Fairness in Negotiation: Five Sources of Legitimacy

Originally published by Forbes.

Does a deal have to be fair? And if both sides agree to something, doesn't that itself mean it was "fair enough"?

Philosophers have their views of fairness; so do economists, who don't always agree with each other, much less philosophers. In some contexts, the law steps in and imposes protections to ensure less powerful parties are not taken advantage of. But generally, negotiating commercial deals is left to the parties.

Why worry about fairness?

There is quite a bit of academic research on fairness. Animal researchers have demonstrated that primates and other animals care about being treated fairly. Economists and psychologists have shown the same for humans. No one, it seems, likes to be treated in a way that they perceive as unfair. The challenge for negotiators can be that fairness is sometimes in the eye of the beholder, with each side preferring versions of fairness that are better for them. But what seems clear is that if you can't even make the argument that what you propose is "fair," you should expect trouble.

Having participated in or advised parties to literally thousands of negotiations, across industries and cultures, I have found that for most deals of any significant value or impact, fairness matters in getting deals done and it can matter even more after the deal is signed. It is very rare for a negotiator not to have to justify or at least explain the outcome of the negotiation to a boss, a client, a spouse or even to themselves when they look in the mirror. And if they can't explain the deal, other than "it was the best I could get," or “this was a lot better than where they started," the negotiator gets a lot of pushback.

Those who have given a negotiator a mandate don't want to hear a play-by-play recount of how the outcome came about; they want to hear why the outcome makes sense. If you need your side to buy into the outcome you negotiated, you better be able to explain why it's reasonable and appropriate. And if your deal is one that requires the other side to buy in, not just give in, and you need them to live up to the deal even when leverage shifts and they have an opportunity to "get even," then you also have to make sure the deal feels reasonable and legitimate to them as well.

So, where do you find fairness in negotiation?

We need fairness in negotiation to help us primarily with two big objectives. One is to guide the parties at the table to a deal they and their stakeholders can support—that is the "getting to yes" part. We also need fairness in negotiation to help us make sure that the deal we agree to is one we can all live with after we sign it—the "getting past yes" part. While the meaning of fairness can depend on context, below are my five go-to sources of legitimacy in negotiation

1. Precedents And Accepted Norms:One of the easiest ways to explain a negotiation outcome is that it fits with “what we’ve done before” or that it is consistent with “industry practice.” While that may not be the way to blaze new trails or innovate, deals that fit a familiar pattern or framework have the benefit of being easier to justify. Indeed, it can sometimes be more challenging to explain why this deal should be different than all the ones before it.
2. Objective Standards And Benchmarks: Referencing relevant standards or benchmarks can be very helpful, especially when it comes to quantitative elements of a deal where parties can get reactive about “why not more?” or “why so much?” Parties can certainly disagree about which benchmark is more appropriate or which index is most applicable; but even if that happens, they are negotiating about the rationale for the deal, which is more constructive than haggling between arbitrary offers and demands.
3. What Similarly Situated Deals Look Like:“Market price” can be a very persuasive standard for both buyers and sellers. If you have ever bought or sold a house or a car, for example, you know that “comparables” go a long way in helping the parties move away from what they would “like to get” in a deal and focus on the real value of differences between their deal and available market indicators.
4. Reciprocity:When faced with what feels like an aggressive demand, there is a lot of power in asking a negotiation counterpart to explain whether they would accept the same deal if they were on the other side of what they are proposing. Alternatively, consider flipping the impact of a deal around the same principle. For example, if each day’s delay on a project should cost the contractor $X, why not reward early completion with a similar amount? (Even if your counterpart balks at a reciprocal arrangement, proposing one often changes the nature of the conversation and shifts the conversation to other more legitimate deal structures.)
5. Process Fairness:When it proves difficult to find a relevant precedent or standard that the parties will accept for the substance of the deal, you might consider whether introducing fair procedures can help. Relying on a neutral third party can feel fair to both sides; agreeing that one side can “cut” or shape two deal bundles, but the other side then gets to choose which one each side gets is a way of encouraging a fair split.

The point of these moves is not to prove that you are right. But in negotiation, if your counterpart can't explain the deal, it won't get done (or you may come to regret doing it). If you want the deal to work, you have to help them articulate why it is legitimate. After all, that’s only fair.