must disclose your uncertainties to the opposing party. Yet, overconfidence should not cloud your decision-making. At times, overconfidence is buoyed up by some (often arbitrary) number that was an initial concept of settlement (e.g., "we must get at least $500,000 or we should go to trial") that is now stale and disconnected from the real facts of the case. Often, these initial and arbitrary ideas about settlement "anchor" our thinking --- and prevent us from accepting a rational settlement. Similarly, overconfidence in judgment can cause us to ignore the contrary evidence that undercuts the real value of our case.

Be careful of decision-making "shortcuts." When negotiations get complex and conflict increases, participant often resort to decision-making "shortcuts." Some times these short cuts have been developed over time and have served the parties well in other, and perhaps less important, situations. However, often in settlement negotiations, the decision-making shortcuts are used to avoid the conflict and complexity of the situation. For example, a party may have determined that certain tactics used in prior cases will be useful in all cases ("I never accept an offer without first threatening to walk out" or "I have always said that this case is worth $’X’"). Or a party may have decided that it has all the information is needs to make settlement decisions, thus simplifying the information gathering task but perhaps overlooking important, relevant and new information (e.g., "I knew from the beginning that these guys were out to take us to the cleaners"). These decision-making shortcuts may save time and reduce conflict, but may also result in poor settlements or the loss of settlement opportunities. To avoid the shortcuts, ask yourselves whether you have really gathered all needed information and have you thought about this settlement from a fresh perspective.

Don’t engage in "counter games." Game playing and settlement often seem inseparable. Some parties (or their legal counsel) cannot negotiate without some form of game (e.g., "hide the ball" - we know it and you don’t; "fox and hounds" – diversionary paths; "score keeping" -- I have never lost a case of this type; "equity seeking" -- we don’t settle with those types; "bravado" – "I’m not afraid to take this case to trial"). The tremendous problem in settlement negotiations is that once one party makes a game-playing move, another party also decides to play that or another game. No rationale settlement will likely result from game playing, so the question seems to be whether to accept irrational settlements or to reduce game-playing. The worst response to game playing is to enter the game and escalate. The best responses to game playing are to (a) resist the temptation to engage and (b) ignore it or call it for what it is.

Keep a broad viewpoint. A settlement negotiation should avoid getting forced (or moving herself/himself) into a narrow focus. When you are negotiating settlement, you best approach is to ensure that you are evaluating you option from the perspective of "what is best for my interests?" Several emotions may move you to an excessively narrow viewpoint: such as merely looking at "win-loss" on this specific dispute. Your goal in negotiating settlement is to promote the client goals; not to merely "win" this dispute. When a problem is over-isolated, better and creative solutions may be overlooked. Additionally, a negotiator’s desire to move to decision too quickly may cause better resolutions to be missed. Yes, we must resolve this specific dispute; but not in a way that is inconsistent with the client’s overall goals.

Don’t forget that you already are at risk. Some negotiators view any settlement as a step toward the unknown and an increase in risk and uncertainty. Often, negotiators fail to remember that they are already in a dispute and already "at risk." The evaluation we make in settlement negotiations is the comparison of the risk and benefits of settlement as compared with the risks and benefits of litigation. Settlement is not a move from safety to risk; at its best it is a move from uncertainty to a better-valued certainty. When negotiating, we are already at risk.

Perhaps the foregoing six points may let you avoid the greatest danger in settlement negotiations: yourself!

Joe McMahon may be contacted at  mail@jpmcmahon.com.