How structure determines dynamics in mediation

We all know that at the end of a tough mediation we frequently need a good glass of wine. However, I want to argue today that similarities in the production of fine wines and the process of mediation bear closer examination.

Wine tasters define terroir as the specificity of place, which has come to include not only the soil in a region, but also the climate, the weather, the aspect of the vineyards and anything else that can possibly differentiate one piece of land from another. The terroir is critical in determining the quality of wine you will eventually produce. For a given location, terroir is hard to change, although modern wine making technologies can help. The nature of the terroir creates a range of likely outcomes. The specific quality of the wine within this range will then be affected by the skills of the wine maker.

And here is how wine production is similar to mediation or negotiation. The structure of a mediation will determine the range of likely dynamics and final outcomes[5]. The precise outcome will be determined by the mediator and parties on the day.

So what are the structural factors, features that are hard to change once in mediation, that determine the type of dynamics you are going to get? A good list to start with is: people and parties, issues and interests, linkages, options and timing factors. Together these give you the memorably naff acronym: PILOT.[6] Let me explain how each of these structural factors affects the dynamics of a mediation.

People

There are many ways in which people and parties determine the parameters within which a mediation will pan out. Here are some critical ones:

• Nature. Are the people you are dealing with co-operators, free riders or reciprocators? Co-operators will co-operate however you behave. Free riders will take you for a ride if they can. Most people are reciprocators. If reciprocators feel you are being co-operative they will reciprocate with co-operation. If they feel you are being a free rider they will reciprocate with hostile and negative behaviour[7].
• Number. Many mediations are between two parties. However, with more than two parties you are immediately into a different structure in which coalition behaviour will be a critical component.
• Authority. This always crops up in mediation. You need to ensure that the people you are negotiating with have the authority to do a deal.
• Agency. Agency issues can occur when one party, as agent, has different incentives to the ultimate client with regards to settlement. This can be a legal advisor, but also a relation or even one part of a commercial organisation with different incentives to the overall body.

Issues

Unless you know what your key issues are and those of the other side you can’t begin to get towards a satisfactory settlement. I have been in many mediations in which parties haven’t fully sorted out what all their issues are, let alone understand those of the other side. In terms of structure, a key differentiator is between negotiations over one issue and those over many issues. If there is just one issue, then the mediation will tend to be more competitive. What one side gains, the other side loses. With multiple issues, however, the chances are for a more co-operative approach as both sides seek to trade where they have different valuations for different outcomes. Mediators should establish early one what the complete set of issues is and, as far as possible, what values parties place on them.

Linkages

Linkages between the current negotiation and future negotiations will affect behaviour today. In a one off situation people will tend to negotiate harder than if there are future rounds of negotiation. For example, often if there is an ongoing business relationship, behaviour will be modified with a view to not souring inevitable future negotiations. This is not a hard and fast rule. Sometimes, parties will negotiate harder, precisely to establish a reputation for tough dealing in future rounds. As a party or a mediator you should understand the nature of any linkages and their likely effect on the dynamics of the mediation.

Options

Parties should be very clear and comfortable with how far they are prepared to concede to get a settlement. They need to understand the value of their alternatives to reaching a mediation settlement. If they don’t know this, how can they know whether or not settlement is the right decision? Typically in commercial mediation this will involve assessing the expected value of going to court. This in turn requires at least a rudimentary understanding of probability (“what are your chances of winning in court?”). Lawyers need to give realistic forecasts of chances in court and parties need to factor in hard to quantify issues such as the stress and opportunity cost of going through prolonged court proceedings. As a mediator and as a party, understanding the value of your own and the other side’s non-settlement options is vital.

Timing

Before going into mediation, it is worth checking whether there are any timing factors that will affect parties’ behaviour. External deadlines can include things like getting a settlement claim into quarterly results, or time limits set by banks. If credible, such time catalysts can be used both positively and negatively by negotiating parties to achieve their own ends.

*****

People, issues, linkages, options and timing are all factors that will affect the behaviour in and outcomes of mediations and negotiations. Mediators need to understand the position of all parties in advance of mediation; the parties themselves would be well advised to prepare where they stand on each of these structural factors and where the other side(s) stand as well. If you use a PILOT to guide you through the maze of mediation you are more likely to enjoy that post deal glass of wine.

[1] Common Sense and Nuclear Warfare, Bertrand Russell, 1959

[2] This list is draws heavily on Dixit and Nalebuff’s excellent book “Thinking Strategically”

[3] Ironically, from a Bleak House perspective, I have successfully used this game teaching negotiation theory to some of London’s leading law firms! It has failed once with a group of mediators when one leapt straight to a £20 bid.

[4] This has yet to happen to me.

[5] The game theorists amongst you will recognise this type of thinking as a two stage game.

[6] Apologies. In a previous incarnation I was a management consultant. Sometimes the past resurfaces…

[7] Recent experiments have suggested that the evolutionary stable population levels are 13% co-operators, 20% free-riders and 63% reciprocators.

Tags: mediation, negotiation