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The Mediators Speak: Extreme Opening Demands and Offers

Jeff Kichaven and Rachel K Ehrlich

Summary

  • Don’t be afraid of extreme opening demands and offers.
  • When the parties are motivated, we can figure out a way to generate momentum, and these cases settle.
  • Responding to an extreme opening with a credible offer is powerful because it takes control of the negotiation.
The Mediators Speak: Extreme Opening Demands and Offers
DaveAlan via Getty Images

Jeff Kichaven

“Good news,” the plaintiffs’ lawyers say to the mediator across the table, smiling almost too widely as they sit next to their clients in an early caucus on the mediation day. “We know that in the etiquette of bargaining, we generally go first. We set the tone. So, we have a demand we’d like you to convey to the defense.  It’s lower than we planned. It’s… (wait for it)…one gazillion dollars.”

Lower than they had planned? Perhaps, but ridiculous nonetheless. Should we fear that it sets the wrong tone for the negotiation to follow? No.

The mediator knows exactly what’s going on. Plaintiffs’ lawyers are trying to protect themselves from unfair client criticism at day’s end. If the case is to settle, it will settle for what it’s objectively worth, generally speaking. The plaintiffs have rose-colored glasses, though. They hope a ridiculously high opening demand will materially tilt the result their way. If the lawyers don’t let their clients have their way, and the case later settles for what it’s objectively worth, the clients could gripe, unjustifiedly, that they would have done better had they started at their preferred gazillion-dollar number rather than the more sensible number their lawyers would have preferred.

So the mediator responds, “Let me ask, how do you think the defense will react?”

The lawyers sit quietly as their clients’ faces go doe-in-the-headlights.

“If I might share my thinking,” the mediator says to break the awkward silence, “it will be a challenge to keep the defense from walking out. I think they’ll view your demand as extreme. While I think I can get them to stay, I think they will respond with a rock-bottom offer, something like $1.98. Are you ok with that?”

After another silence and a side huddle, the plaintiffs and their lawyers mutter they are indeed ok with that. The mediator then trundles down the hall and returns 20 minutes later with an offer of—you guessed it—$1.98.

Does this blow up the mediation? No. With the help of a skilled mediator, there are many ways to breathe life into the negotiation and generate progress toward a deal. It’s plaintiffs’ turn to go next; what might they do?

  1. Having gotten the extreme number off their chests, they could simply lower their demand to what it should have been in the first place: high, but not ridiculously high.
  2. They could lower their demand to what it should have been in the first place, and attach a message that they expect the defense to reciprocate. Or a message that they have more room to come down, but won’t come down materially unless and until the defense offers X—which is, at least in the plaintiffs’ view, what the defense should have offered in the first place.
  3. They or the mediator could propose a set of brackets (simultaneous moves down by the plaintiffs and up by the defense), which would protect plaintiffs from committing to a decrease until and unless they know their move will be matched by a reciprocal defense increase.

In any of these scenarios, more generous responses from the defense are likely. That’s the tone you want. There are many other ways to move beyond the gazillion-dollar opening demand and the $1.98 opening offer as well. When the parties are motivated, we can figure out a way to generate momentum, and these cases settle. We’ve all been there. That’s why we’re not afraid of extreme opening demands and offers.

 

Rachel Ehrlich:

“They’re in the stratosphere.” “We’re not in the same ballpark.” “We’re not going to settle if they think we’re going to accept/pay that.” These and more are familiar statements regarding first demands and offers in mediation and they are being used in more mediation sessions than in the past. The pattern is also familiar, an extreme opening from one side gets an extreme response from the other.

Theories about why the extremes are being used abound. One is “anchoring,” the “psychological phenomenon in which an individual's judgements or decisions are influenced by a reference point or ‘anchor’ which can be completely irrelevant.” [Wikipedia “Anchoring Effect”]. Tit-for-tat, retaliatory extreme offer. Reports of “extreme” judgments that inform (or skew, depending on vantage point).

Whatever the reason or strategy, parties need to explain how they get to their numbers because the offers are otherwise are not viewed credibly.

A number that does not project a willingness to get into what people might objectively consider to be the rational zone of potential resolution is not generally an effective anchor. Studies have shown that the party who first signals a willingness to get into the rational zone of potential resolution tends to “win” the negotiation (meaning the negotiation will tend to conclude in the zone to the benefit of that party). Therefore, the extreme opening is a gift to the party who receives the extreme opening number or counter because it gives the recipient the opportunity to be the first to signal that willingness by making a credible offer.

Nevertheless, parties often lock themselves into the extremes and continue to use them because tit-for-tat is the tried-and-true response to an extreme opening. Sometimes people ignore the opening and just open with something rational. Responding to the extreme opening with a credible offer is powerful because it takes control of the negotiation by setting a rational anchor.

So, the next time the other side gives you an extreme opening offer or counteroffer, look at it as the gift that it is and use it to your advantage. Please discuss with your mediator what you are doing so that you don’t confuse them. 

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