Negotiation 101: Knowing When To Walk Away
Article by Caveat Legal
One of the fundamental questions management has to answer before sitting down at the negotiation table is when to walk away from the negotiation. The strength of your alternative to the potential settlement or deal fuels your negotiation power. Knowing what this alternative is allows you to asses when to continue the negotiation and when to walk away. A skilled negotiator will only conclude an agreement on terms more favourable than the best alternative. In negotiation parlance, this is your BATNA: the best alternative to a negotiated agreement. A board can play an important role in assisting management to answer that question by exploring the company’s BATNA.
Identifying your BATNA is a vital element of a successful negotiation strategy; consider the following basic example. As any tourist who has visited a bazaar will know, if you know that the never-to-be-used-again trinket at stall A is available at stall B for R1000, then you won’t bargain above R1000 with the owner of stall A. In real life, it is unusual for BATNAs to be this obvious because the comparison isn’t an apples-for-apples comparison. Continuing in the tourist market, if you have decided to support female entrepreneurs whenever possible, you may buy the trinket from the woman at stall A even if her lowest price is R1250 because the ‘cost’ of not following through with this commitment to yourself is at least R250.
The following is a simple three-step process which a board should run through with management to determine the company’s BATNA:
- Develop a list of actions the company might conceivably take if no agreement is reached;
- Identify the most promising ideas; improve them and convert them into practical options;
- Identify the option which is the company’s BATNA.
Both the board and management must keep the following in mind when identifying the company’s BATNA:
- BATNA is an alternative; it is not necessarily your ideal outcome but it is where you will be if the deal on the table doesn’t go through.
- Identify all of your interests to get a holistic perspective: accepting a lower cash offer might be more valuable to a seller than a higher purchase price paid in tranches because the immediate access to liquid assets is more valuable than staggered payments.
- Identifying your BATNA increases your negotiating power as you can better determine what points to concede.
- Once you have identified your BATNA, you can take steps to improve it (e.g. you are looking for a commercial property to lease in Cape Town but are also considering additional premises in Johannesburg; securing a potential property in Johannesburg will allow you to better assess any Cape Town properties).
- Spend time identifying the other parties’ BATNAs; this will allow you to develop a more realistic view of what the outcomes may be and what offers are reasonable.
- A facilitator or mediator can help parties accurately assess their BATNAs through cost/benefit analysis and reality testing. Calling in a third party may be particularly helpful if there are areas of disagreement between a board and management.
In preparation for negotiating a settlement or agreement, your legal advisor can highlight alternatives you may not have considered, establish ways to strengthen your BATNA and assist you to identify all of your interests.
Want to know more? I highly recommend Fisher, Ury and Patton’s book Getting to Yes: Negotiating Agreement Without Giving In.
Article by Mieke Krynauw – Caveat Legal
Mieke has a BSocSc PPE LLB from UCT and an LLM from NYU. She was admitted in 2011 after having completed her articles at Bowman Gilfillan where she rose to the level on senior associate. Mieke subsequently moved into the public sector and joined Caveat in 2017, where she focuses on commercial work.