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Table of Contents The Jossey-Bass Business & Management Series

Title page

Copyright page

Dedication

Preface Researching Culture and Negotiations The Plan of the Book New in This Edition Handling Terms

Acknowledgments

The Author

1: Negotiation Basics Contexts for Negotiation Five Building Blocks of a Negotiation Strategy Combining Fundamentals Evaluating Potential Agreements Moving on to Culture

2: Culture and Negotiation What Is Culture? Three Prototypes: Dignity, Face, and Honor Cultures

A Model of Intercultural Negotiation Planning for Culture's Effects Moving on to Strategy

3: Culture and Strategy for Negotiating Deals Deal-Making Negotiation Strategy Culture and Negotiation Strategy A Model of Negotiation Strategy Advice for Deal-Making Negotiations Intercultural Negotiations Moving on to Resolving Disputes

4: Resolving Disputes The Difference Between Negotiating Deals and Resolving Disputes Conflict and Confrontation in Dignity, Face, and Honor Cultures Interests, Rights, and Power: Three Strategic Approaches to Resolving Disputes How to Start a Dispute Resolution Negotiation How to Change the Focus from Rights or Power to Interests Using Third Parties in Dispute Resolution Excellent Dispute Resolvers

5: Negotiating in Teams Managing Procedural Conflict in Teams Three Models of Teamwork Using Negotiation Strategy to Manage Task Conflict and Make Decisions in Teams Minimizing and Managing Interpersonal Conflict Skills, Motivation, and Environments Teams Need Guidance

6: Social Dilemmas Prisoner's Dilemmas and Social Dilemmas Competitive Dilemmas Cooperative Dilemmas Negotiating Individual and Collective Interests in Social Dilemmas

7: Negotiations Between Governments and Foreign Direct Investors

Investors and Governments' Interests in FDI Predictable Challenges to Foreign Direct Investment Unpredictable Challenges Negotiating Globally with Government

8: Will the World Adjust, or Must You? Why Not to Expect a Global Negotiation Culture Based on the Dignity Model Toward Becoming a More Effective Global Negotiator Why Me? Excellent Global Negotiators

Glossary

Name Index

Subject Index

End User License Agreement

The Jossey-Bass Business & Management Series

The Instructor's Guide for the third edition of Negotiating Globally contains an overall course design as well as chapter-by-chapter resources for both instructors and students, including cases, exercises, questionnaires, and tools. It is available for free at www.wiley.com/college/brett.

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To all the negotiators who shared their experiences so that others could learn

Preface

If you must negotiate deals, resolve disputes, or make decisions in multiparty environments, this book is for you. If you have had formal training in negotiations, but no training in culture, the book will extend your negotiating skills and knowledge across cultural boundaries. Be prepared to discover that old familiar negotiation concepts, such as power and interests, take on somewhat different meaning in different cultures. If you have had no formal training in negotiations, the book will introduce you to all the fundamental concepts in negotiation and explain how and why the concepts apply in different cultural settings. Although the book emphasizes negotiations in a global business environment,

its advice is relevant not just to managers and management students who expect to be negotiating across cultural boundaries but also to lawyers and law students, and to government officials and students of public policy who are concerned with economic development in a global environment. Global negotiations occur in multiple legal, political, social, and economic environments. International agencies and national and local government officials are frequently at the table in negotiations that cross cultural boundaries. This book provides advice to help global negotiators navigate these complex environments. Negotiating Globally focuses on national culture, because nation state

boundaries are both geographical and ideological. The ideology or theory underlying a nation's social, economic, legal, and political institutions affects the way people interact. When negotiators are from the same culture, ideology is the backdrop against which deals and decisions are made and disputes are resolved. When negotiators are from different cultures, each may rely on different assumptions about social interaction, economic interests, legal requirements, and political realities. The book provides insights about when and why to adapt and how to execute an effective negotiation strategy that takes cultural differences into account. In today's global environment, negotiators who understand cultural differences

and negotiation fundamentals have a decided advantage at the bargaining table. This book explains how culture affects negotiators' assumptions about when and how to negotiate, their interests and priorities, and their strategies: the way they go about negotiating. It explains how confrontation, motivation, influence, and

information strategies shift due to culture. It provides strategic advice for negotiators whose deals, disputes, and decisions cross cultural boundaries.

Researching Culture and Negotiations Until recently, most of the knowledge about how to negotiate deals, resolve disputes, and make decisions in multiparty environments came from U.S. researchers studying U.S. negotiators negotiating with other U.S. negotiators. The evidence is overwhelming that U.S. negotiators leave money on the table when they negotiate deals, escalate disputes to the point at which costs outweigh gains, and make suboptimal decisions in teams and allow their emotions to interfere with outcomes. Their outcomes also often fall short of the outcomes they could have obtained if they had integrated their interests fully with those of their counterparts across the table. Armed with knowledge about this gap and what can be done about it, my

colleagues at the Kellogg School of Management at Northwestern University and I have worked with thousands of students, managers, and executives who wanted to improve their negotiation skills. In the early 1990s our student population and their interests started to shift. Managers from all over the world began to come to our executive programs. We were invited to teach negotiation in Europe, Latin America, and Asia. Kellogg's students became decidedly international. We could not avoid dealing with the question of whether what we were teaching applied across cultures. Was the same gap present in other cultures, or was it exclusively a U.S. problem? Would the same skills close the gap in other cultures? What about negotiating across cultures? What adjustments needed to be made to take what we knew about negotiations effectively across cultures? These questions motivated the research that underlies this book. The task was

to determine how culture affects negotiation processes and outcomes in the settings of deal making, dispute resolution, and multiparty decision making. Since 1992, I have traveled widely and worked with scholars around the world, studying how managers negotiate in different cultures and also how they negotiate across cultures. We have talked with managers from many different cultures about their strategies, collected their stories, and shared some of our own. But we have also systematically collected data on their strategies and outcomes, using the same methods that we have used with U.S. managers. These data provide a strong foundation for the insights in the book, its illustrations of

cultural differences in negotiation, and the strategies it recommends. The book is not about how to negotiate in Israel, Russia, Japan, Brazil,

Thailand, Qatar, Spain, India, France, Germany, Sweden, China, Korea—all countries where managers and management students have helped us understand culture and negotiation and where we have done research. Instead, the book focuses on what we know theoretically and empirically about negotiation strategy and culture, how negotiation strategy is practiced in different cultures and why, and what the negotiator crossing cultural boundaries can do to modify strategy so as to realize interests and maintain integrity even when confronted with a very different cultural approach to negotiation. Rather than advice about how to act when in Rome negotiating with a Roman, the book provides practical advice about how to anticipate cultural differences and then manage them when they appear at the negotiating table. It challenges negotiators to expand their repertoire of negotiation strategies, so that they are prepared to negotiate deals, resolve disputes, and make decisions regardless of the culture in which they find themselves.

The Plan of the Book If you are already an experienced negotiator, having closed deals, resolved disputes, and even taken a negotiation course or workshop, the basics in Chapter One should be familiar. Chapter One describes the different contexts for negotiation: deal making, dispute resolution, multicultural and team decision making, social dilemmas, and negotiations between government and foreign direct investors. It introduces the five fundamental building blocks of negotiation strategy: parties; issues; positions, interests, and priorities; power; and targets. It describes how to develop a negotiation planning document and how to evaluate the quality of a negotiated agreement. Chapter Two introduces a new way of categorizing culture that goes beyond

the familiar East-West divide of individualism-collectivism that is the basis for most international management books. The book discusses negotiation in the Middle East and Latin America, areas of the world where little prior negotiation research has been done. Chapter Two discusses three cultural types: dignity culture, familiar as Western culture; face culture, familiar as East Asian culture; and honor culture, which characterizes cultures in the Middle East, North Africa, and Latin America. The chapter compares and contrasts these cultural prototypes with respect to the nature of self-worth, power, sensitivity to insults,

confrontation style, trust, and mindset with the purpose of generating insight and understanding as to why negotiators in these cultural types use strategy similarly or differently. It provides the model of intercultural negotiations familiar from previous editions and discusses the environment in which global negotiations occur. The chapter ends with a new section focused on planning for cultural differences. Chapter Three is all about negotiation strategy to create joint value in deal-

making (buying and selling) negotiations in a global environment. After explaining why creating value is important, it describes two forms of negotiation strategy widely used around the world. One, called Q&A for questions and answers, is all about gathering information that can be used to reach agreements. The other, called S&O for substantiation (influence attempts) and offers, is all about using persuasion and making offers to close deals. With this basic understanding of the two fundamental negotiation strategies, the chapter turns to culture. It explains how trust, whether based on interpersonal relations or institutional surveillance and sanctioning, affects whether negotiators use Q&A or S&O strategy. It describes how mindset, linear and analytic as practiced in the West versus holistic and context sensitive as practiced in East Asia, can affect whether negotiators are able to generate insight from the S&O strategy. The chapter ties this understanding of culture and negotiation strategy together in a model and then turns to advice for negotiating in high and low interpersonal trust environments, for using offers including MESOs and contingent contracts—all geared toward generating the information negotiators need to create value. There is a new section of this chapter focused on reviewing what we know about intercultural negotiations, what to expect in terms of strategic dominance, and how to accommodate to a counterpart's strategy without compromising your own interests and integrity. Chapter Four begins by explaining the differences between negotiating deals

and resolving disputes: independent versus linked BATNAs, maximizing gains versus minimizing costs, emotions. It then turns to explain the differences between direct and indirect confrontation. (In direct confrontation the claimant tells the respondent what the claim is and what to do about it; in indirect confrontation the claimant leaves it to the respondent to identify the claim and what to do about it.) The chapter discusses which type of confrontation is preferred in dignity, face, and honor cultures and why, and then introduces three approaches to resolving disputes: interests, rights, and power. For each approach there is advice about how to uncover interests, rights, or power positions, and

how to use each of the three approaches effectively to resolve disputes. The negotiation section of the chapter ends with advice on how to start such a negotiation and how to move strategically between and among interests, rights, and power approaches to see agreement. The chapter includes a shortened version of the third-party chapter from the 2007 edition of Negotiating Globally. This third-party section, like the old stand-alone chapter, distinguishes between third parties with authority to resolve disputes and those without that authority. It first describes the arbitration process, and provides advice on selecting an arbitrator and some insight into how culture might affect arbitration decisions. It then describes the mediation process, gives advice on selecting a mediator, and briefly reviews research on how differently mediation is used around the world. Chapter Five focuses on using negotiation strategy to make decisions in teams

when multiple parties are likely to have both different approaches to teamwork and different ideas about what the team's decision should be. The chapter begins by explaining procedural conflict in teams and introduces three models of teamwork: in which a subgroup or individual dominates; in which there is a hybrid, but stable process melded from members' different approaches; and fusion, when members' different approaches are used simultaneously or in sequence. The difference between fusion and hybrid is primarily in terms of stability. Hybrid teams have stable processes; fusion team processes are more dynamic, responding to the changing elements of the team situation. The chapter then turns to using negotiation strategy to manage task conflict and make decisions in teams. This section applies familiar strategy including using negotiation concepts to evaluate team decisions, using negotiation strategy to generate information, and using negotiation strategy to integrate information and reach decisions. In doing so it addresses language, structural barriers of virtual teams, and psychological barriers to information sharing. It addresses issues, interests, and priorities in the multiparty environment, it discusses BATNAs for the team and individual team members, and talks about decision rules, setting norms, and considering second agreements. There is an important section of advice for minimizing and managing interpersonal conflict, and another for team leaders to consider the skill set, the motivations, and the environmental support that teams need to reach high-quality decisions. Chapter Six focuses on social dilemmas—those ubiquitous multiparty

extensions of the famous Prisoner's Dilemma (PD) situations in which self- and collective interests are in conflict. Social dilemmas are special cases of team decision making. Teams with members representing many different nations are

currently struggling with dilemmas concerning global resources, including forests and fisheries, air, and water. The chapter starts with the more familiar PD to explain the challenge of balancing self- and collective interests. It then introduces two types of social dilemmas: cooperative, in which the public interest is for the parties to cooperate and their private interests are to compete, and competitive, when the public interest is for the parties to compete but the parties' private interest is to cooperate, as in a cartel. The best-known example of a cartel is OPEC, which is untouched by law because it is a cartel of nations. But the chapter provides many up-to-date examples of cartels that are illegal, such as the one in which Apple was found to lead by coordinating with publishers to fix prices for e-books and break Amazon's domination of the market. This section of the chapter includes advice for competitors on signaling within the law, based on research in game theory. The major portion of the chapter is devoted to using negotiation strategies of interests, rights, and power to foster cooperation in dilemmas in which the public interest is for the parties to cooperate but their private interests are to compete. These dilemmas can be taking dilemmas, for example harvesting of fisheries and forests, or contributing dilemmas, such as paying taxes of free riding on teams. Throughout this section are examples; discussion of cultural differences in the application of interests, rights, and power strategies; and advice for generating cooperation. Foreign direct investment (FDI) is a major engine of globalization, economic

development, and cultural change. Chapter Seven focuses on negotiations between foreign direct investors and the governments in which they are investing. It begins by outlining the interests of the investors, to make money via access to resources or technology, cheap labor, or extension of markets, and the interests of governments, which turn out to be quite different from those of other private companies with which the investor is likely to have had the most experience negotiating deals. Governments tend to be interested in infrastructure they otherwise cannot afford, technology that they otherwise lack access to, and jobs that they otherwise cannot create domestically. But they want all this without compromising their political power, their national security, and their cultural hegemony! Where at first glance FDI seems like a great opportunity for creating value, a deeper understanding of parties' interests, which Chapter Seven provides with many up-to-date examples, shows that FDI may not always be the best approach to create shareholder value, much less the solution to pressing government problems. The chapter addresses the predictable challenges of FDI, including protecting legal rights, especially in nations where the rule of law is

weak; facing corruption and having your own personal ethical standards; navigating and negotiating with complex layers of government bureaucracy; keeping employees safe; and avoiding entanglements in human rights abuses. These are challenges that the foreign direct investor should be able to anticipate and be prepared for. These challenges are not easy to negotiate, but they are at least to some extent controllable. More vexing are the unpredictable challenges of political and economic instability. The final chapter addresses why you should not expect a global negotiation

culture based on the dignity model and then goes on to reprise some of the advice throughout the book for adjusting strategy without compromising outcomes or integrity when negotiating globally.

New in This Edition I hope you find the third edition of Negotiating Globally a somewhat slimmed- down refinement of the second edition. It keeps the structure of the previous edition. In particular, Chapter One introduces negotiation basics and holds off from addressing culture, first addressed in Chapter Two. A major change in content, but not in structure, comes in Chapter Two, which introduces the dignity, face, and honor framework of cultural prototypes. This frankly is a big intellectual change for those like me who have focused on cultural differences between the West and East Asia for so many years. But once into this framework, it becomes more comfortable because dignity characterizes familiar Western culture and face characterizes familiar East Asian culture. It is only honor culture that is all new to us, but so important because it characterizes so many understudied parts of the world. Give the framework a chance, and I think you will see that it really helps to understand why people in different parts of the world use negotiation strategy differently. Beyond Chapter Two the old structure continues, though slimmed down, with

one chapter on deal making, Chapter Three, and one chapter on dispute resolution, Chapter Four. Both the chapter on deal making and the chapter on dispute resolution are newly organized and review new research, but at the same time cover all the old content. Chapter Five reprises the research on using negotiation strategy in teams and has been enhanced by some new research on negotiating teams. Chapter Six, on social dilemmas, retains its old structure but gains many new examples. Chapter Seven, on the negotiations between foreign direct investors and governments, retains its content and also focuses on new

examples. I'm still not convinced that there is likely to be a global negotiation culture any time soon, if ever, and Chapter Eight again makes this point.

Handling Terms Between the language used to talk about negotiation and the language used to talk about culture, there are an awful lot of terms in this book that have specific meaning in the context of negotiation. Part of becoming a better negotiator is learning negotiation strategies. Unfortunately, all these strategies have names. Do not get annoyed by terminology—there is a glossary in the back! The sooner you learn negotiation terminology, the sooner you will be able to manage planning and executing your own negotiations strategically.

Acknowledgments

Since the 2007 edition of Negotiating Globally, I have had the privilege of continuing to do research with former collaborators and the opportunity to do research with new ones. The third edition of Negotiating Globally tries to distill for the global manager the state of what scholars know and managers have experienced about culture and negotiation. There is still much we don't know, and I look forward to future collaborations with scholars around the world who are studying culture and negotiation, as well as with managers who come to us with their stories, frustrations, and insights. Several new collaborations have had an important impact on the third edition

of Negotiating Globally. The major redirection of this edition is to move from viewing culture from an East Asian–Western perspective, which assuredly leaves out much of the world, to the expanded perspective of dignity, face, and honor, which includes the Middle East, North Africa, Southern Europe, and Latin America. This change I owe to the influence of Soroush Aslani. He introduced me to this way of conceptualizing culture and then took a major role in a multiyear research project to compare and contrast negotiations in honor (Qatar) and dignity (United States) cultures, to which we later added data from a face culture (China). I owe huge thanks to all the members of this research team: to Soroush, to be sure, but also to Jimena Ramirez-Marin, without whose three trips to Qatar there would have been no study. To long-time collaborator Laurie Weingart, who arranged for data collection in Qatar, and to Starling Hunter, who welcomed Jimena to his classes and encouraged his students to participate. To Cathy Tinsley, who is always our fiercest intellectual critic and who has read and commented on draft after draft, and also supported some of the research financially. To Wendi Adair, who always keeps the team grounded in solid methods and stronger logic, and for introducing Zhaleh Semnani-Azad to the team. To Zhaleh, who always knew all the latest literature and made sure we did! To Zhixue Zhang, who invited me to teach at Guanghua School of Management, Peking University, in the spring of 2012, making it possible to add face culture data to the study with the excellent support of Jing Jing Yao. Jing Jing and Jimena collaborated on data analysis; Soroush is our major writer and presenter. It has been a special pleasure for me to work on this project with long-time collaborators, Wendi, Laurie, Cathy, and Zhixue, and share with them the

training of and the learning from Soroush, Jimena, Zhaleh, and Jing Jing. It is particularly gratifying that this unfinished research was chosen as one of five papers to be recognized by the Academy of Management in 2012 for the All Academy Dexter Award for best paper on an international business topic.1

It was Brian Gunia, finishing up his dissertation and wanting to learn more about culture, who encouraged me to take out my India data and then led our research into trying to understand the important role that trust has in influencing negotiation strategy. Brian is responsible for the Q&A and S&O terminology that provides language to distinguish strategy from outcome—a point also emphasized by Brosh Teucher. Although I am not personally acquainted with Toshio Yamagishi, his intellectual distinction between interpersonal and institutional trust has had a major impact on my thinking about culture and trust, along with the scholarship of my colleague Michele Gelfand, who has done much to conceptualize the implications of tight versus loose cultures. Michele continues to be a resource and sounding board both when we are working on a project together and when we are not. Amit Nandkeolyar and Dishan Kamdar ably supported the trust studies in India, and Amit continues to work with us on issues of trust and mindset. This research was recognized by the International Association for Conflict Management with the Outstanding Published Journal Article Award in 2011.2 In another project stemming from the 2012 trip to China, Zhixue Zhang and Cuilian Zhang are also working with trust data from Chinese managers. Still, with all this scholarly attention to trust in negotiation, we have a lot more to learn about trust, culture, and negotiation. The new section in Chapter Three on intercultural deal-making negotiations

owes much to the influence of several scholars. Many years ago it was Shirli Kopelman and Dania Dialdin who originally challenged me to consider what happens when negotiators from different cultures come to the table. Ashleigh Rosette, Zoe Barness, Anne Lytle, and I first learned about the high aspirations of East Asian negotiators in an online intercultural study in which the Hong Kong Chinese followed up their high aspirations by claiming value on their U.S. counterparts. More recently, it has been Brosh Teucher who challenged Brian Gunia and me to think through the implications of negotiators with different types of trust and mindset at the table. Jimena Ramirez-Marin's empirical scholarship made an important contribution to the intercultural section. She is the only researcher I know to have collected negotiation data from Americans negotiating in a language other than English! We have a long way to go to

understand when and why one culture's strategy conforms to another's, but Jimena's scholarship is taking us there. My collaboration with Molly Kern and Sujin Lee led me to see how multiyear experience in American culture affects East Asian negotiators. That research was recently recognized as the International Journal of Conflict Management's Outstanding Paper at the Literati Network Awards for Excellence 2013.3 Studies by Leigh Anne Liu, with whom I have not collaborated but whose research I respect greatly, provide independent corroboration of this cultural accommodation by East Asian scholars studying in the United States. The book continues to benefit from the years of collaboration that underlie the

scholarship in each chapter. In particular, I am grateful for all the insights about Japanese negotiators that I learned from working with Tetsushi Okumura, Wendi Adair, and Laurie Weingart. The culmination of much of that research received the Conflict Management Division of Academy of Management Most Influential Paper 2004–2009 award in 2012.4

The insights about dispute resolution I gained from working first with Bill Ury and Steve Goldberg to develop the conceptualization of interests, rights, and power. Then with Cathy Tinsley's dissertation we learned for the first time how different cultures use all the same strategies but with startlingly different emphasis. With Ray Friedman, Mara Olekalns, and Cameron Anderson, who all participated in the eBay studies, I began to study how anger has an impact on dispute resolution. More recently, I have been collaborating with Hajo Adam on studies that contrast the impact of the expression of anger in one-shot deal making, long-term deal making, and dispute resolution negotiations. Back to culture, recently Kristen Behfar and Jeffrey Sanchez-Burks and I have been working on developing a clearer understanding of the distinctions between indirect and direct confrontation, which has brought clarity to Chapter Four, on dispute resolution. I've also worked with Steve Goldberg and Roderick Swaab over the past few years on different projects identifying what effective mediators do. Both projects have the potential to have a major impact on how mediation is enacted, at least in the United States and Europe. We find that more important for a mediator's success than the technical skills of how to run a mediation conference is the ability to develop an empathic relationship with the disputants. Further, we documented that it is easier to do so in private conferences prior to joint sessions than vice versa—a structure that is anathema to standard mediation practice. That paper was recognized in 2009 as the International Association for

Conflict Management's Best Applied Paper.5

The multiparty sections of the book, Chapters Five and Six, continue to rely on the series of studies on multicultural teams with Maddy Janssens, Kristin Behfar, and Molly Kern. Maddy came up with the idea of fusion teamwork. All the interviews that Kristin, Molly, and I did surfaced the challenges that multicultural teams face and piqued our curiosity as to whether fusion could work in the real world. That test was Susan Crotty's dissertation, and the resounding answer was yes! The paper we wrote testing fusion process in multicultural teams was recently recognized by the journal Negotiation and Conflict Management Research as Best Published Paper 2012.6 Kristin Behfar, Ray Friedman, and I have also been studying negotiating teams—knowledge that also contributed heavily to the restructuring of Chapter Five. The social dilemmas research continues to be supported by my collaboration and consultations with Shirli Kopelman. When I wrote acknowledgments in 2001, I said what a great privilege I had

had in the 1990s to work in an environment in which many scholars were investigating negotiations. Although my 1990s colleagues Max Bazerman and Margaret Neale have moved to other schools, I continue to be grateful to them for the energy they gave to the study of negotiations at Kellogg. My colleagues Leigh Thompson and Keith Murnighan are still at Kellogg and joined for a time by Adam Galinsky; we still have a very active incubator for negotiation research at Kellogg. Many scholars have passed through Kellogg's Dispute Resolution Research Center since its founding in 1986. Some have been Ph.D. students, others post-doctoral students, others visiting scholars, and still others participants in the DRRC certificate program. I learned much from them when they were at Kellogg and benefit greatly from continuing contact with them, most particularly Mara Olekalns, but also Zoe Barsness and Anne Lytle, who with Maddy Janssens and Catherine Tinsley spent two years with me in the early 1990s studying the cross-cultural research in psychology and helping me develop facility with cross-cultural research paradigms. The two chapters we published in 1995 and 1997 about how to do cross-cultural research have served us well, but importantly, they continue to be in demand today—a testimony to the scholarship that resulted from this collaboration.7 The subsequent cohort of Ashleigh Rosette, Shirli Kopelman, and Dania Dialdin got us collecting data via a web survey and initiated a bevy of studies mentioned earlier. They were closely followed by Wendi Adair, without whom I would have no understanding

of how the Japanese acquire insight from S&O, and Molly Kern and Sujin Lee, who introduced me to studying biculturals. I owe an enormous intellectual debt to all of these people. I hope that they

have learned as much and enjoyed as much working with me as I have with them. I am confident that they will not agree with all my conclusions and encourage the interested reader to seek out the original research papers and my colleagues' independent work. Max Bazerman and Ann Tenbrunsel wrote the original exercise on which

Cartoon was based. I am grateful to them for letting us adapt it for research. The dispute between U.S. and Chinese joint venture managers was inspired by an example given by Karen Jehn at the 1998 International Association of Conflict Management meeting at the University of Maryland. The rattling bicycle story was told by Jeff Palmer at the 1999 International Executive Masters Program at the Kellogg School of Management. Madame Petit's grandson shared the book and the pumpkin story with her shortly before she died. Much of the research underlying this book was supported by the Dispute

Resolution Research Center at the Kellogg School of Management, Northwestern University. I appreciate the willingness of the members of the center's research committee to invest in cross-cultural research. So many people have helped in the research for and production of each edition

of the book, including Northwestern undergraduate research assistants and DRRC staff. For the first edition, students Man Ho Han and Sara Bachman managed the data sets; Michael Teplitsky and Sara Bachman worked on the references. Linda Stine produced the tables and figures; Jason Bladen formatted the book; Molly Kern read the proofs. Anne Lytle, Maddy Janssens, Jacques Tibau, Wendi Adair, Zoe Barsness, Judy Krutky, Julianna Gustafson, and several anonymous reviewers gave me wonderful feedback, support, and encouragement in making the final revisions. For the second edition, students Raina Dong, Martin Siow, and Brian Tam managed the data sets; Minjee Kang formatted the book and worked on the references. Jenny McGrath produced the book for the publisher. For the third edition, student Chase Eck produced the references and generated many of the real-world examples, used particularly in Chapter Seven. Jessica Nelson produced the glossary. The staff of the Dispute Resolution and Research Center—Rachel Hamill,

Margaret Dash, Linda Stine, and Jason Bladen for the first edition; Nancy McLaughlin, Nicole Lehming, and Jennifer McGrath for the second edition; and Sara Fassino, Doug Foster, and Stephanie Dixon for the third edition—have

been extraordinarily gracious in supporting my getting the book written. I am sure they are looking for another project for me so that I will not be tempted to meddle in their competent and independent running of the center. Jossey-Bass gave me Alan Venable as a developmental editor to work with for

the second and third editions. I am extremely grateful for all his gentle direction, the timeliness of his feedback, and his unfailing enthusiasm for the book. Jimena Ramirez-Marin, in addition to participating in all the new scholarship

that underlies this third edition, also read the entire book in draft and made phenomenally insightful comments that often sent me back to completely restructure a chapter, and always to refine it. Jimena also took charge of the Instructor's Manual, organizing and updating it; adding new exercises, mini surveys, and cases; and suggesting new videos. If you are going to be using all or any part of Negotiating Globally in the classroom, be sure to get Jimena's Instructors Manual off the Wiley website or negotiationexercises.com. There is no way to properly thank my host professors and all the participants

in the executive, MBA, and law programs I have had the pleasure to work with since 1981. Professor Bala Balachandrin invited me to teach in India; Dean Israel Zang, to teach in Israel; Professor Eric Langeard (deceased), to teach in France; Professor Akihiro Okumura, to teach in Japan; Professor Bing Xiang and more recently Professor Zhixue Zhang, to teach in China; Professor Toemsakdi Krishnamra, to teach in Thailand; Professor Steve Chi, to teach in Taiwan; Professor Lourdes Munduata, to help her teach in Spain; and Professor Dishan Kamdar in India. Dean Donald Jacobs encouraged me to teach negotiations in the first place, encouraged me to take the course cross-culturally, and introduced me to many international teaching opportunities. I am deeply grateful to all the participants in these programs and in Kellogg's

MBA and Executive Masters programs for sharing their negotiation insights and experiences. I hope what you learned from me has helped you understand as much about negotiations as what I have learned from you. I see you again from time to time at Kellogg alumni events around the world, in airports, on the lakefront, and in cards and emails in which you bring to my attention the odd negotiation term that catches your eye in an ad or a street sign. These brief interchanges do not do justice to my debt to you. You have made all that Kellogg has supported in the area of negotiations possible. Bob Dewar, my department chairman in 1981, encouraged me to take the risk and teach a negotiation course. My husband, Steve Goldberg, gave me the idea to do it in the first place and then negotiated with Roger Fisher of the Harvard Law School to let me use his

exercises, even to write the lawyers out! Seventeen students took the course that first year. It was student response in 1982 that brought the course to the attention of Dean Jacobs and caused our infamous negotiation over class size and the beginning of Kellogg's incubator for teaching new negotiations faculty. It was the student response that moved the course from an elective to a core course in the Executive Masters Program, and that encouraged those running Kellogg's far-flung joint ventures to bring their participants to Evanston for the opportunity to learn negotiations in an intercultural setting. It was the student support that justified hiring Max Bazerman and then Maggie Neale and Leigh Thompson, and Adam Galinsky. Their research, along with that of psychologists Reid Hastie and Tom Tyler, game theorists Roger Myerson and Robert Weber, and law professor Stephen Goldberg, allowed us to seek the support of the William and Flora Hewlett Foundation and develop the Dispute Resolution Research Center. Funding from the Hewlett Foundation and the Alan and Mildred Peterson Foundation has been instrumental in making Kellogg not just a major site for teaching negotiation but also a major negotiations research center. Thank you everyone who has made Kellogg's negotiations initiative possible. My daughters, Valerie, Gillian, and Amanda Goldberg; my husband, Steve

Goldberg; and my gardens all learned to get along with less attention as the first edition of the book took shape. The girls avoided the worst of the second and third editions, leaving the responsibility of helping me balance the responsibilities of producing a new edition with the rest of life in their father's competent hands.

—J.M.B.

Notes

1. S. Aslani, J. Ramirez-Marin, Z. Semnani-Azad, J. Brett, C. Tinsley, L. Weingart, and W. Adair, Implications of Honor and Dignity Culture for Negotiations: A Comparative Study of Middle Easterners and Americans. Paper presented at the Academy of Management Annual Meeting, 2012; Dispute Resolution Research Center Northwestern University working paper 443, http://www.kellogg.northwestern.edu/research/drrc/research/working- papers.aspx. 2. B. Gunia, J. Brett, A. Nandkeolyar, and D. Kamdar, “Paying a Price: Culture, Trust, and Negotiation Consequences,” Journal of Applied Psychology, 2011, 96(4), 774–789.

3. M. Kern, S. Lee, Z. Aytug, and J. Brett, “Bridging Social Distance in Inter- Cultural Negotiations: ‘You’ and the Bicultural Negotiator,” International Journal of Conflict Management, 2012, 23(2), 173–191. 4. W. Adair and J. Brett. “The Negotiation Dance: Time, Culture, and Behavioral Sequences in Negotiation,” Organizational Science, 2005, 16(1), 33–51. 5. R. Swaab and J. Brett, Caucus with Care: The Impact of Pre-Mediation Caucuses on Conflict Resolution, n.d., Dispute Resolution Research Center Northwestern University working paper 446. 6. S. K. Crotty and J. M. Brett, “Fusing Creativity: Cultural Metacognition and Teamwork in Multicultural Teams,” Negotiation and Conflict Management Research, 2012, 5(2), 210–234. 7. A. L. Lytle, J. M. Brett, Z. I. Barsness, C. H. Tinsley, and M. Janssens, “A Paradigm for Confirmatory Cross-Cultural Research in Organizational Behavior, in L. L. Cummings and B. M. Staw (eds.), Research in Organizational Behavior, Vol. 17, pp. 167–214 (Greenwich, Conn.: JAI Press, 1995); J. M. Brett, C. H. Tinsley, M. Janssens, Z. I. Barsness, and A. L. Lytle, “New Approaches to the Study of Culture in I/O Psychology,” in P. C. Earley and M. Erez (eds.), New Perspectives on International/Organizational Psychology, pp. 75–129 (San Francisco: Jossey-Bass, 1997).

The Author

Jeanne M. Brett is DeWitt W. Buchanan Jr. Distinguished Professor of Dispute Resolution and Organizations at the Kellogg School of Management, Northwestern University, where she is also the director and a founding member of the Dispute Resolution Research Center. Brett initiated Kellogg's popular “Negotiation Strategies for Managers” course and then extended the course to negotiating in a global environment. She conducts research and negotiation training programs at Kellogg and in executive programs around the world. She is the author of several books, including Getting Disputes Resolved: Designing Systems to Cut the Costs of Conflict (Jossey-Bass, 1988), written with William L. Ury and Stephen B. Goldberg, and numerous scholarly articles.

1

Negotiation Basics

Negotiation is the process by which people with conflicting goals try to reach agreement about how they are going to work together in the future. Negotiators are interdependent: what one side wants affects what the other side can have and vice versa. Because negotiation involves conflicting goals and interdependence, it takes some skills to be an effective negotiator. Those skills are put to the test when negotiating across cultures, because people in different cultures use negotiation strategy differently. One of the purposes of this book is to help you improve your negotiation skills. Another is to get you prepared to negotiate with people who do not share your cultural background, people who you cannot assume will think about the process of negotiation in the same way you do. To be prepared to negotiate globally requires planning. If you are already an

experienced negotiator, having closed deals, resolved disputes, and even taken a negotiation course or workshop, many ideas in this chapter should be familiar. Nevertheless, be sure to read it, because it will also likely take you beyond the things you already know. For example, after laying out various contexts in which negotiation skills are useful, it introduces five building blocks of strategic analysis and a template for a negotiation planning document that both novice and expert negotiators find extremely useful for organizing those building blocks into a strategic analysis. The chapter also explains how to use two important negotiation concepts—BATNA and interests—to evaluate how good your agreement is. If you are going to be negotiating globally—or have already and were not

satisfied with the result—Chapter Two will introduce you to the multiple ways that culture affects negotiations. It includes a relatively new tripartite way of categorizing cultures: dignity cultures (generally North American and European), face cultures (generally Asian), and honor cultures (generally Middle Eastern, North African and Latin American). The chapter describes how each type of culture tends to affect negotiation strategy. As you can see by the table of contents, subsequent chapters will turn to

strategies—the goal-directed behaviors that people use to negotiate agreements —as they apply in the various contexts identified in Chapter One, as well as to the strategic challenges when negotiating globally and with government across the table. The book ends with a discussion of just how long cultural differences are going to matter in a world where global business and global politics are carried out in English. We begin by considering all the contexts in which people have conflicting

goals and use negotiations to try to reach agreements about how they are going to work together in the future.

Contexts for Negotiation Negotiation is not limited to buying and selling—deal-making negotiations. People negotiate to resolve disputes, and to reach decisions in teams and other multiparty environments. The following paragraphs briefly consider these contexts for negotiation.

Deal Making Deal-making negotiations are usually categorized as distributive or integrative.

Distributive Deal Making People throughout the world negotiate deals the same way: the buyer makes a low offer, the seller a high offer, and they trade offers and counteroffers until they reach an agreement or decide to walk away. After viewing the terracotta warriors in Xian, China, a friend and I visited the Muslim market or souk. A small brass incense burner caught my eye. I asked the shopkeeper the price and offered him half the amount he named. He came down and I came up. When he didn't counter, I started to walk out of his shop, but he followed me, making a concession. I then suggested we split the difference between my second and his third price, and he agreed. In Xian the shopkeeper and I were engaged in what is called distributive

negotiation, meaning negotiating over a single issue, in this case price: how much I would pay and how much he would get for the small incense burner. In making distributive deals, parties assume a fixed pie or fixed amount of resources and negotiate about how to split the resources (cut up the pie, claim value, distribute resources). The shopkeeper in the souk started high, I countered

low, and we made reciprocal concessions until we reached an agreement that, to each of us, was better than no deal at all.

Integrative Deal Making Although dividing resources is an important part of negotiating, there is a lot more to negotiation strategy than “start high if selling, counter low if buying.” In reading the next example, about my negotiating for pumpkins with a woman at a roadside stand, consider how and why we moved away from distributive negotiation. When my daughters were in grade school in a small village in the south of France, the teacher asked my husband and me to plan a Halloween party. My job was to buy the pumpkins for the thirty-two children to carve. I looked everywhere for pumpkins and could not find any. Finally, my husband heard of a roadside stand with pumpkins! I immediately drove over to buy pumpkins. I did not negotiate the price, because I had no other source of pumpkins; I also knew it's not customary in outdoor French food markets to negotiate prices. But when I told the seller that I wanted to buy all her stock, she shook her head no. What to do? My alternative to buying was terrible. Offer her more money? Try sympathy? Tell her why I wanted all her pumpkins? Instead, I asked her why she wouldn't sell me all her pumpkins. She said if she sold all her pumpkins to me, she would have no seeds to plant the next year. “Chere Madame,” said I, “if I bring you all the seeds November 1, will you sell me all your pumpkins?” She said yes, each child got a pumpkin to carve, and a picture of the children and Mme. Petit's pumpkins, as I later learned her name was, graced the front page of the local newspaper. Mme. Petit and I engaged in integrative deal making. We refocused the

negotiation from the single issue of how many pumpkins I could purchase at her price by identifying the multiple issues of pumpkin seeds and pumpkin rind that turned out to be the real issues in our negotiation. In our agreement, Mme. Petit got the seeds, which were more important to her than to me, and I got the rind, which was more important to me than to her. Integrative negotiation occurs when negotiators expand the pie—actually

create value in negotiations. They typically do so either by breaking a single issue into multiple issues or by adding issues. In either case, when one issue is more important to one party—the seeds to Mme. Petit—and another issue is more important to the other party—the rind to me—the parties can negotiate a trade-off that meets both parties' goals. There are many opportunities for negotiators to create value if they have the

motivation and the strategy to get information about priorities (what is more and less important to the other party) and interests (what is motivating the other party's positions) and use that information to make trade-offs that create value.

Conflict Management and Dispute Resolution No culture is immune to conflict—the perception of opposing interests, with respect to resources, goals, or even procedures. Disputes arise when conflict turns into a claim that one party makes but an opposing party rejects. People everywhere negotiate to resolve disputes. How they do so, however, often depends on whether it is culturally appropriate to confront other people directly or indirectly. Here are two examples in which negotiation took a path it might not have taken had both parties been American. An American entrepreneur had a contract to sell bicycles to a German buyer.

The American was having the bikes manufactured in China. When the first shipment was ready, the entrepreneur went to the Chinese plant, inspected the bicycles, rode a few, and realized there was a problem. The bikes rattled. Knowing that rattling bikes would not be acceptable to the German buyer, he asked the Chinese manager about the rattle. “Is this rattle normal?” “Do all the bikes rattle?” “Will the German buyer think there is something wrong with the bikes if they rattle?” The bikes were shipped to Germany on time, and the German buyer never mentioned anything about rattling bicycles. In U.S. culture the normal approach to the problem of the rattling bicycles

would be to tell the plant manager that rattling bicycles were unacceptable, and that the rattles had to be fixed before the bikes were shipped. In China, such direct confrontation would be extremely rude and would cause the plant manager much loss of face and possible reactance. Knowing this, the American entrepreneur used indirect confrontation. He made it clear to the Chinese manager that the rattling bicycles needed to be fixed, but he did so indirectly. He did not tell the Chinese manager what to do, he respected the Chinese manager by assuming he would recognize and resolve the problem, which the Chinese manager did. Third parties may also become involved in dispute resolution in more or less

direct ways depending on culture. For example, an American manager was working in China for a U.S.-Chinese joint venture. When he did not receive the information he expected to find in a report, he asked his counterpart, a Chinese woman who was apparently responsible for the report, for a meeting to discuss

his needs. She politely put him off. A day later he was called into her manager's office and told there was no problem with the report: it had the information it always had and could not be changed. From the U.S. manager's perspective, his Chinese counterpart's behavior—refusing to meet with him, getting her superior involved, stimulating a reprimand from the superior—was inappropriate. He had wanted to talk to her directly about his interests; he thought she had turned the situation into a power play that he lost. But her perspective was different: she knew that she did not have the authority to change the report. She did not want to jeopardize her relationship with her American counterpart by rejecting his claim for data directly. Instead, she involved her superior to deliver the rejection. In the United States, culture dispute resolution negotiations tend to be direct

verbal interactions between principals. There is a tolerance for conflict and an expectation that managers are supposed to be able to resolve conflicts with counterparts without involving higher-ups. But in many cultures, the expectations are just the opposite. Managing conflict is the boss's responsibility. Involving a third party early in the dispute resolution process, especially a third party with the status and authority to impose an outcome, expedites dispute resolution and allows conflicting parties to save face, since neither has to back down to the other.

Multiparty Negotiation and Team Decision Making Negotiation strategy is particularly relevant to reaching agreement in teams when members have different goals, there are multiple issues to be decided, and there is not a simple majority of team members who agree on all the issues. Multicultural teams have another obstacle to overcome, as culture affects how people go about decision making. The following example illustrates many of the challenges associated with being a member of a multicultural team. A UN peacekeeping task force consisting of army officers from Russia, Germany, Turkey, and the United States was charged with preparing for the exhumation of a mass grave in Bosnia. “Everyone kind of viewed the Turks as a second-class military. The Germans and the Russians didn't really hit it off too well. And we [Americans] were viewed with kind of different levels of trust or skepticism by everybody else.”1 The task force leader, a Russian major, realized that the task force had to find a way to work together. So he separated the task into four subtasks and then assigned a multicultural team of one Russian, one U.S., one Turkish, and one German officer to each subtask. Each day four Russians, four

Americans, four Turks, and four Germans would drive from their respective camps to a central meeting place, split up to work in their assigned subgroups, and then regroup at the end of the day to drive back to their respective camps. Inevitably the talk on the way home was, How did it go today? And surprisingly, everyone began to recognize the value of the Turkish team members, whose experience in earthquake relief was more relevant to the task than any of the other officers' experience. The subgroups still had to negotiate with each other to coordinate the execution of their different subtasks, but the multicultural structure of the subgroups transformed that negotiation from being one army's way versus another to a cooperative effort that respected expertise. Negotiation strategy is particularly relevant to decision making that requires

the collaboration of multiple parties with conflicting interests. When team members, like those in the UN task force, also have different cultural backgrounds, they need to be prepared to confront not just conflicts of interests —what the decision should be—but also procedural conflict—how to go about decision making. Chapter Five focuses on using negotiation strategy to make decisions in teams, particularly multicultural teams.

Social Dilemmas Our world is beset by commons problems, or social dilemmas—interdependent situations in which incentives lead individuals to take from the common pool of resources, but the more individuals take, the more rapidly the resource disappears. The dilemma is how to balance self-interests and common interests to cooperate to maintain the resource. The label “commons problems” comes from a 1968 Science article written by ecologist Garrett Hardin in which he explained this dilemma by referring to farmers sharing common grassland.2 But social dilemmas are age-old problems, for example, as discussed by Thucydides: [T]hey devote a very small fraction of time to the consideration of any public object, most of it to the prosecution of their own objects. Meanwhile each fancies that no harm will come to his neglect, that it is the business of somebody else to look after this or that for him; and so, by the same notion being entertained by all separately, the common cause imperceptibly decays.3

and Aristotle: That all persons call the same thing mine in the sense in which each does so may be a fine thing, but it is impracticable; or if the words are taken in the

other sense, such a unity in no way conduces to harmony. And there is another objection to the proposal. For that which is common to the greatest number has the least care bestowed upon it. Every one thinks chiefly of his own, hardly at all of the common interest; and only when he is himself concerned as an individual. For besides other considerations, everybody is more inclined to neglect the duty which he expects another to fulfill; as in families many attendants are often less useful than a few.4

The most challenging contemporary commons problems are associated with global warming and overharvesting of shared resources, for example fisheries and forests. As we shall see in Chapter Six, in today's business world price fixing and cyberattacks can be framed as commons problems. Negotiation strategy doesn't solve social dilemmas, but the strategy we will

learn to use in resolving disputes also applies to social dilemmas, in which takers need to be turned into sharers. In Chapter Six we'll look at a variety of types of social dilemmas and ways to use negotiation skills to generate cooperation in these innately competitive situations.

Negotiations Between Governments and Foreign Direct Investors Governments seek foreign direct investment (FDI) to develop natural resources and access technology. They seek FDI for job creation and the economic development that governments hope will be a by-product. Investors seek access to resources, markets, and low-cost labor. These clearly differentiated interests mean there is good potential to create value in negotiations between governments and foreign direct investors. However, when we address these negotiations in Chapter Seven, we find that integrating the profit-making goals of global companies with the developmental goals of government economic policymakers is a major negotiation challenge. Chapter Seven begins by identifying and contrasting the interests of foreign direct investors with the interests of governments. It then covers the challenges of actually trying to make FDI work, including protecting legal rights when the rule of law is weak, dealing with corruption and coming face-to-face with one's own ethical standards, navigating complex layers of government bureaucracy, protecting the safety of one's own people, and avoiding entanglement with human rights abuses.

From Contexts to Planning

From Contexts to Planning Regardless of whether they are negotiating deals, resolving disputes, or making multiparty decisions, negotiators are more likely to fulfill their goals if they develop a strategic plan. The next section of this chapter introduces five building blocks of a negotiation strategy: parties; issues; positions, interests, and priorities; power (BATNAs and reservation prices); and targets. It then shows how to use the “Negotiation Planning Document” to organize the information generated from analyzing these five building blocks into an overall strategic plan. If the negotiation jargon that follows is new to you, be easy on yourself about

trying to learn it all at once. There will be definitions, there's a glossary in the back of the book, and there should be enough repetition that you will soon get comfortable with all these useful terms.

Five Building Blocks of a Negotiation Strategy Analyzing each of the five building blocks of negotiation strategy will generate the information that you need to be prepared to negotiate.

Parties Who are the parties? When analyzing who the parties are, a good rule is to identify the parties whose goals in conflict make it a negotiation situation. Sometimes those parties will be at the table representing themselves. But sometimes, as in the example that follows, those at the table will be agents with only limited authority to share information and make commitments. A manager on a team representing a U.S. company describes negotiating a

lease agreement with representatives of a Saudi Arabian company as follows: The negotiation on the Saudi side was carried out by “messengers.” These were often rather high-level managers, with significant Western culture experience, who nevertheless were not making any decisions themselves but shuttling between negotiation sessions and their bosses. Prior to a negotiation meeting, the Saudi side always wanted a list of questions and points that we wanted to cover, and they would get back to us, preapproving some questions [presumably those for which approval came from the principals] and indicating others were not approved. We were pretty sure the information

provided to the Saudi “bosses” was being filtered by the messengers, and we couldn't always tell the spin they would put on information.5

Often when negotiations are complex, involving different types of expertise or political points of view, teams of negotiators represent each party at the table. In these situations, members of the team representing a single party to the negotiation may have quite different and conflicting goals. For example, in 2010 when Google was negotiating with the Chinese government to renew its license for its local Chinese domain name, google.cn, there were factions with different goals within each party. On the Google side there were the visionaries who believed that Google had compromised its “don't be evil” values in 2006 when Google agreed to Chinese government censorship of searches in return for the google.cn domain name. But Google was also represented by professional managers who saw Google's mission as creating shareholder value. On the Chinese side in 2010 were the ideologues concerned with protecting the sovereignty and power of the Chinese state and those who were primarily concerned with how free access to the web would support economic development in China.6 When the counterpart brings a team to the table, you need to address two issues. First, why are they bringing a team? What expertise or political perspectives are represented by team members? Second, are team members' goals likely to be in conflict, as in the Google negotiation in China? What are those conflicting goals? In other negotiations, the goals of the parties at the table may not be the same

as the goals of the people who are going to be affected by the negotiated agreement, and who then try to sabotage the agreement. The French branch of an international consulting firm learned to pay attention to who the ultimate clients are when they negotiated a contract to audit the efficiency of several ministries of a North African nation. Contract negotiations went smoothly, but in starting the audit the French consultants were stymied by the lack of cooperation of people in the ministries being audited, who feared they would lose jobs and power as a result of the audit. Failure to take into account the concerns of parties who are not at the table but will be affected by the agreement is a classic mistake that jeopardizes implementation. After identifying the parties, you can turn to an analysis of the issues.

Issues Negotiators usually know what issues are important to them, but sometimes fail

to consider what issues are important to the counterpart, or fail to heed the intangible issues, such as reputation in the bicycles example discussed earlier. Here are some strategies for identifying issues prior to the negotiation:

On your own side of the table, consult with those who will be affected by the negotiated agreement to make a list of issues. Have someone take the role of the counterpart to come with a list of issues that are important to the counterpart. Ask the counterpart to send over a list of issues; send your list to the counterpart. Have a pre-meeting with the counterpart just to discuss issues (and use that meeting as an opportunity to build a relationship).

Of course, some parties may be reluctant to share information about issues, fearing that by identifying important issues they will make themselves vulnerable to exploitation. We will talk in detail in Chapter Three about how to get information sharing going. As a preview, it may be necessary to put a list of issues on the table and ask the other party “what are we missing?” or even make a multiple issue offer designed to get the issues out and under discussion.

Positions, Interests, and Priorities Negotiators need to know six things about each issue: their own and their counterpart's position on the issue, their own and their counterpart's interest underlying that position, and their own and their counterpart's priority for that issue. A position is what the negotiator wants with respect to the issue. For example, my position in the pumpkin negotiation was to buy all of Mme. Petit's pumpkins. Underlying that position are one or more interests. An interest is the answer to the question, Why is the negotiator taking that position? Interests are the needs, concerns, motivations, and goals that underlie positions. The key to uncovering interests is asking why and why not questions. That worked for me with Mme. Petit: I asked her why she would not sell me all her pumpkins, and she revealed her interest in the seeds. However, such direct questioning might not work with everyone, everywhere in the world. As we will discuss, it depends a lot on communication and trust. The now classic introduction to negotiations, Getting to Yes, urges negotiators

to get behind positions to interests.7 This is excellent advice because focusing on interests will give you a more flexible goal than focusing on positions. By my focusing on my interests (pumpkins to carve) and Mme. Petit's focusing on hers

(seeds to replant), we were able to transform the issue over which we were in conflict—how many pumpkins she would sell me—to an issue over which we had no conflict—when I would deliver the seeds to her. Once Mme. Petit and I shared interests, it became clear that seeds were her

priority and rind was mine. The integrative agreements that Getting to Yes extols, and Mme. Petit and I reached, come from trading off a low-priority issue (for me, seeds) for a high-priority issue (for me, rind). This means that you need to prioritize—to rank-order the issues on the basis of your interests. In a multi- issue negotiation, it's unrealistic to expect to get your position on every issue. But you can probably get more on the issues that are more important to you if you are willing to concede on the issues that are less important.

Power: BATNAs and Reservation Prices A major source of power in a negotiation is what you are going to do if you cannot reach agreement and how good that alternative is.8 Getting to Yes introduces the acronym BATNA to stand for your Best Alternative To a Negotiated Agreement. If your BATNA is good (and your counterpart knows that it is good), you can demand more and likely receive more from your counterpart. If your BATNA is poor (and your counterpart knows that it is poor), you can still make a high demand, but the counterpart is not likely to offer much more than your alternative. It is for these reasons that negotiators around the world are very reluctant to

reveal their BATNAs to their counterparts, and lying about BATNAs is widespread. When your counterpart knows your BATNA, the counterpart knows you should be willing to settle for something only just slightly better than this best alternative. You can see why negotiators are tempted to lie about their BATNAs. If you lie convincingly about your BATNA, your counterpart should offer more to close the deal. The problem with lying about alternatives is the reputational implications of

getting caught lying. Counterparts who know the markets in which they are negotiating are seldom taken in by lies. Those who find out they have been lied to have long memories and a tendency to retaliate. Reputation once lost is difficult to regain. I was talking to a group of commodity traders recently about lying in negotiations. There is a lot of information available to buyers and sellers in commodity markets. Liars get caught. “We know who the liars are,” they told me. “We tell them, ‘Hey, if you can get it at that price, go right ahead.’ ” But

these commodities dealers also added some good advice. They said, “We're careful though when the liar calls back an hour later asking for our price again, not to call attention to their lying. At the same time we don't forget who the liars are. When we move to a new desk we give our successors a list of the liars.” Negotiators not infrequently have multiple alternatives from which to choose

the best. Beginning the BATNA acronym with best recognizes that negotiators need to determine which among multiple alternatives is the best alternative. For example, I had several alternatives when negotiating for the incense burner in the souk in Xian, China. I really wanted a souvenir of my trip to Xian, and I liked the idea of the incense burner. I knew I could try another shop in the souk. I had seen similar incense burners in other shops that day. That was my best alternative, but of course I also could have bought something else as a less expensive souvenir, or gone home without any souvenir at all. The shopkeeper's best alternative to selling to me was to sell the incense burner at a bigger profit to another tourist. (I noticed the market was not crowded, but thought maybe the tour buses would come in later.) Both of our BATNAs were uncertain, which no doubt encouraged us to reach an agreement. How do you determine which alternative is best? In general, you need to order

your alternatives with respect to the degree to which they meet your interests and priorities.9 For example, if your company wants to acquire a new technology, you might buy another company that owns patent rights to that technology, or you might license that technology, or you might develop your own competing technology. The anticipated costs and gains will be different, depending on which option you choose. Analyzing these costs and gains is an essential step in business strategy that precedes negotiation. Once the analysis is done, negotiations can proceed with the counterpart that holds the lowest-cost, highest- gain choice. But this choice is not static. When negotiations with the first choice are not going well, negotiators may threaten or actually break off negotiations and start anew with the second-best option. How do negotiators know when to turn to the BATNA? This requires the

introduction of another negotiation concept: reservation price (also called “walk away” or “bottom line”). Your reservation price is the most that you are willing to give or the least you are willing to take to reach a negotiated agreement. To set your reservation price, you must know your BATNA. Your reservation price is a just-noticeable difference from your BATNA. I like to think of reservation price as being inside the negotiation and of BATNA as being outside the

negotiation. Knowing your reservation price gives you discipline in negotiations. You can

tell yourself (and others), “If I can't get this much out of the deal, I'll walk away to my BATNA.” You know that until you have an offer that meets or exceeds your reservation price, you do not have an offer that you can accept. Setting a reservation price can be challenging. People seldom go into

negotiations with absolute certainty about the cost, value, and availability of the BATNA. For example, I was fairly certain I could find a similar incense burner at a nearby shop, but I didn't know whether or not I could buy it at a lower price than what the current shopkeeper was offering. Negotiators need to consider all these aspects of the BATNA: cost, value, and availability when setting a reservation price. In general the rule is the greater the uncertainty about the BATNA, the more you should discount its value when you use it as a standard for setting a reservation price. Here is some advice for setting BATNAs and reservation prices: Understand how what you are planning to negotiate fits into the larger strategic picture. What's the goal of this negotiation? To enter new markets? To gain access to new technology? How else might the goal be met than by completing this negotiation? Know your BATNA. You always have a BATNA, even if it is simply staying with your current course of action. If your BATNA is poor, try to improve it. Generate a better alternative. Use your BATNA to set a reservation price. Do not change your reservation price unless you receive new, credible information that changes your BATNA. Credible information about your BATNA is not likely to come from the other party. After all, it is in that party's interest for you to think your BATNA is poor.

Targets Your target is what you reasonably think is possible to get in a negotiation. It should be optimistic, but not ridiculous! Having a target will keep you negotiating even after you know that you can agree because you've already received an offer that is better than your reservation price. Having targets helps negotiators fashion agreements that meet their interests. It's very important to set a target—and challenging to do! The rule for setting targets is to base them on the other party's BATNA. Be a

little more generous than your analysis of the counterpart's BATNA, and if he is rational, he will understand that your offer is better than the best he can do elsewhere. Admittedly, in practice it is even harder to evaluate the other party's BATNA than your own. There are several reasons why. First, you usually lack information about the other party's BATNA. Second, it is difficult to get deeply enough into the other party's mind to know exactly how he evaluates the BATNA. And, third, he may not be rational about the BATNA, and decide that regardless of the value of the BATNA, after negotiating with the likes of you, he does not want to do business with you! A fallback in setting a target is to find out about precedents or standards of

comparison, what Getting to Yes calls objective standards.10 When buying a house you know to find out what other houses in the neighborhood sold for. You also know to find out about the particular house you are interested in: how long it has been on the market; why the sellers are selling. Precedents help you make decisions when BATNAs are unclear or uncertain. When you have a dispute with a supplier, you ask your lawyer how much disputes like yours normally settle for (and how long it will take), and then you evaluate this particular supplier. Is the supplier engaged in other disputes? Are you an important customer? Is reputation at stake? All this information will help you set an optimistic but realistic target. Here is some advice for setting targets: Know your industry and market. What are the characteristics of recent negotiations like this one? Get as much information about them as possible. Determine if there is reason to think the environment has changed since the most recent similar negotiation. Determine what the other party's BATNA is. The other party is not going to agree to something that is worse than its BATNA. Be optimistic and realistic. Don't lose sight of your target as soon as you get an offer better than your BATNA. Keep working toward the target.

Combining Fundamentals We've just gone through five key building blocks of negotiation strategy: parties; issues; positions, interests, and priorities; power (BATNAS and reservation prices); and targets. Combining the information each provides is the purpose of

what we call the “Negotiation Planning Document.” While its name includes the word planning, as we will see, the document will also be useful when evaluating a potential agreement.

The Negotiation Planning Document The Negotiation Planning Document, illustrated as a template in Exhibit 1.1, is a one-page tool for organizing the information associated with the five building blocks of negotiation strategy. Completing it means you've identified the parties; the issues; and your own and the counterpart's positions, interests, and priorities, as well as your BATNA, reservation price, and target. The template models a two-party negotiation, but by adding columns for additional parties, you can adapt the same format for multiparty negotiations. With additional columns you can add in the different perspectives of members of a negotiating team. Even in a two-party negotiation you may want to add columns for the parties who will not be at the table but who have interests in and influence over the negotiation. You can also use the completed planning document to explain your strategic analysis to your boss and get authorization for a reservation price as well as your strategic approach to the negotiation, the theme of Chapter Three.

Exhibit 1.1. Negotiation Planning Document.

Completing the counterpart's column in the planning document is challenging. Trying to do so makes clear what you think you know about the counterpart's positions, interests, and priorities, and what you don't know and need to find out. Verifying what you think you know about the counterpart's positions, interests, and priorities, and finding out the information you don't know about them, should be your first order of business once negotiations begin. Here's how to read and use the Negotiation Planning Document. There should

be a column for each party to the negotiation, including yourself, and a row for every issue. The intersection of row and column makes a box that is further subdivided into three parts. Write the position on the issue in the top part of the box and the interest underlying the position in the bottom part of the box, then

put a number indicating the priority of the issue in the space to the left. At the bottom of the planning document are rows for entering BATNAs, reservation prices, and targets. You are really not ready to begin negotiating until at least your column of the planning document is complete. You may not be able to complete the counterpart's column with a lot of confidence, but not being sure about where the counterpart is coming from with respect to positions, interests, priorities, and BATNA is no excuse for leaving the counterpart's column blank. Spend some time thinking about answering the questions posed by the blank boxes in the counterpart's column. Talk to others about the counterpart's interests and priorities and BATNA. Use informal opportunities to acquire information to fill in those empty boxes. Consider the opening rounds of the negotiation as a time to verify and complete the planning document.

From Planning to Evaluating Agreements The Negotiation Planning Document also provides quite a bit of the information you need to evaluate offers and potential agreements. Negotiators all over the world want to “win,” and you should, too. At the same time, negotiators are frequently uncertain about when to accept an offer and end the negotiation. They know they shouldn't agree to an offer that is worse than their BATNA, although evidence about the agreement bias in negotiations suggests that some negotiators fall into this trap.11 Having your BATNA and reservation price clear in the planning document can help to minimize agreement bias. But negotiators are frequently not so sure how to decide whether to stop negotiating and accept an offer that is better than their BATNA. The planning document is also helpful in making the decision to accept an offer.

Evaluating Potential Agreements The Negotiation Planning Document and these four criteria are useful for evaluating potential agreements:

Is the offer better than my BATNA? Does the offer meet my interests? Does the offer meet my counterpart's interests? What are the transaction costs of continuing to negotiate?

How much time and energy have we committed to this negotiation?

How much time and energy would be required to continue negotiating? Will continued negotiations improve or hurt the relationship with the counterpart? How likely will continuing negotiations result in an improved agreement?

Evaluating potential agreements against the BATNA in the planning document has three important implications for the negotiators' own outcome or net value. (Net value refers to the difference between the value to the negotiator of the potential agreement and the value to the negotiator of the BATNA.) First, identifying the BATNA helps negotiators clarify the minimum of what they need in terms of value to say yes to a potential agreement. Second, identifying the other party's BATNA helps negotiators identify how much they can ask for at the negotiation table. (Recall that in setting up the Negotiation Planning Document you can use information about the counterpart's BATNA to set your target.) Third, thinking net—considering how much better you are doing than your BATNA—helps negotiators avoid satisficing—that is, accepting an outcome just a tiny bit better than the alternative. Thinking net helps negotiators stay motivated to find an outcome that is closer to their target than to their BATNA. Evaluating potential agreements against the negotiator's own interests as

opposed to positions has the important implication of encouraging creative solutions. Note that in the pumpkin example, once Mme. Petit and I got beyond our positions and shared information about our interests, we were able to craft a creative agreement in which both of our interests were met in a way that neither of us had contemplated at the outset of the negotiation. Evaluating potential agreement against the counterpart's interests not only

encourages creativity and settlements, it also increases the potential value for individual negotiators to claim. When negotiators fail to pay attention to their counterparts' interests and fail to use information about their own and the counterparts' interests and priorities to make trade-offs, they leave value on the table that no one gets, with the result that the value they can claim is limited. Exhibit 1.2 will help you understand this very important point about

negotiation strategy: if you do not care about meeting the counterpart's interests, you will hurt your chances of claiming value and meeting your own interests. The graph in Exhibit 1.2 shows some of the results from a negotiation simulation that I have used with managers all over the world. Colleagues and I collect the agreements that managers negotiate as the first exercise in executive education

workshops. We assign managers to the role of the buyer or the seller, give them confidential information for their role, provide at least an hour to prepare with a same-role counterpart, and then split them up to negotiate one on one with an opposite-role counterpart for seventy-five minutes. There are four issues in the negotiation, and all are financial. This makes it easy to score the exercise and to see which negotiators made the trade-offs meeting each other's interests and capturing the entire $5.08 million in potential joint gains. (Joint gains are the sum of the buyer's net value and the seller's net value.) The data in the exhibit are from intracultural negotiations; that is, managers from particular countries were negotiating with their countrymen. The first result to notice in Exhibit 1.2 is that, on average, negotiators from all over the world fail to take full advantage of the maximum potential in the exercise. The best negotiators on average leave about $1 million of value on the table that neither party gets. (Why they do so is a problem of strategy—the subject of Chapter Three.)

Exhibit 1.2. Individual and Joint Gains Within and Across Cultures.

To see the point about hurting your own net value because you were not sufficiently concerned about helping the counterpart maximize his net value, look at the shading in the bar chart of Exhibit 1.2. When joint gains are lower (for example, the results for Chinese or Indian negotiators), both buyers and sellers' net values are lower, but when joint gains are higher (for example, the results for Brazilian or American negotiators), both buyer and seller's net values are higher than those of Chinese and Indian buyers and sellers. The data in

Exhibit 1.2 show that it is in negotiators' self-interest to search for agreements that meet their own and their counterparts' interests. Transaction costs refers to the time, money, and energy that negotiators put

into planning and executing a negotiation. High transaction costs can be justified if the result is an agreement that over time actually yields high net value to both parties. Often, however, it is difficult to judge whether, by persisting in a frustrating negotiation that does not seem to be making much progress toward agreement, you will ultimately reach a high net value agreement. There are two analyses to do to help you make the decision to end a negotiation by accepting an offer or declaring an impasse. As discussed earlier, the first analysis is to compare the value of the offer to the value of your BATNA. The second analysis covers a point we have not yet discussed—the nature of your relationship with the other party. Rationally, if the negotiation is stalled after significant effort and you do not

have an offer that is better than your BATNA, you should cut your losses and turn to your BATNA. On the other hand, if progress stalls but your BATNA is poor, it's time to invest significantly more effort in building a relationship and in becoming creative about how to resolve the impasse. Negotiations are not just about economic outcomes but also about relational

outcomes.12 Some negotiations are about building new relationships, others about extending, managing conflict in, or ending old relationships. Negotiators from some parts of the world assume that if they can negotiate high-joint-gains economic agreements, a trusting relationship will follow. Yet, as we begin to talk about culture and trust in subsequent chapters, it will become clear that negotiators from other cultures assume that economic gains will follow from relationships. Leaders of the American private equity group Blackstone and the Brazilian private equity group Pátria spent more than ten years building a relationship that ultimately culminated in a $200 million equity investment in Pátria by Blackstone.13 Savvy global negotiators patiently engage in building and maintaining relationships and extending networks even when there is no obvious immediate payoff. Strong relationships between parties to a negotiation have long-term payoffs.

Though parties can negotiate contingent contracts or hedge elements of agreements that are predictably unpredictable, the environments in which agreements are reached are often dynamic in unpredictable ways. In the rush to gain access to new consumers, markets get misread. Political, economic, social,

and technological environments change. Some negotiated agreements seem to promise high net value but fail to deliver on actual gains, due to factors outside either party's control. Parties that develop a trusting relationship can often accept that environmental shocks are no one's fault and from there proceed to renegotiate. In the absence of a trusting relationship, depending instead on the contract, parties may be unable to renegotiate and end up in court or arbitration or even just selling out to get out of the relationship. This is what BP ultimately did in 2012 to end its involvement in the 50-50 joint venture in the Russian oil and gas industry that was called TNK-BP. The joint venture, formed in 2003 between BP and a group of Russian investors (AAR), was profitable and grew to be Russia's third largest oil company by output, even though it was plagued from the outset by internal governance problems. But the death blow to the TNK-BP was a change in the environment. The Russian government had privatized much of its oil and gas sector in the 1990s, selling to tycoons such as the AAR investors, and seeking technology and know-how from foreign investors such as BP to revitalize an unproductive industry. This policy changed in 2000 as President Putin sought to reestablish government control of the effectively revitalized oil and gas sector, which brings in half of all of Russia's tax revenues and is a major source of international influence. BP sold its stake to the Russian- government-controlled Rosneft in October 2012, and the AAR investors sold their stake also to Rosneft in December 2012.14

Moving on to Culture In this opening chapter, we've reviewed the basics of negotiation, focusing on the contexts in which people negotiate, the fundamental elements of negotiation strategy, and how to evaluate negotiated agreements. The rest of the book will put these ideas into action. Doing so is complicated by many factors, including the negotiators' cultural background and the cultural context of the negotiation. Chapter Two addresses how and why culture affects negotiation.

Notes

1. Interview as part of the Multicultural Teams project, K. Behfar, M. Kern, J. M. Brett, 2005. For more information about this project, see J. M. Brett, K. Behfar, and M. C. Kern, “Managing Multicultural Teams,” Harvard Business

Review, 2006, 84(11), 84–91 (AN 22671287); K. Behfar, M. Kern, and J. M. Brett, “Managing Challenges in Multicultural Teams,” in E. Mannix and Y. Chen (eds.), Research on Managing Groups and Teams (Oxford: Elsevier Science Press, 2006), 233–262. 2. G. Hardin, “The Tragedy of the Commons,” Science, 1968, 162, 1243–1248. 3. Thucydides, History of the Peloponnesian War, R. Crowley (tr.) (London: J. M. Dent & Sons; New York: E. P. Dutton, 1910), Book I, Sec. 141. 4. Aristotle, “Politics,” in B. Jowett (tr.), The Politics of Aristotle: Translated into English with Introduction, Marginal Analysis, Essays, Notes and Indices (Oxford: Oxford University Press, 1885), Book II, Chapter III, 1261b. 5. Darren Wee, interview with author, October, 26, 2005. 6. J. Brett, L. Pilcher, and L.-C. Sell, A New Approach to China: Google and Censorship in the Chinese Market, Kellogg School of Management, Case 5- 211-255, 2011. 7. R. Fisher, W. Ury, and B. Patton, Getting to Yes: Negotiating Agreement Without Giving In, 3rd ed. (New York: Penguin Books, 2011). 8. Although BATNA is a major source of power in negotiation, it is not the only source. As we shall discuss in the next chapter, on culture and negotiation, status, or standing in the social hierarchy, also confers power to parties in some cultures because of social deference. 9. But there are situations, which we discuss in the dispute resolution and multiparty decision-making chapters (Four, Five, and Six), in which parties are not free to turn to their best alternative. In these situations when parties are not free to just walk away from the negotiation, their BATNA is out of their control! It is what the counterpart does next! BATNAs in these situations are interdependent—each party has to consider his or her BATNA as being the worst thing the other party can do in the case of impasse. Once my students understood this, they came up with a new acronym for BATNA in such situations: WATNA—Worst Alternative To a Negotiated Agreement. 10. As we will see in Chapter Three, when talking about using precedents or standards as influence, “objective” is rather a misnomer. Negotiators subjectively choose standards that support their arguments. 11. L. Thompson, The Mind and Heart of the Negotiator, 5th ed. (Upper Saddle River, N.J.: Prentice Hall, 2011). 12. J. Curhan, H. A. Elfenbein, and H. Xu, “What Do People Value When They Negotiate? Mapping the Domain of Subjective Value in Negotiation,”

Journal of Personality and Social Psychology, 2006, 91, 493–512. 13. C. V. Nicholson, “Blackstone Buys 40% Stake in Brazil's Patria,” New York Times, September 30, 2010, http://dealbook.nytimes.com/2010/09/30/blackstone-buys-40-stake-in-brazils- patria-investments/?_r=0. 14. D. Cimilluca and G. L. White, “Rosneft Seals TNK-BP Deal,” Wall Street Journal, December 12, 2012, http://online.wsj.com/article/SB10001424127887323751104578150693348729774.html

2

Culture and Negotiation

This chapter introduces a model that describes how culture affects negotiation. To use this model to anticipate and prepare for negotiating globally, we first need some basic understanding of what culture is and how people act and societies are structured in different cultures. With this understanding, we can then begin to understand how culture affects negotiation, and how we need to adjust our strategic negotiation planning for culture.

What Is Culture? Culture is the unique character of a group.1 Individuals have personalities; groups have cultures. You can see culture in the patterns of peoples' beliefs, attitudes, norms, and behaviors as well as in the nature of the social, economic, political, legal, and religious institutions that structure and organize groups. Anthropologists suggest that culture emerges because people are faced

repeatedly with similar social problems,2 for example, the problem of negotiation when people who are interdependent have conflicting interests. People develop procedures, such as a negotiation strategy, to solve those problems of social interaction. Then when similar problems arise later, people repeat the same procedures and teach others to use them. The result is a cultural norm, or standard of appropriate behavior, that guides effective social interaction. For example, in some cultures people greet each other by kissing, others by bowing, and others by shaking hands. All these different greeting behaviors are equally functional within culture; all signal recognition and respect within culture. The important thing to understand about the different cultural norms that guide

social interaction is that one culture's norms are no better or worse than another culture's norms. The norms are just different. Understandably, people are most comfortable with the norms they learn at an early age, because by following

those norms they can get along fine socially without a lot of thought and effort. The problems arise when one tries to “get along” in a culture in which norms for social interaction are quite different from those one is used to. Greeting via cheek kissing is not widely practiced in Japan; bowing is not widely practiced in France. Violating a culture's greeting norms has the ironic effect of being disrespectful when your intention was just the opposite, to signal respect. Greeting norms also provide a ready example for understanding cultural

prototypes. A cultural prototype describes the way that many people in a culture act: many Japanese bow in greeting; many French cheek kiss when greeting. But not everyone in a particular culture follows the prototype. This is why scholars and laymen like to represent culture in terms of a bell curve. The area under the bell is the central tendency or prototype. We've drawn two bell curves in Exhibit 2.1 to represent cultural differences in

greeting behavior in Japan and France, although the base or x-axis of the figure can represent any cultural characteristic. Here we're showing physical distance in greeting behavior. Japan bell curve to the right shows high physical distance in greeting behavior; for example, bowing. The France bell curve to the left shows physical distance in greeting behavior as low; for example, kissing.

Exhibit 2.1. Cultural Stereotypes and Cultural Prototypes of a Greeting Behavior.

The bell curves in Exhibit 2.1 illustrate four important features of cultural prototypes: central tendency, its location, cultural tightness-looseness, and cultural overlap. The central tendency of a cultural prototype is the 95 percent confidence interval around the central point of the curve. It's the unshaded area

within each culture's curve in the exhibit. What you see immediately is that Japan's bell curve is higher, tighter, and located more to the right than France's, meaning that physically distant greeting behavior, such as bowing, is commonly practiced in Japan. France's bell curve in contrast is lower, looser, and located more to the left than Japan's, suggesting that greeting behavior is generally physically close in France, but varies quite widely, because most people exchange kisses but some embrace and others shake hands. Cultural tightness refers to the extent to which cultural norms are relatively

inflexible and formal, generating little within-culture variation, as illustrated in the Japan bell curve in the exhibit. Cultural looseness refers to the extent to which cultural norms are relatively flexible, generating improvisation and interpretation and greater variation of behavior within the culture, as reflected by the France bell curve.3 As a result of cultural tightness-looseness, the cultural prototype or central tendency is going to be a better predictor of peoples' behavior in a tight culture than in a loose culture. The exhibit also illustrates cultural overlap between France and Japan. This

might be greeting behavior at the point of shaking hands. Some cultures are more similar than others. In our example of physical distance in greeting behavior, we chose two cultures, Japan and France, that are quite different. If we had shown Japan and South Korea, the two countries' bell curves would have overlapped in the bow region of the graph. It we had chosen France and Italy, the two countries' bell curves would have overlapped in the kiss region of the graph. One reality of culture that Exhibit 2.1 doesn't illustrate is that cultural

boundaries are not as neat as the two adjacent curves might suggest. Culture is rather like a Matryoshka (one of those Russian nesting dolls): when you open the larger doll, there are smaller dolls inside. There are always cultures within cultures within cultures. In this book we are going to talk about cultural boundaries in two ways:

geographical regions and nations. In this chapter, in which the goal is to introduce you to important cultural differences that can affect negotiation strategy, the discussion of culture focuses on broad geographic regions of the world that share cultural characteristics. In the negotiation strategy chapters to come, the examples and the research data are situated primarily within national boundaries. Nations are actually a pretty good way to define cultural boundaries when preparing to negotiate globally, because they define elements of culture—

the political, legal, economic, and social environment—within which people normally negotiate, and which, as we will see, affect how they negotiate. The challenge of negotiating effectively in a global environment is in

navigating cultural differences to achieve your goals without compromising your integrity. To do so you need to be able to recognize cultural behavior as such when you encounter it, and then know how to respond appropriately.

Three Prototypes: Dignity, Face, and Honor Cultures Most people are familiar with the East-West cultural divide that distinguishes ways of thinking and governing, grounded in Confucian philosophy versus Aristotelian logic. This distinction between East-West cultural prototypes remains valid today, but it ignores vast geographic regions of the world, such as the Middle East and Latin America, where global negotiators are also active. Fortunately, recent cultural analysis has identified a third cultural prototype that is worth our attention for its unique characteristics and their implications for negotiation. This new analysis distinguishes among dignity culture, familiar as Western culture, face culture, familiar as East Asian cultures, and honor culture, which is the prototypical culture in the Middle East, Latin America, and North Africa. There is no single explanation for why a certain cultural prototype should be

located in a certain part of the world. However, scholars generally agree that differing political solutions (for example, strong or weak rule of law), economic systems (for example, controlled or uncontrolled markets), and social solutions (for example, individualism versus collectivism) emerged in response to geographic challenges (including, for example, access to abundant versus scarce agricultural crops) and demographic challenges (for example, population density).4 We suggest that this dignity, face, and honor culture typology is relevant to negotiation because people in these three different types of cultures analyze social problems rather differently. Exhibit 2.2 describes dignity, face, and honor cultures in terms of six sets of

characteristics: self-worth, power and status, sensitivity and response to insults, confrontation style, trust, and mindset. These are by no means the only characteristics that distinguish these cultures, but they are ones that are particularly relevant to how people negotiate. Self-worth refers to a person's

sense of his or her own value in society. Power refers to a person's ability to influence an outcome. Status refers to a person's position in a social hierarchy. Sensitivity and response to insults refers to the way a person is affected by and responds to another's offensive behavior. Confrontation style refers to how a person responds when faced with defiance, opposition, or hostility. Trust is the willingness to make oneself vulnerable to another person.5 Mindset refers to the way people reason and process information.6

Exhibit 2.2. Characteristics of Dignity, Face, and Honor Cultures.

As you begin reading about the dignity, face, and honor culture prototypes, you are likely going to be thinking: but I know Americans who are not like that; I know Chinese who are not like that. Remember though, we are not describing particular individuals but cultural prototypes, or central tendencies of thought and action that have developed historically in those cultures and still hold, even

if not practiced by all people in that culture. We should assume neither that all people in a particular honor culture, for example Iran, follow all norms of honor culture, nor that all honor cultures, for example Iran and Mexico, are the same with respect to each of the characteristics described in Exhibit 2.2. Remember, too, those Russian dolls. There are subcultures within cultures; not everyone is going to act exactly like the cultural prototype. For example, in dignity cultures people generally are self-interested and they generally are not shy to negotiate to achieve their goals, yet we know that American women tend not to negotiate their employment contracts.7 Our purpose in discussing dignity, face, and honor cultural prototypes is to help you see cultural differences that may affect negotiation strategy.

Dignity Cultures Dignity culture is the prototype of Western society.8 The key characteristic of dignity culture is the emphasis on the individual. Self-worth—one's value to society in dignity culture—is self-determined or intrinsic, independent from social status, and therefore quite stable even in social situations that are much more threatening to self-worth in other cultures. In such an environment, people are quite concerned for their own welfare, and rather less concerned about the welfare of others. The social independence of dignity means that there is no presumption of

social hierarchy in dignity cultures; each person is as good as any other. People in dignity cultures view themselves as equal to every other member of the society, and this view is reflected in the egalitarian governments and market economies characteristic of these cultures.9 Historically, the ideology of market economies and dignity (that is, intrinsic sense of worth) have developed together in environments that had abundant resources, low population density, and strong governments that could protect individuals' property rights from violence.10

Interactions in Dignity Cultures When self-worth is intrinsic, not socially determined, it is not easily threatened in social interactions such as negotiations; in other words, your refusal to accept my offers is a reflection on you not me. People in dignity cultures are pretty good at maintaining their sense of self-worth, regardless of the way others behave toward them.11 If an insult does not damage one's self-worth, there is no

need to reciprocate the insult. Indeed, intrinsic self-worth provides the resilience to turn back insults, for example by implying that it is the insulter who lacks dignity (Who are you to say that to me?).12

Nevertheless, people in dignity cultures certainly care about respect.13 And, consistent with their intrinsic sense of self-worth, they are likely to perceive conflicts in terms of violations of individual rights and autonomy.14 At the same time, dignity cultures afford several factors, less present in other cultures, that insulate members from the need to retaliate. As we have discussed, one insulating factor is the resiliency of dignity that resides largely in the self, rather than depending on social support. Strong norms in dignity cultures that encourage direct, rational, and unemotional confrontation of conflict are a second insulating factor. Recall the pumpkin example in Chapter One? When Mme. Petit refused to sell me all of her pumpkins, my approach was direct—I asked her why not. Mme. Petit's approach was also direct—she told me she needed the seeds. Since we were both using the same normative approach, we quickly reached a workable agreement. The American manager in the data example in Chapter One also used a direct approach when asking his Chinese counterpart for more data. He didn't even think he was engaged in conflict until her boss called him in. As we will see when we turn to discussing face culture in the next section, the American manager's dignity culture norms did not match Chinese face culture norms about how to address a conflict. A third insulating factor is the rather well-developed rule of law that is

common in dignity cultures.15 Dignity cultures acknowledge that the prevalent norm of self-interest16 will lead to a loose culture that needs some reigning in. The rule of law in these societies channels and restricts conflict when self- interest gets out of hand, but still allows for the direct confrontation of disputing parties in courts and alternative dispute resolution systems. (There will be more about this in the dispute resolution chapter.)

Trust in Dignity Cultures People in dignity cultures tend to be trusting of others. They trust swiftly and on faith,17 believing that others deserve to be trusted until they prove they are not trustworthy.18 The belief in trust is bolstered by the norm of reciprocity—treat others as they treat you.19 People in dignity cultures largely assume that when

they treat others as trustworthy, others will treat them as trustworthy. Trusting signals integrity and trustworthiness. So long as enhancing the welfare of others by trusting promotes, or at least does not hurt, their own self-interest, they will do so. Relying on positive reciprocity to manage interdependence is also wholly

consistent with the relatively egalitarian distribution of power in dignity cultures. It's not easy to get others to do what you want in egalitarian cultures; they push back with their own ideas! When people cannot rely on status and authority for power, they fall back on trading and reciprocity to get things done. “If you'll do this for me, I'll do that for you.” Then when what they have to trade isn't enough for the other, instead of being insulted, they just go off and look for someone else to trade with.

An Analytic Mindset People in dignity cultures tend to use Aristotelian logic when they reason.20 They break up problems such as negotiations into separate elements or issues, prioritize, and search for logical and linear rules to explain causality. Abstract linear thinking is so pervasive in Western culture that people often don't notice its use. Yet it is the model underlying the five-paragraph essay that American high schools use to teach writing. It is what my lawyer husband and lawyer daughter are using when I eavesdrop on their case discussions. It is the way dignity culture negotiators organize information. It underlies the structure and rules for building a Negotiation Planning Document.

Face Cultures Face culture is the prototype of East Asian societies.21 The key characteristic of face culture is the emphasis on the interests of the collective, relative to those of the individual. (By collective we mean the groups to which people belong.) Self- worth—one's value to society in face culture—is socially conferred. Face depends on a person's relative position in a stable social hierarchy, and on fulfillment of the person's role obligations in that society.22 Thus people are very concerned with the status and welfare of the groups from which they derive face. Face cultures are very stable hierarchical social structures. The fundamental

group in face culture is the family, and the unequal hierarchical relationships that

are characteristic of families reflect the unequal hierarchical social structure of the rest of face societies.23 Face cultures consist of hierarchies within hierarchies, rather like those Russian nesting dolls. Historically, face cultures have developed in densely populated geographical areas, where their stable hierarchical social structures facilitated the cooperation necessary for organized food production. Although the modern East Asian nations of Japan and South Korea are democratic, their social structures remain very hierarchical.

Interactions in Face Cultures Because self-worth in face cultures is a function of a person's relative social position in a group, it is not too easily threatened unless the status of the group also is threatened. Japanese, for example, view conflict as violations of duties and obligations.24 In addition, three characteristics of face cultures help to preserve the social status quo: norms for harmony, norms of indirect confrontation, and that ubiquitous hierarchy.25 Norms for harmony increase the threshold of people's tolerance for insult or conflict. Norms of indirect confrontation deter aggressive retaliation of insults and conflict. Hierarchy provides an institutionalized, although indirect, channel for face-saving resolution of conflict. The Chinese manager in the example in Chapter One was likely motivated by all these norms when she took her American colleague's request for data to her boss rather than telling the American directly she would not provide the data. From her perspective, directly rejecting the American manager's request for data would have been disrespectful and would have threatened their harmonious peer working relationship—he would have lost face. In contrast, by taking the request to her boss, she was engaging in an appropriate indirect response and use of the social hierarchy. In face cultures, due to deference to hierarchy there is no loss of face when being told no by a higher- status member of the society. Although these norms for harmony, indirect confrontation, and deference to

hierarchy bring stability to ongoing social relationships in face cultures, as we will see, they do not govern the process of negotiating new social relationships. New social relationships require determining parties' status vis-à-vis each other. Negotiation is the opportunity to make that determination. In a face culture, once an agreement with its implications for roles and responsibilities has been reached, the relationship is likely to be very stable. Do not be surprised that in face cultures negotiations of new social relationships are highly contested. (We'll

talk much more about this in Chapter Three.)

Trust in Face Cultures Trust functions differently in face and dignity cultures, even though it means the same thing. Pretty much everywhere in the world, a trustworthy person is viewed as someone who is reliable, benevolent, responsible, and dependable, and has integrity.26 However, the environmental factors that make a person trustworthy are quite different in the two types of cultures.27

Smooth social interaction depends on people being able to predict with some accuracy how others are going to behave. In face cultures, monitoring and sanctioning by institutions such as family, community, church, and state mean that people generally can predict how others will behave. Scholars have data to show that such institutions serve as reliable external guarantors of individual behavior.28 So as long as institutional surveillance is in place, there is little need to rely on interpersonal trust.29 Knowing that surveillance is present is enough to cause people to act as if they trusted each other.30 But scholars argue that although people's resulting trust-like behavior reflects their faith in conformity in the presence of institutional surveillance, it does not portend a willingness to extend trust indiscriminately and across situations.31 Thus face and dignity cultures bring very different perspectives on trust to the task of negotiating new social relationships.

A Holistic Mindset People in face cultures tend to reason and analyze problems holistically as a result of their Confucian cultural heritage.32 When they analyze a problem, they focus both on the problem and on the context in which it is embedded. They are highly likely to consider what changes in the context may have caused the problem, and they are likely to search for solutions to problems by comparing a problem and its context's similarities and differences to other problems and contexts they may have encountered before. A holistic mindset relies more strongly on experience-based knowledge than does the analytic mindset. One interesting test that distinguishes between the two types of mindsets

involves showing people pictures of animals in incongruent contexts, for example a sheep in the lobby of a building. When asked to describe the picture,

face culture (holistically minded) people tend to talk about both the sheep and its discrepant context; by contrast, dignity culture (analytically minded) people tend to describe the attributes of the sheep, largely ignoring the incongruous context. I see this holistic mindset in action in the papers that my Asian graduate

students write when they first begin studying in the United States. They write well and their ideas are good, but their papers gradually build to their key insight, exploring various perspectives before proposing a thesis of their own. My American students start the paper with their own key insight and then systematically and linearly unpack it (much as I am doing in this book). Another place I see this dignity and face difference in mindset is when

negotiators address multiple issues. An American manager told me about negotiating in Korea. At the end of the first day, he said, “We were elated! We had covered four of the issues on our agenda. We thought we were on a roll! On the second day the Koreans wanted to start over discussing the issues we'd already discussed. We wanted to move on.”33 The Americans in this negotiation were working with that linear mindset and swift trust. The Koreans were approaching the negotiation in a much more holistic and slow trust manner. In wanting to revisit issues already discussed, the Koreans were signaling that having talked about an issue did not mean having resolved it out of context from the other issues. They may possibly also have wanted to hear how consistently the Americans would talk about the issues the second day.

Honor Cultures Honor culture societies are distributed geographically around the world and constitute our third prototype. Honor culture is characteristic of Middle Eastern and North African cultures, Latin American cultures, and to some extent, Southern European cultures.34 In honor cultures, self-worth is an individual's estimate of his own value as socially claimed from and recognized by society.35 Thus self-worth in honor cultures combines elements of self-worth as defined in dignity cultures with elements of self-worth as defined in face cultures.

Honor cultures generally have hierarchical social structures,36 but for several reasons, those social structures are relatively unstable.37 Historically, honor cultures developed in areas with poor agricultural resources, economies based on herding, and weak central governments that were not able to protect people's

property rights.38 In these economically challenging and unstable environments tribes, clans, and families competed and contested with each other to establish social dominance and exert control over resources.39 The modern history of several Middle Eastern and Latin American countries reveals such contests: cycles of dictatorship and repression, followed by revolutions or reforms; brief periods of political openness, followed by coups or other events that establish new structures of power and politics that are strongly hierarchical.40

Interactions in Honor Cultures In honor cultures, where social hierarchies are unstable and frequently contested, self-worth can manifest in rather different ways depending on whether honor is being attacked or acknowledged. There is substantial recent research showing that people in honor cultures respond to insult aggressively, defensively, and directly to protect their self-worth.41 Yet because honor is conferred by others, honor is also displayed to others (particularly strangers) by behavior that is trustworthy42 and gracious.43

Trust in Honor Cultures To be honorable is to be trustworthy. However, the contested social relations that characterize many honor cultures mean that trust may not be supported by social norms or institutional structures, or justified by norms of positive reciprocity. Trust is restricted to the chosen few. Fear of being taken advantage of means that people in honor cultures tend to be slow, not swift, as in dignity cultures, to extend interpersonal trust to strangers. And honor cultures lack the stable institutional structures that provide the reliable external guarantors of trustworthy behavior characteristic of face cultures. In social situations in which it is difficult to anticipate whether or not the other party will be trustworthy, the defensive response in honor cultures is to mistrust. In honor cultures, trusting means putting your self-worth in the hands of

others. If you trust and your trust is reciprocated, then you gain honor because your self-worth is ratified. But there is the huge risk associated with trusting. If your trust is not reciprocated, there is both a social loss of social face and also a personal loss of self-worth—I must not have deserved to be trusted. How different lack of reciprocation is in honor culture than in dignity culture. In dignity culture the failure to reciprocate a trust initiative reflects poorly on the

recipient, not the initiator.

A Mindset More Analytic Than Holistic Logically, the prevalent mindset of negotiators from honor cultures should be more analytic than holistic, although frankly there is not yet good research on this issue. The reason is that the modern educational systems in Latin America, North Africa, and the Middle East, and on the Indian subcontinent, are steeped in the European tradition, not these cultures' ancient civilizations. The Spanish and Portuguese brought Aristotelian logic to Latin America. The current Mexican school system is patterned on France's. The British were in Egypt, Palestine, and India, and the French in North Africa and Lebanon until the middle of the twentieth century. Young men and some women from these parts of the world are routinely sent to universities in Europe, Canada, and the United States. Most, but not all, of the people from honor cultures you encounter across the

negotiating table are likely to be very familiar with analytic thinking. At the same time they will also be influenced by the philosophical and moral worldviews of the ancient civilizations of the Middle East and Latin America that flourished economically and politically in these regions long before the Europeans arrived and that were in many ways more similar to civilizations in China than to those in Europe. You will see social vestiges of this heritage in the strength and importance of families and religious institutions and the spirituality of the people in these modern societies. You also may see intellectual vestiges of the way people thought holistically about problems. For example, these ancient Middle Eastern and Latin American civilizations shared pictographic writing with the Chinese.

The Value of This Three-Culture Framework Understanding self-worth, power and status, sensitivity to insults, confrontation style, trust, and mindset from the perspective of dignity, face, and honor culture means that when you see people acting quite like one of these cultural prototypes, you can avoid interpreting their behavior through the lens of your own culture and see it instead as an expression of their own culture. This has at least three very positive benefits for the global negotiator. First, you can reduce the risk of jeopardizing the negotiation due to

misinterpretation of your counterpart's behaviors. For example, in Japan it is not the norm to look a counterpart directly in the eye. Western culture negotiators,

used to eye contact and unaware of this Japanese social norm, can easily fall into the cultural misinterpretation trap, inferring that their Japanese counterpart is not trustworthy. Second, recognizing the cultural source of your counterpart's extremely

frustrating behaviors should increase your tolerance for those behaviors. When you understand that the behavior is cultural, you can see that (a) your counterparts are acting normally for their culture, (b) they are not acting specifically to frustrate you, and (c) they may not even know how your culture would interpret their behavior. This awareness is what Infosys engineer Junichi Yoshida was trying to accomplish when he shared the comparisons in Exhibit 2.3 with Indian and Japanese software project engineers who were trying to improve their communications with each other.

Exhibit 2.3. Assumptions of Indian and Japanese Software Engineers. Assumption Indian Engineer Japanese Engineer Self-concept I am superior. I am inferior.

Customer Partner, Adult God, Child

Words Words are not final. Some are less important.

Words are final. They are commitment.

Commitment I cannot say I do not know. I cannot say I know.

Communication I talk. I listen.

Expertise I am an expert after ten days. I am an expert after ten years.

Teamwork The team is there for me. I am here for the team.

Decision Making

I make a decision. The team makes a decision.

Time I value my time. I value your time.

Negotiation I convince you. I present my position. I sympathize with you. I represent your position.

Silence Silence is emptiness of the mind. (weakness)

Silence is consolidation of the mind. (strength)

Comprehension I focus on the big picture. I focus on the details.

Rules Rules can be applicable. Some are less important.

Rule is a rule. No exception. All are important.

Suggestion No. This is a better way. I will give you solution.

Yes but . . . maybe, this is a better way. How do you think?

Risk To manage. To avoid.

Emotion To share. To hide, or explode.

Quality I achieve the goal. 90 percent is I achieve the goal. 120 percent is completed.

Quality I achieve the goal. 90 percent is completed.

I achieve the goal. 120 percent is completed.

Relationship I spoke to him once. He is a friend of mine.

I spoke to him ten times. I just know him.

Schedule It takes five days. Therefore, it takes a week.

It takes five days. Therefore, it does not take a week.

Explanation It is information. It is an excuse.

Hierarchy I obey my boss and act accordingly. I obey my boss, but may act differently.

Arguing It adds values. It is enjoyable. It damages the relationship. It is uncomfortable.

Information I share any information. I like quantitative information.

I share necessary information only. I like qualitative information.

Source: Used with permission of Junichi Yoshida and Infosys.

Third, when you can recognize that the counterpart's behavior is cultural and not personal, you should be able to be more flexible in your choice of negotiation strategy. For example, a U.S. software engineer working on a project for an Israeli client reported how frustrated he was by the Israeli's different way of approaching issues and discussing them. “There is something pretty common to the Israeli culture, they like to argue. I tend to try and collaborate more and it got very stressful for me until I figured out how to kind of merge the cultures.”44

With the ability to see culture in the characteristics that distinguish dignity, face, and honor cultures, we are now ready to consider how culture affects negotiation.

A Model of Intercultural Negotiation The model in Exhibit 2.4 illustrates how culture affects negotiation. It shows two negotiators from different cultures. Arrows indicate that each negotiator has a set of interests and priorities that can be affected by culture as well as other factors, and that these interests and priorities determine outcome potential. This rather abstract term is easier to understand with a concrete example. Recall that when I was buying pumpkins from Mme. Petit in Chapter One, her interest was in the seeds and mine in the rinds. Our different interests generated the potential for an outcome that completely met her interests and mine. Yet to realize that potential outcome we had to learn about each other's interests. This is where negotiators' strategic behavior (which is determined partly by culture) comes in. When the

pattern of interaction between two negotiators is effective in eliciting information about the other party's interests and priorities, they should be able to reach an agreement that captures the outcome potential. Although Mme. Petit and I came from different cultures, both France and the United States are dignity cultures that, as shown in Exhibit 2.2, share some common characteristics such as direct confrontation, swift trust, and an analytic mindset. When I asked Mme. Petit directly why she would not sell me all her pumpkins, she answered directly and honestly regarding her interests; this quickly made it clear to both of our analytic minds that selling me all her pumpkins did not necessarily mean giving up all the seeds. Thus, although cross-cultural, our pattern or interaction was nevertheless successful in eliciting information about the other party's interests and priorities and allowed us to reach an outcome that captured the outcome potential.

Exhibit 2.4. Culture in a Two-Party Negotiation.

Take another look at the dignity, face, and honor cultural prototype chart in Exhibit 2.2. It does not take too much imagination to see how the pattern of strategic interaction between negotiators from, say, face and honor, or dignity and face cultures would be challenged by cultural differences in status and hierarchy, response to insult, confrontation style, trust, and mindset. The example of the American asking his Chinese counterpart for information is a good illustration. He asked her directly as was normative in his egalitarian, direct-confrontation culture. She responded indirectly by involving her boss, as was normative in her hierarchical, indirect-confrontation culture. She never found out why he wanted the data; he never found out why the data were not in the report or why the data might or might not be difficult to generate. It is

possible that these two managers' interests had outcome potential similar to that of Mme. Petit and me. It is just that their pattern of strategic interaction never uncovered their interests.

Environment of the Global Negotiation Exhibit 2.4 identifies one more element that we need to address: the environment of the negotiation. Global negotiations occur in environments that may be more hostile to or more supportive of one party than the other. For example, as we will discuss more thoroughly in Chapter Seven, cultures that lack a strong foundation in the rule of law may be particularly risky environments for foreign direct investors. Global negotiations also frequently extend over a significant period of time, during which conditions that initially were conducive to the negotiation may become hindrances. Environmental factors may have a strong influence on negotiators' interests and priorities. Changes in or reassessment of the environment are probably the most important reason for reassessing a BATNA. For a good example of how the environment of a negotiation influenced

changing partners, interests, priorities, and BATNAs, let's look at the three-and- a-half-year-long battle for control and ownership of the Madrid-based Spanish energy company Endesa. On September 5, 2005, Gas Natural, Spain's leading gas utility, headquartered in Barcelona, announced an unsolicited tender offer for 100 percent of Endesa. At the time, Gas Natural's market capitalization was about 50 percent of that of Endesa—rather like a minnow trying to swallow a whale. Importantly, the takeover was supported strongly by the recently elected Spanish government led by the Socialist Workers Party, which was much beholden to the Catalan (Barcelona area) voters. Endesa, not wanting to be swallowed by a minnow, went looking for a BATNA in the form of another buyer, or “white knight,” as it is called in the world of mergers and acquisitions. Six months after Gas Natural made its first bid for Endesa, E.ON, Germany's largest utility, made an offer for Endesa. At that point, the Spanish government, not wanting Endesa taken over by a German company, authorized the Spanish agency regulating the energy industry to block the takeover of any Spanish energy companies by foreign companies. This move by Spain got the EU's attention and elicited a warning to Spain that it could not make regulatory changes that contravened European law regarding mergers and acquisitions. The Spanish government backed off, approving the E.ON offer, but stipulating nineteen conditions that neither Endesa nor E.ON would accept. There was a

stalemate until the fall of 2006, when in a surprise move Acciona, a Spanish family-controlled construction, infrastructure, and engineering conglomerate, bought 10 percent of Endesa, which it later extended to 24.9 percent. E.ON's response was to increase its bid, but it subsequently discovered that Enel, an Italian energy company, was also buying Endesa stock in league with Acciona. E.ON, now realizing that with Acciona and Enel cooperating it would have trouble acquiring a controlling 50 percent of Endesa, started negotiating to get Acciona and Enel to buy its shares, so it could walk away from its offer for Endesa, which it did in April 2007. Acciona and Enel finally acquired Endesa in February, 2009.45

Consider the changing array of buyers and Endesa's changing array of BATNAs. Consider how the involvement of the different bidders and different government agencies caused shifts in the legal environment in which this acquisition was occurring. Environment is not static, and its shifts made a difference in a constantly increasing price for Endesa's shareholders.

Planning for Culture's Effects Now that we have a model of how culture affects negotiation, we are ready to build a Negotiation Planning Document that takes a cultural perspective. The model in Exhibit 2.4 shows that culture affects negotiation in three important ways. First, it affects all the negotiation basics: who the parties are and what the issues are, their priorities and interests, and their BATNAs, reservation prices, and targets. Second, it affects the strategic behaviors that negotiators use at the table. Third, it affects the environment in which the negotiation occurs. All these effects need to be considered when building a Negotiation Planning Document that takes a cultural perspective. The planning document at the end of Chapter One provides a column for each

of the parties to the negotiation. A very common mistake when negotiating globally is limiting the columns in the planning document to the parties who will be at the negotiating table. Other groups may need to be included, such as government agencies, principals, holding companies, and other organizations that have hierarchical or interlocked shareholder relationships with whatever entity is at the table. Adding parties to the planning document means adding those parties' issues, considering how those additional parties can affect BATNA, and how they might affect the timing of the deal. Walmart's experience

in South Africa provides a good example.

Walmart in South Africa Walmart entered South Africa in 2011 by acquiring 51 percent of Massmart, a large retail company with stores throughout South Africa and twelve other sub- Saharan countries.46 At the time of this acquisition, the South African government was friendly toward foreign direct investment (FDI), as shown by the fact that FDI in South Africa increased by 87 percent between 2003 and 2010.47 Suppose we are Walmart, completing a planning document for the negotiation. First, we would want it to have at least three columns, for Walmart, for Massmart, and for the South African government. Second, we would want it to reflect that government's strong interest in FDI. But we should also be able to anticipate that the South African government's interests are complex and reflect that in the planning document. As it turned out, although the elected South African government was keen on FDI, government bureaucrats in agencies responsible for protecting local suppliers to the retail sector were opposed. So were the South African labor unions that wanted to maintain local jobs and protect wages and working conditions. Adding these parties to the planning document also would mean adding their issues and anticipating what effect these parties and their interests might have on Walmart's smooth acquisition of Massmart. South Africa has a Competition Tribunal, which has the authority to approve

or place conditions on mergers and acquisitions, and its decisions can be appealed. Again, no surprise, several government agencies and the coalition of unions opposed the merger at the Competition Tribunal. Walmart suggested two concessions. On the labor front it promised no layoffs for two years and current union contracts extended for three years. On the supplier front Walmart offered to fund a supplier development fund for 100 million Rand (approximately $10 million). The Competition Tribunal quickly approved, but the government agencies and their union allies appealed. The Appeals Court was tougher on Walmart than the tribunal had been. It upheld permission for the acquisition, but required that Walmart rehire 503 workers who might have been fired due to the acquisition. It also increased the supplier fund to 200 million Rand (approximately $20 million) and created an oversight board consisting of two members from Walmart, two from the trade departments, and one from the unions to monitor the fund. Importantly, the Appeals Court held that if in the

oversight board's opinion the fund was not being operated in such a way as to assist micro, small, and medium suppliers, approval for the merger could be withdrawn!48

There is no evidence in the public record that Walmart negotiated directly with the coalition of unions and government agencies during its acquisition of Massmart. Walmart actively resists unions in the United States, although it has relationships with unions in some of the other countries where it has stores, for example, Chile, Brazil, and the United Kingdom.49 Whether or not Walmart intended to sit at the table with the coalition of South African unions and government agencies, a Walmart Negotiation Planning Document for the acquisition of Massmart should have contained columns for those parties, who had the power to influence the nature of the acquisition. Strategically, Walmart may have decided not to set a global precedent by negotiating directly with these parties and to take the risk that their BATNA—conditions imposed by the Competition Tribunal and Appeals Court and the delay in completing the acquisition—would not be onerous. We don't know what Walmart spent on the Competition Tribunal and appeal process; South Africa estimates it spent about half a million dollars.50 We do know that the process delayed Walmart's acquisition of Massmart by eighteen months from shareholder approval.

Moving on to Strategy Now that we know how culture affects negotiations by influencing parties' priorities and interests, the strategies they use, and the environment of their negotiation, we are ready to take a hard look at culture and negotiation strategy in the specific contexts of making deals, resolving disputes, and making decisions in multiparty situations. Our goal in the following chapters is not just to see and understand culture's effects but to address them. Doing so will give us a deeper appreciation of how the factors introduced here that distinguish dignity, face, and honor cultures—the nature of self-worth, power and status, sensitivity and response to insult, confrontation style, trust, and mindset—play out when cultures collide.

Notes

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Paradigm for Confirmatory Cross-Cultural Research in Organizational Behavior,” in L. L. Cummings and B. M. Staw (eds.), Research in Organizational Behavior, Vol. 17, pp. 167–214 (Greenwich, Conn.: JAI Press, 1995). 2. F. Trompenaars, “Resolving International Conflict: Culture and Business Strategy,” Business Strategy Review, 1996, 7, 51. 3. M. J. Gelfand, L. H. Nishii, and J. L. Raver, “On the Nature and Importance of Cultural Tightness-Looseness,” Journal of Applied Psychology, 2006, 91(6), 1225–1244; M. J. Gelfand, J. L. Raver, L. Nishii, and others, “Differences Between Tight and Loose Cultures: A 33-Nation Study,” Science, 2011, 332, 1100–1104. 4. Geography probably came first, but it's rather a chicken-and-egg problem of whether political, economic, and social solutions preceded or succeeded the challenge of demography. 5. D. M. Rousseau, S. B. Sitkin, R. S. Burt, and C. Camerer, “Not So Different After All: A Cross-Discipline View of Trust,” Academy of Management Review, 1998, 23(3), 393–404. 6. R. E. Nisbett, K. Peng, I. Choi, and A. Norenzayan, “Culture and Systems of Thought: Holistic Versus Analytic Cognition,” Psychological Review, 2001, 108(2), 291–310. 7. H. R. Bowles, L. Babcock, and L. Lai, “Social Incentives for Gender Differences in the Propensity to Initiate Negotiations: Sometimes It Does Hurt to Ask,” Organizational Behavior and Human Decision Processes, 2007, 103(1), 84–103. 8. A.K.Y. Leung and D. Cohen, “Within- and Between-Culture Variation: Individual Differences and the Cultural Logics of Honor, Face, and Dignity Cultures,” Journal of Personality and Social Psychology, 2011, 100(3), 507– 526. 9. E. Ayers, Vengeance and Justice (New York: Oxford University Press, 1984). 10. Leung and Cohen, “Within- and Between-Culture Variation,” 2011. 11. Y. H. Kim and D. Cohen, “Information, Perspective, and Judgments About the Self in Face and Dignity Cultures,” Personality and Social Psychology Bulletin, 2010, 36(4), 537–550. 12. R. Horowitz, and G. Schwartz, “Honor, Normative Ambiguity and Gang Violence,” American Sociological Review, 1974, 39(2), 238–251.

13. R. J. Bies and J. S. Moag, “Interactional Justice: Communication Criteria of Fairness: Research on Negotiation in Organizations,” 1986, 1(1), 43–55; E. A. Lind and T. R. Tyler, The Social Psychology of Procedural Justice (New York: Springer, 1988). 14. M. J. Gelfand, L. H. Nishii, K. Holcombe, N. Dyer, K. Ohbuchi, and M. Fukumo, “Cultural Influences on Cognitive Representations of Conflict: Interpretations of Conflict Episodes in the U.S. and Japan,” Journal of Applied Psychology, 2001, 86, 1059–1074. 15. “Rule of law” refers to the principle that people and institutions are subject and accountable to law that is fairly applied and enforced; http://dictionary.reference.com/browse/rule+of+law. 16. D. T. Miller, “The Norm of Self-Interest,” American Psychologist, 1999, 54(12), 1053–1060; A. Tocqueville, Democracy in America (Chicago: University of Chicago Press, 2010 [1840]). 17. D. Meyerson, K. E. Weick, and R. M. Kramer, “Swift Trust and Temporary Groups,” in R. M. Kramer and T. R. Tyler (eds.), Trust in Organizations: Frontiers of Theory and Research, pp. 166–195 (Thousand Oaks, Calif.: Sage, 1996). 18. K. T. Dirks, R. J. Lewicki, and A. Zaheer, “Repairing Relationships Within and Between Organizations: Building a Conceptual Foundation,” Academy of Management Review, 2009, 34(1), 68–84; Meyerson, Weick, and Kramer, “Swift Trust”; J. M. Weber, D. Malhotra, and J. K. Murnighan, “Normal Acts of Irrational Trust: Motivated Attributions and the Trust Development Process,” Research in Organizational Behavior: An Annual Series of Analytical Essays and Critical Reviews, 2005, 26, 75–101. 19. A. W. Gouldner, “The Norm of Reciprocity: A Preliminary Statement,” American Sociological Review, 1960, 25(2), 161–178. 20. Nisbett, Peng, Choi, and Norenzayan, “Culture and Systems of Thought.” 21. Leung and Cohen, “Within- and Between-Culture Variation.” 22. S. J. Heine, “Self as Cultural Product: An Examination of East Asian and North American Selves,” Journal of Personality, 2001, 69(6), 881–906. 23. G. Hofstede and M. H. Bond, “The Confucius Connection: From Cultural Roots to Economic Growth, “Organizational Dynamics, 1988, 16(4), 5–21. 24. Gelfand and others, “Cultural Influences on Cognitive Representations of Conflict.” 25. J. G. Oetzel and S. Ting-Toomey, “Face Concerns in Interpersonal

Conflict,” Communication Research, 2003, 30(6), 599–624; J. Sanchez-Burks and M. Mor Barak, “Interpersonal Relationships in a Global Work Context,” in M. M. Barak (ed.), Managing Diversity in the Age of Globalization: Toward a Worldwide Inclusive Workplace, pp. 114–168 (Thousand Oaks, Calif.: Sage, 2004); D. Tjosvold, C. Hui, and H. F. Sun, “Can Chinese Discuss Conflicts Openly? Field and Experimental Studies of Face Dynamics in China,” Group Decision and Negotiation, 2004, 13(4), 351–373. 26. M. Nishishiba and L. D. Ritchie, “The Concept of Trustworthiness: A Cross-Cultural Comparison Between Japanese and US Business People,” Journal of Applied Communication Research, 2000, 28(4), 347–367; S. A. Wasti, H. H. Tan, H. H. Brower, and Ç. Önder, “Cross-Cultural Measurement of Supervisor Trustworthiness: An Assessment of Measurement Invariance Across Three Cultures,” The Leadership Quarterly, 2007, 18(5), 477–489; H. H. Tan and D. Chee, “Understanding Interpersonal Trust in a Confucian- Influenced Society: An Exploratory Study,” International Journal of Cross Cultural Management, 2005, 5(2), 197–212. 27. C. Takahashi, T. Yamagishi, J. H. Liu, F. X. Wang, Y. C. Lin, and S. Yu, “The Intercultural Trust Paradigm: Studying Joint Cultural Interaction and Social Exchange in Real Time Over the Internet,” International Journal of Intercultural Relations, 2008, 32(3), 215–228; T. Yamagishi, K. S. Cook, and M. Watabe, “Uncertainty, Trust, and Commitment Formation in the United States and Japan,” American Journal of Sociology, 1998, 104(1), 165–194; T. Yamagishi and M. Yamagishi, “Trust and Commitment in the United States and Japan,” Motivation and Emotion, 1994, 18(2), 129–166. 28. Takahashi and others, “The Intercultural Trust Paradigm”; Yamagishi and others, “Uncertainty, Trust, and Commitment Formation”; Yamagishi and Yamagishi, “Trust and Commitment.” 29. T. Yamagishi, presentation at the International Association for Conflict Management annual meeting, Kyoto, Japan, 2009, slide 3. 30. F. Fukuyama, “Social Capital and the Global Economy,” Foreign Affairs, 1995, 74(5), 89–103. 31. Yamagishi and Yamagishi, “Trust and Commitment.” 32. Nisbett, Peng, Choi, and Norenzayan, “Culture and Systems of Thought.” 33. Interview as part of the Multicultural Teams project, K. Behfar, M. Kern, J. M. Brett, 2005. For more information about this project, see J. M. Brett, K. Behfar, and M. C. Kern, “Managing Multicultural Teams,” Harvard Business

Review, 2006, 84(11), pp. 84–91 (AN 22671287); K. Behfar, M. Kern, and J. M. Brett, “Managing Challenges in Multicultural Teams,” in E. Mannix and Y. Chen (eds.), Research on Managing Groups and Teams (Oxford: Elsevier Science Press, 2006), pp. 233–262. 34. Leung and Cohen, “Within- and Between-Culture Variation.” 35. J. Pitt-Rivers, “Honor,” in D. Sills (ed.), International Encyclopedia of the Social Sciences, pp. 509–510 (New York: Macmillan, 1968). 36. D. Carl, V. Gupta, and M. Javidan, “Power Distance,” in R. J. House, P. J. Hanges, M. Javidan, P. W. Dorfman, and V. Gupta (eds.), Culture, Leadership, and Organizations: The GLOBE Study of 62 Societies, pp. 513–563 (Thousand Oaks, Calif.: Sage, 2004); G. Hofstede, Culture's Consequences (Beverly Hills, Calif.: Sage 1984.). 37. D. Gilmore, 1991, Manhood in the Making (New Haven, Conn.: Yale University Press, 1991). 38. D. Cohen, R. E. Nisbett, B. F. Bowdle, and N. Schwarz, “Insult, Aggression, and the Southern Culture of Honor: An ‘Experimental Ethnography,’” Journal of Personality and Social Psychology, 1996, 70(5), 945–960. 39. Leung and Cohen, “Within- and Between-Culture Variation.” 40. S. Aslani, J. Ramirez-Marin, Z. Semnani-Azad, J. Brett, C. Tinsley, L. Weingart, and W. Adair, “Implications of Honor and Dignity Culture for Negotiations: A Comparative Study of Middle Easterners and Americans,” paper presented at the 2012 Academy of Managment annual meeting. 41. B. Beersma, F. Harinck, and M.J.J. Gerts, “Bound in Honor: How Honor Values and Insults Affect the Experience and Management of Conflicts,” International Journal of Conflict Management, 2003, 14(2), 75–94; P. Bourdieu, Outline of a Theory of Practice, (Cambridge, U.K.: Cambridge University Press, 1977); Cohen, Nisbett, Bowdle, and Schwarz, “Insult, Aggression, and the Southern Culture of Honor”; H. Ijzerman, W. W. van Dijk, and M. Gallucci, “A Bumpy Train Ride: A Field Experiment on Insult, Honor, and Emotional Reactions,” Emotion, 2007, 7(4), 869–875; P. M. Rodriguez Mosquera, A.S.R. Manstead, and A. H. Fischer, “Honor in the Mediterranean and Northern Europe,” Journal of Cross-Cultural Psychology, 2002, 33(1), 16– 36; P. M. Rodriguez Mosquera, A.S.R. Manstead, and A. H. Fischer, “The Role of Honour Concerns in Emotional Reactions to Offences,” Cognition & Emotion, 2002, 16(1), 143–163.

42. Miller, “The Norm of Self-Interest.” 43. R. E. Nisbett, and D. Cohen, Culture of Honor: The Psychology of Violence in the South (Boulder, Colo.: Westview Press, 1996); Pitt-Rivers, “Honor”; P. M. Rodriguez Mosquera, A. H. Fischer, A.S.R. Manstead, and R. Zaalberg, “Attack, Disapproval, or Withdrawal? The Role of Honour in Anger and Shame Responses to Being Insulted,” Cognition & Emotion, 2008, 22(8), 1471–1498; H. C. Triandis, “The Self and Social Behavior in Differing Cultural Contexts,” Psychological Review, 1989, 96(3), 506–520; F. Harinck, S. Shafa, N. Ellemers, and B. Beersma, “The Good News About Honor Culture: The Preference for Cooperative Conflict Management in the Absence of Insults,” Negotiation and Conflict Management Research, forthcoming. 44. Interview as part of the Multicultural Teams project, K. Behfar, M. Kern, J. M. Brett, 2005. For more information about this project, see Brett, Behfar, and Kern, “Managing Multicultural Teams”: K. Behfar, M. Kern, and J. M. Brett, “Managing Challenges in Multicultural Teams,” in E. Mannix and Y. Chen (eds.), Research on Managing Groups and Teams pp. 233–262 (Oxford: Elsevier Science Press, 2006). 45. “Gas Natural and E.On Bids: The Chronology of the Battle for Endesa,” El Mundo, http://www.elmundo.es/mundodinero/2006/02/03/economia/1138964384.html. Kellogg students Josep Casas Perez, Theophilus Engela, and Sameer Tyagi provided research on the Endesa acquisition. 46. M. Bustillo, “Wal-Mart Bids $4.6 Billion for South Africa's Massmart,” Wall Street Journal, September 28, 2010, http://online.wsj.com/article/SB10001424052748704654004575517300108186976.html 47. “It's Time for Africa: Ernst & Young's 2011 Africa Attractiveness Survey,” Ernst & Young, 2011, http://www.ey.com/Publication/vwLUAssets/2011_- _Africa_Attractiveness_Survey/$FILE/Attractiveness_africa_low_resolution_final_WEB.pdf 48. A. Crotty, “Massmart's Supplier Fund Should Double,” Business Report, October 10, 2012, http://www.iol.co.za/business/companies/massmart-s- supplier-fund-should-double-1.1399706#.UKJ6pZEbiVo. 49. R. J. Hottovy, “Wal-Mart Looks Abroad for Growth,” Seeking Alpha, January 25, 2011, http://seekingalpha.com/article/248326-wal-mart-looks- abroad-for-growth. 50. “Walmart Fight Has Cost Govt,” All Africa, April 10, 2012, http://allafrica.com/stories/201204101112.html. Kellogg students Sean Moran

and Tiffany Yeh provided research on Walmart in South Africa.

3

Culture and Strategy for Negotiating Deals

The global economy is the result of millions of small and large cross-cultural negotiations. It took negotiations for U.S. consumers to have access to Chilean and Mexican fruits and vegetables in the winter months. It took negotiations for Spanish engineering construction companies to get the contract to build new subway tunnels in New York City. It took negotiations for Walmart to enter South Africa. It took negotiations for the Qatari Investment Authority to buy the Paris Saint-Germain Football Club. This chapter discusses culture and strategy for negotiating deals. It describes two basic types of strategy negotiators use when pursuing deals: asking and answering questions, which we call Q&A, and offers and influence attempts, which we call “substantiation and offers” or S&O. The chapter builds on the research on negotiations first introduced in Chapter One and the dignity, face, and honor prototypes of culture introduced in Chapter Two to explain how and why negotiators' choice of strategy is linked to culture. It describes how culture affects negotiators' use of strategy in different parts of the world. It reviews the limited research on intercultural negotiation and ends with advice for negotiating across cultural boundaries, particularly boundaries between dignity, face, and honor cultures. Why be concerned about negotiation strategy, if so many global deals are

being completed successfully? The main reason is these deals leave outcome potential on the negotiating table for neither party to claim. When this happens, neither party's interests are met as well as they might be. In their haste to get access to markets, labor, or resources, foreign direct investors commit to agreements prematurely that make implementation difficult or even to agreements that they probably should have said no to. These poor agreements frequently happen because negotiators assume that their strategy will work regardless of culture. Then, when they find themselves at the negotiating table and they realize that their strategy is not working very well, they do not know how to adjust to their counterpart's strategy without giving up value. The intercultural simulation data in Exhibit 3.1 illustrate this point about

leaving value on the table that no one party gets. The data in Exhibit 3.1 are from the same set of studies of managers first introduced in Chapter One in Exhibit 1.2. Recall that maximum joint gains in this negotiation simulation are $5.08 million. Exhibit 1.2 showed that U.S. and Japanese intracultural negotiations (negotiations between managers from the same culture) generated about the same level of joint gains, $4.2 million. Exhibit 3.1 shows that U.S.-Japanese intercultural negotiations (negotiations between managers from different cultures, also called cross-cultural negotiations) generated significantly lower joint gains, $3.5 million—a substantial loss for both U.S. and Japanese negotiators than when they negotiated intraculturally. In Exhibit 1.2, Israeli intracultural negotiations generated about $4.2 million, whereas Hong Kong Chinese intracultural negotiations generated only about $3.2 million. However, Exhibit 3.1 shows that when the Hong Kong Chinese were negotiating interculturally with the Israelis, joint gains were $4 million—only slightly worse from when the Israelis were negotiating intraculturally and much better for the Hong Kong Chinese than when they were negotiating intraculturally. The data in Exhibits 1.2 and 3.1 show that context matters: intracultural negotiations are not the same as intercultural negotiations. Negotiating across cultural boundaries typically hurts but in some instances may help negotiators generate joint gains, depending on how their strategies fit together. The data in these two exhibits also raise the important question of why and how negotiators' strategies vary with culture.

Exhibit 3.1. Individual and Joint Gains in Intercultural Negotiations.

Deal-Making Negotiation Strategy In this section we introduce two types of negotiation strategy: question and answer (Q&A) and substantiation and offers (S&O). Then we turn to how and why culture affects negotiators' tendencies to rely more heavily on one strategy or the other. This takes us to a discussion of how trust and mindset—holistic versus analytic—associated with cultural differences affect negotiation strategy, and will bring us to a model of culture and negotiation strategy that ties all the ideas together. Negotiation strategy is goal-oriented behavior focused on generating

individual and joint gains.1 Negotiation research has identified two distinct types of strategy: Q&A is all about information exchange regarding interests and priorities. S&O is all about attempts to influence the counterpart to make concessions.

The Q&A Strategy Negotiators who rely on Q&A tend to generate value for themselves and the other party.2 They try to get information sharing going by asking their counterparts questions about interests and priorities and being willing to answer similar questions when posed by their counterparts.3 They give each other feedback: “Yes that will work for me” or “No, that won't work for me because …” They share knowledge about interests and priorities that are similar and discover those that are different: “We both have a common goal here, but to reach that goal, I'm going to need …” Note that these negotiators are not asking and not sharing information about reservation prices or bottom lines. They are not asking questions that they do not want to answer themselves and that they know the other party does not want to answer. They avoid asking in the early stages of the negotiation questions such as, “What is the least you are willing to take and say yes?” “What is the most you are willing to offer?” They also avoid making offers. Once the Q&A strategy has generated insight into the counterpart's interests

and priorities, negotiators can make multi-issue offers that bridge interests4 or trade off priorities.5 Bridging is what Mme. Petit and I did when negotiating for pumpkins (in Chapter One). After we had shared interests, we were able to identify a solution that “bridged” those interests—she got the seeds and I got the

rinds. Our bridging agreement actually involved a trade-off; seeds were less important to me than to her and rind was less important to her than seeds. Around the world the Q&A strategy is effective in generating insight into counterparts' priorities and interests and generating joint gains.6

However, if you are worried that to use the Q&A strategy negotiators have to trust each other, your concerns are appropriate. Trust in negotiation is the belief that shared information will be used to identify mutually beneficial opportunities.7 In the absence of trust, Q&A invites exploitation.8 Questions invite vulnerability by revealing gaps in the questioner's knowledge. Answers create vulnerability if they reveal truthful and sensitive information about the answerer's priorities and interests.9 Trust, grounded in the belief that shared information will be used to identify mutually beneficial opportunities, enables negotiators to use Q&A. Uncertainty about trust is a major reason why negotiators use the S&O strategy.

The S&O Strategy Negotiators relying on S&O tend to be ones who are intent on generating value for themselves. They do so by engaging in all sorts of influence attempts to try to get the counterpart to make concessions. Substantiation includes all types of influence and pressure tactics, such as arguments and threats—what will happen if the negotiator does not make concessions;10 normative appeals such as sympathy ploys—what the counterpart should be doing;11 and displays of anger and frustration.12 At the same time as they substantiate, negotiators intent on claiming value for themselves also make lots of offers, particularly single-issue offers early in the negotiation.13 Offers are proposals or suggestions to resolve issues. Offers and substantiation share a theoretical orientation.14 They also co- occur empirically—negotiators who make more offers tend to engage in more substantiation.15 This makes sense intuitively because by using one or another form of substantiation, the negotiator is trying to get the counterpart to concede and accept the negotiator's offer. S&O solves Q&A's trust problem in a peculiar way. Rather than opening a

window into a negotiator's interests and priorities, offers emphasize negotiators' positions. Although offers may be exaggerated, offers do not require trust in order to be believed. Substantiation, too, does not make a negotiator vulnerable

in the same way that sharing information about priorities and interests does. Substantiation may reveal little about the self; it often focuses on the counterpart, indicating why the counterpart should accept an offer. Thus S&O helps negotiators avoid revealing information that could be exploited. Ironically, however, although the S&O strategy avoids exploitation, it is not

necessarily very effective in generating individual net value. There are three reasons. First, the S&O strategy typically does not develop the insight into parties' preferences and priorities that Q&A does (we will discuss an important exception to this later when we talk about using these strategies in a cultural context).16 Without insight, negotiators generate lower joint gains and thereby, ironically, lower value for themselves—the point made in Chapter One and illustrated in Exhibit 1.2. Take another look at Exhibit 1.2. Remember that the dark shading in the bars represents the seller's net value; the light shading, the buyer's net value. Compare the Brazil and China bars. The Brazilians negotiated higher joint gains on average than the Chinese and so there was more net value for both the Brazilian buyers and sellers to claim than for the Chinese buyers and sellers to claim. The second reason why the S&O strategy is not very effective in generating

net value is that it can backfire, causing people to walk away from offers that are better than their BATNAs.17 Research is just beginning to understand the circumstances under which threats, sympathy ploys, and displays of anger encourage and discourage concession making. A recent theory suggests that it depends on whether the substantiation cues an emotional reaction, for example, “I'll not be threatened,” that is likely to discourage concession making, versus a cognitive inferential response, for example, “this counterpart must be serious,” that is likely to encourage concession making.18 Recent research suggests that the response that gets cued depends on how competitive versus cooperative the negotiation is.19 In highly competitive negotiations, for example the dispute resolution negotiations that we will discuss in Chapter Four, substantiation is expected and discounted; it typically provides no new information. In more cooperative negotiations, for example to develop a joint venture, when there is the potential of a long-term relationship, substantiation may be unexpected and generate an emotional reaction: “if this is the way you act in negotiation, how are you going to act as a partner, no thanks.” The third reason why the S&O strategy is not very effective in generating net

value is that it does not address explicitly the one factor that research shows does

facilitate claiming individual net value: extreme first offers. Negotiators who make extremely favorable-to-themselves first offers have an advantage claiming value in negotiations.20 First offers anchor negotiations. What this means is that a negotiator's first offer affects the other party's counteroffer by pulling it toward the first offer and away from where the counteroffer would have been if it had been the first offer. This is called anchoring (the first offer) and insufficient adjustment (the counteroffer). This narrows the range of possible agreements and causes first offers to predict final agreements extremely well. Because counteroffers are typically insufficiently adjusted for anchors, there is a first- offer advantage in claiming individual value in negotiation, so long as the first offer is not so extreme as to stop the negotiation before it has started. Many negotiators often are reluctant to make the first offer, because they hope

that the counterpart will open first with an offer that is superior to their own target. This outcome is unlikely unless the counterpart lacks information (about the other side's BATNA) to properly set a target. If you are reluctant to make the first offer, you are going to need an antidote to keep from being anchored by the counterpart's first offer. So, before negotiating, write down what your own first offer would be. Use it as your counteroffer unless the counterpart's opening offer is better than your target.

Culture and Negotiation Strategy Negotiators all over the world use both the Q&A and S&O strategies, but they use them with different frequency and effects.21 Although negotiators from dignity cultures—for example, the United States, Israel, Germany, and Sweden —tend to rely more heavily on Q&A than S&O, negotiators from face and honor cultures—such as China, Russia, Japan, Thailand, India, and Qatar—rely more heavily on S&O than Q&A.22 We believe there are two primary cultural reasons why: trust and using a holistic versus an analytic mindset. Using Q&A, as we have pointed out, requires trust. Both asking and answering

questions gives the counterpart an opportunity to take advantage.23 Questions invite vulnerability by revealing gaps in the asker's knowledge. Answers create vulnerability if they reveal truthful and sensitive information about the answerer's priorities and interests.24 A new meta-analysis is definitive: trust, grounded in the belief that shared information will be used to identify mutually

beneficial opportunities, enables negotiators to use Q&A.25

Trust appears to mean the same thing to people around the world,26 but trust is higher in some parts of the world than others.27 This means it is going to be a lot easier to get Q&A going in negotiations in some parts of the world than in others.

Why and Where Is Trust Likely in Negotiations? Trust in deal-making negotiations seems to be more likely in loose (dignity) than tight (face or honor) cultures. Recall from Chapter Two that norms governing social behavior can be tight or loose. In tight cultures norms are relatively inflexible and formal. Tight cultures tend to have institutional mechanisms, such as family, community, state and religion, to enforce behavioral expectations through monitoring and sanctioning of deviance. In contrast, in loose cultures the norms governing social behavior are relatively flexible, generating improvisation and interpretation and greater variation of behavior. Loose cultures communicate expectations, but social behavior is governed by interpersonal mechanisms. Typically, there is a broader range of socially tolerable behavior and people are responsible for monitoring their own behavior.28

These two different social systems have different implications for trust in deal- making negotiations. In loose cultures, because interpersonal mechanisms govern behavior, people have to rely on social intelligence to determine who is and who is not trustworthy. As a result people tend to make the culturally normative “swift trust” assumption: others deserve to be trusted until they prove otherwise.29 If their trust is reciprocated, they will continue to trust, intuitively understanding that interpersonal trust is fragile and will not withstand defection. In tight cultures, because institutions monitor and sanction everyday behavior, people tend to rely on institutional trust more than interpersonal trust. What this means is that they act as if they trust and expect others, too, to act in a trustworthy manner, so long as institutional monitoring and sanctioning are in place. Although people may act as though they interpersonally trust, their behavior largely reflects assurance in institutions to control their own and others' behavior. When institutional monitoring and sanctioning are not in place, people in tight cultures may not act in a trustworthy manner and may not expect others to do so.30

This distinction between interpersonal and institutional trust is very important because global surveys that measure trust do not make the distinction between the two types of trust. In both the World Values Survey and the Pew Global Attitudes Survey, Sweden and China both score high on measures of trust.31 We suspect, however, that what underlies trust in tight cultures such as China is institutional trust, and what underlies trust in loose cultures such as Sweden is interpersonal trust. The catch is that there is little to no institutional monitoring of deal-making negotiations in either tight or loose cultures.32 This leaves the tight-culture negotiator with no guarantee of protection from exploitation and (some scholars add) without much experience in developing interpersonal trust.33 Although there is most definitely more scholarly work to be done on this topic, the data suggest that interpersonal trust in deal-making negotiations is more likely in loose than tight cultures. At the same time, low trust appears to encourage use of the S&O strategy,

probably because S&O does not reveal sensitive information about interests and priorities.34 Recall that although people routinely exaggerate offers, they do not typically make offers that they would not be perfectly satisfied with if the counterpart would only accept their offer. Offers can be believed. Substantiation, too, is believable. It is all the reasons why the party making the offer believes that the counterpart should accept the offer. Negotiators routinely discount their counterparts' offers and substantiation as self-serving, but norms of reciprocity encourage an S&O response. Thus low trust encourages a vicious cycle of S&O, which has the marginal benefit of keeping negotiators from revealing information about priorities and interests that could be exploited, but the disadvantage of sharing information that could be used to create value.

Summing Up Trust and Negotiation Strategy So far we have discussed two negotiation strategies, Q&A and S&O. We have realized that Q&A requires interpersonal trust, but that such trust is not likely to be present in deal-making negotiations, especially in “tight” cultures, because the institutional monitoring and sanctioning that make social interaction in those cultures function smoothly are largely lacking in deal-making negotiations. S&O is the default negotiation strategy when trust is low. But S&O does not generally develop the information about priorities and interests that negotiators need to bridge interests and trade off priorities to create joint gains. And, because most

negotiators using S&O do not do well creating joint gains, using the S&O strategy limits individual net value. With this understanding, the chances of creating joint gains negotiating globally would appear to be rather bleak—except for some intriguing Japanese data that suggest negotiators with a holistic mindset may be capable of inferring information about interests and priorities from S&O, thus enabling joint gains in value.

S&O Strategy and the Holistic Mindset Recall our discussion in Chapter Two of the holistic versus the analytic mindset. We said people in face cultures tend to be holistic thinkers—that is, they focus both on the problem and on the context in which it is embedded—whereas people in dignity cultures tend to be analytic thinkers—that is, they focus on the problem and its attributes. In negotiations this could mean that people in holistic cultures can analyze the relative importance of issues in the context of other issues, and so understand priorities. In contrast, people in analytic cultures are more likely to analyze the attributes of individual issues and so understand underlying interests.35

Data from our studies of face and dignity culture negotiators, particularly our studies contrasting Japanese and Americans, suggest that negotiators from these two different cultures are using strategy differently to negotiate equivalently high joint gains.36 We found that the Japanese were relying heavily on S&O while the U.S. managers were relying primarily on Q&A but that their joint gains were equivalent.37 This observation led us to investigate four questions:

1. Did the Japanese negotiators using S&O have similar levels of insight as the Americans using Q&A, or was insight not the path to the Japanese negotiators' high joint gains? 2. If Japanese and American negotiators had similar insight, how were the Japanese getting insight from S&O? 3. How important was it for Japanese negotiators to use S&O and American negotiators to use Q&A to achieve high joint gains? 4. Is this ability to generate insight from S&O unique to the Japanese?

Insight and S&O Japanese negotiators using S&O had insight similar to that of the Americans using Q&A. We tested insight immediately following the negotiation simulation

by asking negotiators how important each issue had been to the other party and then how important each issue was to themselves. We then looked closely at how the negotiators rated the trade-off issues in the simulation. Negotiators who could report correctly which trade-off issue was more important and which trade-off issue less important to themselves, we labeled as having “self-insight”; those who could report correctly which trade-off issue was more important and which was less important to the counterpart had “other-insight”; and those who had both self-insight and other-insight had “relative insight.” Through this process we determined that the Japanese negotiators' insight was equivalent to that of American negotiators, and that insight predicted joint gains for both Japanese and American negotiators.38 Now we really wanted to know how the Japanese were generating insight from S&O!

What the Japanese Were Doing At the time we were working on this question, we were relying on Hall's cultural theory that distinguishes between high- versus low-context communication to explain cultural differences between Japanese and U.S. negotiators. An anthropologist, Edward T. Hall distinguished cultures by the way people communicate. In low-context cultures, he said, people communicate directly and explicitly, with the result that they have little need to engage their high-level inferential skills to understand the meaning of communications. In high-context cultures, he said, people communicate indirectly and implicitly, and as a result they need to engage their high-level inferential skills to infer meaning, because the same words can have different meaning depending on the context.39 Negotiators with experience in Japan, for example, know that hai doesn't necessarily mean “yes.” It can mean “I'm listening,” it can mean “I understand,” and it can mean “no.” Research by Hall and others suggests that communication norms in Western cultures emphasize low context communication but that communication norms in East Asian cultures are high context.40

More recent cultural studies suggest that East-West differences in patterns of high- versus low-context communication are consistent with the cultural differences in holistic versus analytical reasoning. Holistic reasoning with its emphasis on context is an approach to analysis that people in high-context- communication cultures can use to infer meaning. Analytic reasoning with its emphasis on linear logic is the inferential approach used primarily by people in low-context-communication cultures.41

We looked more closely at the Japanese and U.S. negotiators' transcripts to try to understand how they were generating insight from their different strategic approaches. We found that the Japanese negotiators who negotiated high joint gains made a

lot of offers from the very beginning of the negotiation. They introduced an issue by making an offer, not by asking a question about it, as the Americans were prone to do. They then tended to build on the first offer by adding another issue, but without resolving the first. The Japanese negotiators also used plenty of all kinds of substantiation relative to the Americans, but unlike the Americans, who tended to substantiate specific offers, the Japanese tended to separate offers and substantiation.42

The Value of Negotiating Normatively The transcripts suggest that the Japanese were treating the multiple issues in the negotiation holistically. They seemed to use the pattern of offers, counteroffers, and substantiation for information gathering in the way that the Americans used Q&A. Interestingly, in our research, the longer the Japanese negotiators held off making their first offers, the lower their joint gains, but the longer the U.S. negotiators held off making their first offers and the more information the U.S. negotiators exchanged before making the first offer, the higher their joint gains.43 When U.S. negotiators and those from other analytically oriented cultures, for example, India, open with offers they get anchored, tend to address one issue at a time, and fail to explore priorities and interests as they do when they use Q&A.44 In contrast, the Japanese negotiators do not get anchored using the S&O strategy.45 This final analysis implies that it is important for negotiators to use the strategic approach that is culturally normative to themselves—“stick with what you know”—which is why intercultural negotiations are so challenging.

Can Others Do It? Of the negotiators we have studied, the Japanese show this ability to infer insight from S&O more consistently than negotiators from other East Asian cultures.46 Among some Chinese negotiators we have seen a slightly different but still holistic approach to generating insight from S&O.47 Some Chinese negotiators will open with a multiple-issue offer and then trade multiple-issue offers back

and forth until they have extracted all the potential joint gains. Their approach is not just trial and error. These negotiators are intentionally keeping all the issues linked in multiple-issue offers, and they do gain insight from the exchange of offers, suggesting there is more than one way to create joint gains taking a holistic approach and using S&O strategy.

Summing Up Mindset and Negotiation Strategy This analysis of the implications of holistic versus analytical mindset for insight in negotiation leaves us in a slightly more optimistic place than we were at the end of the previous section, on trust. If the Japanese can gain insight from patterns of S&O, maybe other negotiators can too; that is, if they turn on their holistic mindset and avoid anchoring. Our brains after all are quite amazingly malleable. People who intuitively rely on their holistic mindset are no doubt capable of analytic thinking, and people who intuitively rely on their analytic mindset are probably capable of holistic thinking, although they may need a little help doing so. That help, as well as a lot of other advice about executing a negotiation strategy in different cultural contexts, is coming up in the next section. Now that we understand how and why negotiators in different cultures use

Q&A and S&O, we can use a model of culture and negotiation strategy to show how trust and mindset, Q&A and S&O, and insight and joint gains interrelate. Then we'll turn to how to use our knowledge of culture to manage strategy at the global negotiation table.

A Model of Negotiation Strategy The model in Exhibit 3.2 shows how Q&A and S&O are related to cultural differences in trust and mindset and to joint gains via insight. The shortest and most reliable route to joint gains opens up when interpersonal trust allows negotiators to use Q&A to gain insight, which they then use to construct offers that make trade-offs. Our research suggests that negotiators all over the world can take this route to joint gains, and do so when interpersonal trust is high. At the same time, our research suggests that because of the lack of interpersonal trust in negotiations, this Q&A route is understandably not often taken. When interpersonal trust is low, the alternative route of S&O typically does not generate insight, except in the hands of Japanese and possibly other holistically

minded negotiators. To make the S&O route work requires that negotiators mine offers and substantiation holistically for information about priorities and interests.

Exhibit 3.2. A Model of Culture, Negotiation Strategy, Insight, and Joint Gains.

Advice for Deal-Making Negotiations The model in Exhibit 3.2 suggests that the place to start preparing a negotiation strategy is to know your own and your counterpart's trust and mindset profile in the context of negotiations. Ask yourself the following questions:

Do I tend to trust my negotiation counterparts, generally, in certain situations? How comfortable am I asking and answering the why question that reveals interests? How comfortable am I asking and sharing information about priorities? Do I like to negotiate one issue at a time or am I comfortable making multiple-issue offers? Do I tend to focus on individual issues and their characteristics, or do I prefer to look at the issues as a whole package? Do I tend to use rules to categorize negotiation issues (such as distributive, trade-off, compatible) and then use more rules to negotiate the resolution of the issues (for example, looking for trade-offs)? Do I tend to use associations among issues (such as relative importance among issues to you and to the other party) to negotiate the resolution of issues?

Now ask the same questions about your counterpart. You may need to use the

counterpart's cultural prototype to help you address these questions from the counterpart's perspective. Consider the following:

What cultural prototype—dignity, face, or honor—is likely to have influenced the counterpart? What is your trust relationship with the other party? Which strategy (Q&A or S&O) is the counterpart likely to be most comfortable using and why?

With this analysis you are ready to begin to consider your strategic approach depending on whether trust is likely.

When Trust Is Likely—Use Q&A When trust is likely, consider these tactics and initiate Q&A.

Build trust outside the negotiation. Get to know the counterpart, let them get to know you. In face culture, it may help to be introduced or vouched for by a third party or a mutual acquaintance. In dignity culture, research shows “schmoozing” or small talk can lead to learning that parties have common interests, which in turn helps to build cooperation in subsequent negotiations.48 Having a meal together may challenge some people's dietary restrictions, but some fun recent research in a dignity culture shows that people negotiate higher joint gains when eating than not.49 But be careful about the alcohol! Again dignity culture research indicates that moderately inebriated negotiators (this was done under experimental conditions so people were not falling down drunk) behaved more aggressively during negotiations (for example, used more threats), made more mistakes (gave away information they shouldn't have), failed to follow up on a lead), reached less integrative agreements (left value on the table), and were unaware alcohol affected their behavior.50 Set a positive tone in the negotiation. Substantiation does not have to be negative. There is research showing that setting a positive tone at the negotiation table helps to build rapport and creativity, which in turn helps to avoid impasses.51 Remember you are at the table with your best potential partner. You know this because you have carefully analyzed your BATNA. Remind the counterpart why you are both there. Discuss what the future would look like working together after the negotiated agreement. Test trust. Give away a little information about your interests. This gives the

counterpart information in advance of your asking them to be revealing, and it cues reciprocity. If you have given information, be sure to ask for information in return. Try to get reciprocal Q&A going about interests and priorities. Hold off on making offers. Be trustworthy. Reciprocate information sharing. If you do not, the counterpart will notice and quickly stop answering your questions. Demonstrate that you are listening. Paraphrase your counterparts' statements about interests and priorities. Behave consistently and predictably. When you cannot answer a question because it would give away too much strategic information, be honest about it and give some other information that you can share: “I'm sorry, I cannot give you that information at this point, but I can tell you …” Avoid agreeing on one issue at a time. Keep any agreements tentative until all the issues have been discussed and you can bundle them into a multi- issue offer. Use multiple-issue offers to consolidate information gathered via Q&A. Multiple-issue offers give you control over value creation as they build in trade-offs, but they also give you control of value claiming, as they specify what you get and what the counterpart gets.

When Trust Is Unlikely—Use S&O To use offers to collect information about interests and priorities, try these tactics:

Test trust. Use one or more of the techniques above to test trust; you might be surprised. Look for information in offer patterns. If you are confident of your holistic mindset, you may simply be able to see patterns in offers that reveal interests and priorities. If you are not confident, you should chart offers, yours and theirs.

Take a look at the offer chart in Exhibit 3.3. Like the Negotiation Planning Document, the offer chart has a row for each issue and a column for each offer regardless of whether the offer mentions a single issue or multiple issues. Make sure you indicate who made the offer. You can put a superscript “S” next to offers that were substantiated. Analytic mindset people like to organize information according to rules, and the offer chart guides them to do so.

Exhibit 3.3. Reading Information About Priorities and Interests from Offer Patterns.

Next comes the harder part for people with well-developed analytic mindsets. You need to look across the offers and substantiation in the offer chart for the pattern that uncovers the rules of creating value in negotiation. Those rules we know are identifying trade-offs and interests. Exhibit 3.3 presents a hypothetical exchange of multi-issue offers and counteroffers in the simulation we've been studying, about buying episodes of a television show, in which there is one zero- sum or win-lose issue, “price,” and two trade-off issues, “runs” and “financing.” “Runs” refers to how many times an episode of a television series can be shown during the contracted period. Financing refers to the scheduling of when the contract money is to be paid. “Runs” is a more important issue to the buyer, and financing is a more important issue to the seller. Take a look at the first offer. This offer represents the most favorable outcome for the buyer: the lowest price, $30,000, the highest runs, eight, and payment percentages distributed over five years, 0, 25, 25, 25, 25. The second offer represents the most favorable outcome for the seller, the highest price, $70,000, the lowest number of runs, four, and a payment of 100 percent in the first year. The third offer is the buyer's first counteroffer. The buyer is signaling that the buyer is flexible by conceding on the price, moving from $30,000 to $35,000, and on the financing from 0 to 25 percent payment on the first year. That the buyer is not conceding on runs signals that runs must be important to the buyer. Now look at the fourth offer. Here the seller is signaling flexibility by conceding on price, going from $70,000 to $65,000, and on runs, moving from four to five. By not conceding on financing—payment is still at 100 percent in the first year—the seller is signaling the seller's preference structure for financing. When the offer chart reveals that the counterpart is not making concessions on one particular issue, or

is substantiating one issue more than others, the inference should be “that issue must be important to the counterpart.” Although it may take you more than two rounds of offers and counteroffers to understand your counterpart's preference structure, you might be surprised by how much you can learn from plotting offers. Once you have a good idea about the counterpart's preference structure, you can make a multi-issue offer incorporating the trade-offs, as in the buyer's fifth offer in Exhibit 3.3. Here is some advice about using offers:

Post offers visually on a flipchart or board or write them on paper that you can hand to the counterpart. Make it easy for the counterpart to understand what you are offering. Visuals also help if you are trying to anchor the negotiation. Don't make offers that are unacceptable to you. Counterparts assume that the offers you make are acceptable to you. If you back away from an offer, you lose credibility and confuse your counterpart who, too, is trying to make sense of the offer pattern. Take the time to construct and check your offer. Plot your offers and your counterpart's offer. If it is a single-issue offer, assume that any offer on a previous issue remains the same. Give the single- issue offer its own column. Evaluate the set of offers and counteroffers from a holistic perspective. You know what you are looking for: concessions, signaling flexibility, and no concessions, signaling high-priority issues and options.

If you are still having trouble getting information from offers, you can try to use MESOs and contingent contracts.

MESOs Exhibit 3.4 illustrates MESOs (multiple equivalent simultaneous offers). MESOs are two or more multiple issue offers that are presented at the same time. Exhibit 3.4 pairs offer A with offer B. Both offers need to be of equivalent value to you. This is very important! If they are not of equivalent value to you, you will not be able to interpret the counterpart's choice. When the counterpart chooses one of the equivalent-to-you offers, you can tell what his priorities and interests are. By the way, be sure to anchor those equivalent offers high. Even if the counterpart does not like either choice, she should like the one that meets her interests better than the other, and you have gained insight.

Exhibit 3.4. MESOs: A Seller's Equivalent Offers for a Cartoon

Show.

Equivalent offers are useful for getting information from negotiators who are reluctant to share information and from negotiators who don't fully understand their own priorities. They are also very useful for addressing negotiators whom you think may be lying about their priorities and those who surprise you with “Oh, there's just one more thing!” when you thought the negotiation was over. In either case, make one offer that you think should be acceptable and another equivalent-to-you offer that integrates the new issue or gives more on the issue for which you think the other party has falsified a priority. Make sure the offers are equivalent to you and anchored to give you a high value. Whether the counterpart did not understand her own priorities or was lying about them is really irrelevant because, once she has made a choice between your equivalent offers, you understand her priorities. Consider these important cautions before using MESOs. First, the counterpart

may try to “cherry pick” the best options for himself out of the multiple offers. To counter this you must make clear that each offer is a package that cannot be taken apart. Second, when you introduce MESOs, the counterpart will choose the offer that generates higher joint gains, but all those gains will go to the counterpart! This is the reason for the advice above to anchor high when making multiple equivalent offers. Finally, be aware that opening the negotiation with multiple equivalent offers has some positive and some negative effects. First, the positive: new research shows clearly that opening negotiations with MESOs that are extreme in the favor of the offerer is better for the offerer in terms of claiming net value than opening with a single multiple issue offer (in the research one of the two or three offers in the multiple offer package). This effect benefits the party making the opening MESOs, and the reason is quite interesting. Opening with an extreme set of MESOs led to less aggressive counteroffers than opening with a single multi-issue offer selected from the set of MESOs, because the multiple offers were perceived as more legitimate than the single offer and led recipients to see offerers as more cooperative. The

study's authors believe that this is because recipients were given a choice, and they could choose the offer that was best for them. This makes sense, because recall that the offers in MESOs are equivalent to the offerer but differentially configured for the counterpart, so that one multi-issue offer in the set is likely to be of greater net value to the recipient than the others. Second, the downside of opening with MESOs is the same as opening a negotiation with a single-issue offer. Opening with MESOs pretty much anchors the negotiation to the joint value of the offer within the set that is best for the recipient. MESOs are very “sticky” anchors, according to the authors of this set of studies. MESOs seem to focus the negotiation on value claiming and the S&O strategy.52 We don't yet have enough research to predict how opening with MESOs might work in face or honor cultures. Can holistic thinking be stimulated by MESOs in face cultures? It is certainly possible, but given the penchant for S&O strategy, in both face and honor cultures, and the stickiness of MESOs, it would seem unlikely that MESOs would to lead to value creation in face and honor cultures, either.

Contingent Contracts A contingent contract is an agreement to change the negotiated outcome in a specific way on the basis of the occurrence of a future event. For example, in May 2008 in the midst of the financial crisis, Disney bought the kids Internet play site called Club Penguin. Club Penguin is an online game in which players use cartoon penguin-avatars to play in a virtual world. The parties agreed to the price of $700 million, 50 percent down and 25 percent each in 2009 and 2010, contingent on membership growth goals being met, which, given the economy, they were not. Contingent contract offers can be based on the buyer's and seller's differing

expectations of the future, different time sensitivities, and different risk propensities. Contingent contracts are essentially a bet, and as such they are a good way to elicit information. In the Club Penguin example, if Disney made the contingent offer, Club Penguin's response provided insight into the Club Penguin creators' confidence in their ability to grow under Disney's umbrella. Contingent contracts like this one essentially force optimists to bet on deferred compensation, and pessimists to share upside potential. Here are a few cautions about contingent contracts: Contingent contracts affect the distribution value. They do not directly

create value in the same way that trading off a low-priority issue for a high- priority issue does. Contingent contracts stipulate that if the future value is “x” it will be divided according to one rule, if the future value is “y” it will be divided according to another rule. Contingent contracts can indirectly affect value creation to the extent that they align both parties' interests. For example, it was in both Disney's and the Club Penguin creators' interests to grow the number of Club Penguin memberships. In many negotiations interests are not so well aligned. For example, a party buying patents to use new technology in its products is not likely to want to enter into a contingent contract with the patent seller, who is to have no involvement in the integration of the patent technology into the buyer's products. Contingent contracts become problematic when they are contingent on a criterion that is not objective. When negotiations are cross-cultural and companies have different accounting methods, finding an objective factor on which to make contracts contingent may be difficult. When contingent factors are not objective, parties can legitimately have different opinions on whether or not the contract has been met, and a dispute can ensue. In general, it is unwise to negotiate a deal that you fear may generate future disputes. Club Penguin membership seems to be a pretty objective criterion, so this contingent contract avoided the criterion pitfall.

Using Offers Effectively Here is summary advice:

Open first; anchor high. There is a first mover advantage in single-issue negotiations. Avoid being anchored by the counterpart's offer. Recognize the tendency to overadjust to the counterpart's extreme offers. Make sure to write down your first offer, so that you can counter with it if the counterpart opens first. Make concessions reciprocally, not unilaterally. If the counterpart is not satisfied with your offer, don't negotiate with yourself! Ask the counterpart what's wrong with your offer. Ask the counterpart to make an offer. Don't forget to chart those offers and look for insight in the offer patterns! Avoid negative emotional spirals. Introduce data, logic, and objective standards that could help break the logjam. You do not have to respond to each of the counterpart's influence attempts. Here is where you do not want to engage in reciprocity. Recognize that using emotional tactics is normative

in deal making in face and honor cultures. It's not personal. Understand that there is a status contest going on. Protect your interests, maintain your composure, do not compromise your integrity!

Using Substantiation Substantiation is a broad category of negotiation influence tactics that have in common the intent to elicit concessions. Substantiation can be positive, extolling the benefits of conceding, but it is generally negative information—the consequences of not conceding. When substantiation is emotional and positive it seems to be effective in

eliciting concessions and in motivating joint gains. Setting a positive tone (in one study negotiators first watched a funny movie) helps to build rapport, and promotes creative thinking and innovative problem solving.53

When substantiation is emotional and negative, it may or may not be effective in eliciting concessions. Effective substantiation should influence the counterpart to reevaluate his BATNA and your reservation price, and concede. The problem is that negotiators routinely discount negative substantiation because they know that the counterpart's motive is to persuade and win concessions. At its worst, substantiation can backfire, causing a negotiator who was willing to make a concession to change his mind. For negative substantiation, for example an expression of anger, to elicit

concessions, it needs to stimulate strategic inference about the counterpart's motives, for example, the idea that you are reaching your reservation price.54 The very real risk is that expressions of anger will backfire, discourage concession making, and even lead to impasse, because the anger cues emotional reactance. The research suggests that this can happen when negotiating a new relationship in which negotiators are looking to build a partnership, when negotiating the resolution of a dispute in which the negative substantiation only reinforces the underlying reasons for the dispute, or when negotiating a deal in an Asian culture.55

It is not clear from the research that counterparts concede to angry negotiators just to turn off the anger.56 The counterpart may become reciprocally angry (“How dare you!”) and retaliate by reducing concessions.57 What we know about reinforcement suggests that conceding to anger would be counterproductive in that it reinforces the angry behavior and encourages the

angry party to keep the pressure on. We do know that when anger does not carry new information, but just reinforces old slights or prior reputations, negotiators who are angry with each other are less compassionate toward each other and generate fewer joint gains than the negotiators who are not angry.58 This review of substantiation research suggests three general principles:

Using positive substantiation by setting a positive tone in negotiation cannot hurt and might help negotiators build a relationship, search for creative ideas, create joint gains, and avoid impasse. For negative substantiation to elicit concessions, it needs to cause a negotiator to infer that the counterpart is reaching his reservation price. Negative substantiation is unlikely to elicit concessions when (a) it provides no new information and (b) it causes emotional reactance.

Summing Up Strategy for Deal-Making Negotiations Negotiating deals is a dynamic process. Even when trust is unlikely for cultural or other reasons, wise negotiators should not give up on the opportunity to create joint gains. Understanding that joint gains come from trading off interests and priorities leaves negotiators free to find those trade-offs in a variety of ways. Understanding cultural differences in use of Q&A and S&O negotiation strategy and the reasons for those differences in underlying trust and mindset means negotiators can use strategy creatively to further their interests. It takes practice. It takes perseverance in the face of counterparts from different cultural backgrounds.

Intercultural Negotiations Intercultural negotiations typically generate lower joint gains than intracultural negotiations due to strategic misalignment between the parties.59 This overall conclusion is consistent with what we know conceptually from the model in Exhibit 2.4, which shows that culture affects negotiators' strategies and that the resulting pattern of their interaction affects whether they actually are able to capture the potential value in their outcome. It is also consistent with what we have learned in this chapter about how cultural differences in trust and mindset affect reliance on Q&A versus S&O, and the difficulty in realizing joint gains when negotiators rely heavily on S&O.

Several other factors contribute to the poor outcomes of intercultural negotiators. For one thing, intercultural negotiators are less likely to be cooperative and more likely to be competitive than intracultural negotiators, causing them to lack the motivation to work cooperatively to identify joint gains.60 This difference in motivation can be traced to the fact that intercultural negotiations pit out-group members against each other, whereas intracultural negotiations are between two in-group members. Since in-groups confirm social identity,61 facing an out-group member in an intercultural negotiation is more likely to threaten social identity than facing an in-group member in an intracultural negotiation. Intercultural negotiators also tend to start out further apart in the way they

view the negotiation than intracultural negotiators.62 This gap may be due to cultural differences in holistic versus analytic mindset and trust leading to different strategic perspectives. Whatever the reason, the fact is that intercultural negotiators have a bigger challenge than intracultural negotiators in developing a common way of thinking about the negotiation. Intercultural negotiators also have greater difficulty synchronizing and reciprocating information exchange about preferences and priorities than intracultural negotiators.63 This makes it harder for them to share information, and it should be no surprise that they are less likely to generate insight and understand what the counterpart is trying to convey than are intracultural negotiators.64

These performance gaps between inter- and intracultural negotiators can be traced to negotiators' cultural differences leading to misalignments in their strategic approaches.

Strategic Misalignment Between Intercultural Negotiators A good place to start to identify strategic misalignments is to look again at Exhibit 2.2, which describes how cultural factors such as self-worth, power and status, sensitivity to insults, confrontation style, trust, and mindset vary in dignity, face, and honor cultures. All these factors are relevant to deal-making negotiations, but as we have seen in this chapter, two are particularly important in influencing strategy in deal-making negotiations: trust and mindset.65

The three columns on the right side of Exhibit 3.5 summarize what we can

expect in terms of trust and mindset when our three types of cultures negotiate intra- and interculturally. (The left-hand column carries forward information from Exhibit 2.2.) Exhibit 3.5 summarizes what we have learned so far in this chapter about which strategy, Q&A or S&O, is more likely to predominate in negotiations and how much net value gain is likely. Remember that the empirical studies on which these conclusions are based describe central tendencies— prototypes—and there is always variation around the mean. Just because the central tendency in India, an honor culture, is to rely on S&O and generate low joint gains, does not mean all Indian negotiators rely exclusively on S&O and generate low joint gains. All negotiators engage in a mix of strategy.

Exhibit 3.5. Trust and Mindset in Intra- and Intercultural Negotiations: Dignity, Face, and Honor Cultures.

The off-diagonal cells in Exhibit 3.5 summarize the even more limited research on intercultural strategy and joint gains. The cultural mismatch is substantial between dignity and face culture. Joint gains in dignity-face negotiations are typically low compared to intracultural negotiations.66 However, the research is not entirely clear on what strategy is likely to dominate when dignity and face negotiators are at the table. The Japanese-United States

and Hong Kong Chinese-Israeli data show face culture negotiators using Q&A strategy but not integrating information into offers and so leaving value on the table.67 We do not have comparable strategy data for United States-China intercultural negotiations, but it seems highly likely that S&O strategy predominates and explains the data that do indicate low joint gains.68

Two studies contrast dignity and honor cultures in terms of strategies used and joint gains achieved in intracultural negotiations.69 They report that negotiators from dignity cultures (United States and Norway) use more Q&A and achieve higher joint gains in intracultural negotiations than do negotiators from honor cultures (Spain and Mexico), who rely on S&O in intracultural negotiations. Intercultural joint gains were at the same low level as the intracultural negotiations between Spanish and Mexican honor culture negotiators. The Norway-Mexico study does not report strategy, but the United States-Spain study reports heavy use of S&O strategy, suggesting that the dignity culture negotiators retreated from using their culturally dominant Q&A strategy. Because no one has yet systematically studied intercultural negotiations

between face and honor culture negotiators, the entry for that cell in Exhibit 3.5 is only a prediction. Given that S&O strategy dominates in both face and honor cultures, it seems highly likely that it will also dominate in intercultural face- honor negotiations. Joint gains are likely to be low too.

High Joint Gains May Be Possible Exhibit 3.5 suggests a pretty bleak prospect for joint gains in intercultural negotiations, regardless of whether negotiators across the table are from dignity, face, or honor cultures. But it is worth taking a look at a few dignity-face studies that identify factors that can promote joint gains in dignity-face intercultural negotiations. Be advised, these studies were all conducted in English, and the face culture negotiators were all Chinese or Korean students who had been living, working, and studying in the United States between three and five years. The studies were quite varied but uniformly showed that high joint gains are

possible in intercultural negotiations between dignity and face culture negotiators when the strategy turns to information sharing about interests and priorities, and when negotiators are motivated to reach interest-based agreements. For example, social distance refers to the degree to which two people are consciously aware and sympathetic to each other; and one study

reported that when intercultural Korean and U.S. negotiators used the pronoun you in questions such as “What are your priorities?” and “Why are you taking that position?” to reduce social distance, their gains were higher than either the Americans negotiating intraculturally or the Korean students negotiating intraculturally, both groups of which used you less frequently.70 Another study found that when communications were clear (understood), responsive (reciprocating and empathic), and comfortable (viewed as pleasant), students from China studying in the United States were able to negotiate higher joint gains with American students than either group could achieve in intracultural negotiations.71 Both of these studies reveal that bridging the strategic gap between dignity and face culture requires communication between negotiators about interests and priorities. Another intercultural study, again using Chinese students studying in the

United States and American students, focused more on negotiators' motivation than their communications by measuring need for closure and concern for face. “Need for closure” refers to the motivation to reach conventional and stable judgments.72 “Concern for face” refers to the motivation to enhance one's self- image and avoid loss of reputation.73 In this study intercultural negotiators who were high on need for closure were less successful, but those who were high on concern for face were more successful in negotiating high joint gains.74

Another intercultural negotiation study between Chinese students studying in the United States and American students focused on “cultural intelligence” (CQ), which is defined as a person's capability to successfully adapt to new cultural settings. People whose CQ motivation is high are those who enjoy interacting with people from other cultures and are confident that they can deal with the stresses of living in another culture.75 Here joint gains were predictable from knowing the CQ motivation of the least motivated negotiator. When CQ motivation was high, negotiators engaged in sequences of information sharing that led to joint gains.76

Advice for Negotiating Interculturally Fundamentally, to be successful negotiating joint gains interculturally requires the same strategic focus and motivation as negotiating joint gains intraculturally. Using one strategy or another intercultural negotiators need to gain information

about each other's interests and priorities. Q&A is the simplest strategic approach when it can be done without exploitation, and the few intercultural studies in which joint gains were high showed negotiators using variants of the Q&A approach. But simply switching to Q&A as the Japanese did in negotiating with the Americans is not enough. The Q&A strategic approach needs a midpoint transition at which information about interests and priorities is turned into multi-issue offers with trade-offs.77 The intercultural negotiation studies between Chinese or Korean students studying in the United States and American students also suggest that the more experience face culture negotiators have in a dignity culture, the greater the likelihood that they will use the Q&A strategy and generate joint gains. It remains to be seen if negotiators in a low-trust environment but with a

holistic understanding of how to extract information from offer patterns can turn the S&O strategy into one that generates high joint gains in intra- and intercultural negotiations. Simply switching defensively from Q&A to S&O as the Norwegians likely did in negotiating with the Mexicans and the Americans clearly did in negotiating with the Spanish in the studies reviewed earlier is not enough. Once again, negotiators need to turn information into multi-issue offers with trade-offs.

Moving on to Resolving Disputes In the next chapter we leave deal making behind and move on to a somewhat different type of negotiation, dispute resolution, in which parties typically come to the table in a frame of mind quite different from the one that deal makers typically bring. Parties embroiled in a dispute quite frequently are emotionally distraught, seeking to minimize losses, and have BATNAs that are tightly linked. It is quite a different environment for negotiating than deal making, and there is another big cultural divide for us to understand: the difference between direct and indirect confrontation.

Notes

1. L. R. Weingart, L. L. Thompson, M. H. Bazerman, and J. S. Carroll, “Tactical Behavior and Negotiation Outcomes,” International Journal of Conflict Management, 1990, 1, 7–31.

2. B. Gunia, J. Brett, A. Nandkeolyar, and D. Kamdar, “Paying a Price: Culture, Trust, and Negotiation Consequences,” Journal of Applied Psychology, 2011, 96(4), 774–789. 3. D. G. Pruitt and P.J.G. Carnevale, “The Development of Integrative Agreements in Social Conflict,” in V. J. Derlega and J. Grzelak (eds.), Living with Other People: Theories and Research on Cooperation and Helping Behavior, pp. 152–181 (New York: Academic Press, 1980); D. G. Pruitt and S. A. Lewis, “The Psychology of Integrative Bargaining,” in D. Druckman (ed.), Negotiations, Social Psychological Perspectives, pp. 161–192 (Beverly Hills, Calif.: Sage-Halsted, 1977); R. E. Walton and R. B. McKersie, A Behavioral Theory of Labor Negotiations: An Analysis of a Social Interaction System (New York: McGraw-Hill, 1965); Weingart, Thompson, Bazerman, and Carroll, “Tactical Behavior”; L. R. Weingart, J. M. Brett, M. Olekalns, and P. L. Smith, “Conflicting Social Motives in Negotiating Groups,” Journal of Personality and Social Psychology, 2007, 93(6), 994–1010; C.K.W. De Dreu and L. R. Weingart, “Task Versus Relationship Conflict, Team Performance, and Team Member Satisfaction: A Meta-Analysis,” Journal of Applied Psychology, 2003, 88(4), 741–749. 4. M. P. Follett, “Constructive Conflict,” in H. C. Metcalf and L. Urwick (eds.), Dynamic Administration: The Collected Papers of Mary Follett, pp. 30–49 (New York: Harper and Brothers, 1940); D. G. Pruitt, Negotiation Behavior (New York: Academic Press, 1981). 5. P.J.D. Carnevale, D. G. Pruitt, and S. D. Britton, “Looking Tough: The Negotiator Under Constituent Surveillance,” Personality and Social Psychology, 1979, 5(1), 118–121; M. J. Kimmel, D. G. Pruitt, J. M. Magenau, E. Konar-Goldband, and P.J.D. Carnevale, “Effects of Trust, Aspiration, and Gender on Negotiation Tactics,” Journal of Personality and Social Psychology, 1980, 38(1), 9–22; S. A. Lewis and W. R. Fry, “Effects of Visual Access and Orientation on the Discovery of Integrative Bargaining Alternatives,” Organizational Behavior and Human Performance, 1977, 20(1), 75–92; Pruitt, Negotiation Behavior; D. G. Pruitt, and S. A. Lewis, “Development of Integrative Solutions in Bilateral Negotiation,” Journal of Personality and Social Psychology, 1975, 31(4), 621–633; J. W. Schultz and D. G. Pruitt, “The Effects of Mutual Concern on Joint Welfare,” Journal of Experimental Social Psychology, 1978, 14(5), 480–492; Weingart, Thompson, Bazerman, and Carroll, “Tactical Behavior.” 6. J. M. Brett and T. Okumura, “Inter- and Intracultural Negotiation: U.S. and

Japanese Negotiators,” The Academy of Management Journal, 1998, 41(5), 495–510; Gunia, Brett, Nandkeolyar, and Kamdar, “Paying a Price”; M. Olekalns and P. L. Smith, “Testing the Relationships Among Negotiators: Motivational Orientations, Strategy Choices and Outcomes,” Journal of Experimental Social Psychology, 2003, 39, 101–117; M. Olekalns and P. L. Smith, “Social Motives in Negotiation: The Relationships Between Dyad Composition, Negotiation Processes and Outcomes,” International Journal of Conflict Management, 2003, 14(3/4), 233–254; M. Olekalns and P. L. Smith, “Moments in Time: Metacognition, Trust, and Outcomes in Dyadic Negotiations,” Personality and Social Psychology Bulletin, 2005, 31(12), 1696–1707; Pruitt, Negotiation Behavior; L. Thompson, “Information Exchange in Negotiation,” Journal of Experimental Social Psychology, 1991, 27(2), 161–179; L. Thompson and R. Hastie, “Social Perception in Negotiation,” Organizational Behavior and Human Decision Processes, 1990, 47(1), 98–123; Weingart Thompson, Bazerman, and Carroll, “Tactical Behavior.” 7. Kimmel and others, “Effects of Trust.” 8. J. K. Butler, “Trust Expectations, Information Sharing, Climate of Trust, and Negotiation Effectiveness and Efficiency,” Group & Organization Management, 1999, 24(2), 217–238. 9. Kimmel and others, “Effects of Trust”; Pruitt and Lewis, “Development of Integrative Solutions.” 10. Pruitt and Carnevale, “The Development of Integrative Agreements”; Pruitt and Lewis, “The Psychology of Integrative Bargaining”; Walton and McKersie, A Behavioral Theory of Labor Negotiations. 11. W. L. Adair, T. Okumura, and J. M. Brett, “Negotiation Behavior When Cultures Collide: The United States and Japan,” Journal of Applied Psychology, 2001, 86(3), 371–385; J. M. Brett, and M. J. Gelfand, “A Cultural Analysis of the Underlying Assumptions of Negotiation Theory,” in L. Thompson (ed.), Frontiers of Negotiation Research, pp. 173–201 (New York: Psychology Press, 2006). 12. M. Sinaceur, G. A. Van Kleef, M. A. Neale, H. Adam, and C. Haag, “Hot or Cold: Is Communicating Anger or Threats More Effective in Negotiation?” Journal of Applied Psychology, 2011, 96(5), 1018–1032; G. A. Van Kleef, C.K.W. De Dreu, and A.S.R. Manstead, “The Interpersonal Effects of Anger and Happiness in Negotiations,” Journal of Personality and Social Psychology, 2004, 86(1), 57–76; G. A. Van Kleef, C.K.W. De Dreu, D. Pietroni, and A.S.R.

Manstead, “Power and Emotion in Negotiation: Power Moderates the Interpersonal Effects of Anger and Happiness on Concession Making,” European Journal of Social Psychology, 2006, 36(4), 557–581. 13. Olekalns and Smith, “Moments in Time”; Weingart, Thompson, Bazerman, and Carroll, “Tactical Behavior.” 14. Pruitt, Negotiation Behavior. 15. Weingart, Brett, Olekalns, and Smith, “Conflicting Social Motives”; L. R. Weingart, E. B. Hyder, and M. J. Prietula, “Knowledge Matters: The Effect of Tactical Descriptions on Negotiation Behavior and Outcome,” Journal of Personality and Social Psychology, 1996, 70(6), 1205–1217. 16. Gunia, Brett, Nandkeolyar, and Kamdar, “Paying a Price”; S. Aslani, J. Ramirez-Marin, J. J. Yao, Z. Semnani-Azad, J. M. Brett, Z. X. Zhang, C. Tinsley, L. Weingart, and W. Adair, “Honor, Face, and Dignity Cultures: A Tri-Cultural Study of Negotiations,” paper presented at the International Association for Conflict Management annual meeting, 2013, Kyoto, Japan. 17. L. L. Thompson, The Mind and Heart of the Negotiator, 5th ed. (Boston: Pearson, 2012). 18. G. A. Van Kleef, “How Emotions Regulate Social Life: The Emotions as Social Information (EASI) Model,” Current Directions in Psychological Science, 2009, 18, 184–188. 19. Van Kleef, “How Emotions Regulate Social Life”; H. Adam and J. M. Brett, “The Social Effects of Anger Depend on the Competitiveness of the Situation,” manuscript under review. 20. A. D. Galinsky and T. Mussweiler, “First Offers as Anchors: The Role of Perspective-Taking and Negotiator Focus,” Journal of Personality and Social Psychology, 2001, 81(4), 657–669; B. Gunia, R. Swaab, N. Sivanathan, and A. Galinsky, “The Remarkable Robustness of the First-Offer Effect: Across Culture, Power, and Issues,” Personality and Social Psychology Bulletin, in press. 21. W. Adair, J. Brett, A. Lempereur, T. Okumura, P. Shikhirev, C. Tinsley, and A. Lytle, “Culture and Negotiation Strategy,” Negotiation Journal, 2004, 20(1), 87–111; W. L. Adair, and J. M. Brett, “The Negotiation Dance: Time, Culture, and Behavioral Sequences in Negotiation,” Organization Science, 2005, 16(1), 33–51; Gunia, Brett, Nandkeolyar, and Kamdar, “Paying a Price.” 22. Adair and Brett, “The Negotiation Dance”; Gunia, Brett, Nandkeolyar, and Kamdar, “Paying a Price”; C. Zhang, J. M. Brett, Z. X. Zhang, “Chinese

Managers and Negotiation Strategy: An Actor-Partner Interdependence Model,” paper presented at the Academy of Management annual meeting, 2013, Dispute Resolution Research Center Northwestern University working paper 444, http://www.kellogg.northwestern.edu/research/drrc/research/working- papers.aspx; Aslani and others, “Honor, Face, and Dignity Cultures.” 23. Butler, “Trust Expectations.” 24. Kimmel and others, “Effects of Trust”; Pruitt and Lewis, “Development of Integrative Solutions.” 25. D. T. Kong, K. T. Dirks, and D. Ferrin, “Interpersonal Trust Within Negotiations: Meta-Analytic Evidence, Critical Contingencies, and Directions for Future Research,” Academy of Management Journal, forthcoming. 26. H. H. Tan and D. Chee, “Understanding Interpersonal Trust in a Confucian- Influenced Society: An Exploratory Study,” International Journal of Cross Cultural Management, 2005, 5(2), 197–212; M. Nishishiba and L. D. Ritchie, “The Concept of Trustworthiness: A Cross-Cultural Comparison Between Japanese and US Business People,” Journal of Applied Communication Research, 2000, 28(4), 347–367; J. Bürger, M. Luke, and H. Indeláová, “Interpersonal Trust in German-Czech Work Relations: Mutual Expectations and Suggestions for Improvment,” Journal of Organizational Transformation and Social Change, 2006, 3, 173–199; S. Wasti, H.H.T. Arzu, H. H. Brower, and Ç. Önder, “Cross-Cultural Measurement of Supervisor Trustworthiness: An Assessment of Measurement Invariance Across Three Cultures,” The Leadership Quarterly, 2007, 18(5), 477–489; Gunia, Brett, Nandkeolyar, and Kamdar, “Paying a Price”; M. Tillmar, “Swedish Tribalism and Tanzanian Entrepreneurship: Preconditions for Trust Formation,” Entrepreneurship and Regional Development, 2006, 18(2), 91–107; T. M. Kühlmann, “Formation of Trust in German-Mexican Business Relations,” in K. M. Bijlsma-Frankema and R. Klein Woolthuis (eds.), Trust Under Pressure: Empirical Investigations of Trust and Trust Building in Uncertain Circumstances, pp. 37–53 (Cheltenham, U.K.: Edward Elgar, 2005). 27. For a thorough review, see D. L. Ferrin and N. Gillespie, “Trust Differences Across National-Societal Cultures: Much to Do, or Much Ado About Nothing?” in M. Saunders, D. Skinner, G. Dietz, N. Gillespie, and R. J. Lewicki (eds.), Organizational Trust: A Cultural Perspective, pp. 42–86 (Cambridge, U.K.: Cambridge University Press, 2010). 28. M. J. Gelfand, L. H. Nishii, and J. L. Raver, “On the Nature and

Importance of Cultural Tightness-Looseness,” Journal of Applied Psychology, 2006, 91(6), 1225–1244; M. J. Gelfand, J. L. Raver, L. Nishii, and others, “Differences Between Tight and Loose Cultures: A 33-Nation Study,” Science, 2011, 332, 1100–1104. See also E. D. Boldt, “Structural Tightness and Cross- Cultural Research,” Journal of Cross-Cultural Psychology, 1978, 9(2), 151– 165; E. D. Boldt, “Structural Tightness, Autonomy, and Observability: An Analysis of Hutterite Conformity and Orderliness,” The Canadian Journal of Sociology / Cahiers canadiens de sociologie, 1978, 3(3), 349–363; E. D. Boldt and L. W. Roberts, “Structural Tightness and Social Conformity,” Journal of Cross-Cultural Psychology, 1979, 10(2), 221–230; J. Ford, D. Young, and S. Box, “Functional Autonomy, Role Distance and Social Class,” The British Journal of Sociology, 1967, 18, 370–381. 29. K. T. Dirks, R. J. Lewicki, and A. Zaheer, “Repairing Relationships Within and Between Organizations: Building a Conceptual Foundation,” Academy of Management Review, 2009, 34(1), 68–84; D. Meyerson, K. E. Weick, and R. M. Kramer, “Swift Trust and Temporary Groups,” in R. M. Kramer and T. R. Tyler (eds.), Trust in Organizations: Frontiers of Theory and Research, pp. 166–195 (Thousand Oaks, Calif.: Sage, 1996); J. M. Weber, D. Malhotra, and J. K. Murnighan, “Normal Acts of Irrational Trust: Motivated Attributions and the Trust Development Process,” Research in Organizational Behavior: An Annual Series of Analytical Essays and Critical Reviews, 2005, 26, 75–101. 30. F. Fukuyama, Trust: The Social Virtues and the Creation of Prosperity (London: Hamish Hamilton, 1995). T. Yamagishi and M. Yamagishi, “Trust and Commitment in the United States and Japan,” Motivation and Emotion, 1994, 18(2), 129–166; T. Yamagishi, “Micro-Macro Dynamics of the Cultural Construction of Reality: A Niche Construction Approach to Culture,” in M. J. Gelfand, C.Y. Chui, and Ying-yi Hong (eds.), Advances in Culture and Psychology, vol. 1 (New York: Oxford University Press, 2010. 31. The World Values Survey's measure of trust is “Do you think most people would try to take advantage of you if they got a chance, or would they try to be fair?” R. Inglehart, and C. Welzel, “Changing Mass Priorities: The Link Between Modernization and Democracy,” Perspectives on Politics, 2010, 8(2), 551–567. See also http://www.worldvaluessurvey.org. The Pew Global Attitudes survey's measure of trust is “most people in society are trustworthy,” http://www.pewglobal.org/2008/04/15. 32. R. J. Robinson, R. J. Lewicki, and E. M. Donahue, “Extending and Testing a Five Factor Model of Ethical and Unethical Bargaining Tactics: Introducing

the SINS Scale,” Journal of Organizational Behavior, 2000, 21(6): 649–664. 33. T. Yamagishi, “Trust in China and Japan: Findings from ‘Joint-Cultural’ Experiments,” keynote address at the International Association for Conflict Management annual meeting, Kyoto, Japan. 34. Gunia, Brett, Nandkeolyar, and Kamdar, “Paying a Price”; Kong, Dirks, and Ferrin, “Interpersonal Trust Within Negotiations.” 35. R. E. Nisbett, K. Peng, I. Choi, and A. Norenzayan, “Culture and Systems of Thought: Holistic Versus Analytic Cognition,” Psychological Review, 2001, 108(2), 291–310. 36. Adair, Okumura, and Brett, “Negotiation Behavior When Cultures Collide”; Brett and Okumura, “Inter- and Intracultural Negotiation”; W. L. Adair, L. Weingart, and J. M. Brett, “The Timing and Function of Offers in U.S. and Japanese Negotiations,” Journal of Applied Psychology, 2007, 92(4), 1056–1068; W. L. Adair, “Integrative Sequences and Negotiation Outcome in Same- and Mixed-Culture Negotiations,” International Journal of Conflict Management, 2003, 14(3/4), 273–296. 37. To do this analysis we had the Japanese transcripts translated into English. Coders unfamiliar with the purpose of the project identified all subject verb phrases in each transcript. Coders trained on identifying Q&A and S&O until they both could reliably code the same transcript. Coders then categorized each subject verb phrase in each transcript. We then analyzed the relative frequency of use of Q&A and the frequency of use of S&O versus all other codes in each transcript to reach our conclusions. 38. Brett and Okumura, “Inter- and Intracultural Negotiation”; Adair, Okumura, and Brett, “Negotiation Behavior When Cultures Collide.” 39. E. T. Hall, Beyond Culture (Garden City, N.Y.: Anchor, 1976). 40. C. B. Gibson, “Do You Hear What I Hear? A Framework for Reconciling Intercultural Communication Difficulties Arising from Cognitive Styles and Cultural Values,” in P. C. Earley and M. Erez (eds.), New Perspectives on International Industrial/Organizational Psychology, pp. 335–362 (San Francisco: New Lexington Press, 1998). 41. Nisbett, Peng, Choi, and Norenzayan, “Culture and Systems of Thought.” 42. Adair, Weingart, and Brett, “The Timing and Function of Offers.” 43. Adair, Weingart, and Brett, “The Timing and Function of Offers.” 44. Gunia, Brett, Nandkeolyar, and Kamdar, “Paying a Price.” 45. Adair, Weingart, and Brett, “The Timing and Function of Offers.”

46. Adair and Brett, “The Negotiation Dance.” 47. This approach is not used widely enough so as to give the Chinese joint value that is similar to that of the Japanese. 48. M. Morris, J. Nadler, T. Kurtzberg, and L. L. Thompson, “Schmooze or Lose: Social Friction and Lubrication in E-Mail Negotiations,” Group Dynamics: Theory, Research, and Practice, 2002, 6(1), 89–100. 49. L. Balachandra, “Should You Eat While You Negotiate?” HBR Blog Network, January 29, 2013, http://blogs.hbr.org/cs/2013/01/should_you_eat_while_you_negot.html. 50. M. E. Schweitzer and J. L. Kerr, “Bargaining Under the Influence: The Role of Alcohol in Negotiations.” Academy of Management Executive, 2000, 14(2), 47–57, http://search.ebscohost.com/login.aspx? direct=true&db=buh&AN=3819305&site=ehost-live; M. E. Schweitzer and L. E. Gomberg, “The Impact of Alcohol on Negotiator Behavior: Experimental Evidence.” Journal of Applied Social Psychology, 2001, 31(10), 2095–2126, http://www.blackwell- synergy.com.turing.library.northwestern.edu/doi/abs/10.1111/j.1559- 1816.2001.tb00165.x. 51. P.J.D. Carnevale and A. M. Isen, “The Influence of Positive Affect and Visual Access on the Discovery of Integrative Solutions in Bilateral Negotiation,” Organizational Behavior and Human Decision Processes, 1986, 37(1), 1–13; J. P. Forgas, “On Feeling Good and Getting Your Way: Mood Effects on Negotiator Cognition and Bargaining Strategies,” Journal of Personality and Social Psychology, 1998, 74(3), 565–577; A. L. Drolet and M. W. Morris, “Rapport in Conflict Resolution Accounting for How Nonverbal Exchange Fosters Cooperation on Mutually Beneficial Settlement to Mixed Motive Conflicts,” Journal of Experimental Social Psychology, 2000, 36, 26– 50. 52. G. J. Leonardelli, J. Gu, G. McRuer, A. D. Galinsky, and V. Medvec, “Negotiating with a Velvet Hammer: Multiple Equivalent Simultaneous Offers,” Organizational Behavior and Human Decision Process, in press; E. B. Hyder, M. J. Prietula, and L. R. Weingart, “Getting to the Best: Efficacy Versus Optimality in Negotiation,” Cognitive Science, 2000, 24(2), 169–204. 53. Carnevale and Isen, “The Influence of Positive Affect”; Forgas, “On Feeling Good”; Drolet and Morris, “Rapport in Conflict Resolution.” 54. Van Kleef, De Dreu, and Manstead, “The Interpersonal Effects”; M.

Sinaceur and L. Z. Tiedens, “Get Mad and Get More Than Even: When and Why Anger Expression Is Effective in Negotiations,” Journal of Experimental Social Psychology, 2006, 42(3), 314–322; G. A. Van Kleef, “How Emotions Regulate Social Life.” 55. H. Adam, A. Shirako, and W. Maddux, “Cultural Variance in the Interpersonal Effects of Anger in Negotiations,” Psychological Science, 2010, 21(6), 882–889; Adam and Brett, “The Social Effects of Anger.” 56. Van Kleef, “How Emotions Regulate Social Life.” 57. Adam, Shirako, and Maddux, “Cultural Variance.” 58. K. G. Allred, J. Mallozzi, F. Matsui, and C. P. Raia, “The Influence of Anger and Compassion on Negotiation Performance,” Organizational Behavior and Human Decision Processes, 1997, 70(3), 175–187. 59. Adair, “Integrative Sequences and Negotiation Outcome”; N. J. Adler and J. L. Graham, “Cross-Cultural Interactions: The International Comparison Fallacy,” Journal of International Business Studies, 1989, 20, 515–538; Brett and Okumura, “Inter- and Intracultural Negotiation”; J. Graham, “The Influence of Culture on the Negotiation Process,” Journal of International Business Studies, 1985, 16, 81–96; L. A. Liu, C. H. Chua, and G. K. Stahl, “Quality of Communication Experience: Definition, Measurement, and Implications for Intercultural Negotiations,” Journal of Applied Psychology, 2010, 95, 469–487; L. A. Liu, R. A. Friedman, B. Barry, M. Gelfand, and Z.-X. Zhang, “The Dynamics of Consensus Building in Intracultural and Intercultural Negotiations,” Administrative Science Quarterly, 2012, 57, 269–304; J. H. Natlandsmyr and J. Rognes, “Culture, Behavior, and Negotiation Outcomes: A Comparative and Cross-Cultural Study of Mexican and Norwegian Negotiators,” International Journal of Conflict Management, 1995, 6, 5–29; J. Ramirez-Marin, J. Brett, S. Aslani, C. Tinsley, and L. Munduate, “Expectations and Emotions: Spanish Honor and Anglo Dignity in Intercultural Negotiation,” paper presented at the International Association for Conflict Management annual meeting, 2013, Kyoto, Japan. 60. Graham, “The Influence of Culture”; J. M. George, G. R. Jones, and J. A. Gonzalez, “The Role of Affect in Cross-Cultural Negotiation,” Journal of International Business Studies, 1999, 29, 749–772; K.-H. Lee, G. Yang, and J. Graham, “Tension and Trust in International Business Negotiations: American Executives Negotiating with Chinese Executives,” Journal of International Business Studies, 2006, 37, 623–641.”

61. H. Tajfel, M. G. Billig, R. P. Bundy, and C. Flament, “Social Categorization and Intergroup Behaviour,” European Journal of Social Psychology, 1971, 2, 149–178; R. Brown, Group Processes: Dynamics Within and Between Groups, 2nd ed. (Oxford, U.K.: Blackwell, 2000), 309–360. 62. Liu, Friedman, Barry, Gelfand, and Zhang, “The Dynamics of Consensus Building in Intracultural and Intercultural Negotiations.” 63. Adair, “Integrative Sequences and Negotiation Outcome”; Adair and Brett, “The Negotiation Dance”; C. Tinsley, J. Curhan, and R. S. Kwak, “Adopting a Dual Lens Approach for Overcoming the Dilemma of Difference in International Business Negotiations,” International Negotiation, 1999, 4, 1–18; Liu, Friedman, Barry, Gelfand, and Zhang, “The Dynamics of Consensus Building in Intracultural and Intercultural Negotiations.” 64. Adair and Brett, “The Negotiation Dance”; Adair, Okumura, and Brett, “Negotiation Behavior When Cultures Collide”; Liu, Friedman, Barry, Gelfand, and Zhang, “The Dynamics of Consensus Building in Intracultural and Intercultural Negotiations”; Adler and Graham, “Cross-Cultural Interactions.” 65. As we will see in Chapter Four, strategic misalignment with respect to sensitivity to insults and confrontation style are particularly important in dispute resolution and conflict management negotiations. Differences in self- worth and power and status are fundamental to all negotiations. 66. Adair and Brett, “The Negotiation Dance”; Liu, Friedman, Barry, Gelfand, and Zhang, “The Dynamics of Consensus Building in Intracultural and Intercultural Negotiations,” although see Exhibit 3.1—the Israelis were able to generate higher joint gains negotiating interculturally with the Hong Kong Chinese than the Hong Kong Chinese were able to negotiate intraculturally. 67. Adair, “Integrative Sequences and Negotiation Outcomes”; Adair and Brett, “The Negotiation Dance.” 68. Liu, Friedman, Barry, Gelfand, and Zhang, “The Dynamics of Consensus Building in Intracultural and Intercultural Negotiations.” 69. Natlandsmyr and Rognes, “Culture, Behavior, and Negotiation Outcomes”; Ramirez-Marin, Brett, Aslani, Tinsley, and Munduate, “Expectations and Emotions: Spanish Honor and Anglo Dignity in Intercultural Negotiation.” 70. M. Kern, S. Lee, Z. Aytug, and J. M. Brett, “Bridging Social Distance in Inter-Cultural Negotiations: ‘You’ and the Bi-Cultural Negotiator,” International Journal of Conflict Management, 2012, 23(2), 173–191.

71. L. A. Liu, C. H. Chus, and G. Stahl, “Quality of Communication Experience: Definition, Measurement, and Implications for Intercultural Negotiations,” Journal of Applied Psychology, 2010, 95, 469–487. 72. A. W. Kruglanski, Lay Epistemics and Human Knowledge: Cognitive and Motivational Bases (New York: Plenum, 1980), 236. 73. F. M. Cheung, K. Leung, R. M. Fan, W. Z. Song, J. X. Zhang, and J. P. Zhang, “Development of the Chinese Personality Assessment Inventory,” Journal of Cross Cultural Psychology, 1996, 27, 181–199. 74. Lui, Friedman, Barry, Gelfand, and Zhang, “The Dynamics of Consensus Building in Intracultural and Intercultural Negotiations.” 75. C. Earley and S. Ang, Cultural Intelligence: Individual Interactions Across Cultures (Palo Alto, Calif.: Stanford University Press, 2003). 76. L. Imai and M. Gelfand, “The Culturally Intelligent Negotiator: The Impact of Cultural Intelligence (CQ) on Negotiation Sequences and Outcomes,” Organizational Behavior and Human Decision Processes, 2010, 112, 83–98. 77. Adair and Brett, “The Negotiation Dance.”

4

Resolving Disputes

Conflict is the experience of opposing interests. People experience conflict when they are interdependent, need to share resources, and perceive opposing interests concerning how those resources should be distributed.1 Recall the example in Chapter One of the TNK-BP failed joint venture set up in 2003 between some Russian investors (AAR) and British Petroleum. In Chapter One we mentioned that the joint venture was plagued from the outset by “internal governance problems”—a euphemism for conflict. Expats dominated the management team and tried to impose BP's corporate culture on the joint venture. Within a year, over one-fifth of the Russian headquarters staff had left because of mutual distrust between expat and resident managers, according to a Russian member of the joint venture's board.2 By 2008 the conflict between these two different cultural groups, exacerbated by an incentive system tailored to interests of the joint venture's expats, led to sixteen Russian VPs and directors filing a lawsuit against the CEO, Robert Dudley, for labor law violations.3 When a Russian board member demanded Dudley's resignation, Dudley refused. Now the conflict of interests between TNK-BP Russian and other board members became a dispute, the claim for Dudley's resignation, which Dudley rejected. A dispute is a particular form of conflict—a claim by one party rejected by another.4

No culture is immune to conflict and disputes. People everywhere experience conflict, make and reject claims, and try to resolve disputes. How they do so varies systematically with culture, including what claims are made, the reasons why claims are rejected, and the strategies people use to resolve conflict and disputes. Global negotiators should be prepared to resolve disputes regardless of where in the world they arise. To that end, this chapter arms you with a fundamental understanding of conflict and the process of dispute resolution and provides insight into how to adjust that process to account for cultural differences. We begin by explaining how dispute resolution negotiations differ from deal-

making negotiations, which were the focus of Chapter Three. We then consider how the dignity, face, and honor cultural prototypes introduced in Chapter Two influence how direct or indirect dispute resolution negotiations are likely to be. That brings us to the core of the chapter: a discussion of three strategic approaches to resolving disputes (through assertion of interests, rights, or power) and how to use each approach more or less directly.

The Difference Between Negotiating Deals and Resolving Disputes Not all relationships set up through deal-making negotiations turn into disputes, as the TNK-BP joint venture did. When deals are negotiated, contracts should be carefully crafted and relationships should be carefully cultivated to minimize misunderstandings that generate conflict and disputes. Nevertheless, in any relationship there are likely to be conflicts and disputes. Claims are made and rejected because not every contingency can be anticipated at the time a contract is signed and not all relationships are strong enough to overcome the cost and disappointment of unfulfilled expectations, much less changes in the environment. Global managers need to know how to use negotiation strategy to resolve conflict. The first step is to understand three important differences between resolving disputes and negotiating deals: BATNAs are linked, negotiators are (or should be) focused on minimizing costs rather than maximizing gains, and emotions are likely to be high and angry.

BATNAs Are Linked The TNK-BP dispute between CEO Dudley and his board illustrates linked BATNAs. A board member asked Dudley to resign—that was the claim. Dudley refused—that was the rejection of the claim, which turned the conflict into a dispute. But that was not the end of the negotiation. The miffed board then began to make it impossible for Dudley to direct the joint venture by refusing to approve the previous year's financial statement.5 The point of linked BATNAs in dispute resolution is that your BATNA is what the other party does after you reject its claim. In the TNK-BP dispute, the board escalated the conflict and Dudley ended up leaving Russia and trying to manage the joint venture remotely from the United Kingdom.

The difference between BATNAs in deal making and dispute resolution negotiations is that in deal making, BATNAs are independent whereas in dispute resolution BATNAs are interdependent. Take another example: when a potential buyer and seller reach an impasse, each goes off to negotiate with a different buyer or seller. BATNAs are independent; typically neither the buyer nor the seller can interfere with the other's alternatives. This is not so in dispute resolution. When a claim is made and rejected, both parties' BATNAs depend on what the claiming party does next. The TNK-BP board member could drop his claim, but he could also escalate, which he did by refusing to approve an important financial statement. A major error in planning a dispute resolution strategy is failure to understand that BATNAs are linked. In dispute resolution negotiations each party has to consider his BATNA as being the worst thing the other party can do in the case of impasse. Once my MBA students understood this distinction, they came up with a new acronym for BATNA in the inter‐ dependent disputing context: WATNA—Worst Alternative To a Negotiated Agreement.6

Minimizing Costs Although deal-making negotiations are all about maximizing gains, linked BATNAs should make negotiators resolving disputes focus on minimizing costs. The first step in the ultimate dissolution of the profitable TNK-BP joint venture came when unresolved conflict within management escalated to the boardroom and was not resolved. If you are the recipient of a claim and you reject the claim, you have little control over what the claimant does next, much less the costs to you of what the claimant does next. The only way to manage the costs of dispute resolution is to negotiate to resolve the dispute at the lowest possible cost to you. If you negotiate to impasse, you not only lose control over the claimant's next step, you also lose control over the cost to you of that next step. Note how different this minimize-cost focus in dispute resolution is from the

maximize-gain focus in deal making. In deal-making negotiations, negotiators scan their environments for potential partners. They choose to negotiate with the one with whom they think they can maximize their gains. The next best partner becomes the BATNA. In dispute resolution, there is no choice of partner. The tangled web of

interdependent relationships in dispute resolution means that both claimants and respondents should weigh the costs of a potential agreement against the costs of

what might happen if that agreement is rejected. This is why lawyers often walk clients through elaborate decision trees that estimate the costs and gains to be expected in different dispute resolution venues. A major error in executing a dispute resolution strategy is to focus on maximizing gains rather than on minimizing losses.

Emotions Despite the advice to weigh the costs of a potential agreement against the costs of what might happen if that agreement is rejected, disputants often have difficulty taking such a cool rational approach to dispute resolution. Deal making can become emotional, but deal-making negotiations do not normally start out with outraged, angry, hurt, unhappy negotiators. Dispute resolution negotiations often do. People tend to take it personally when they are the target of a claim or have their claim rejected. They view claims and rejections as insults, as affronts to their self-worth. Once an event is framed as an insult, people's emotions are engaged and negotiations not only have to resolve the issues in dispute but also restore the dignity, face, or honor of the disputants. This leads us to the next section, which looks at the basis for conflict and the normative responses to it in the three types of culture introduced in Chapter Two.

Conflict and Confrontation in Dignity, Face, and Honor Cultures People in different cultures confront conflict rather differently. The dignity, face, and honor framework we discussed in Chapter Two is helpful in organizing and understanding these differences. In this section we discuss how differences in self-worth (dignity, face, honor) and social structures (egalitarian versus hierarchical) lead to different thresholds for conflict and different types of confrontation (direct versus indirect). A good way to start to understand these differences is to consider how cultural differences in self-worth are associated with different levels of tolerance for insults and claims. (Remember that, as in Chapter Two, we are talking here about cultural prototypes; not everyone in a dignity, face, or honor culture is going to act in line with the prototype.)

Conflict and Confrontation in Dignity Cultures

In dignity cultures (such as the United States), people tend to be quite tolerant of conflict claims. Although people sometimes have strong emotional responses to conflict claims, they may first try to understand the claim and address it in an unemotional way. Dignity theory in cultural psychology suggests that the threshold for an emotional response to a conflict claim is relatively high because self-worth is intrinsic, self-determined, and so not too easily affected by conflict claims. In addition, dignity cultures' generally egalitarian social structures, associated with beliefs that “I'm as good as the next guy” and norms for direct confrontation, provide the resilience people need to turn claims back upon the claimant: “Who are you to say that to me?” To be sure, people in dignity cultures care about being respected, and there are definitely limits to how much abuse they will tolerate. But, because claims do not necessarily threaten their intrinsically based self-worth, and the norm is to confront conflict directly, they are relatively tolerant of conflict.

Conflict and Confrontation in Face Cultures The situation is quite the opposite in face cultures, in which a direct claim or rejection is a threat to self-worth because it implies a failure to fulfill social obligations. This is why claims and rejections of claims typically are made indirectly in face cultures. Recall the rattling bicycle example in Chapter One? The claim was made indirectly. After riding the rattling bicycles it was obvious to the plant manager and the visiting buyer that the bicycles rattled. Yet the buyer did not confront the plant manager directly, which would have caused him to lose face by being called out for failure to fulfill his obligations. The questions about customer reactions were indirect confrontation in which no explicit claim was made that the bicycles rattled and no direction was given as to what needed to be done about the rattling bicycles. Importantly, too, no blame was imposed. Leaving it up to the other party to identify the claim and carry out the correct response is the hallmark of face-saving indirect confrontation. Indirect confrontation preserves face and social harmony, which are highly valued in stable social hierarchies. Although direct versus indirect confrontation is a continuum, this strong emphasis on indirect confrontation is unique to face cultures.

Conflict and Confrontation in Honor Cultures Expect a very different response to conflict in honor than in face or dignity

cultures. Research suggests that people in honor cultures are aggressive, defensive, and direct in protecting honor.7 The dynamic and unstable social hierarchies of honor cultures mean that people are constantly seeking social verification of their status. A claim such as “You should not have done that” threatens self-worth, because it implies that the person has violated a social norm, not behaved according to his or her social status, and so is no longer deserving of that status. To protect that status people in honor cultures respond to claims or rejections directly, aggressively, and defensively. Although honor and dignity cultures share the norm of direct confrontation,

beneath this surface similarity lies an important difference: in dignity cultures, stable, intrinsic self-worth allows the target of the insult or claim to turn the focus of direct confrontation on the other party: “What's your problem? Why this insult? Why this claim?” In honor cultures, unstable extrinsic self-worth means that targets turn the focus on themselves: “I haven't done anything to deserve this! How dare you!” This explains why their response to conflict is likely to be direct, aggressive, and defensive. Now that we understand some reasons why people in dignity, face, and honor

cultures tend to confront conflict more or less directly, we are ready to learn about three different strategic approaches to resolving disputes—interests, rights, and power—and how each approach can be used in a more or less direct manner depending on culture.

Interests, Rights, and Power: Three Strategic Approaches to Resolving Disputes Regardless of culture, negotiators can choose among three strategic approaches to resolving disputes: identify interests and attempt to integrate them; try to determine who is right according to some normative standard or rule, contract, law, or precedent; or determine who has more power and expect the weaker party to concede. Some limited empirical data suggest that disputants in dignity cultures will rely more heavily on interests and rights, while disputants in face and probably honor cultures will rely more on power.8 The theory we have just reviewed suggests that disputants in dignity and honor cultures will use interests, rights, and power in a much more direct manner, while those in face cultures will take an indirect approach. Let's begin by developing a deeper understanding of

these three strategic approaches to resolving disputes, and then turn to how they are used more or less directly in different cultures. Interests are the same concept in dispute resolution as in deal making. They

are the concerns, needs, and motivations underlying the conflict or the reasons why the claim was made and the reasons why it was rejected. Rights are the same as the standards of comparison that we talked about in Chapter One. In both making deals and resolving disputes, people use standards of comparison to substantiate their offers. Power in dispute resolution is like BATNA in deal making—what will happen if there is no agreement. However, remember that your BATNA in a dispute is the worse thing the counterpart can do to you if you reach impasse—that is, your WATNA. Conflicts and disputes can be framed in terms of interests and rights and

power. Exhibit 4.1 shows these three approaches as concentric circles, with interests embedded within rights and rights embedded within power.9 All three strategic approaches coexist such that a negotiation focused on interests occurs within the context of rights standards, and a negotiation focused on rights occurs within the context of which party is more powerful.

Exhibit 4.1. Three Approaches to Resolving Disputes.

Source: W. L. Ury, J. M. Brett, and S. B. Goldberg, Getting Disputes Resolved: Designing a System to Cut the Costs of Conflict (Cambridge, Mass.: Harvard Program on Negotiation, 1993). Reprinted by permission.

In trying to negotiate the resolution of disputes, negotiators often cycle among the three strategic approaches. For example, when we coded transcripts of simulated dispute resolution negotiations, we found that people most often started out in the rights circle but quickly realized they were getting nowhere. (Obviously, if they agreed on who was right and who was wrong, there would

not have been a dispute in the first place.) Sometimes this early impasse over rights would lead to power-based negotiations, but more often—in negotiations that ultimately reached an agreement—negotiators would turn to interests. Interestingly, again in negotiations that ultimately reached agreement, there was a tendency to return briefly to rights and power about three-quarters of the way through. We think that once negotiators were confident about settling the dispute, they felt free to engage in some relatively risky competitive negotiations that might further minimize their costs.10

The next sections elaborate on these three strategic approaches to resolving disputes. Each section discusses how the approach is used in different cultures, gives advice for using each approach to analyze and negotiate the resolution of the dispute, and proposes types of settlements that fulfill the strategic intent of the approach.

Interests Interests are the reasons why claims are made and rejected. They are the needs and concerns underlying parties' positions on the issues in dispute.

Uncovering Interests Even in direct-confrontation cultures (dignity or honor), in which claims are explicit, interests may be hidden and may take some creativity to detect. In the indirect-confrontation culture (face), both claims and their underlying interests may be difficult to spot. Exhibit 4.2 provides some examples of how people use verbal, nonverbal, and third-party approaches to uncover interests directly and indirectly.

Exhibit 4.2. Using Verbal, Nonverbal, and Third-Party Approaches to Uncover Interests Directly and Indirectly in Dispute Resolution. Approach Direct Cultures Indirect Cultures Verbal Ask or answer a why or why not

question Tell a story Share an experience

Nonverbal Use hard-to-miss signals such as elevated voice or enlarged postural stance

Use subtle emotional signals such as withdrawing, or behavioral cues such as crossed arms to convey disagreement

Third party

Send a message via a third party

The direct approaches in the exhibit should be quite familiar if you are from a dignity or honor culture, but my Western culture students often have difficulty understanding indirect ones. One of my Chinese students gave the following example to help her classmates understand indirect confrontation. She said, “I would never tell a friend that I didn't like her dress. Instead I would tell her I liked her shoes, omitting reference to her dress. She would understand that I didn't like her dress, because I didn't mention it.” Sharing an experience is a particularly useful indirect approach for revealing

your interests. One of my former students, an American, wrote me from a semester abroad in Thailand. She had bought a docking station for her iPod at a small shop in a large Bangkok electronics mall. When she got it home, it didn't work. She wanted to take it back to the shop, but her Thai friends said, “Don't bother, it's buyer beware in electronics malls, the shopkeeper won't take it back, he will lose face if he admits to selling you shoddy goods.” Not one to be deterred, she devised an indirect, face-saving move. She took the docking station back to the shopkeeper, explaining she couldn't figure out how to use it and asking for his help. She intentionally did not take her iPod. The shopkeeper tried the docking station with his iPod, experienced the fact that it didn't work, and exchanged the malfunctioning station for one that he showed her was working. The story of the rattling bicycles of course is another example of this shared experience approach. Third parties may also be used to help uncover interests. In dignity cultures

third parties typically are used late in the dispute resolution process, only after disputants have failed to resolve the conflict themselves using direct confrontation negotiations. In indirect, face cultures, third parties are used early. Consider how the Chinese woman in the example in Chapter One responded to the American manager's request for different data. She escalated the request to her manager, in order to minimize her own potential loss of face. In honor cultures, third parties also are used rather early in disputes, but for a different reason, primarily to minimize what otherwise might be an aggressive direct confrontation. An American manager shared this example of early third-party intervention.

His firm was doing business in China, and he was baffled by the behavior of one of his high-potential Chinese managers on temporary assignment in the United States. The Chinese manager was working with a female American manager on a marketing campaign. “Every time the Chinese manager disagreed with her

course of action, he came to me,” he said. “Why doesn't the Chinese manager just work through the different perspectives with her,” he wondered. “Maybe he's not as high potential as we thought.” We spent some time discussing how the Chinese manager was acting normally for indirect, hierarchical Chinese culture, and that he probably had no idea that his American boss viewed his behavior as inappropriate. In contrast to the shared experience examples, the American manager's third-

party example illustrates that early third-party involvement helps to uncover interests, but doing so does not lead directly to a resolution of the conflict. The American boss needed to decide what to do about the Chinese manager's requests for intervention. He believed that the Chinese manager was going to need to learn to work through differences directly with peer American managers, if he was going to be successful in this American company. At the same time the American boss came to realize that if “going to the boss” was cultural, it would be difficult behavior to change, and failing to involve the boss early would be inappropriate behavior once the Chinese manager was back in China. What to do? Many biculturals, people who have deep experience with two cultures and

usually two languages, effectively manage such complexities by switching cultural behaviors on and off as they move from one cultural context to another.11 Growing up in two cultures, these people have deep knowledge of the different norms and behaviors that are functional in their different cultures. Too, those most adept at switching seem high on a personal characteristic called identity integration. These people are comfortable with their two, or sometimes more, cultural identities; they do not experience conflict between their identities but allow them to coexist in tandem with their co-existing languages.12 Without bicultural experience, global managers need to learn how to anticipate and analyze interests regardless of their counterpart's culture.

Anticipating Interests Awareness of dignity, face, and honor cultural prototypes may also be helpful in anticipating interests in dispute resolution. For example, if you know the counterpart is from an honor culture in which social validation is important, sincere flattery may be an effective opening to relationship building. If the counterpart is from a face culture, make sure the compliment is directed at the team, not the individual, who is likely to be embarrassed by being singled out.

Confusing? Think about analyzing interests this way: people all over the world are concerned with realizing their goals and being respected by others, as well as achieving the goals of the social groups to which they belong and acting in ways that reflect positively on those groups. Differences of interests across cultures are therefore largely a matter of emphasis. In dignity cultures, consistent with the intrinsic basis of self-worth, self-interests generally take precedence over collective interests. In face cultures, collective interests generally take precedence over self-interests, since self-worth depends on maintaining relationships and social harmony within the collective. In honor cultures, because self-worth is socially claimed, self-interest is likely to dominate, and because validation of self-worth occurs in social interaction, showing respect during the process of negotiation will be important. How interests vary with culture is illustrated by a dispute resolution simulation

study we did first with Hong Kong Chinese managers and then with U.S. managers.13 The simulated dispute was about hiring student summer interns. The fictional disputants were the director of human resources (HR) at a heavy construction company and the company's director of engineering. In our simulation, HR saw the summer internships as a way to gain information it could use in making post-graduate offers for permanent employment, but engineering, needing relatively low-cost temporary labor, went out and hired two interns before HR's program had started. This action on the part of engineering created two immediate issues: Who would pay for their summer interns? And would engineering's summer interns be part of HR's program? A more fundamental issue was how to combine the engineering and other departments' short-term needs for temporary help and HR's need to recruit engineers. Many of the Hong Kong Chinese managers were uncomfortable in this face-

to-face simulated negotiation. They told us they would prefer to discuss the problem with their boss. But since we did not provide a boss, they tended to resolve the two immediate issues and direct the more fundamental issues to a committee of peers who also used summer interns in their departments. Most of the U.S. managers negotiated rather elaborate agreements, often resolving how they were going to interact with each other about summer interns in the future first and then deciding what to do about engineering's summer interns. Different patterns of interests generate different outcomes. Which outcome do

you prefer, the Hong Kong Chinese managers' agreements that took into account the collective interests of those not at the table or the U.S. managers' agreements

that resolved all the issues to the satisfaction of the two negotiators? It depends a little on your perspective, doesn't it? If you were the engineering manager and your interests were met, the multifaceted U.S. solution would be both expedient and best. If your interests were not met, involving your peers in other departments in a thorough evaluation of the program might result in a better, if less expedient, outcome. If you were one of these managers' peers and the resolution of their dispute set a precedent for your future summer interns, would you prefer the U.S. or the Hong Kong Chinese model? Here is some advice about analyzing interests in a dispute that crosses cultural

boundaries. The fundamental questions for uncovering interests across cultures are “Why?” and “Why not?”—as in “Why are you rejecting my claim?” and “Why can't you grant my request?” But direct questioning is not the norm in every culture. When the conflict involves someone from a face culture, look for signs of collective interests in indirect verbal and nonverbal signals. When the conflict involves someone from a face or honor culture, do not be surprised if they involve a third party early in the process. Use the third party to uncover interests, save face, and reduce aggression. Use your knowledge of the dignity, face, and honor cultural types to anticipate interests.

Using Interests to Resolve Disputes Once you understand your own and the other disputant's interests, you have numerous ways to reach an interests-based agreement. Exhibit 4.3 identifies six different types of interest-based agreements. The first type, trade-off, is familiar from deal making: disputants trade concessions on low-priority issues in order to gain more on high-priority issues. Progressing down the list in the exhibit, some disputes can be resolved with a non-precedent-setting agreement that focuses narrowly on the issues, but does not address the general principles underlying the dispute. In the summer interns study discussed earlier, the Hong Kong Chinese managers tended to reach narrowly focused agreements and planned to ask a committee of peers to address the underlying policy issues. A broadly focused agreement addresses both the surface issues and the underlying problem. Often broadly focused agreements come about when disputants, frustrated by trying to resolve the surface issues, turn the discussion to how they might work together in the future. Their future-based agreements often generate sufficient

understanding of each other's interests that disputants become more willing to make concessions on the immediate issues. Sometimes disputants can reach an agreement if it is based on a limited-duration experiment with evaluation criteria. For example, some managers negotiated to put engineering's two summer hires temporarily into the HR summer interns program, and make them permanent, if a background check showed that they met the program's academic criteria. Note that this limited-duration agreement example also contained a contingency: an agreement that depends on another, usually future event.

Exhibit 4.3. Six Types of Interest-Based Agreements for Resolving Disputes. Trade-off Agreement in which parties make concessions on low-priority issues in order to gain

more on high-priority issues.

Non-precedent setting

Agreement that focuses on the surface issues without addressing the underlying cause of the dispute.

Broadly focused

Agreement that focuses on the underlying cause of the dispute.

Future-based Agreement that deals with the future before dealing with the past.

Limited- duration

Agreement to try something for a limited time and then evaluate before continuing.

Contingent Agreement that depends on another event, usually in the future.

Rights Rights are abstract, generalized principles embedded in the standards people use to resolve disputes. For example, the standard could be fairness, and the principle, equity or equality or need. Alternatively, the standard could be a rule, or norm, or law, and the principle seniority. Parties negotiating deals often sign contracts that specify the conditions of their relationship and what steps they will take if a dispute ensues. But, as mentioned previously, it is difficult to anticipate and put in a contract all events that may occur during a relationship. Circumstances may change. Parties may interpret the contract differently, each relying on a different principle, for example, equality versus equity, to interpret the same standard, for example, fairness. It should not be a surprise that the claimant will propose a rights standard and principle that supports her claim and the respondent will propose an alternative principle or even an alternative rights standard to support his rejection of her claim. For these reasons it is frequently

quite difficult to resolve disputes using rights. It often requires a third party, for example a boss, arbitrator, or judge, to decide whose rights standard and principle should prevail.

Uncovering Rights Standards Some rights standards are explicit, such as laws and contracts that result from prior deal-making negotiations in which parties agreed to terms and conditions to govern their future interactions. These explicit rights standards are codified, and compliance is monitored and enforced by governments and other social institutions. Other rights standards are implicit, for example, deference to status or seniority, and fairness standards such as equity, equality, and need. Implicit standards are embedded in cultural norms and are monitored and enforced by social acceptance and social ostracism. People who conform to implicit standards receive social benefits, and those who defy them may be punished. It is important to uncover the rights standard that the counterpart is relying on

because sometimes conflict arises simply because people are using different implicit standards or interpreting the same standard differently. For example, some of the conflict between the TNK-BP Russian and expat managers turned on different interpretations of the fairness of the benefits that the expat managers were receiving.14 Understanding that the two different groups of managers were interpreting the expat's benefits differently gives a clue to underlying interests with which the dispute might more easily be resolved.

Anticipating Rights Standards Rights standards provide social structures that allow cultures all over the world to function smoothly although, as discussed in Chapter Two, cultures vary in the standards they rely on. Characteristic differences in the three cultural types— particularly differences regarding self-worth and power and status—provide a basis for anticipating cultural differences in the type of rights standards that may be used in dispute resolution. Recall from Chapter Two that dignity cultures are quite loose, meaning that

norms are relatively flexible, allowing for quite a bit of variation of behavior within culture; self-worth is relatively independent of social status; and social structures are largely egalitarian. In such societies self-interest could run amok if it weren't for the strong rule of law and highly developed dispute resolution systems that these cultures maintain. Dignity culture negotiators typically

finalize deal-making negotiations with rather elaborate contracts that provide explicit rules as to how the parties are to interact. These contracts also typically include dispute resolution clauses that call for negotiation, mediation (nonbinding third-party intervention), arbitration (binding third-party intervention), or court, and specify venues and auspices under which these procedures will take place. (We talk more about these third-party procedures a little further on in this chapter.) Although contracts reduce self-interested behavior of parties in otherwise

normatively loose dignity cultures, social relationships and social monitoring restrain behavior in the normatively tighter face and honor cultures, in which self-worth is extrinsically determined and social structures are hierarchical. There are of course laws in such cultures, but rights-based dispute resolution is less heavily relied on in face and honor cultures. In these cultures social institutions such as family and community and religious organizations, not so much legal institutions as in dignity cultures, cast rather tight nets around social behavior. In face and honor cultures, these local institutions are also the sources of early-intervening third parties. Deal making in face and honor cultures is negotiated over many cups of tea, during which time the new relationship's status hierarchy is determined. When conflict arises in such relationships, a reminder of one's relational responsibilities as determined by the status hierarchy may be all that is necessary to maintain harmony in an indirect (face) culture or the status quo in a direct (honor) culture.15

Using Rights to Resolve Disputes Disputants use rights to justify making and rejecting claims and to substantiate their proposals for agreement. Rights standards legitimize claims and so, in principle, make them easier to accept. In actuality, three characteristics of rights standards make rights-based dispute resolution problematic. First, even when disputants are using the same standard (such as fairness), they may use different principles and so interpret the application of the fairness standard in opposing ways. For another example from the summer interns simulation, the HR manager could argue that it was unfair for engineering to flout policy and hire its own interns. But at the same time, engineering could argue that it was unfair of HR to delay hiring interns when engineering had immediate need for temporary staff. Second, different interpretations of the same rights standard may be equally relevant but point to very different outcomes. Third, imposing a rights standard

on a dispute—for example, HR has the authority to hire, engineering does not— generates a win-lose outcome. People resist agreeing to take a loss. Instead, they agree to disagree about who is right and who is wrong and escalate the dispute to another rights-based procedure, for example, by going to the common boss. Or, they may move to a power solution; for example, the engineering manager could convince the other department managers to refuse summer interns until the dispute between HR and engineering was resolved. For all these reasons, trying to use rights standards to resolve disputes can be

extremely frustrating. Often one standard is used to justify a claim and another to justify rejecting it. Which standard should prevail? If the two parties agreed on the rights standard, they would not have a dispute in the first place. The process of rights-based dispute resolution is one of searching for a mutually acceptable rights-based standard. But any standard suggested by one party will be viewed as self-serving by the other party.16 So what to do?

Realize when suggesting a rights standard for resolving a dispute that standards are often suspect and therefore discounted. After all, a disputant is unlikely to propose a rights standard that does not benefit him. When weighing potential rights standards, think about what the other party might consider fair. Remember that culture is likely to affect the rights standards disputants will prefer to use. If a third party is involved, consider how persuasive your rights standard is likely to be with the third party. Recognize that using a rights standard to resolve a dispute ordinarily means that one party will win and the other will lose. This makes it difficult for disputants to agree on what standard to apply. Consider agreeing to disagree and trying to turn the negotiation to interests.

Rights-based approaches do resolve some disputes. Disputants may withdraw claims or grant them when new credible evidence generates doubt about the validity of a claim and/or its rejection or clarifies the costs of failing to resolve the dispute. Intuitively, substantiation (which we discussed thoroughly in Chapter Three) would seem to be an appropriate way to convince the other party that your standard, and therefore you, are right and he is wrong. But if that argument does not contain new credible information, it will likely be perceived as self-serving and consequently be ineffectual. When one party withdraws or grants a claim after a fierce argument in which no new information was

exchanged, the concession is as likely motivated by a recognition that pursuing the claim was not worth the costs or by a desire to restore harmony as by persuasion that the initial claim or its rejection was without merit. The key to success in using rights to resolve disputes is either to propose a standard that the other disputant will agree is fair or to provide new credible information that makes the proposed standard appear fair. Without new credible information, argument is unlikely to work.

Power Power is the ability to get what you want from a dispute—to have your claim granted or your rejection upheld.

Uncovering Power Theorists talk about power in terms of dependency. In general, the more dependent you are, the less powerful you are. If you have good alternatives, you are less dependent and therefore more powerful.17 Understanding power in terms of dependency makes it easier to see how status and BATNA are alternative indicators of power. In dignity cultures, high-status parties are admired for their accomplishments, but they are not necessarily viewed as powerful, in the sense that they have greater access to resources than do low- status parties.18 In face and honor cultures there seems to be a tighter relationship between power and status. High-status parties can help low-status parties and culturally are expected to do so. In return, low-status parties defer to high-status parties. In dispute resolution negotiations, figuring out who is more powerful is not as

easy as just determining who has the higher status or better BATNA. In disputes especially, parties evaluate their power through self-serving and cultural lenses. People do not like to admit to themselves, much less to the other side, that they are the low-power party in a negotiation. Self-serving or egocentric biases affect people's judgments in many situations.19 Egocentric bias means that disputants whose emotions are engaged are likely to systematically overestimate their own power and underestimate their counterpart's power. In analyzing power in disputes, remember too that BATNAs are linked—my

best alternative is a WATNA: the worst thing you can do to me. Just saying no in dispute resolution negotiations does not make the claim go away. The other

party can continue to press the claim—to a boss, to peers, to the press, to court— and you have to deal with it. In deal-making negotiations, it is wise to consider the counterpart's BATNA in order to understand his reservation price. In dispute resolution negotiations, it is critical to understand the other party's BATNA because that is what she can do to you if there is no agreement. It affects you directly.

Anticipating Power Disputants from different cultures use power rather differently. Although we do not have dispute resolution data from honor cultures, we do have a study that contrasts how Japanese (face culture), and Germans and Americans (dignity cultures) used power in the summer interns simulation.20 These negotiations were audio recorded and transcribed, and what negotiators said to one another was coded. Exhibit 4.4 shows how we coded three different power strategies: blaming and shaming, threats and ultimatums, and involvement of powerful people.

Exhibit 4.4. Coding Power Tactics in the Summer Interns Study.

Considering how we have emphasized that indirect confrontation is the norm in face cultures, you may be surprised initially that the Japanese used blaming and shaming more frequently than did the Americans or Germans. Our research suggests that blaming and shaming are widely used in face cultures to encourage a party to step up to his role and responsibilities in the social hierarchy. Blaming and shaming also are bald attempts to engage the counterpart's emotions. According to one close observer of Japanese dispute resolution style, the more emotional the appeal the more likely it is to be persuasive, because to refuse to concede in the face of such a plea, the recipient would have to ignore her role in society.21

In this study the Japanese also referred to the support of powerful others much more frequently than the Germans or the Americans. This, too, is consistent with what we know about social interaction in face cultures, with the emphasis in these cultures on the collective interests of harmony and preservation of the status quo. Alluding to the support of powerful others reminds the counterpart that this dispute is not an isolated event but involves the interests of others in the organization. Two aspects of face culture should help you see how blaming and shaming and

alluding to powerful others are actually consistent with indirect confrontation. Recall that face cultures thrive in stable social hierarchies. Disputes threaten the status quo; blaming and shaming and alluding to powerful people are relatively subtle ways of reminding people of the importance of maintaining harmony and stability in the social hierarchy. Remember, too, that indirect confrontation does not mean no confrontation. It means that the confronting party does not tell the counterpart what to do, but leaves it up to the counterpart to determine what to do. Blaming and shaming and alluding to powerful people are consistent with indirect confrontation. Unfortunately, we do not have similar research using the summer interns

simulation with people from honor cultures. We can ground some speculations in what we do know about honor cultures. We know that honor cultures tend to have unstable social hierarchies, with self-worth claimed from social interaction. We know that people from honor cultures respond directly, aggressively, and defensively to insult. It seems likely then that people from honor cultures will use direct and very likely emotional forms of power in dispute resolution negotiations.

Using Power to Resolve Disputes

Using Power to Resolve Disputes An irony comes with using power: if you have to use power it costs you, and often even when you win, you lose. Any time there is a prior relationship between disputants or the potential for a future, post-dispute relationship, winning a power contest is likely to lose the relationship. Let's go back to our summer interns example: if the engineering manager involves the other department heads and effectively takes control of the summer interns program away from the HR manager, the latter is likely to be very reluctant to cooperate with engineering on other future employment matters. Using power to win may turn out to be a rather empty victory when parties have to continue to work together. The key to using power effectively is not to have to use it. This is what the

indirect power confrontation approach tries to accomplish. By using the power of shaming or by alluding to the interests of other parties, the disputant is hoping the counterpart will act to resolve the dispute. Threats in direct confrontation serve a similar purpose. The key to using power effectively in direct confrontation cultures is to make

threats that you are willing to carry out, but that you ultimately do not have to act upon because the counterpart has conceded. An effective threat addresses the counterpart's interests. A credible threat is one for which the cost to you of carrying out the threat is less than the damage carrying out the threat will impose on the counterpart's interests. If the cost to you is more than the damage done to the counterpart, the counterpart is likely to dismiss the threat as not credible. Since the purpose of making a threat is to encourage the counterpart to come to a negotiated agreement, before you act on your threat, be clear about two things: what the counterpart needs to do to avoid the threat being acted upon, and what benefits will accrue to the counterpart if he accepts your proposal for agreement. Here is some advice for making and using threats effectively:

Threaten the counterpart's interests. Only make threats you are willing to carry out. Acting on the threat should damage them more than it costs you. Be clear about what the other party needs to do to avoid the threat being acted upon. “If you do not do ______, then I will do ______.”

Remember before making threats: Power in disputing is different from power in deal making in one key respect: disputants' BATNAs are linked (WATNAs). Culture affects whether power tactics are indirect or direct. Recognize that

blaming and shaming and alluding to parties not at the table are indirect- confrontation power tactics, just as threats are direct-confrontation power tactics. If you have to use power, it costs you. When you “win” by power, you may also be losing in terms of an ongoing relationship.

There are really only two times to use a threat: when you cannot seem to get the counterpart to the table to negotiate and when negotiations with the counterpart have reached an impasse. In both cases your BATNA/WATNA is looking better than the status quo. People sometimes use threats at inappropriate times during negotiations, for example, when they are quite sure there will be an agreement but want to claim more value. But threats at this stage of a negotiation can risk a fledgling agreement, if the response is emotional—“How dare she threaten me at this stage of the negotiation?” There is one last bit of advice about using threats. People often read threats in

information that the counterpart communicates regardless of whether or not the counterpart is trying to threaten. For example, when we were studying union organizing campaigns in the United States, we would ask employees what the company spokesman had said in a meeting. We had transcripts of those meetings because the U.S. labor law prohibits direct threats—for example, “We'll move the production facility to Mexico if the union wins the election.”22 Companies are careful not to make such explicit threats. Instead companies say things such as, “Remember the employer who used to be down the street? When his plant voted for union representation, he shut his doors and moved production to Mexico.” When we asked employees what was said in the meeting, they would tell us, “He said that if we vote union, he's going to move production to Mexico.” Frankly, it is difficult to talk about power in a purely informational way when

parties are disputing. Informational messages are received emotionally. Remember that in disputing, emotions are typically engaged from the time the claim is made and rejected. If you really do need to communicate credible information that the other disputant does not want to hear, it may be the time to engage a neutral third-party mediator. Mediators can convey information from you and help counterparts interpret the implications of the information. Now that we have discussed all the elements of strategic planning for a dispute

resolution negotiation—uncovering, anticipating, and using interests, rights, and

power—we can turn to managing the dynamics of these emotionally charged negotiations by considering how to start a dispute resolution negotiation, how to turn a dispute resolution negotiation that is focused on rights or power to interests, and how to use third parties in dispute resolution.

How to Start a Dispute Resolution Negotiation Look back on Exhibit 4.1. Where should you start the negotiation, with interests, with rights, or with power? This may come as a surprise, but I want to caution you about opening dispute resolution negotiations with interests. There are two related reasons, one intuitive, the other based on empirical evidence. It makes intuitive sense that if you open negotiations with interests, you may be inadvertently sending a message of weakness. Our empirical research shows that when parties open with interests, the counterpart, perhaps thinking there is weakness to be exploited, may turn the negotiations toward rights or power; then the opening party, in self-defense, also turns to rights or power, and conflict spirals. Once this occurs and rights and power are reciprocated, it is quite difficult to turn the negotiation back to interests, possibly because the party opening with interests feels exploited and becomes defensive. In contrast, when negotiations open with rights or power and go nowhere, parties seem to get the rights and power posturing out of their systems, and are relieved to turn to interests, with which there might be movement toward an agreement.23

There may be some middle ground between opening with rights or power and opening with interests. Disputes are often about what happened—the facts of the situation. Disputants seldom agree about the facts, so this opening is not likely to lead to agreement (if there had not been disagreement about the facts there may not have been a dispute in the first place). But talking about the facts and agreeing to disagree may get the parties working together and signaling each other: “This dispute is important to me; you are going to have to participate to resolve it.” Opening dispute resolution negotiations by focusing on rights is unlikely to

lead to a quick agreement unless you have new credible rights information that the other party did not know when rejecting your claim. In fact, because disputants tend to reciprocate each other's rights arguments, opening with or directing the negotiation toward such arguments may at least for a time escalate

the dispute rather than resolve it.24

About the only time you would want to open a dispute resolution negotiation with power is when it took power to get the counterpart to the negotiating table. This is one reason why dispute resolution negotiations so often start out with both parties' emotions running high. Scholars actually know quite a lot about what happens to reasoning when

people become emotional, as they often do when disputing.25 For one thing, they are likely to lose perspective and become less cooperative and less receptive to other ideas. When people feel threatened, anxiety reduces their capacity for rational thinking, and when people become angry their focus may shift from the task to retaliation.26 A study we did monitoring the dispute resolution communications of eBay buyers and sellers illustrates this dynamic. The angrier the party making the claim, the angrier the counterpart and, no surprise, the less likely the dispute was to settle.27 But, holding anger constant, we also found that claimants who told their counterparts exactly what should be done to resolve the claim reduced their chances for settlement of their claim. It seems that even eBay disputants prefer indirect confrontation! In contrast, counterparts who kept a cool head and provided a causal explanation for what went wrong increased the likelihood of settlement.28 In another recent study of dispute resolution, we assessed the effects on concession making of one party expressing anger. The results were clear. In dispute resolution, expressing anger was counterproductive. It reduced the counterpart's concession making.29

Perhaps another reason why people do not make concessions to angry negotiators is that they understand intuitively that if they make concessions to angry counterparts, they are actually reinforcing the counterpart for using anger strategically. If you make a concession to an angry counterpart, you only encourage the counterpart to use anger to negotiate! The more frequently you and others make concessions to anger in negotiation, the more anger becomes a learned negotiating strategy! Whether the anger in dispute resolution negotiations is born of frustration or

strategy, the way to manage it is to refuse to make concessions and keep negotiating. Put an offer on the table. See if you can change the focus. Here's some advice about managing a counterpart's anger in dispute resolution negotiations:

Don't reciprocate an emotional outburst. Failing to confront anger with

anger does not make you appear weak. The effect is just the opposite. Reciprocating the other disputant's emotional outburst draws you into her strategy and away from your own. It makes you appear unable to sustain your own strategic approach. Try not to take an emotional outburst personally. Blaming yourself for the counterpart's emotional outburst will only make you defensive and distract you from your preferred strategic approach. Depersonalize the situation, see the problem in the situation, for example, staffing needs in the engineering department, or in the culture, for example, it is appropriate in China to take problems to the boss. Don't view the problem as the personality of the counterpart, for example, “The engineering director is a bully.” Consider putting the other party's behavior on the table. Tell the counterpart directly that his emotional behavior is interfering with dispute resolution. Ask if there is something you can do to help reduce the emotional tension. Try apologizing for the other party's emotional state. “I'm very sorry you are so upset” goes a long way toward diffusing a hot emotional standoff. Apologies are used successfully to defuse tension around the world.30 Call for time to cool off. Suggest taking a break from negotiations. You may need it as much as the other party. Suggest involving a third party. Third parties can often act to buffer disputants who seem to bring out the worst in each other.

How to Change the Focus from Rights or Power to Interests Our advice above about defusing negative emotion at the negotiation table is also useful for turning the focus of a negotiation away from rights or power to interests. In addition, our research with U.S. negotiators suggests several other ways that negotiations can be refocused from rights or power to interests:31

Do not reciprocate rights or power. Refusing to echo or reciprocate the other party's rights or power communications is an effective way to discourage the counterpart from continuing to use rights or power. With some insensitive disputants, it may be necessary to redirect negotiations from rights or power several times before the point is made. Declare the process ineffective. Disputants who recognize that they are

engaged in a rights or power contest can label the process as counterproductive. It's hard to disagree with such a statement. In fact, concluding that “we're getting nowhere” may be the first thing that disputants actually agree about. “Let's agree to disagree and move on” frequently works to change the focus of negotiations. Combine reciprocity with a change of focus. Some negotiators may fear that by not reciprocating rights or power they are signaling weakness. They may feel compelled to reciprocate to maintain their power position in the negotiations. But don't be too sure. Our data indicate that at least among U.S. negotiators, combining a counterthreat with a change of focus to interests or a proposal for settlement is almost as effective as the “do not reciprocate” strategy in refocusing negotiations away from rights or power.32

Using Third Parties in Dispute Resolution Third parties are used throughout the world to facilitate the resolution of disputes. In this section we will consider the different roles that third parties take in dispute resolution. We will also revisit briefly cultural differences in the timing of third-party intervention and advise you about how to locate and choose third parties, when the choice is yours to make. The first step in understanding third-party intervention is that some third

parties have the legal or moral authority to impose a settlement on disputants and others do not. When third parties do have the authority to impose an outcome, disputants lose control over their outcome. This can be a bad thing—disputants can end up with an outcome that one or both of them dislike and are reluctant to implement. Or, it can be a good thing—neither disputant had to defer to the other, both are following the direction of the third party. Third parties with and without authority to impose outcomes exist in all

cultures. However, it is reasonable to expect that disputants from hierarchical cultures (face and honor) are more comfortable deferring to a third party with authority than are disputants in egalitarian cultures (dignity). Some third-party simulation study data collected in a hierarchical (China) and an egalitarian (United States) culture suggest this. Bosses from the egalitarian culture who had authority to impose an outcome on disputing subordinates were much less likely to do so than bosses in a hierarchical culture; the egalitarian culture bosses tried

to involve the disputants in fashioning their own settlement more than the hierarchical culture bosses.33 Exhibit 4.5 identifies different types of third parties by whether or not they have the authority to impose settlements on disputants.

Exhibit 4.5. Third Parties With and Without Authority to Impose Settlements on Disputants Authority to Impose Settlements Examples Roles with authority Judges

Arbitrators

Bosses

Roles without authority Mediators

Facilitators, ombudsmen

Peers

Roles that may or may not have authority Community leaders

Religious leaders

Family leaders

Third Parties with Authority When third parties have the authority to impose a settlement on disputants, they are frequently operating in the rights circle of Exhibit 4.1 and often are restricted to choosing between the disputants' positions, resulting in a “winner take all” outcome. Judges interpret laws, arbitrators interpret contracts, bosses interpret company policy, religious leaders interpret protocol, family heads interpret communal norms. Sometimes these third parties with authority make their own assessment of the situation and identify and interpret the relevant standard for decision making. These are called non-adversarial procedures; the French court system is an example. At other times, the disputing parties or their agents (lawyers) present their views of the situation and their analysis of the relevant standard for decision making. These are called adversarial procedures; the U.S. court system is an example. Global business relationships are typically formalized by contracts that contain

dispute resolution clauses. These clauses typically specify the legal code governing the contract and—unless there is an alternative dispute resolution (ADR) procedure in the contract—the location of the court with jurisdiction over

litigation of contractual disputes. If there is an ADR procedure, it is likely to culminate with arbitration.

The Arbitration Process Litigation is an expensive, slow, and (in most countries) public approach to dispute resolution. As a result, arbitration is a popular alternative for resolving business-to-business disputes. Arbitration is a private adversarial procedure. Its awards generally are not published like judges' decisions are. In other ways arbitration is similar to adversarial litigation. Like the judge, the arbitrator hears both sides' arguments and then interprets the contract or law in the context of the dispute. When parties agree to arbitration clauses in contracts, they name the commercial code, for example, the state of New York, under which arbitration will occur. This gets around the problem that commercial law codes and court enforcement of arbitration awards are rudimentary in many developing countries. The parties may also specify an organization from which they will select their arbitrator and a process for selecting one. Arbitration clauses alleviate the problem that judges in some countries are not experienced in handling complex civil litigation. Parties can select an experienced arbitrator, a retired judge, or a lawyer who is from a third country and who has a reputation for neutrality and expertise in the industry or law involved in the dispute. An arbitrator has authority to impose an outcome on the disputants, and legal

systems generally enforce an arbitrator's decisions within the system's jurisdiction. Of course, disputants from different national cultures do not share legal systems, which is one reason for choosing arbitration in the first place. However, there is potential legal recourse for enforcement of an arbitrator's award in local courts, if the country is a signatory to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards.34

Selecting an Arbitrator Exhibit 4.6 gives advice for selecting arbitrators. Many international organizations maintain lists of arbitrators.35 It is useful to decide on a source when finalizing a contract with an arbitration clause. Then if an arbitrator is needed, there is no conflict about where to get one. To select an arbitrator, ask the source for the résumés of several candidates with documented experience in your industry or the area of law that your dispute involves. Ask for a list of cases in which each one has served. Contact the lawyers representing both sides of

each of the arbitrators' cases, and interview them about the arbitrator. You will receive more information that is directly relevant to your decision if you ask questions beyond whether your informant would use that third party again—see Exhibit 4.6. If you can find a party who receives praise from people on both sides of the dispute, chances are that he or she will be a good choice for you.

Exhibit 4.6. Some Questions to Ask Others When Selecting an Arbitrator.

Was the arbitrator a good listener? Did the arbitrator treat your side fairly? Did the arbitrator treat the other side fairly? Was the arbitrator knowledgeable in the [relevant] area of law? Was the decision handed down in a timely fashion? Was the decision written in language that the claimant could understand? (This is especially important for employee disputes.) Did your side win or lose? Would you use the same arbitrator again? Why or why not?

Arbitration and Culture Although arbitrators are presumably neutral in the sense of not having an a priori preference for the perspective of one or the other disputant, they are not unbiased. Culture matters. A recent study gave Chinese and American commercial arbitrators three different versions of an arbitration scenario. The scenario described a dispute between a wool supply company and a clothing manufacturer. The supplier was supposed to ship a certain amount of wool to the manufacturer daily, but for two weeks it failed to do so. The dispute focused on whether the supplier was responsible for the failure of the shipment. The arbitrators were told that there had been problems with the supplier's electricity supply during the two weeks in question. Chinese arbitrators made higher awards to the manufacturer than American

arbitrators, because arbitrators from the different cultures interpreted the information about the shut-off of electricity differently. The Chinese arbitrators attributed the failure to deliver to the supplier's actions (or lack thereof). The American arbitrators attributed the failure to deliver to the electricity problem, over which the supplier had no control. The arbitrators' decisions in this study are consistent with prior research that finds that Chinese and Americans make different attributions to explain failure when the actor is a company rather than an individual. In this study cultural biases strongly affected arbitrators'

decisions.36

Third Parties Without Authority When third parties are operating without authority to impose outcomes on the disputants, they are called mediators or sometimes facilitators. They are surprisingly successful in helping parties resolve disputes.37 Two factors seem to facilitate higher settlement rates: training for mediators and familiarity with mediation on the part of advocates.38 In research we completed some years ago, mediation as practiced by the then four major U.S. mediation companies resulted in a 78 percent settlement rate.39 We coded twenty-one different characteristics of each case to see what might predict settlement. Only two characteristics distinguished cases that did not settle: “a party in search of a jackpot” or “a situation in which it was not in the financial interest of one party to settle.” Among the case characteristics that did not predict settlement rate were how much money was involved, whether mediation was voluntary or mandatory, or what type of issue (personal injury, contract, construction, environmental, and so forth) was in dispute.

The Mediation Process Mediators have excellent negotiation skills. They know all the types of agreements shown in Exhibit 4.3. They know how to look for and integrate interests, how to construct proposals that link a future relationship to the resolution of the past dispute, and how to expand the scope of the dispute and get to the underlying issue or narrow the scope and construct a non-precedent- setting agreement. Mediators get agreements by engaging in reality-testing with disputants, making them focus hard and rationally on their BATNAs. Recent research suggests that the distinguishing characteristic of mediators

who are successful in the mediation marketplace, meaning they get hired again and again, is their ability to develop an empathic relationship with the claimant.40 They appear to develop empathy by listening and showing respect for the claimant and his or her reasons for making the claim and by listening and showing respect for the respondent and his or her reasons for denying the claim. In addition, the research indicates that it is quite a bit easier for mediators to develop these important empathic relationships with the disputants by meeting with each separately before meeting with them jointly—an approach that is quite

at odds with standard mediation procedures, which emphasize setting the ground rules in an opening joint session.41

Why is developing empathy so important? People make claims because they think they deserve the outcomes they are claiming. People reject claims because they do not think they have any obligation to grant them. This means that when claims are made and rejected, the conflict is often not limited to the issues but extends to the people making and rejecting the claim. Having a claim made against you or having your claim rejected is a threat to self-worth. A mediator who reaffirms disputants' self-worth by expressing empathy gains their trust and increases their willingness to cooperate. The research discussed above that has identified the importance of developing

empathy between the mediator and each disputant takes us one step beyond the literature on procedural and interactional justice42 on which the practice of mediation in dignity cultures is based. Procedural justice refers to disputants' perceptions of the fairness of the process. The procedural justice research finds that disputants rate procedures as more fair the more they are involved in telling their side of things, in other words, have voice. The interactional justice research finds that disputants also rate procedures as more fair when third parties are neutral and respectful. The more recent research identifies that in addition, mediators will be more successful if they are able to develop empathic relationships with each of the disputants separately.

Selecting a Mediator It is wise to have a contract clause calling for mediation and indicating the source of potential mediators. This minimizes disputes over how to select a mediator once one is needed. It is as easy to find services on the web that will provide lists of mediators as it is to find lists of arbitrators. What is more difficult is to know how to pick one that has the skills to develop empathic relationships with all parties to the dispute. Exhibit 4.7 suggests some questions to ask.

Exhibit 4.7. Some Questions to Ask Others When Selecting a Mediator.

Was the mediator a good listener? Did the mediator treat your side fairly? Did the mediator treat the other side fairly? Did the mediator come to understand your side's interests?

Did the mediator help you to better understand the other side's interests? Did the mediator involve both sides in generating options for agreement? Did the mediator provide an interpretation of the law or contract relevant to the case? Was that interpretation requested by the parties? Did it help the resolution of the case? Was the mediator able to put the appropriate amount of pressure on the disputants to settle? Did the case settle? Would you use the same mediator again? Why or why not?

Culture and Mediation Not surprisingly, even though informal third-party intervention into conflict occurs worldwide, the cultural context affects many aspects of the third-party process. As we have discussed, culture affects the timing of third-party intervention. Culture also affects the approach that mediators take. Professor James Wall, who has studied community mediation all over the

world, suggests that mediators' behaviors are affected by three cultural factors: cultural norms, consistency between the third-party's role in society and the mediation role, and the nature of institutional mandates for conflict management.43 For example, Wall describes a community mediator in China intervening in an authoritarian manner in a dispute between neighbors, investigating the issue with the police, reporting the facts, and directing one neighbor to apologize to another. In contrast, he describes how Japanese neighbors disturbed by another neighbor's barking dog asked a respected elderly neighbor to intervene. He did so by walking past the house with the barking dog until one day the owner came out. He then commented that the dog was certainly exuberant! Finally, Wall describes a community intervention in a Middle Eastern culture when a girl and boy from different villages met and fell in love while picking cotton. Elders from the boy's village met with elders from the girl's village to plan an intervention strategy and negotiate proper compensation for the bride's family.

Excellent Dispute Resolvers Inevitably, people engage in conflict and disputes. Cultural differences add misunderstandings, miscommunications, and misattributions to conflicts of interests. Different cultures involve third parties at different stages of the dispute resolution process. The way third parties intervene and the decisions third parties with authority make vary with culture. Global managers must be well prepared

to resolve disputes. Preparation requires understanding cultural differences in why and how claims are made and rejected and how disputes are resolved across cultures. Resolving disputes requires respecting preferences for direct versus indirect confrontation and facility with direct and indirect approaches to addressing interests, rights, and power. Excellent dispute resolvers in a global environment understand how interests, rights, and power are construed in different cultures. They know when to focus on interests, rights, or power and how to change the focus and to deal with emotion. Excellent dispute resolvers also understand the different roles that third parties

can play in dispute resolution. They know when to involve a third party with authority to impose a settlement and when to involve a third party without that kind of authority. They know how to choose a third party of each type. Finally, they know that third parties who show respect and give disputants opportunity to exert control over the process and the outcome will themselves be most highly respected. The next chapter moves us to the setting of multiple parties in conflict, in

which there are opportunities to use deal making, dispute resolution, and especially third-party skills.

Notes

1. P. J. Carnevale and D. G. Pruitt, “Negotiation and Mediation,” Annual Review of Psychology, 1992, 43, 531–582. 2. Interview with German Kahn, Magazine Insight TN-BK, December 2003. 3. C. Belton, “Russian Roulette: How BP Is Falling Out with Its Partners at TNK,” Financial Times, June 4, 2008, http://www.ft.com/cms/s/0/7dba991e- 3277-11dd-9b87-0000779fd2ac.html#axzz2hYFINWN4. 4. W.L.F Felsteiner, R. L. Abel, and A. Sarat, “The Emergence and Transformation of Disputes: Naming, Blaming, and Claiming,” Law and Society Review, 1980–1981, 15(3/4), 631–654. 5. Belton, “Russian Roulette.” 6. BATNAs are WATNAs in almost every type of intra-organizational negotiation because of the hierarchical structure of organizations. 7. B. Beersma, F. Harinck, and M.J.J. Gerts, “Bound in Honor: How Honor Values and Insults Affect the Experience and Management of Conflicts,” International Journal of Conflict Management, 2003, 14(2), 75–94; D. Cohen,

R. E. Nisbett, B. F. Bowdle, and N. Schwarz, “Insult, Aggression, and the Southern Culture of Honor: An ‘Experimental Ethnography,’” Journal of Personality and Social Psychology, 1996, 70(5), 945–960; H. Ijzerman, W. W. van Dijk, and M. Gallucci, “A Bumpy Train Ride: A Field Experiment on Insult, Honor, and Emotional Reactions,” Emotion, 2007, 7(4), 869–875; P. M. Rodriguez Mosquera, A.S.R. Manstead, and A. H. Fischer, “Honor in the Mediterranean and Northern Europe,” Journal of Cross-Cultural Psychology, 2002, 33(1), 16–36; P. M. Rodriguez Mosquera, A.S.R. Manstead, and A. H. Fischer, “The Role of Honour Concerns in Emotional Reactions to Offences,” Cognition & Emotion, 2002, 16(1), 143–163. 8. C. H. Tinsley. “Models of Conflict Resolution in Japanese, German, and American Cultures,” Journal of Applied Psychology, 1998, 83(2), 316–323. 9. W. L. Ury, J. M. Brett, and S. B. Goldberg, Getting Disputes Resolved: Designing a System to Cut the Costs of Conflict (San Francisco: Jossey-Bass, 1988). 10. A. L. Lytle, J. M. Brett, and D. L. Shapiro, “The Strategic Use of Interests, Rights, and Power to Resolve Disputes,” Negotiation Journal, 1999, 15(1), 31– 52. 11. Y. Y. Hong, M. W. Morris, C. Y. Chiu, and V. Benet-Martinez, “Multicultural Minds: A Dynamic Constructivist Approach to Culture and Cognition,” American Psychologist, 2000, 55(7), 709–720; Y. Y. Hong, G. Ip, C. Y. Chiu, M. W. Morris, and T. Menon, “Cultural Identity and Dynamic Construction of the Self: Collective Duties and Individual Rights in Chinese and American Cultures,” Social Cognition, 2001, 19(3), 251–268. Chapter Three gave another example of the prowess of biculturals. The high joint gains negotiated in intercultural deal-making negotiations were negotiated between Americans and Chinese or Korean nationals who had been studying or working in the United States for three to five years. 12. V. Benet-Martinez, J. Leu, F. Lee, and M. W. Morris, “Negotiating Biculturalism: Cultural Frame Switching in Biculturals with Oppositional Versus Compatible Cultural Identities,” Journal of Cross-Cultural Psychology, 2002, 33(5), 492–516. 13. C. H. Tinsley and J. M. Brett, “Managing Workplace Conflict in the U.S. and Hong Kong,” Organizational Behavior and Human Decision Processes, 2001, 85(2), 360–381. 14. Belton, “Russian Roulette.”

15. H. Triandis, Individualism and Collectivism: New Directions in Social Psychology (Boulder, Colo.: Westview Press, 1995). 16. D. Messick and P. Sentis, “Estimating Social and Nonsocial Utility Functions from Ordinal Data,” European Journal of Social Psychology, 1985, 15(4), 389–399. 17. R. M. Emerson, “Power Dependence Relations,” American Sociological Review, 1962, 27(1), 31–41. 18. J. Magee and A. Galinsky, “Social Hierarchy: The Self-Reinforcing Nature of Status and Power,” The Academy of Management Annals, 2008, 2, 351–398. 19. M. Ross and F. Sicoly, “Egocentric Biases in Availability and Attribution,” Journal of Personality and Social Psychology, 1979, 37(3), 322–336. 20. Tinsley, “Models of Conflict Resolution”; C. H. Tinsley and M. Pillutla, “The Influence of Culture on Business Negotiations in the U.S. and Hong Kong,” Journal of International Business Studies, 1998, 29(4), 711–728; C. H. Tinsley, “How We Get to Yes: Predicting the Constellation of Strategies Used Across Cultures to Negotiate Conflict,” Journal of Applied Psychology, 2001, 86(4), 583–593. 21. R. M. March, The Japanese Negotiator: Subtlety and Strategy Beyond Western Logic (New York: Kodansha International, 1990). 22. J. G. Getman, S. B. Goldberg, and J. B. Herman, Union Representation Elections: Law and Reality (New York: Russell Sage Foundation, 1969). 23. M. Olekalns, J. M. Brett, and L. R. Weingart, “Phases, Transitions and Interruptions: The Processes That Shape Agreement in Multiparty Negotiations,” International Journal of Conflict Management: Special Issue on Processes in Negotiation, 2004, 14, 191–211; A. L. Lytle, J. M. Brett, and D. L. Shapiro, “The Strategic Use of Interests, Rights, and Power to Resolve Disputes,” Negotiation Journal, 1999, 15(1), 31–52. 24. Lytle, Brett, and Shapiro, “The Strategic Use of Interests.” 25. G. V. Bodenhausen, L. A. Sheppard, and G. P. Kramer, “Negative Affect and Social Judgment: The Differential Impact of Anger and Sadness,” European Journal of Social Psychology, 1994, 24, 45–62. 26. M. Morris and D. Keltner, “How Emotions Work: The Social Functions of Emotional Expression in Negotiation,” Research in Organizational Behaviour, 2000, 22, 1–50. 27. R. Friedman, C. Anderson, J. Brett, M. Olekalns, N. Goates, and C. C. Lisco, “The Positive and Negative Effects of Anger on Dispute Resolution:

Evidence from Electronically-Mediated Disputes,” Journal of Applied Psychology, 2004, 89, 369–376. 28. J. M. Brett and others, “Sticks and Stones: Language, Face, and Online Dispute Resolution,” Academy of Management Journal, 2007, 50(1), 85–99. 29. H. Adam and J. M. Brett, “The Social Effects of Anger Depend on the Competitiveness of the Situation,” paper under review, 2012. Interestingly, in the context of deal making, when negotiators were in the process of negotiating a new business relationship, expressing anger was also counterproductive. It was only in the one-shot deal-making situation, such as buying a car, when parties were unlikely to have a future interaction, that expressions of anger increased the counterpart's concessions. 30. There is quite a lot of research on culture and apology. For example, Japanese prefer to apologize very frequently but without explaining the reason for their actions. Their apologies emphasize statements of remorse, reparation, compensation, promises not to repeat the behavior, and requests for forgiveness. Americans also apologize, but less frequently than the Japanese, and they tend to offer explanations for the behavior. N. Sugimoto, “Norms of Apology Depicted in U.S. American and Japanese Literature on Manners and Etiquette,” International Journal of Intercultural Relations, 1997, 22(3), 251– 276; W. Maddux, P. Kim, T. Okumura, and J. M. Brett, “Cultural Differences in the Function and Meaning of Apologies,” International Negotiation Journal, 2011, 16(3), 405–425. For a review of apology from the legal perspective, see J. K. Robbennolt, “Apologies and Legal Settlement: An Empirical Examination,” Michigan Law Review, 2003, December, 460. 31. J. M. Brett, D. L. Shapiro, and A. L. Lytle, “Breaking the Bonds of Reciprocity in Negotiation,” Academy of Management Journal, 1998, 41(4), 410–424. 32. Brett, Shapiro, and Lytle, “Breaking the Bonds.” 33. J. M. Brett, C. Tinsley, D. L., Shapiro, and T. Okumura, “Intervening in Employee Disputes: How and When Will Managers from China, Japan, and the U.S. Act Differently?” Management and Organizational Review, 2007, 3(2), 183–204. 34. United Nations, “Convention on the Recognition and Enforcement of Foreign Arbitral Awards,” June 10, 1958, can be found at http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html 35. J. M. Wenger, “Update to International Commercial Arbitration: Locating

the Resources,” May 24, 2004, can be found at www.llrx.com/features/arbitration2.htm. 36. R. Friedman, W. Liu, S. Chi, and C. Chen, “Causal Attribution for Inter- Firm Contract Violation: A Comparative Study of Chinese and American Commercial Arbitrators,” Journal of Applied Psychology, 2007, 92(3), 856– 864; T. Menon, M. W. Morris, C. Y. Chiu, and Y. Y. Hong, “Culture and the Construal of Agency: Attribution to Individual Versus Group Dispositions,” Journal of Personality and Social Psychology, 1999, 76, 701–717. 37. It is difficult to pinpoint exact mediation settlement rates, because there are so many different mediation programs around the world. A quick review of settlement rate data available on the web shows that although mediation does not settle every case, it settles many. Rates of settlement in court-connected civil mediation in the United States range from 18 to 80 percent, with most reports in the 30 to 60 percent range. For more information, see S. Cole, C. M. Rogers, J. Coben, and P. Thompson, “Mediation: Law, Policy and Practice,” in S. Goldberg, F.E.A. Sander, N. Rogers, and S. Cole (eds.), Dispute Resolution: Negotiation, Mediation Arbitration and Other Processes, pp. 193–194 (New York: Wolters Kluwer Law & Business, 2012). 38. The Los Angeles Superior Court system attributed its improved settlement rate from about 61 percent in the period of July 2003 through June 2004 to 80 percent in the period July 2008 through June 2009 to mediator training and advocate familiarity. E. van Ginkel, “Court-Annexed ADR in Los Angeles County,” can be found at http://www.businessadr.com/EvG/Publications_files/Court- Annexed%20ADR%20in%20LA%20County.pdf. 39. J. M. Brett, Z. I. Barsness, and S. B. Goldberg, “The Effectiveness of Mediation: An Independent Analysis of Cases Handled by Four Major Service Providers,” Negotiation Journal, 1996, 12(3), 259–270. 40. S. B. Goldberg, M. L. Shaw, and J. M. Brett, “What Difference Does a Robe Make? Comparing Mediators with and Without Prior Judicial Experience,” Negotiation Journal, 2009, 25(3), 277–305; R. Swaab and J. M. Brett, “Face First: Pre-Mediation Caucuses and Face,” paper presented at the International Association for Conflict Management annual meeting, 2009, Kyoto, Japan. Also available as working paper 399, at http://www.kellogg.northwestern.edu/research/drrc/research/working- papers/archives.aspx. 41. C. W. Moore, The Mediation Process: Practical Strategies for Resolving

Conflict, 3rd ed. (San Francisco: Jossey-Bass, 2003). 42. R. J. Bies, “Are Procedural Justice and Interactional Justice Conceptually Distinct?” in J. Greenberg and J. A. Colquitt (eds.), Handbook of Organizational Justice, pp. 85–112 (Mahwah, N.J.: Lawrence Erlbaum, 2005); R. J. Bies and J. S. Moag, “Interactional Justice: Communication Criteria of Fairness,” Research on Negotiation in Organizations, 1986, 1(1), 43–55; J. A. Colquitt, “On the Dimensionality of Organizational Justice: A Construct Validation of a Measure,” Journal of Applied Psychology, 2001, 86(3), 386– 400; R. Folger, D. Rosenfield, J. Grove, and L. Corkran, “Effects of ‘Voice’ and Peer Opinions on Responses to Inequity,” Journal of Personality and Social Psychology, 1979, 37(12), 2253–2261; J. Greenberg and R. Folger, “Procedural Justice, Participation, and the Fair Process Effect in Groups and Organizations,” in P. Paulus (ed.), Basic Group Processes, pp. 235–256 (New York: Springer, 1983); T. R. Tyler, and Y. J. Huo, Trust in the Law: Encouraging Public Cooperation with the Police and Courts (New York: Russell Sage Foundation, 2002). 43. J. A. Wall and T. C. Dunne, “Mediation Research: A Current Review,” Negotiation Journal, 2012, 28(2), 217–244.

5

Negotiating in Teams

We use negotiation skills to make team decisions more than we realize. Whenever a team (three or more people) has multiple issues to decide, and there is no majority opinion that crosses all issues, team members have to negotiate to reach agreement. Teams negotiate decisions regarding international peacekeeping, relief, and development efforts for the United Nations; to coordinate the strategy of global companies; to develop software on a twenty- four-hour, seven-day-a-week schedule; to prepare to negotiate deals and resolve disputes. The proliferation of team decision making in organizations is not the result of

the latest fad in management but is due to the complexity and the challenge of living and working in an increasingly interdependent world. Individuals simply do not have the breadth of knowledge and skills to accomplish multifaceted tasks, the time to complete big tasks, or the relationships to ensure that such tasks get done. Giving a decision to a team increases the complexity of the decision-making

process. The whole point of having a team making the decision rather than an individual is to have the requisite variety of skills and viewpoints to apply to the complexity of the decision. Team members with different skill sets and worldviews are very likely to have different ideas about what information is relevant to the decision and different approaches to how to go about decision making. Just as culture affects how people negotiate deals and disputes, culture affects how people approach the task of making decisions in teams. The research shows that when teams bring essential resources to big complex

tasks, they can produce creative ideas, meet deadlines with quality products, and make decisions that generate growth and prosperity, but it is not easy. For teams to use their diverse resources effectively, they need to listen to minority views and engage in constructive debate that openly expresses doubts and disagreements and seeks alternatives. If teams are going to engage in open discussion of different perspectives, they need norms and procedures to

encourage information sharing and to resolve the differences that surface as a result of information sharing.1 Does this sound like a problem of negotiation strategy? You are right, it is. In fact, organizing a team for effective decision making is a two-stage process.

The first stage is to develop an effective teamwork process. This stage is about how the team is going to approach the task. Not surprisingly, when team members come from different cultures, and sometimes even when they come from the same culture, they have different approaches to teamwork. Sometimes these differences are logistical—what hours the team members are going to work —and sometimes these differences are conceptual—how to analyze the problem, for example, holistically, an approach with which face culture team members are comfortable, or analytically and linearly, an approach more comfortable to dignity culture members. The second stage is the actual decision-making process. It occurs within the teamwork process and generates the team's ultimate decision. Reaching a decision is no different from reaching an agreement in deal making or dispute resolution. It involves understanding team members' positions, interests, and priorities on the issues associated with the decision and then somehow integrating that information into a decision that team members can support through the implementation process. Conflict and disputes may derail teamwork and decision making. The next

section describes how team members with different approaches to teamwork may find themselves engaged in procedural conflict about how the team should go about its task. It suggests options for teamwork that should minimize conflict and facilitate team decision making. Then we turn to task conflict and how to use negotiation strategy to integrate team members' different interests. The final section addresses interpersonal conflict. Procedural and task conflict may spill over into interpersonal conflict, or team members for personal or cultural reasons may simply be unable or unwilling to get along with one another.

Managing Procedural Conflict in Teams Procedural conflict occurs when team members have different approaches to teamwork or how the team should go about its task, which can often be traced to team members' different cultural approaches to doing teamwork. Look back at Exhibit 2.2, which describes differences between dignity, face, and honor cultures in terms of their underlying psychologies of self-worth; the social

structural implications of power and status; sensitivity to insults; direct versus indirect confrontation style; levels of trust; and holistic versus analytic mindset. Just as these different cultural characteristics affect two-party deal making and dispute resolution negotiations, as we discussed in Chapters Three and Four, they also challenge teams. Here are some examples of procedural conflict that we learned about when interviewing people about their multicultural experiences on teams.2 Some of the examples are within teams and others between teams, because procedural conflict occurs in both situations. A member of a team with U.S. and Latin American members working

remotely described the American team members' frustration when they learned Latin American team members would not be available during the middle of the day—they took a two-hour lunch away from their desks! Faced with the reality that they couldn't change cultural practices, the U.S. team members put those two mid-day hours to good use, by consolidating information and preparing for the afternoon meeting when both could work together. In turn, the Latin American team members, who it turned out worked two hours later in the evening, used that time for a similar purpose. “Once we figured out how to use our different time orientations, we got more productive,” this team member told us. A Korean banker told us about a violation of hierarchy and status that almost

derailed an American company's acquisition of a Korean company. The American buyer's analysts became frustrated with the rate that due diligence information was being provided by the Korean company's bankers. The Americans set up a meeting with the CEO of the Korean company to complain about the lack of due diligence information. The Korean CEO thought the meeting was to be a social call of respect. He was totally unprepared for the American analysts' direct confrontation and complaints. The deal was only salvaged by the arrival in Korea of the American buyer's CEO, to make amends. Another example of violations of procedural norms regarding direct versus

indirect confrontation was from an American working in Great Britain on an audit team with British teammates. He told us, I definitely noticed some cultural differences between the British and Americans, the first one being Americans are far more direct than they are. So sometimes I kind of felt as though people were, not really offended, but that I was much more to the point in my conversations, both within the team and with the client, than they were. I was getting a little frustrated by how indirect

they could be, kind of beating around the bush. So they might have interpreted that as being kind of confrontational on my part. This next example comes from a Mexican working in the United States on a

credit and underwriting project. It illustrates how in that culture one is supposed to propose ideas indirectly so as not to violate hierarchy. In Mexican culture, you're always supposed to be humble. So whether you understand something or not, you're still supposed to ask it in the form of a question. You have to keep it open ended … out of respect. I think that actually worked against me because they [Americans] thought I really didn't know what I was talking about … so it made me feel like they thought I was wavering on my answer. Our final example comes from a frustrated Indian manager running a global IT

team from Singapore. He was working trying to interpret a “yes” from his Japanese team members that really meant “no”: They never came out in the open or they never came forward with what exactly their viewpoints were. In the conference room, they would say, “Yes we believe in this, we agree” … but they would come back on the phone and say “This is not really what is working.” This is a particularly good example of indirectness on the part of the Japanese

team members. The Indian manager finally guessed that his Japanese team members wanted to do their part of the project, but could not get the IT resources they needed from the Japanese branch of the company to do it. To resolve this, the manager took a culturally uncomfortable indirect approach. He had the European members of the team put together a presentation of their accomplishments. He then invited the entire Japanese IT department to attend an update on the project featuring the Europeans' accomplishments. Then he flew back to Singapore. The next day the Japanese team members called the team manager and asked that their accomplishments be featured in his next global update. The team manager agreed. He inferred that his indirect approach had worked. The Japanese IT department was now willing to commit resources to the project. The challenge of procedural conflict is not which is the right versus the wrong

teamwork approach. The challenge is to combine different cultural approaches to teamwork synergistically and use the different approaches to generate insight into the team's task. Because years of research on teams shows that unresolved procedural conflict is pretty much universally associated with negative team

performance,3 we need to know how to manage it. The next section presents three different models of teamwork: subgroup dominance, hybrid, and fusion. Each of these approaches has its own unique way of managing procedural conflict.

Three Models of Teamwork Teams naturally jump into their tasks.4 Procedurally, members rely on norms imported from other team experiences5 and use stereotypes and categorization (who looks like me, talks like me) to make judgments about likely friends and foes on the team. This approach only works well when the task is routine, members know the old procedures, new procedures are not needed, and cultural and individual differences are few. Such a teamwork setting is relatively uncommon in today's global work environment, in which tasks assigned to teams are seldom routine and individual and cultural differences will cause team members to approach the very process of teamwork differently. Rather than wait for procedural conflict to threaten team effectiveness, teams need to select between subgroup dominance, hybrid, and fusion structures to channel and organize different approaches to teamwork.

Subgroup Dominant Teamwork Subgroups form spontaneously in teams.6 People coalesce with others who are similar, particularly those who have similar social status, because, as we discussed in Chapter Two, social similarity confirms self-worth.7 Subgroup dominance refers to the situation in which a subset of team members dominates the team as a whole, providing the team with a social structure and direction. The subgroup may be the majority of the team or a small group, or even a single member. It can be composed of team members from a single national culture, team members from corporate headquarters, team members from direct- confrontation cultures, or team members with the greatest facility with the team's common language. What distinguishes subgroup dominance teamwork is its power to impose its

procedural norms on team members who are not part of the subgroup. It is no surprise that subgroup dominant teamwork is common when there are large power and status differences among team members. This model is also more

prevalent in cultures that are structurally more hierarchical than in cultures that are structurally more egalitarian. There are some real benefits of subgroup dominant teamwork. These social

structures, based on power and status, reduce uncertainty about teamwork and align team members' efforts. This means that subgroup dominant teamwork can be expedient! There also should be little debilitating procedural conflict in teams dominated by subgroups. At the same time, subgroup dominant teamwork may suppress important and conflicting perspectives about procedures that otherwise would have led to more creativity. In a recent study, Susan Crotty and I collected survey data from 246 members of thirty-seven multicultural teams from eleven large multinational corporations. The survey included ten agree or disagree statements about subgroup dominance and two statements about team creativity: “My team has developed novel solutions to problems” and “My team's ideas will be useful to the organization.” (See Exhibit 5.1.) Using proper statistical controls for the fact that individuals were in groups, we found no statistical relationship between the extent of subgroup dominance and creativity in these multicultural teams.8

Exhibit 5.1. Survey Statements to Measure Subgroup Dominance.

1. The team uses the norms and practices of a dominant subgroup of members. 2. Team members are expected to give up their own cultural norms and practices and follow those of the dominant subgroup. 3. The team is intolerant of multiple approaches to decision making and problem solving. 4. The team's norms and practices were given to the team by the manager. 5. Some dominant team members decide on the norms and practices of the team. 6. The team follows the approach that is used by some dominant team members. 7. The team tolerates some members not speaking very much in meetings. 8. A few team members dominate the discussions. 9. Not all team members have a chance to express their opinions. 10. Some team members find it difficult to express their opinions in meetings.

Hybrid Teamwork Hybrid teamwork refers to a model that mixes different team members' cultural or personal approaches to teamwork into a coherent, unique, and stable approach to teamwork. A manager described the process of creating a hybrid teamwork model when he was first assigned to lead a financial services research team with

members located in the United Kingdom, the United States, and continental Europe. Prior to his appointment, the three subgroups had been working very independently. They only met face-to-face a few times a year. Yet the manager knew he needed to get them to work interdependently, sharing best practices and information. His solution was to hold some face-to-face team meetings with a facilitator. The facilitator challenged the team to generate a set of operating values, which ultimately included integrity, teamwork, creativity, and innovation. These values served as a set of overarching team goals, gave the team identity, and gave the team and its manager a set of criteria for evaluating procedures, ideas, and performance. However, almost three years went by before the manager was satisfied that the team was working effectively together.9 Hybrid teamwork typically takes some time to develop; however, once in place it provides a simplified but explicit and stable set of rules, norms, expectations, and roles that team members share and enact. Hybrid teamwork models require team members to set aside their own

approach to teamwork and conform to the team model.10 After the financial services research team had its hybrid model in place, it broke down old habits of information sharing and imposed new ones on the team. For example, prior to becoming hybrid, when the subgroups were each operating with their own teamwork norms, when one of the European members was presenting and a non- European would raise some questions, the other European members would jump in and start defending their colleague. After becoming hybrid, the U.S. members confronted the Europeans, saying, “Don't start defending him … just let him finish … we have questions for him.” The manager considered it a successful application of the hybrid teamwork model when the European members just kept talking and addressing questions instead of shutting down or jumping in to support each other.11

Hybrid teamwork seems most likely to evolve when members are culturally highly heterogeneous and at the same time highly concerned with task accomplishment.12 When everyone is different, or when there are multiple distinct subgroups, as was true of the financial services research team, it is hard to miss culturally different approaches to teamwork. Out of concern for getting their work done, these teams actively try to understand each other's approaches to teamwork and construct a process that will integrate their differences. This overarching concern for accomplishment of the team's task provides a justification for sublimating individual concerns to a common team identity,

which appears to be necessary if hybrid teamwork is to be successful.13 Team identity also may serve as a standard against which members can evaluate whether their teamwork behavior is or is not appropriate. Procedural conflict, if it occurs, in a hybrid team is managed by asking the question that evokes the team's overarching goal: “What is best for the team as a whole?”

Fusion Teamwork Fusion teamwork involves preserving different, sometimes seemingly opposed procedural approaches to teamwork.14 A good example of fusion teamwork comes from an interview with the American member of a multicultural marketing team that was charged with advising a U.S. retail company about the pros and cons of expanding to Japan. The Japanese team members were marketing consultants, a male partner in the consulting firm, and three female analysts. The American members of the team quickly learned that when the Japanese partner was in the room the analysts would never speak up, but that it was the analysts who were more likely to know the answers to the Americans' questions or how to get those answers. What to do? The Americans set up a strategy subgroup and three working subgroups. The Japanese partner joined the strategy subgroup and the Japanese analysts each joined a working subgroup. The analysts participated fully in the subgroups, whose work was then presented to the strategy group. In this way cultural differences in status and communication norms were respected and fused.15

This marketing team's fusion teamwork model used different procedural approaches with different members of the team at different times during the team's life cycle. Fusion teamwork is dynamic. The fusion teamwork model is likely to change over time as the team moves into different elements of its task. What is stable about fusion teamwork is its two core principles: coexistence of different approaches to teamwork and meaningful participation. Coexistence depends on recognizing and respecting team members' different

approaches to teamwork and combining those different approaches in ways that preserve their unique qualities. There are basically three ways to do this, although each is just a different way of mixing cultural teamwork norms:

1. Substitute one cultural teamwork norm with another. For example, for some decisions replace the practice of formal voting with polling team members at coffee breaks—a much more private approach.

2. Signal respect by introducing the unexpected. For example, embed a story or metaphor to communicate an idea holistically in an otherwise linear PowerPoint presentation. 3. Use norms from different cultures simultaneously. For example, make sure that team members have sufficient time in advance of a decision so that those who need to consult with peers and superiors can. Meaningful participation refers to enabling people to contribute ideas to the

team whenever they have relevant new or supporting information.16 One of the problems with teams is that a few people do all the talking.17 A second problem is that teams tend to spend the bulk of their time talking about commonly held information rather than unique information.18 A norm of meaningful participation is intended to counter both of these tendencies. The norm is not a panacea, it will not make these problems go away, but it will allow team members and leaders to keep the team focused on generating new, unique information and getting team members who have access to such information to share it with the team. Here are some norms for meaningful participation:

Enter the discussion as your knowledge, expertise, or contacts become relevant to defining or acting on the team's task. Enter the discussion when you harbor doubts about the direction the team is taking or the feasibility of the team's plan.

Meaningful participation was originally conceived to encourage individuals to participate in team deliberations. However, dividing the team into subgroups may be another way to encourage meaningful participation. Recall the UN peacekeeping team example in Chapter One. When it became clear that the team was too culturally segmented to work together effectively, the leader set up multicultural subgroups with one Russian, one Turk, one German, and one American officer in each. Meaningful participation took place in the small subgroups. Of course, the subgroups still had to present their recommendations to the group to be integrated into final decisions, but like the marketing team in Japan, the peacekeeping team's subgroup structure used the expertise of all the team members to generate those recommendations. Fusion teamwork is like hybrid teamwork in that it creates a cultural mix of

different approaches to teamwork, but unlike hybrid teamwork's stable process, fusion's mix is unstable. It may change as the team engages in different aspects of a task.

There are several reasons why a team might develop a fusion model. It may just use a mix of procedures because it does not have the time or understanding of teamwork to develop a hybrid model that integrates different approaches. Recall it took the financial services research team almost three years before their manager thought they had stable and effective hybrid procedures. More often, fusion results when team members' cultural teamwork models, like those of the Japanese marketing associates, are sufficiently strong that the team members cannot sublimate their own cultural approaches as required by the hybrid model. For example, the Japanese associates knew they would continue to work with the same partner in their marketing consulting firm, long after the American marketers had left Japan. The risk to them of his losing face was much greater than the importance of speaking out on a single assignment. In contrast, knowing they were going to be working together into the future, the U.K., U.S., and European members of the financial services research team came to know and trust each other and their hybrid teamwork model enough to engage in real debate over ideas. Teams with members who are “culturally metacognitive” are also more likely

to develop fusion teamwork.19 Cultural metacognition is a dimension of cultural intelligence (CQ), which measures an individual's ability to deal effectively in situations of cultural diversity.20 People with high CQ are generally able to develop and sustain positive working relationships with those who have different cultural backgrounds, work effectively on multinational task forces, adjust successfully to short- and longer-term assignments overseas, and function effectively in jobs with international contacts and responsibilities.21 The cultural metacognition dimension of CQ is the individual's level of cultural consciousness and awareness during social interaction.22 People who are culturally metacognitive recognize culturally driven behavior in others, and proactively create coexistence. Exhibit 5.2 lists survey statements we used to identify cultural metacognition.

Exhibit 5.2. Questions to Measure Cultural Intelligence— Cultural Metacognition.

1. I test my cultural knowledge to ensure it is correct in cross-cultural interactions. 2. I check the accuracy of my cultural knowledge as I interact with people from different cultures. 3. I adjust my cultural knowledge as I interact with people from different cultures that are unfamiliar to me.

4. I work hard to understand the perspectives of people from other cultures. 5. I am conscious of the cultural knowledge I use when interacting with people from other cultures.

Fusion teamwork is supposed to facilitate creativity, and there is evidence that it does! In that same survey study of members of thirty-seven multicultural teams in which Susan Crotty and I could find no evidence of a relationship between creativity and subgroup dominant teamwork, we did find a relationship between creativity and fusion teamwork. Exhibit 5.3 shows the questions we asked about fusion teamwork. This time, again with all appropriate statistical controls, we found a strong relationship between fusion teamwork and creativity.23

Exhibit 5.3. Survey Statements to Measure Fusion. 1. The team uses a combination of norms and practices from different members' cultures. 2. The team tolerates members following their own cultural norms and practices. 3. The team accepts that members from different cultures have different ways of expressing themselves. 4. The team's norms and practices are a cultural hybrid, that is, a mix of the different cultural practices of its members. 5. The team uses some norms and practices from some members and some norms and practices from others. 6. Team members participate in team discussions openly and freely. 7. Each team member participates in decision making. 8. All team members are encouraged to participate in team discussions.

Using Negotiation Strategy to Manage Task Conflict and Make Decisions in Teams Now that we have a sound understanding of how to manage procedural conflict by developing subgroup dominant, hybrid, or fusion teamwork to channel and structure procedural differences, we are ready to address task conflict and how to use negotiation strategy to facilitate the team's actual decision-making process. Task conflict generally stems from team members' functional or geographical or cultural differences. It can bring different expertise, insight, and interests to the team's decision task. When these differences are incompatible, the team experiences task conflict, which if managed well can result in highly creative team decisions that take into account these differences. If managed poorly, task

conflict can generate impasses in which teams fail to reach agreements or reach poor agreements.24

Task conflict is easy to understand in the context of a multifunctional team. For example, when a negotiating team—a team on the same side of the table representing a single negotiating party—tried to develop a multiproduct offer for a customer, it experienced intra-team task conflict between the sales member who wanted to try to make up for reduced margins with volume and the various product managers who were each trying to protect their own product's margins.25

Reaching decisions in teams can be like a multiparty negotiation, if the team is using a hybrid or fusion model of teamwork. If the team is using a subgroup dominant teamwork model, then what follows in this section is probably not relevant to team decision making, since dominant subgroup members may have little interest in the input of other team members. At the same time, team members who are not part of the dominant subgroup may be unwilling to risk sanctions associated with speaking up, unless they have nothing to lose. Teams using hybrid or fusion teamwork should have the opportunity to use

negotiation strategy to make decisions that integrate different team members' positions, interests, and priorities on the issues into a decision that team members can support through the implementation process. There is likely to be task conflict in these teams, because the first challenge of using negotiation strategy in team decision making is to generate task-relevant information from members. The second challenge is to integrate that information into decisions that capture synergies and can be implemented. In subsequent sections we discuss techniques for generating information in teams and for negotiating to integrate information and reach decisions. Before exploring these team decision- making techniques, it is worth revisiting and slightly rephrasing the criteria discussed in Chapter One for evaluating negotiated agreements.

Using Negotiation Concepts to Evaluate Team Decisions

Is Our Agreement Better Than Our BATNA? Teams making decisions have BATNAs. For example, a team of Canadian and U.S. accountants were charged by management to come up with a single

accounting procedure. The Canadians liked their approach best; the Americans liked their approach best. Neither subgroup would concede to the other. Neither subgroup was interested in coming up with a hybrid accounting model. The team failed; top management stepped in and imposed a common accounting strategy that neither the Canadian nor American subgroup liked. Here the team's BATNA was that top management would step in, and as in dispute resolution, this BATNA meant that the team lost control over the outcome.26

Individual team members may be affected differently by the team's BATNA. If top management to which this accounting team reported was Canadian, the Canadian members of the team might have thought that top management would choose their approach, and so be very reluctant to concede to the Americans. Had the American team members thought about their BATNA, they might have conceded to the Canadians during team deliberations, instead of forcing an impasse, and at the same time they might have negotiated resources to help them manage the change to the Canadian system.

Does the Agreement Meet My Interests and Those of My Teammates? In the negotiating team example earlier, each team member had interests: volume for sales, margin for product managers. An agreement that met the interests of all team members would need to make trade-offs across products that balanced team members' competing interests regarding volume and margin.

What Are the Transaction Costs of Continuing to Deliberate? Team decision making is an expensive use of human resources. What we see in team decision making is similar to what we see in two-party negotiation. Team members who hold out the longest get concessions just to allow the team to move on. A more rational approach to deciding when to finalize a team's decision is to analyze the team's BATNA and how it affects different members, as well as how well the options for agreement that are under discussion meet the interests of team members. When there are options on the table that are better than the BATNA and go at least some way toward meeting team members' interests, it is probably time to finalize the team's decision. (We'll suggest a second agreement strategy a little later to minimize the costs of an agreement that falls short of meeting some members' interests.) These three criteria are highly relevant to decision making in teams. By their

multiparty nature, teams can generate high transaction costs. These costs need to be defrayed by very high-quality decisions. A team decision that is innovative may capture synergies, and so forth, but it is still only as good as its acceptability to the team's members and the members' constituents. Teams need to be attentive not just to the synergistic beauty of their decisions but also to whether those decisions can reasonably be implemented.

Generating Information in Teams Teams are assigned to tasks that are too technically or politically complex to be done by individuals. If team members are chosen appropriately, they will have the diversity of technical and political skills to accomplish the task. But these different team members also will very likely have different perspectives on the task and different interests in the outcome. Before a team can even address members' conflicts of perspectives and interests, it will need to understand what those perspectives and interests are. The goal is to generate a multiparty Negotiation Planning Document. To accomplish that goal, teams may need to overcome language, cultural, structural, and psychological barriers.

Negotiation Planning Document The same basic form of Negotiation Planning Document introduced in Chapter One is as relevant for intra-team or multiparty negotiations as it is for two-party negotiations. Create a column for every team member and a row for every issue. Fill in positions, interests, and priorities. Identify what is minimally acceptable to each member. Consider whether there is one overall BATNA or whether different team members have different BATNAs. Exhibit 5.4 shows a planning document for a team preparing to negotiate a

new software contract for its company with an important customer. Note that unlike how we used planning documents in previous chapters, this Team Planning Document illustrates the different positions and interests of team members that need to be reconciled before the team can generate a planning document for across-the-table negotiations. This planning document shows four issues: volume, price, hours per week of free tech support, and price the customer will pay for hourly tech support. Team members recognize that they have a common BATNA—to sell the software to another customer. As you can see, they also have set broad numerical limits on individual issues, reflecting concerns about margins and precedent (not wanting to give this customer

benefits that they cannot give to other customers). Completing the document thus far reveals individual team members' priority rankings (ranging from 1 to 4) and interests. For example, the financial manager has rated both volume and price as number 1 priorities, suggesting that there is more than one way to meet her interests. Sales is more focused on volume because of the company's commission structure. Because marketing is evaluated on market share, its number 1 priority is price. Not surprisingly the tech support manager is concerned about providing too much free tech support and on reaping a high hourly fee for paid support.

Exhibit 5.4. A Planning Document for a Team

When team members represent different functional areas, anticipating their positions, interests, and priorities should be relatively straightforward. Then if team members trust each other to be cooperative and not take advantage, and

there are no language, cultural, or structural barriers to information sharing, the team should be able to jump right into evaluating alternative options for agreement. The problem of course is that there are frequently all of the barriers above to information sharing. What follows is a set of suggestions for overcoming those barriers.

Meaningful Participation The first barrier to address is whether the team can use meaningful participation. As we discussed in the teamwork section, meaningful participation is one of the two principles of fusion teamwork, but it is also a potential fit with a hybrid teamwork model. Meaningful participation could be one of the common values or norms guiding cooperation and information sharing in a hybrid team. Meaningful participation is generally a poor fit with the subgroup dominance model of teamwork or for that matter any team that is embedded in a strong social hierarchy, unless, like the marketing research team in Japan, the team engages in some creative restructuring of its teamwork model. The norm for meaningful participation is that each member participates in sharing information and decision making when that member's information or perspective is unique.27

Language Barriers Language can be a powerful tool to exclude or include particular team members and thereby reduce meaningful participation. Language-based power practices may involve personal remarks made in a language some members do not understand or refusals to attend a meeting that will be conducted in another language. One of our interviewees told a pretty funny story. His team was in Korea to buy product for Latin American customers. During the negotiation, the Korean side would caucus at the table, speaking Korean. This annoyed the buyers, but knowing that Korea is an indirect-confrontation culture, the buyers did not complain about the caucuses, they just began to have caucuses of their own in Spanish. Members of the buyer's team who did not speak Spanish pretended to, much to the Spanish-speaking team members' amusement and to the Korean team's bewilderment. By common, implicit consent, the caucuses diminished.28

Language and its translation can also be a source of misunderstanding. English was the working language of a pharmaceutical team, but not all team members

were equally fluent. A native French-speaking team member who addressed a U.S. team member by saying “I demand …” was perceived as rude until both members realized that the French speaker was erroneously using a cognate translation of je demande, a perfectly polite way of saying “I am asking …” in French. Lack of fluency or full command in the language of the team can breed

frustration and anger. As one manager explained how she felt trying to work in her second language, “You feel like you've lost half of your body, you feel intellectually hampered, you get frustrated, and your emotion blocks your facility with the language; you get angry.” Teams need to confront their language problems. Failing to get information

from members because they are not fluent in the team's lingua franca threatens the viability of the team's project. One manager of a software team told us what he does to defuse misunderstandings due to his accented English. Almost everyone on my team speaks English with an accent of some kind or another. I'm Indian, and I know people have trouble understanding my accent, and yet because I'm the team leader some are reluctant to ask for clarification. I've learned to put my accent on the table. When I start with a new team, I tell them, I know I have an accent, and some of you will have difficulty understanding me. Believe me, I've tried to get rid of the accent, no success. So if you don't understand me, please stop me and ask.29

Here are some other ways to handle language barriers to sharing information: Create subgroups that can discuss an issue in their own language; then have each subgroup's best speaker present its ideas. Discourage jargon and make available glossaries with translations of key terms. When presenting information to the team, use visuals. Pictures, graphs— mathematics is a common language, simple slides with lots of white space, main points, and brief but adequate text help get the points across. Take notes and arrange information on a board or flipchart in the form of a planning document. Arrange frequent breaks to let team members discuss what was going on in the meeting in their own language. Follow breaks with a question-and- answer session. Adopt a team-endorsed way to stop a meeting and ask for clarification. For example, some teams give members flags to wave when they do not

understand. Regarding this last point, one European manager working on a different

multicultural team in the same pharmaceutical company which was the source of the je demande example described an incident in which humor eased misunderstanding and led to a clarification norm: I was in a meeting with both French- and English-speaking colleagues, and we listened to a presentation by an American colleague. She's a very bright woman, and when she got into her story, she started talking very fast. My other colleagues and I were starting to have difficulty in following her when suddenly she started to regularly use “LOE.” Now I was completely lost. I raised my hand, “What does that mean, ‘LOE’?” “Oh,” she said, “lack of efficiency.” A few minutes later, I was lost again. I raised my hand again, saying, “LOU.” “LOU?” she asked. “Yes,” I said, “lack of understanding.” We started to laugh. From then on, LOU became “ell-o-you,” “hello you,” our way of expressing ourselves when we don't understand anymore.30

If this manager had not intervened and asked for an explanation, the team would have de facto developed a norm that tolerated misunderstanding. Instead this manager promoted a norm of understanding. His first polite intervention communicated, “I respect you, but I need to understand you.” His second humorous intervention communicated “We need a way to alert each other when we don't understand.” “Ell-o-you” or “hello you” became the group's norm.

Cultural Barriers The cultural differences associated with status, trust, and mindset in deal making that we discussed in Chapter Three, and those associated with indirect versus direct confrontation, discussed in Chapter Four, also act as barriers to information sharing in team settings. Here are some ideas that may help facilitate information sharing regardless of whether or not the team is multicultural:

Charge someone with monitoring meaningful participation. The team leader can do this, but the team leader is also trying to get the team to move ahead with its task. Someone else might be better, both because the team leader will be occupied with other matters and because the team leader may need to be reminded not to dominate the dialogue. The monitor can remind the team as a whole of its norms or take individuals aside and encourage them to participate. Have the whole team brainstorm about not only the positive implications of

an idea or approach but also the negative implications. This makes dissenting opinions the responsibility of the whole team, not just a few members. Gather information by email. Email has important limitations, but it also has benefits. An email environment minimizes status differences. People are less inhibited by social norms when they communicate by email. Although this can be a problem, it can also encourage participation of all team members regardless of status, fluency, or culture.31 Find out if the annoying behavior is cultural. If it is, be culturally metacognitive about it.

Structural Barriers of Distance, Time, and Part Time In many teams, distance, time-zone differences, and part-time assignment to the team are the primary structural barriers to meaningful participation. Some teams have members assigned to them full time, but many teams are composed of part- timers—members whose full-time jobs and other team assignments are vying for their time and attention. Negotiating team members are typically part timers. When we were interviewing managers about the challenges of leading negotiating teams, they told us that a major structural barrier to sharing information among the members was logistics.32 Some team leaders we interviewed, who had been burned by team members who did not have the time to devote to the negotiating team, advised screening prospective team members for their availability and their enthusiasm for the negotiating team. When the dispersal of team members across time zones becomes a structural

challenge to meaningful participation, teams need to experiment with alternative electronic communication media to learn when and how to use email, computer conferencing, and teleconferencing effectively, and when to insist on face-to- face interaction.33 A case in point: the members of the top-management team of a high-tech company hated their weekly meetings and loved email, so they decided to make most of their decisions via email, meeting face-to-face only to confront tough problems.34 The unfortunate result was that face-to-face meetings became like hand-to-hand combat. Email had eliminated the easy issues as well as the social manners that previously had made face-to-face meetings tolerable, if not enjoyable. The major problem with electronic communication is that it increases social

alienation. People working electronically do not identify with their groups as

strongly as people working face-to-face. When we had students from Canada, Mexico, and the United States working by email on a joint North American Free Trade Agreement (NAFTA) project, instructors in all three cultures received frequent complaints that team members from the other cultures were not motivated, were holding up the project, and were therefore responsible for poor quality.35 When we do not get regular communications from remote team members, we tend to assume that they are not working. When our email is not answered promptly, we conclude that they just don't care enough about the project or, even worse, that people from their culture are lazy. On the other hand, a delayed response may mean you can expect a more thoughtful and researched response, rather than a short note tapped out on a smartphone. We tend to attribute inactivity to willful negligence, not to environmental factors, such as holidays, weather, or other factors that are beyond the others' immediate control. The timing of events is cultural. Much of the world operates on clock time, but

even so, teams develop their own norms about starting meetings on time, five minutes late, or ten minutes late. But other parts of the world, particularly in the honor cultures of the Arabic-speaking Middle East, operate on event time—the most obvious example being the timing of Muslim prayers linked to sunrise and sunset.36

By attributing inaction to willful activity rather than to environmental factors, we exacerbate interpersonal animosity.37 Teams that produced the best NAFTA projects were the ones that overcame their structural barriers to communication by developing norms for electronic communication. They recognized the potential pitfalls of email and developed proactive strategies for dealing with coordination and logistical problems. Successful teams not only alerted each other about deadlines but also consistently confirmed receipt of material, keeping everyone up to date. Here is some advice for surmounting barriers to information exchange in

electronic communication: Set norms for use of email. For example, decide if receipt of correspondence needs to be acknowledged, even when no substantive answer is necessary. Decide if all correspondence should go through the team leader or whether team members are expected to copy the whole team. Decide within what time frame email should be acknowledged. Set up means for alerting others when a team member is unavailable. Don't oblige certain team members to repeatedly participate in conference

calls in the middle of their night. One multicultural team rotated its monthly conference by time zone, not by how many people on the team were in a time zone. Build relationships among team members. Recent research shows that when team members have good relationships, there is no performance disadvantage to working electronically. When teams are new and members do not yet know and trust one another, face-to-face meetings generate higher performance than electronic meetings. Ironically, when relationships among team members are poor, electronic meetings are more productive than face-to-face meetings.38

Psychological Barriers There are at least two major psychological barriers to efficient information sharing that can be grounded in culture or just based on individual experience: lack of trust, which generates too little information, and concern about social affiliation, which generates too much common information and too little unique information sharing. Setting norms for meaningful participation is the first step toward building

trust within a team. In addition, all the techniques for developing trust that we discussed in Chapter Three are relevant in the team setting. To reiterate,

Develop a relationship outside the team by identifying interpersonal similarities and respecting differences. Share task-relevant information with the team, even information that could make you vulnerable. Ask for information from others in return. Set a norm of confidentiality. Focus on common goals Set norms for cooperation, not competition.

The problem of too much social affiliation is often called “groupthink.” The term was coined to describe the Kennedy cabinet's mismanagement of the Bay of Pigs military operation to invade Cuba in 1961. Some members of the Kennedy cabinet had serious doubts about the wisdom of the invasion and of the planning that went into it. Yet their concerns about being accepted by other more hawkish members of the cabinet led them to keep their doubts to themselves. They were right, as it turned out: the invasion was a fiasco.39

Many structures and norms have been suggested to help teams avoid

groupthink.40 Meaningful participation with its built-in expectations for sharing different information than what is currently available to the team will go a long way toward avoiding groupthink. So will trust that members will not be socially ostracized from the team for stating a dissenting opinion. Finally, having one or more team members with transactive memory will help. Transactive memory is knowledge of who on the team knows what. Teams tend to spend too much time discussing information that they all know.41 A member with transactive memory can call on another team member to share her different perspective or knowledge. Being called on to share your knowledge provides social legitimacy for different points of view and encourages members to speak up. Keep in mind, though, that in some cultures smaller groups or informal conversations over tea may be the best setting for some members to share their unique information. When one or more team members have transactive memory, they can encourage the participation of these experts at the right time and in the right context. When no one knows who is the expert, and the expert for whatever reason is unwilling to speak up, expertise is lost.

Negotiating to Integrate Information and Reach Decisions People do not always think about group decision making as a negotiation. They may think that once the information has been generated, the team leader or the dominant subgroup should make the decision, or that the team should vote or engage in dialogue until they reach a consensus. These are all legitimate procedures for decision making, and there are certainly times when each is appropriate or expedient.42 Some teams' tasks are limited to idea generation. They are not given the responsibility to make the final decision and are not involved in implementation. Other teams are expected to make decisions, but are not responsible for carrying out those decisions. But when teams are expected to integrate different perspectives into a decision and then implement it, as is the case in many global organizations, negotiating the decision is likely to be the best procedure. Negotiating decisions is the procedure most likely to take different interests into account and so generate a decision that team members own and understand, and so are motivated to implement. Think about what we have learned about negotiating in dyads. Deciding one issue at a time in a team decision-making context is no different from deciding one issue at a time in a

dyadic deal-making or dispute resolution context. It inevitably generates win- lose outcomes, leaving value out of the decision. Negotiating multiple-issue team decisions has the potential to capture this value to the benefit of the team and the organization that it serves. Negotiating in the team context means using the information in the Team

Planning Document to develop options for agreement that integrate team members' diverse interests and priorities. A Team Planning Document should reveal members' top priority issues, coalitions that may form across issues, and issue-by-issue shifts in coalitions. The document in Exhibit 5.4 illustrates these points. For example, sales, marketing, and finance agree on the top two most important issues, but disagree on whether volume or price is most important. Here the team should be asking finance to run some models to understand the price-volume trade-off. The document also suggests that the tech support manager is really alone in her interests. However, she may have important information about how much tech support this type of customer is likely to need that will get finance's attention. With this information, finance can run some three-issue models that may uncover options that bring tech support back into a stronger position in the team. Whatever alternatives the team decides to propose to the customer, team members will need to keep in mind that in the long term it is tech support that will generate customer satisfaction and loyalty. Although tech support is not a high priority of finance, marketing, or sales, these team members are still going to have to pay attention to the tech support manager's interests. What follows is specific advice for negotiating in the team environment,

comprised of structuring issues, evaluating BATNAs, using decision rules, setting norms for negotiated decisions, making multi-issue offers, and proposing second agreements.

Structuring the Issues for Negotiation Generate the Team Planning Document as a team. The visual that the Team Planning Document generates helps team members see that (1) there are issues that are relevant to their teammates that they had not considered, (2) their priorities and interests are spread across multiple issues, and (3) a negotiated agreement that takes into account their different priorities and interests is going to require trade-offs. If issues are few or team members' priorities are focused on just a few options, reaching a negotiated agreement may not be possible, even if the team fully shares information. In this case consider whether you can add

issues or subdivide issues to get more issues involved so that trade-offs are possible.

Evaluating BATNAs Remember that teams, like deal makers and dispute resolvers, also have BATNAs, and that a team's collective BATNA may have vastly different implications for different team members. Reaching no agreement may be a better outcome for some team members than for other team members. Team members whose interests will be hurt the most by no agreement will be the most motivated to reach agreement and likely the most cooperative and flexible. Team members whose interests will be hurt the least by no agreement are likely to be the least cooperative and make the most demands on the group. This means that any decision will need to be better than no agreement for the team as a whole and for each member individually, unless the team is prepared to sacrifice a member. Trying to satisfy everyone motivates the search for an interests-based agreement.

Using Decision Rules Decision rules prescribe what proportion of the team must agree before a decision can be made. Such rules influence how carefully the team is likely to consider the opinions of minorities and members with different interests. There are many choices for group decision rules: authoritarian, majority, consensus, unanimity. Determining what decision rule the team is going to use is another procedure that will help channel conflict into effective team decisions. Here are some decision rule options and their strengths and weaknesses. An authoritarian decision rule imposes the interests of the dominant party,

which could be an individual or a subgroup, on the team. This decision rule discourages minority input and is not likely to lead to an agreement that integrates interests and priorities across team members. A majority decision rule may have almost the same effect as an authoritarian

rule. Majority rule requires one half of the team plus one to agree. Often large factions or coalitions with common interests exist before the start of the information-sharing phase of team decision making. These a priori majorities discourage the expression of minority views. “Why bother to speak up?” thinks the minority member. “Our faction does not have the strength to prevail.” Yet the research is clear that attention to minority views causes majority views to diversify.43 Teams that allow the majority to rule are less likely to integrate

interests than teams that must reach a unanimous agreement.44

One way to preserve majority rule, but minimize the impact of the majority's decision on the minority is to require a two-thirds majority. A two-thirds majority requires that the simple majority gain members. This often forces the majority to pay attention to the views of minority members in order to gain at least some of their support. Consensus, too, should force the majority to pay attention to minority views.

Consensus is a form of majority rule in which the team continues to talk until no team member still actively opposes a decision. There are several problems with this approach. Dissenters from some cultures will not actively dissent; a subgroup may so dominate the discussion that the disenfranchised minority simply gives in, but with no intention of supporting the implementation of the decision. When consensus decision making is effective, team members with doubts have shared their concerns, the team has addressed those concerns as much as possible, and everyone agrees it is time to move ahead with the decision despite concerns. A negotiated decision requires unanimity—100 percent active support. This

may be difficult to achieve in teams because, with multiple issues and multiple parties, some team members are likely to have doubts about some aspects of the team's decision. When unanimity cannot be achieved, majority rule may be a better alternative than consensus.45 The reason is that at this point majority rule preserves differences. Having an identifiable minority gives different interests legitimacy and gets decisions made. Although some team members will be on the winning side and others on the losing side, the concerns of the losing side have increased legitimacy and may be able to be incorporated into a second agreement (discussed further on).

Voting, of course, has its own pitfalls.46 When the decision rule requires a simple majority, the order in which alternatives are voted can affect the outcome. This is why it may be preferable to rank alternatives rather than vote on them according to some sequence. Ranking has problems, too. Team members may engage in strategic manipulation to make sure some undesirable option will lose. Our understanding of the implications of different decision rules comes from

research done in dignity culture. There may be different degrees of experience with these rules among team members from face and honor cultures. In addition, people in different cultures may use these decision rules differently. For example, Japanese companies are known to use an inverse cascading consensus

decision-making rule called ringi decision-making in which lower-level managers circulate an idea among peers and then submit the idea to their manager, who has authority to accept or reject the idea.47

Setting Norms for Negotiating Decisions Teams have a tendency to set up agendas to organize their work. This means they tend to address and decide one issue at a time. As we know from the dyad literature, this approach is unlikely to produce trade-off agreements that integrate interests and priorities. In fact this approach may produce no agreement at all, because by the time the team reaches the last few agenda items, there is no way to meet the interests of some team members and, disgruntled, they force an impasse.48 To set a team on a course of negotiating decisions, it is useful to propose some norms for decision making. In this section we discuss two decision-making norms: generalized reciprocity and discuss before decide. Generalized reciprocity refers to an exchange available to all members of the

team. Reciprocity is an exchange between two people, say A and B. Generalized reciprocity could be an exchange such that A defers to B on the first issue, B defers to C on the second, and C defers to A. The trade-offs involved in this example are easy to capture if the team is considering multi-issue proposals, but not so easy to accomplish when the team is following an agenda and deciding one issue at a time. In one of our studies we found that teams whose members were cooperatively oriented—that is, looking out for the interests of the team as a whole as well as for their own interests—were able to use generalized reciprocity to reach agreements when restricted to deciding one issue at a time. These cooperative teams outperformed teams composed of exclusively self- interested members, because they engaged in generalized reciprocity. However, when teams used multi-issue offers, performance was equivalently good regardless of whether the team was cooperative or self-interested.49

This research suggests that to facilitate negotiated decisions you should either Select team members who are all cooperative Set a norm of generalized reciprocity Insist that the team only consider multi-issue offers

Generalized reciprocity takes advantage not only of the fact that team members have different priorities but also that some priorities are stronger than others. Teams whose members are cooperative, that is, concerned for both their

own and others' interests, operate with the implicit understanding that members whose interests are least affected by the decision should concede when they can. In return for their concessions on less important issues these team members can expect to prevail on a subsequent more important issue. Setting a norm of generalized reciprocity should engage even self-interested team members in a process that leads to trade-offs that integrate interests and priorities across team members. Discuss before decide is a norm to talk about the pros and cons of the options

associated with each of the issues before deciding any single issue or proposing a multi-issue offer. Following this norm will probably be much easier for team members from holistic cultures with their reliance on associative analysis and spiraling logic and more difficult for team members from analytic cultures with their penchant for linear logic and analysis.50 In one of our interviews a U.S. manager told us about a negotiation with a Korean supplier. “At the end of the first day,” he said, “my boss was elated. He thought because we'd talked about four of our six issues that we were going to be able to tie this negotiation up quickly and go home early. On the second day the Koreans started over discussing the first issue. My boss almost had an attack!”51 It seems likely that this negotiation foundered on mindset differences. The Koreans were looking at the issues holistically with the perspective that nothing is resolved until everything is resolved. The Americans were looking at the issues linearly, with the perspective of checking items off an agenda.

Making Multi-Issue Offers All six types of agreements for resolving disputes that are described in Exhibit 4.3 also apply to negotiating decisions in teams. The obvious way to integrate interests is to agree to a set of complex trade-offs that take into account all team members' interests. Proposals to experiment for a limited period and then evaluate give those team members who have reservations about a decision an important role in monitoring its progress. Non-precedent-setting decisions preserve future flexibility and let teams take unique circumstances into account. Decisions to minimize costs to team members who are going to suffer losses build widespread commitment even among those who will bear the costs. If these approaches to generating an agreement fail, it may be necessary to

seek a minimum agreement and then try to improve upon it. To generate a minimum agreement, team members need to share their least acceptable

position, or reservation price, on their most important issues, and they need to do so honestly, which is the problem. As we have seen, team members have conflicting self-interests. While they may be willing to share their top priority issues, they are less likely to be willing to share how much they can concede on those issues. For this reason, going for the minimum agreement should probably be put off until other options have failed and the team has discussed its BATNA.

Proposing Second Agreements Second agreements can be used to improve upon first agreements. The rule for second agreements is that the first agreement will stand unless all members agree that the second agreement is an improvement. If the first agreement is a multi- issue trade-off or a minimum agreement, team members may be able to juggle some trade-offs and improve upon it in a second agreement. If the first agreement resulted from a majority vote, the second agreement should protect the interests of the majority and address the minority's concerns with the first agreement. With the first agreement in place, the idea behind the second agreement is that now both majority and minority have nothing to lose in revealing their interests and priorities. From this more open sharing of interests, it is hoped that a second agreement can be constructed to preserve the interests of the majority while also paying more attention to the minority's interests than the first agreement was able to do. One good way of building second agreement is by adding issues that address the concerns of the minority.52

Second agreements are not without their own problems. Team members may be reluctant to share more information because they will look greedy, or because they fear other team members will take revenge or try to take unfair advantage. Team members may be so frustrated by the difficulties in reaching the first agreement that they may not be motivated to keep negotiating. They also may not believe that there is a better option. And they may be constrained from more creative thinking by the structure of the first agreement. But because second agreement deliberations encourage more open information sharing and force teams to negotiate multi-issue offers that can be compared to the first agreement, there are some reasons to believe second agreements can be successful at integrating interests. Here are some questions to ask when considering making a second agreement:53

What problems does the first agreement raise for group members? Why? Are there implications of the first agreement that may have a negative effect

on the interests of individuals or groups not represented? What assumptions does the first agreement make about implementation? Is there an alternative that better meets the interests of some group members without hurting the interests of others?

Minimizing and Managing Interpersonal Conflict Even after having chosen a hybrid or fusion teamwork model and selected negotiation as the method of decision making, teams may experience interpersonal conflict. These teamwork processes are intended to surface conflicts of interests, and people are, not surprisingly, rather sensitive about protecting their interests. Subgroup dominant teamwork and authoritarian decision making may not surface as many conflicts of interest, but just because differences are not discussed does not mean that team members are in agreement. Interpersonal conflict sometimes occurs because team members just do not like

each other, but more often interpersonal conflict arises because team members do not understand or appreciate other members' approach to teamwork, or are offended when their ideas, and therefore they, are not treated with respect. The research is clear. Interpersonal conflict should be minimized and managed. It is destructive to team performance.54 Challenges that may be focused on task or procedure but that are interpreted by team members as negative assessments of their abilities and competencies threaten self-worth. Threats to self-worth may cause the individual stress and anxiety, and motivate defensiveness and hostility directed toward the source. It is difficult to participate fully in the complex process of negotiating team decisions in a state of interpersonal conflict.

Minimizing Interpersonal Conflict All the suggestions in this chapter for norms that support hybrid and fusion teamwork and negotiating team decisions should help minimize interpersonal conflict. Here's a summary of that advice that is especially relevant to teams:

Develop a common understanding of the team's task. Accept that all team members have legitimate interests. Recognize that no team member's approach is necessarily superior to any

other. Treat all team members with dignity and respect. Build trust. Set norms for negotiating team decisions.

This advice promotes a team environment that is similar to the environment fostered by well-regarded third parties in dispute resolution. Such norms of interaction reduce gratuitous and unnecessary interpersonal conflict by recognizing the inevitability of differences and encouraging toleration. They also provide a basis for trust that is depersonalized or group-based rather than individually based. Finally, norms such as these channel conflict toward an interest-based resolution of conflicts of interest. One multicultural team in our study developed the following set of interaction

norms:55

Don't Assume that the best ideas come from your own country or organization. Reject ideas that come from another place in the organization. Treat people from other parts of the company as second-class citizens.

Do (willingly!) Listen to others' ideas. Share your own ideas. Change opinions. Consider alternatives. Admit there may be more than one right way. Admit uncertainty. Work together to reduce uncertainty. Compromise (split the difference). Reciprocate (your way this time, my way a future time). Confront and talk through differences.

I would encourage them to add: Don't assume that just because team members have conflicting interests that there is no way to satisfy everyone. Do work together to meet all parties' interests. Be willing to make trade- offs.

Managing Interpersonal Conflict Constructively

What to do when dysfunctional interpersonal conflict turns into shouting matches or withdrawal or both? Team members we interviewed told us that when the behavior was withdrawal and the team was temporary, teams often ignored interpersonal conflict and got along as best they could without that member's input. When the team was ongoing and the behavior was outbursts— not just an isolated event—management usually got involved. An extreme example is the story of Heavy. Heavy was an inmate in a

maximum security prison who didn't get along very well with his fellow prisoners; he had an anger management problem. As his name implies, Heavy was a big guy, and if another inmate crossed him Heavy would “deck” (that is, punch) him. This behavior landed Heavy in solitary more than once. In an effort to reduce violence among inmates, and at the same time make the prison safer for guards, the prison hired some conflict management consultants to develop a grievance system and train inmates to use it. In the words of one of the consultants, When we got this thing going, Heavy got the training. Sometime after it started a grievance clerk said, ‘I can't believe it. Yesterday Heavy got into an argument and I thought he was going to drop the sucker right in his tracks. Heavy just kept talking to him!’ I don't know how much of this you can attribute to the training, but the guy who told us was attributing all of it to the fact that Heavy had learned that he didn't have to drop people in their tracks, he could talk to them and get something out of that.56

It is possible to intervene successfully in groups experiencing dysfunctional conflict and get them working together effectively, but it is not easy. It takes putting in place the structures and norms for interaction that we have been discussing in this chapter. But it also takes team members with the skills and motivation to manage conflict, and a team environment that is supportive of conflict management.

Skills, Motivation, and Environments To be effective, teams need teamwork models that encourage information sharing and interest-based decision making. Yet just having the model and norms is often not enough. Team members need the skills and the motivation to use the model. They also need support from the organizational environment in which the team is embedded.57

Skills People often simply do not know how to use negotiation skills to manage conflict, much less apply them to team decision making. Give people a little interest-based negotiation training and help them apply it to their setting, and you might be surprised at how quickly they learn to use the skills effectively. Skeptical of the Heavy story? I would be too, if I hadn't heard a similar story myself when doing follow-up focus groups to evaluate the effectiveness of a labor-management training program. In this case it was a union leader with a reputation for table pounding, ranting and raving, and using foul language in grievance hearings who learned interest-based negotiation. At the six-month post-training follow-up focus group, management told me, “He's a new man. He comes to a grievance hearing, sits down, and says ‘Let me explain our interests in this case, and then I'll listen to yours.’” When I spoke with him later the same day, he volunteered that prior to the training the only way he believed he could get management's attention was to, as he said, “act out.” Now, he said, “We talk about interests.” The skills that team members need to negotiate team decisions are the deal-

making skills discussed in Chapters One and Three, and the dispute resolution skills addressed in Chapter Four. If the team is multicultural, members will also benefit from being culturally metacognitive, discussed in the procedural conflict section of this chapter. A good way for team members to acquire those skills is training for the team as a whole. Team training avoids singling out particular team members who for cultural or other reasons may not be very good at negotiating or sensitive to culture. Team training not only generates skills, it also helps build interaction norms that travel elsewhere in the workplace.

Motivation Acquiring skills is one hurdle; using them is another. Team members have to be motivated to use their skills to participate meaningfully and seek high-quality interests-based decisions. Culture complicates motivation because what is motivating in one culture may not be in another. Consider the following two incidents that occurred in two executive programs on different continents in the space of a week. A U.S. manager asked me for some advice. He said that his team was using his ideas but he was not getting any recognition. He was tired of “doing all the work and not getting any of the credit.” He described a team that typically generated multiple alternatives, considered the pros and cons of each,

and then selected the alternative that had the most team support. “By the time the team members reach a decision, they all own my alternative,” he complained. That this group appeared to be using a pretty effective process was not what

this man wanted to hear. He wanted me to tell him how to get the team to recognize his contribution. I suggested that he start recognizing others' contributions, assuring him that the team would soon begin to model his behavior by giving him credit when credit was due. The point is not what advice I gave but rather the contrast with this next story. I sent materials for a four-day negotiation course to China two months in advance so that they could be translated. The young woman who was assigned to assist me had done a great job by any standard in organizing all the materials. Yet when I praised her in front of other staff members, I could tell that she felt very uncomfortable. “I'm just doing my job, Professor,” she said. The public recognition that was so embarrassing to my Chinese assistant was exactly what the American manager required to maintain his meaningful participation in his team! Some very general advice about motivating multicultural team members is to

pay attention to each member's culture. The team member is going to be more motivated to participate in an environment with which he or she is culturally comfortable and in which he or she feels culturally competent. Here are some questions to consider:

What is the likely basis of self-worth of each member of the team? How comfortable will each team member be in an egalitarian team environment? Will this team member confront directly or indirectly? What kind of mindset, holistic or analytic, is this team member likely to have?

Environments Teams are embedded in organizations or, in the case of joint ventures and alliances, in interorganizational relationships. Most discussions of teams and their organizational contexts focus on acquiring team resources, such as members' time, team space, and capital and assets. There is no question that these are important resources if a team is to be successful. A more subtle resource is organizational support for the team's mission and

teamwork model. Organizations tend to use and reinforce the use of particular approaches to teamwork. One of the reasons teams may experience procedural

conflict is that members from different parts of the organization or different organizations in the alliance have learned and are importing different teamwork norms. Recall the example of the conflict between native Russian and expat managers directing the TNK-BP joint venture. A team using a hybrid or fusion model to negotiate interests-based decisions may find it difficult to sustain its approach when embedded in an organization or alliance that relies heavily on procedures in which subgroups dominate. Powerful organizational actors need to buffer teams from inhospitable

environments. Ideally, these are managers whose subordinates are team members and whose areas of responsibility are likely to be affected by team decisions. These managers need to be kept apprised of the team's progress, both its successes and its failures. The purpose of keeping powerful actors in the information loop is not to prepare them to intervene if the team has difficulties, but rather to build their trust in and support for team activities. The rule of no surprises works well for multicultural teams managing multifaceted interfaces with their environments.

Teams Need Guidance Teams cannot be left alone to deal with procedural, task, and interpersonal conflict as best they can. Teams need guidance in developing teamwork models that neutralize procedural conflict. Team members need to learn how to negotiate task conflict by sharing information and negotiating interests-based decisions. They also need to know how to prevent gratuitous and unnecessary interpersonal conflict and to have norms for dealing with interpersonal conflict when it occurs. Finally, team members need the skills, motivation, and environmental resources and protection to use their teamwork model. Managing teams is extremely challenging. Multiple cultures increase the

challenge because culture affects team members' interests, the procedures that they know and feel comfortable using, and their motivation. When a team, whether multi- or monocultural, encounters a serious internal problem, its manager needs to avoid the trap of expediency—simply telling the team what to do.58 Although this may solve the immediate problem it does not allow for team learning or insight into why the problem occurred in the first place. Smart team managers intervene early and help the team set norms, and then encourage the team to find creative solutions to their cultural problems.

In the next two chapters we begin to focus on the broader environment in which global negotiations are embedded. Chapter Six takes up the problem of social dilemmas—multiparty situations that require negotiation skills to manage incentives to compete and cooperate. Chapter Seven discusses the role of government in global negotiations.

Notes

1. F.R.C. de Wit, L. L. Greer, and K. Jehn, “The Paradox of Intragroup Conflict: A Meta-Analysis,” Journal of Applied Psychology, 2012, 97(2), 360– 390; D. van Knippenberg and M. C. Schippers, “Work Group Diversity,” Annual Review of Psychology, 2007, 58, 515–541; L. R. Weingart and C. De Dreu, “Task Versus Relationship Conflict, Team Performance, and Team Member Satisfaction: A Meta-Analysis,” Journal of Applied Psychology, 2003, 88, 741–749. Original research papers include D. Gruenfeld, M. C. Thomas- Hunt, and P. Kim, “Cognitive Flexibility, Communication Strategy, and Integrative Complexity in Groups: Public Versus Private Reactions to Majority and Minority Status,” Journal of Experimental Social Psychology, 1998, 34(2), 202–226; K. Eisenhardt and C. B. Schoonhaven, “Organizational Growth: Linking Founding Team Strategy, Environment, and Growth Among U.S. Semiconductor Ventures, 1978–1988,” Administrative Science Quarterly, 1990, 35(3), 504–529; T. L. Simons, L. H. Pelled, and K. A. Smith, “Making Use of Difference: Diversity, Debate, and Decision Comprehensiveness in Top Management Teams,” Academy of Management Journal, 1999, 42(6), 662– 673; K. Lovelace, D. L. Shapiro, and L. R. Weingart, “Maximizing Cross- Functional New Product Teams' Innovativeness and Constraint Adherence: A Conflict Communications Perspective,” Academy of Management Journal, 2001, 44(4), 479–493; D. Tjosvold, M. Poon, and Z. Y. Yu, “Team Effectiveness in China: Cooperative Conflict for Relationship Building,” Human Relations, 2005, 58(3), 341–367. 2. K. Behfar, M. Kern, and J. M. Brett, “Managing Challenges in Multicultural Teams,” in E. Mannix and Y. Chen (eds.), Research on Managing Groups and Teams, pp. 233–262 (Oxford, U.K.: Elsevier Science Press, 2006); J. M. Brett, K. Behfar, and M. Kern, “Managing Multicultural Teams,” Harvard Business Review, 2006, 11, 84–91. 3. de Wit, Greer, and Jehn, “The Paradox of Intragroup Conflict,” 2012. 4. J. R. Hackman, K. R. Brousseau, and J. A. Weiss, “The Interaction of Task

Design and Group Performance Strategies in Determining Group Effectiveness,” Organizational Behavior and Human Performance, 1976, 16(2), 350–365. 5. K. L. Bettenhausen and J. K. Murnighan, “The Emergence of Norms in Competitive Decision-Making Groups,” Administrative Science Quarterly, 1985, 30(3), 20–35. 6. C. P. Earley and E. Mosakowski, “Creating Hybrid Team Cultures: An Empirical Test of Transnational Team Functioning,” Academy of Management Journal, 2000, 43(1), 26–49. 7. J. C. Turner, Rediscovering the Social Group: A Self-Categorization Theory (Oxford, U.K.: Basil Blackwell, 1987); M. Hewstone and K. Greenland, “Intergroup Conflict,” International Journal of Psychology, 2000, 35(2), 136– 146. 8. S. K. Crotty and J. M. Brett, “Fusing Creativity: Cultural Metacognition and Teamwork in Multicultural Teams,” Negotiation and Conflict Management Research, 2012, 5(2), 210–234. 9. Interview as part of the Multicultural Teams project, K. Behfar, M. Kern, J. M. Brett, 2005. 10. Earley and Mosakowski, “Creating Hybrid Team Cultures.” 11. Interview as part of the Multicultural Teams project, K. Behfar, M. Kern, J. M. Brett, 2005. 12. Earley and Mosakowski, “Creating Hybrid Team Cultures.” 13. Earley and Mosakowski, “Creating Hybrid Team Cultures.” 14. M. Janssens and J. M. Brett, “Cultural Intelligence in Global Teams: A Fusion Model of Collaboration,” Group and Organizational Studies, 2006, 31(1), 124–153. 15. Interview as part of the Multicultural Teams project, K. Behfar, M. Kern, J. M. Brett, 2005. 16. M. Janssens and J. M. Brett, “Meaningful Participation in Transnational Teams,” European Journal of Work and Organizational Psychology, 1997, 6(2), 153–168. 17. M. E. Shaw, Group Dynamics: The Psychology of Small Group Behavior, 3rd ed. (New York: McGraw-Hill, 1981), 170. 18. D. Gigone and R. Hastie, “The Common Knowledge Effect: Information Sharing and Group Judgment,” Journal of Personality and Social Psychology, 1993, 72(1), 132–140.

19. Crotty and Brett, “Fusing Creativity.” 20. C. P. Earley and S. Ang, Cultural Intelligence: An Analysis of Individual Interactions Across Cultures (Palo Alto, Calif.: Stanford University Press, 2003). 21. S. Ang, L. Van Dyne, C. Koh, and K. Yee Ng, “The Four Factor Model of Cultural Intelligence: A Multisample Study of Effects on Performance and Adjustment,” paper presented at the Academy of Management, New Orleans, 2004. 22. The concept of “cultural intelligence” was introduced by Earley and Ang (Cultural Intelligence). They identified four factors of cultural intelligence: behavioral (what people do in multicultural situations), motivational (what people are interested in doing in multicultural situations), cognitive (what people know about norms and practices in different cultures), and meta- cognitive (cultural consciousness and awareness during social interaction). In a thorough, multisample, construct validation study, they showed that the metacognitive and cognitive elements were related to individuals' performance, the motivational element was related to their general adjustment, and the behavioral element was related to individuals' performance and adjustment over and above the effects of demographic characteristics and general cognitive ability. For more information see Earley and Ang, Cultural Intelligence, and Ang, Van Dyne, Koh, and Ng, “The Four Factor Model of Cultural Intelligence.” 23. Janssens and Brett, “Cultural Intelligence in Global Teams”; Crotty and Brett, “Fusing Creativity.” 24. K. A. Jehn, “A Multimethod Examination of the Benefits and Detriments of Intragroup Conflict,” Administrative Science Quarterly, 1995, 40, 256–282. 25. Interview as part of the Negotiating Teams project, K. Behfar, J. M. Brett, and R. Friedman; see also J. M. Brett, K. Behfar, and R. Friedman, “How to Manage Your Negotiating Team,” Harvard Business Review, 2009, September, 105–109. 26. Interview as part of the Multicultural Teams project, K. Behfar, M. Kern, J. M. Brett, 2005. 27. Janssens and Brett, “Meaningful Participation in Transnational Teams”; Janssens and Brett, “Cultural Intelligence in Global Teams.” 28. Interview as part of the Multicultural Teams project, K. Behfar, M. Kern, J. M. Brett, 2005.

29. Interview as part of the Multicultural Teams project, K. Behfar, M. Kern, J. M. Brett, 2005. 30. M. Janssens, L. Kuenen, and J. M. Brett, “Valuing Cultural Diversity,” unpublished report, 1998, p. 14. 31. S. S. Keisler and L. Sproull, “Group Decision Making and Communication Technology,” Organizational Behavior and Human Decision Processes, 1992, 52(1), 96–123. 32. Brett, Behfar, and Friedman, “How to Manage Your Negotiating Team.” 33. R. I. Swaab, A. D. Galinsky, V. Medvec, and D. A. Diermeier, “The Communication Orientation Model: Explaining the Diverse Effect of Sight, Sound, and Synchronicity on Negotiation and Group Decision Making,” Personality and Social Psychology Review, 2011, 20(10), 1–29. 34. L. L. Thompson, Making the Team (Upper Saddle River, N.J.: Prentice Hall, 1999). 35. Z. I. Barsness, J. M. Brett, and L. Eden, “Developing Real-World Skills: Managing Virtual Transnational Teams,” paper presented at the annual meeting of the Academy of International Business, Vienna, 1998. 36. I. Alon, and J. M. Brett, “Perceptions of Time and Their Impact on Negotiations in the Arabic-Speaking Islamic World,” Negotiation Journal, 2007, 23, 55–73. 37. There are cultural differences in attribution patterns. People in dignity cultures tend to attribute others' poor behavior to the individual, whereas people in face cultures are more likely to attribute the same behavior to events beyond the individual's control. M. W. Morris and K. Peng, “Culture and Cause: American and Chinese Attributions for Social and Physical Events,” Journal of Personality and Social Psychology, 1994, 67(6), 949–971. 38. Swaab, Galinsky, Medvec, and Diermeier, “The Communication Orientation Model.” 39. G. Allison and P. Zelikow, Essence of Decision: Explaining the Cuban Missile Crisis, 2nd ed. (New York: Longman, 1999). 40. I. L. Janis and L. Mann, Decision Making: A Pyschological Analysis of Conflict, Choice, and Commitment (New York: Free Press, 1977). 41. D. Wegner, “Transactive Memory: A Contemporary Analysis of the Group Mind,” in B. Mullen and G. Goethals (eds.), Theories of Group Behavior, pp. 185–208 (New York: Springer, 1986). 42. For a discussion of when teams should make decisions, see V. H. Vroom

and P. W. Yetton, Leadership and Decision-Making (Pittsburgh, Penn.: University of Pittsburgh Press, 1973). 43. Gruenfeld, Thomas-Hunt, and Kim, “Cognitive Flexibility.” 44. L. L. Thompson, B. Mannix, and M. H. Bazerman, “Group Negotiation: Effects of Decision Rule, Agenda, and Aspiration,” Journal of Personality and Social Psychology, 1988, 54(1), 86–95. 45. R. S. Peterson, “Can You Have Too Much of a Good Thing? The Limits of Voice for Improving Satisfaction with Leaders,” Personality and Social Psychology Bulletin, 1999, 25(3), 313–324. 46. R. Hastie and T. Kameda, “The Robust Beauty of Majority Rules in Group Decisions,” Psychological Review, 2005, 112, 494–508. 47. M. Ala and W. P. Cordeiro, “Can We Learn Management Techniques from the Japanese Ringi Process?” Business Forum, 1999, 24(1/2), 22–24. 48. L. R. Weingart, R. J. Bennett, and J. M. Brett, “The Impact of Consideration of Issues and Motivational Orientation on Group Negotiation Process and Outcome,” Journal of Applied Psychology, 1993, 78(3), 504–517. 49. Weingart, Bennett, and Brett, “The Impact of Consideration of Issues.” 50. R. E. Nisbett, K. Peng, I. Choi, and A. Norenzayan, “Culture and Systems of Thought: Holistic vs. Analytic,” Psychological Review, 2001, 108, 291–301. 51. Interview as part of the Multicultural Teams project, K. Behfar, M. Kern, J. M. Brett, 2005. 52. This advice for second agreements is based on H. Raiffa, The Art and Science of Negotiation (Cambridge, Mass.: Belknap Press, 1982). Raiffa suggested that, after negotiating an agreement, negotiators go back to the table and try to improve it. I did not discuss this tactic in Chapters One or Three because I do not think it works very well in the real world when dyads are negotiating. Negotiators think they have found the best deal. They are tired. They do not want to reveal the information that might be necessary to improve the agreement. It is mainly in the classroom that post-settlement settlements work well, when students are negotiating a quantified exercise and understand the meaning of post-settlement settlement. Why then do I advise the second agreement tactic for real-world groups such as multicultural teams? The answer is that groups seem to be better at surfacing information than are deal-making negotiators. This means team members have little to hide in second agreement deliberations. Also, the first agreement gives the dominant coalition confidence that their approach is going to prevail. This may make them a bit

magnanimous; they may be more willing to listen to the minority and act to minimize costs to the minority. 53. J. M. Brett, “Negotiating Group Decisions,” Negotiation Journal, 1991, 7(3), 291–310. 54. F. R. C. de Wit, L. L. Greer, and K. Jehn, “The Paradox of Intragroup Conflict: A Meta-Analysis,” Journal of Applied Psychology, 2012, 97(2), 360– 390. 55. Interview as part of the Multicultural Teams project, K. Behfar, M. Kern, J. M. Brett, 2005. 56. W. L. Ury, J. M. Brett, and S. B. Goldberg, Getting Disputes Resolved: Designing a System to Cut the Costs of Conflict (San Francisco: Jossey-Bass, 1998). 57. Ury, Brett, and Goldberg, Getting Disputes Resolved. 58. Brett, Behfar, and Kern, “Managing Multicultural Teams.”

6

Social Dilemmas

“Plastic bags are not indigenous to the Pacific Ocean” reads the picture caption in a National Geographic article.1 The North Pacific Subtropical Gyre covering more than seven million square miles between California and Hawaii is full of plastic—big pieces such as water, milk, and juice bottles that have not yet broken down; plastic bags that fish take for jellyfish; and tiny bits of broken- down plastic the size of a grain of rice. An ocean gyre is an area of circular current formed by wind patterns created by the rotation of the Earth. Its rotation draws debris into its relatively calm center where the debris is trapped. That the North Pacific gyre is full of plastic is of course our own fault, our failure as a civilization to manage the social dilemma of individually using and improperly disposing of convenient, lightweight, and see-through plastic packaging and polluting our planet.2

A social dilemma is a situation in which a party's pursuit of self-interest conflicts with the common good of a collective to which the party belongs.3 The self-interest that led to the great plastic gyre is our personal use of lightweight, presumably convenient but in fact not easily disposable plastic that took the place of heavier, less convenient but disposable paper and glass packaging. The collective interest of the world population that relies on oceans to provide resources is not to contaminate our oceans. This challenge of balancing self-interests with collective interests, called a

social dilemma by psychologists, is called a commons problem in economics.4 In 1968 economist Garrett Hardin described a group of herdsmen grazing their cattle on a common pasture. Each herdsman has the incentive to maximize profits by increasing the size of his herd, but if all do so, the pasture will deteriorate and be unable to sustain any of the herds. If one herdsman increases his herd, others will follow, so as not to be exploited, and this will cause the pasture to deteriorate even faster, leading to the tragic destruction of the common.

Social dilemmas are ubiquitous. They are not limited to the preservation of global environmental resources, such as clean air and water, animal populations, energy, and fisheries. Whenever collective interests and self-interests are misaligned, you are in a social dilemma. Some mundane examples are free riding in teamwork, failing to pay taxes or for the use of intellectual property, or ignoring opportunities for recycling. If our global society is to preserve critical common resources, individuals, community decision makers, and representatives of nations must know how to negotiate resource use that places common interests ahead of local self-interests. The chapter begins by discussing the two-party version of a social dilemma

that is called a prisoner's dilemma. It then describes two different types of social dilemmas. Cooperative social dilemmas, for example, teamwork or recycling, are those in which the collective interest is for the parties to cooperate. Competitive social dilemmas, for example, price fixing, are those in which the collective interest is for the parties to compete. In discussing both of these types of social dilemmas, we'll talk about what scholars suggest can be done, and practitioners are doing, to encourage cooperation in the one type and competition in the other. The theme of this chapter is using negotiation strategy to manage social dilemmas.

Prisoner's Dilemmas and Social Dilemmas In a prisoner's dilemma (PD), two parties get locked in a competition pitting self-interests against collective interests. A typical PD example involves two suspects (let's call them Joe and Ed) who are picked up by the police on charges, say, of insider trading. The police would like to make a felony charge against them, but do not have enough evidence to do so unless one of them gives evidence (squeals) on the other. To encourage squealing, the police separate the two suspects and make them each the offer, illustrated in Exhibit 6.1.

Exhibit 6.1. A Prisoner's Dilemma.

Looking at Exhibit 6.1, we see that if neither Joe nor Ed gives evidence against each other (confesses) (cell A), each gets two years on a lesser charge. If both give evidence against the other (cell D); each gets the longer, five-year sentence. The incentive comes in cells B and C. In cell B, if Ed does not give evidence and Joe does, Ed gets ten years and Joe gets off free. In cell C it is the opposite. Rational self-interest is to give evidence against the other party, hoping that the other party will not give evidence against you so that you get no prison term. But if giving evidence is in Joe's self-interest, then it is also in Ed's self-interest, meaning that rational self-interest leads to the worst collective outcome—both go to prison for five years. The best solution is to trust the other party not to give evidence and not to give evidence yourself, but then if you trust the other party not to give evidence, the rational choice is to give evidence yourself and get out of jail free! Prosecutors in insider trading cases have been using PD offers to get parties to

turn in each other. For example, Dr. Sidney Gilman, a neurology professor, allegedly provided SAC Capital trader Mathew Martoma inside information about the results of clinical trials of an Alzheimer's drug being jointly developed by pharmaceutical companies Elan and Wyeth. Federal prosecutors accused Mr. Martoma of trading on that information to make more than $276 million in illegal profits and avoid losses for SAC Capital. They negotiated a non- prosecution agreement with Dr. Gilman for his testimony against Mr. Martoma. They have also reportedly offered a deal to Martoma, if he will implicate SAC Capital head Steven Cohen, by providing evidence about the contents of a twenty-minute phone call he had with Cohen on the night before SAC Capital started selling off shares of Elan and Wyeth. If convicted, Martoma could face up to twenty-five years in prison.5

Social dilemmas are multiparty prisoner's dilemmas. If you think PDs are

difficult for two parties to manage, consider coordinating the self- and collective interests of the twelve member countries of OPEC, the Organization of Petroleum Exporting Countries. OPEC produces about 40 percent of the world's oil and accounts for about 60 percent of oil traded in global markets. Controlling OPEC is a social dilemma. It is in the self-interest of individual OPEC countries to pump as much oil as possible, because the more they pump, the more revenue they generate, and these countries' national budgets depend on oil. But when all OPEC countries increase their production, the price of oil drops because supply becomes greater than demand. When the price drops, volume does not increase fast enough to make up for lost margin and all OPEC countries lose. OPEC's collective interest is to restrict the supply of oil by self-imposing quotas and thereby increasing the price and OPEC members' revenues. The organization has been reasonably successful in managing the price of oil

over the years. Take a look at Exhibit 6.2. It shows the relationship between OPEC's production targets (the vertical bars) and the West Texas Intermediate Crude Oil benchmark for crude oil prices (WTI) (the curved line).6 You'll see there is a lag between lowered production targets and increases in the WTI price. Prices plummeted in 2008 due to lack of demand associated with the onset of the global financial crisis. OPEC's reaction was to reduce production targets. Doing so had the effect of increasing prices by 2010. Note that production targets didn't change again until the end of 2011 when OPEC increased production targets, legitimizing “freewheeling production” that member states were engaged in.7 In other words, member states were failing to stay within their production quotas. Whether OPEC will continue to hold the same sway over oil prices in the future that it has in the past depends on three hard-to-control factors. One is growth in the world economy and so demand for oil. Another is supply by non-OPEC members; for example, in 2012 there was increased production from Canadian and U.S. oil sands and shale, from Kazakhstan, and from off-shore Brazil. The third is the ability of OPEC to reign in members such as Iran and Iraq, who tend to go their own ways.

Exhibit 6.2. The Lagged Relationship Between OPEC Production Targets and Crude Oil Prices.

Source: U.S. Energy Information Administration, Thomson Reuters. Updated quarterly; last updated March 29, 2013.

Now that we understand what a social dilemma is, let's delve into the differences between dilemmas when the public interest is for parties to cooperate and those when the public interest is for the parties to compete. OPEC is an example of a competitive social dilemma, in which the public interest is for the parties to compete, pump oil, and so hold down global oil prices. The Pacific gyre is an example of a cooperative social dilemma, in which the public interest is for the parties to cooperate and not use disposable plastic in order to protect natural resources.

Competitive Dilemmas Competitive social dilemmas, when the public interest is compete and the private interest is cooperate, are posed by cartels—groups of parties that combine for the purpose and with the effect of raising, lowering, or stabilizing the price of a commodity. Some cartels such as OPEC are perfectly legal because they operate between national boundaries. Other cartels, for example the companies that fixed prices on LCDs (liquid crystal displays for phones and TVs), are not, because they operate within national boundaries, for example, the United States or the EU.

Legal Cartels Market forces govern decision making in legal cartels. For example, if OPEC nations' restrictions on production are too tight, oil prices increase, and people look for alternatives to oil as sources of energy, use more of less desirable oil (oil that is more expensive to refine), drive less, and turn down their heat. When OPEC nations make decisions about production quotas, there is no representative of the oil-consuming countries at the table. OPEC has to judge how much it can restrict production and increase prices before oil-consuming countries and consumers react. Consumers are not without power vis-à-vis a legal competitive cartel, but they have to coordinate their actions by reducing their reliance on the resource or product provided by the cartel, and that may be difficult and take time. Meanwhile, if the cartel holds, it reaps windfall profits.

Illegal Cartels The goal of antitrust regulation is to encourage fair competition to benefit consumers with lower prices. There are many recent examples that have run up against U.S. and European regulators. One is a “crystal display” cartel of Asian companies including AU Optronics, Toshiba, LG, Hitachi, Sharp, and Samsung, found by the U.S. justice system to have colluded to fix prices of those LCD display screens on our televisions, computer monitors, and phones. The last of these lawsuits finally settled in the spring of 2013. AU Optronics had held out for a jury trial, which it lost. Testimony and evidence convinced the jury that top executives of these six Asian companies met more than sixty times to set prices. AU Optronics' fine was $500 million. Its former president and executive vice president each drew three years in federal prison. Fortunately for them the U.S. federal judge rejected the prosecutors' demands for ten-year sentences. Her reasoning: they did not act for personal gain but out of their belief that they were aiding a troubled industry plagued by overproduction and plummeting prices.8

A Steve Jobs's authorized biography described the e-book collusion among five major publishers and Apple to wrest control over pricing from Amazon as Apple's “aikido move”: “you set the price, we get 30%, and the customer pays a little more.”9 All five publishers settled, leaving Apple alone to lose the antitrust case on e-books. The judge found that Apple had taken advantage of publishers' “fear and frustration” over Amazon.com's control of e-book pricing to get the publishers to agree to its terms.10

Last but not least of our recent examples is the alleged potato cartel. In the spring of 2013, the Association of Wholesale Grocers claimed that American potato producers, responsible for 80 percent of potato acreage, had used OPEC as a model for conspiring to fix prices. The grocers' lawsuit cites data (seventy thousand fewer acres of potatoes planted in 2006 than 2005, price increases of 48 percent) and communications from the United Potato Growers of Idaho (see Exhibit 6.3). To win the lawsuit the grocers are going to have to prove that the potato producers are not a cooperative because U.S. law permits agricultural cooperatives to do things otherwise forbidden by antitrust laws.11

Exhibit 6.3. Excerpt of a 2005 Letter from the United Potato Growers of Idaho CEO to Members, Quoted in “Complaint Filed in Federal Antitrust Complaint” by the Association of Wholesale Grocers. YOU HAVE PROVEN THAT WE CAN CONTROL WHAT WE PLANT. WE CAN AND MUST BALANCE THE MARKET IN 2006 OR RISK WATCHING BAD HISTORY REPEAT ITSELF! In the past, the way you prospered was to plant with no real analysis of national supply and demand fundamentals and then hope for the best. But this year, YOU HELPED CREATE A GOOD MARKET BY PLANTING ONLY ACRES THAT WILL SUPPORT A GOOD MARKET! The strategy of “over-planting” so you can get “lucky” and prosper in '06 will create the same disaster we have had in recent years … overproduction of +10–12 MILLION cwt. This will again result in rock bottom, cut-throat pricing and $1.00-$3.00 returns to growers. WE CANNOT LET THIS HAPPEN! Instead, we must REMEMBER THE PAST, LEARN FROM IT AND MAKE OUR OWN LUCK and CONTROL WHAT WE PLANT! [Capitals and ellipses in complaint.] Source: http://www.courthousenews.com/2013/04/22/56909.htm.

The nature of the competitive dilemma makes cartel involvement risky for its conspiring members: someone is likely to tip off the regulators. The tip may come from consumers angry because they get the same price quote no matter what supplier they contact, as was the case for LCDs. It can come from an outbreak of dissent among conspirators, since defecting from the price arrangement is in the self-interest of the colluders. It may come from senior executives who know the activity is illegal and want to save their own careers. Involvement in a competitive dilemma is risky also for senior executives

because, as we saw in the LCD example, in the United States convicted price fixers can go to jail while their companies pay huge fines. It is rare for executives caught in a price-fixing scheme to serve jail time in the EU, because EU regulators do not have the legal rights to go after individuals in the same way U.S. regulators do. But the EU does impose substantial fines. In the LCD case,

the EU fined LG Display, AU Optronics, Chimei InnoLux, Chunghwa Picture Tubes, and HannStar Display nearly 649 million euros. Samsung was also cited, but immunized itself from fines by being “the first to provide information about the cartel.” Someone is always likely to tip off the regulators!12

Here are some things you can do to manage illegal collusion: Watch the market. Buyers figured out the LCD cartel. Amazon figured out the e-book cartel, retailers watching potato prices looked into communications among association members and blew the whistle with the U.S. government. Make it clear that within the company whistleblowers will be protected and colluders punished. Just say no when invited.

Cooperation Among Competitors That Comes in Under the Law The legal side of the antitrust line is dominated by companies that signal price information but do not actually meet in fancy hotels (like the LCD cartel) or restaurants (like the e-book conspiracy) or communicate about prices via email (again like the e-book conspirators). The airlines are well-known competitive signalers. For example, an airline may announce a new fare or fee increase and then see what its competitors do. If the competitors match the increased fare or fee, all share the market with higher margins. If the competitors do not match the increase, the initiator can roll the price back and continue competing for market share at lower margins. Alternatively, competitors may match the increased fare for a limited time, implying that they do not want to raise prices.13

Here is some advice about signaling to manage competitive dilemmas: Signal your strategy into the marketplace. Keep your strategy simple. You want your competitors to understand it! Do not be the first to defect; signal your willingness to cooperate. Focus on your own payoffs, not your payoffs relative to others. (This gains margin, but not market share.) Consult your lawyers to make sure you are not crossing the line of illegal collusion.

Cooperative Dilemmas

Cooperative Dilemmas Cooperative dilemmas, in which the public interest is for the parties to cooperate but the private interest of the parties is to compete, come in two forms depending on whether parties are taking from or contributing to the common resource pool.

Taking Dilemmas Taking dilemmas are social dilemmas in which parties take resources from the commons. Industries that extract or use notably depletable resources—fishing, forestry, energy—have to make decisions in the context of a social dilemma. If they extract too much, the resource will be over-depleted, but while they are depleting it they are profiting greatly. This is OPEC's long-term problem. OPEC nations are extracting a resource that cannot be replenished. How much should they extract to serve current interests versus conserve for future generations? In contrast, the fishery and forestry industries are extracting resources that can be replenished, if self-interests can be sublimated to collective interests.

Contributing Dilemmas Contributing dilemmas are social dilemmas related to adding to public goods: paying taxes, contributing to public radio and television, doing your share of teamwork. The main dilemma is what to do about free riders. A free rider is a person who does not personally contribute but benefits from the contributions of others. Tax evaders, despite paying no taxes, benefit from public services: they are free riders. In the United States, public radio listeners and public television viewers who use the resource but do not make financial contributions during membership drives are free riders. The same can be said of some team members. Free-rider team members who do not contribute nevertheless share in the team's rewards along with team members who do contribute. If the team is successful, the free rider benefits the same as the team members who did all the work. If the team is unsuccessful, the free rider, unlike other members of the team who contributed, will not feel exploited. The first challenge in managing free riders is identifying who they are. The second challenge is instilling in them a sense of responsibility to contribute to the public good. Managing social dilemmas takes excellent negotiation skills.

Using Negotiation Strategy to Generate Cooperation in Taking and Contributing Social Dilemmas

in Taking and Contributing Social Dilemmas When the public interest of cooperation is not being met, a social dilemma is in disequilibrium. The next three sections apply what we have learned about negotiation strategy in prior chapters to the challenge of turning a cooperative social dilemma in disequilibrium into one in which the collective interest is being met. The nature of social dilemmas—multiple parties with self-interests that exist in tension and conflict with collective interests—makes them inherently difficult, but not necessarily impossible to manage. A good standard for determining whether a social dilemma is under control is whether the collective good is sufficiently available to meet public needs: clean air and adequate water, or public entertainment or the arts. When a social dilemma is meeting the interests of the collective, an equilibrium balances self-interests with collective ones. Chapter Four introduced three ways to resolve disputes: interests-based

approaches, rights-based approaches, and power-based approaches. The same framework provides a way of organizing potential interventions to manage cooperative social dilemmas. Just as we saw that interests, rights, and power approaches were not all equally acceptable across cultures, in managing social dilemmas some approaches may be more acceptable to parties from some cultures than others.

Power-Based Approaches to Negotiating Cooperative Social Dilemmas Not all parties to a social dilemma are equal. Some parties are more powerful than others and can lead the way to cooperation in social dilemmas, if they only will. Corporate sustainability efforts are a major example of powerful parties trying to reduce their negative environmental footprints without hurting profits. One can be cynical about these efforts as mere public relations ploys and opportunities to squeeze suppliers, or one can be grateful for lip service that might eventually turn into actual sustainability gains. For example, Walmart is now rating its suppliers on sustainability. At the same time it is motivating its buyers to pay attention to the suppliers' sustainability ratings by making 5 percent of their performance pay contingent on their sustainability work.14

Unilever only started on the sustainability track in 2010, but its three goals are impressive: to improve health and well-being, to reduce environmental impact, and to enhance livelihoods. Impressive, too, are its seven initiatives to achieve those goals by 2020. It also publishes its scorecard and admits that not every

initiative is on target.15 What is particularly interesting about Unilever is that it is defining its sustainability work as a test of leadership. Its CEO, Paul Polman, is quoted in the 2013 report of the GlobeScan and SustainAbility survey as saying, “If we achieve our sustainability targets and no one else follows, we will have failed.”16

Whether you work for a powerful company such as Walmart or Unilever or one of their suppliers, for an environmental organization such as the World Wildlife Fund, or for a government organization, you may find yourself negotiating as or with a powerful party to increase cooperation in sustainability social dilemmas. The following key principles for such negotiations are the same as those discussed in Chapter Three, on deal making, Chapter Four, on dispute resolution, and Chapter Five, on negotiating in multiparty situations.

It is essential to understand all parties' interests. It is important that all parties know the issues and options in advance and have time to negotiate with their constituencies so that they can make commitments when they meet as a group. It is important to put multi-issue proposals on the negotiating table that build in trade-offs that capture differences in interests. Stand up and take a hit! Commit publicly to cooperation.

Alternatively, if you are a low-power party, you may be able to use power to convince powerful parties to cooperate. For example, in the wake of the spring 2013 tragedies in Bangladesh and Gap and Walmart's refusal to join the European apparel companies such as H&M in their initiative to help make Bangladesh factories safer, Gap had picketers outside its corporate headquarters and stores.17 Ultimately, Gap and seventeen other American retailers including Walmart announced their own plan to improve safety in Bangladeshi garment factories.18

Rights-Based Approaches to Negotiating Social Dilemmas: Using Norms A norm, as we learned in Chapter Two, is a standard of appropriate social interaction—what one ought to do in a given situation. Norms are useful in regulating people's behavior in social dilemmas because they provide a means of self-regulation and do not require infrastructure for monitoring and enforcement. People know what they are supposed to do and they do it. Research has

identified three norms that seem to regulate behavior in social dilemmas: commitment, reciprocity, and equity and equality.19 In addition, in local environments unique and elaborate norms can emerge to regulate social dilemmas.

Norms of Commitment. When we make public commitments, we signal our intentions. This gives others a basis for forming expectations of us and for acting according to those expectations. Assuming we follow through on our intentions, coordinated action ensues. If we fail to follow through, we not only disrupt social equilibrium but also generate distrust, lose face, and accrue other social sanctions. For all these reasons, the norm of commitment works to generate cooperation in social dilemmas. Our research indicates that in all cultures it is very important to create a norm

of cooperation and then communicate commitment to it. In executive programs on negotiation, we frequently run a social dilemma exercise concerning fish harvesting (Shark Harvesting and Resource Conservation, or SHARC). SHARC involves four parties who are harvesting different amounts of shark from the Atlantic Ocean: the large commercial fishers (big boats, the most powerful party in economic terms); the small commercial fishers (smaller boats, fishing closer to shore); and two economically less powerful parties, namely, recreational competition fishers (“compete to see how big a shark you can catch”) and recreational tour fishers (“come out with us and catch a shark to mount on your family room wall”).20 To maintain the resource these fishers have to reduce the overall harvest by one half, from five thousand to twenty-five hundred metric tons of shark per year. How to do so is the social dilemma. We assign participants to one of the four roles, give them time to prepare and ask them to make a decision about how much they will reduce harvesting, and how much they expect others to reduce their harvesting. Then we put them in a group with the three other fishers, encourage them to discuss the problem for thirty minutes, and bring them back to once again make separate decisions. Exhibit 6.4 shows that communication (the thirty-minute discussion)

significantly reduced the overall level of fishing, regardless of whether discussants were American, Korean, Japanese, or Chinese managers. The biggest reduction was in the American data, since prior to discussion American managers were not very willing to reduce their harvesting. Post-discussion

fishing levels are not significantly different across cultures. A few groups in all cultures do reach the twenty-five hundred metric ton level, which is sustainable. The data suggest this is most likely to happen when the powerful party cooperates.21

Exhibit 6.4. Cultural Differences in Group-Level Harvest, Pre- and Post-Discussion.

We use commitment norms almost unconsciously in many situations. For example, when working in teams at the end of the meeting, we go around the table and get everyone to openly commit to what he or she is going to do. Commitment norms work!

Norms of Reciprocity. The norm of reciprocity is the social imperative to give benefits to others that are equivalent to the benefits they give you.22 As we saw in the Chapter Five example of team decision making using agendas, generalized reciprocity of cooperation allows a multiparty team to develop integrative agreements. Reciprocity works in a similar way in social dilemmas, so long as trust is not

violated. The strategy that generates the highest levels of cooperation in a multiple-round prisoner's dilemma is a reciprocity strategy called “tit for tat.”23 The rules of tit for tat are to start cooperative and then always reciprocate the other party's move. (Also see the earlier “Some advice about signaling to manage competitive dilemmas.”) The tit-for-tat decision maker almost never gains more than his or her counterpart, but because the counterpart understands

that the tit-for-tat player will reciprocate a cooperative move, the tit-for-tat player is typically able to entice the counterpart to play cooperatively.

Norms of Equity and Equality. An equity norm distributes resources according to a standard of fairness, usually in proportion to contributions, inputs, or costs.24 The problem with the equity norm in social dilemmas when participants are from different cultures is that what is perceived to be fair in one culture may not be perceived to be fair in another culture. For example, in the SHARC exercise, the large commercial fishers are more powerful economically than the others. This party has the capacity to harvest more fish than the others, and makes a large profit from doing so. We found that the powerful party seems to be using a different equity norm in U.S. and Chinese groups than in Korean or Japanese groups. Exhibit 6.5 shows the difference between what the powerful party (large

commercial fishers) in the SHARC dilemma harvested and what that party thought the two weakest parties should harvest. (Note that the vertical scale is not the same as the one in Exhibit 6.4.) The difference in these allotments is almost one thousand metric tons when Americans take the powerful party's role and almost eight hundred metric tons when Chinese take this role. The American and Chinese managers' decisions illustrate an equity norm: it is fair for the powerful party to harvest more fish and the weaker parties to harvest fewer. In contrast, the Japanese and Korean managers' decisions illustrate an equality norm: it is appropriate for the more powerful party to make a bigger reduction and the weaker parties to make a smaller reduction in harvesting. The differences between the powerful party and the weaker parties in these two cultures are five hundred metric tons or less. This means that if you are the low- power party you might care about the culture of the high-power party. You might be better off with a Japanese or Korean high-power counterpart than an American or Chinese high-power counterpart.

Exhibit 6.5. Perceptions of the Powerful Party: What Is Fair for the Powerful Party to Harvest Minus What Is Fair for the Two Weaker Parties to Harvest, by Culture.

Local Norms. So far we have been discussing norms of commitment, reciprocity, equity, and equality that are general and can be observed directing and controlling people's behavior in many different cultures. In addition to these general norms, very specific norms emerge in local communities for the purpose of resource conservation and management. These emergent local norms have two characteristics. First, allocations are based on local cultural definitions of fairness. Second, the sustainability of the norm is based on the ability and willingness to bar outsiders.25 Examples range from forest and meadow management in Japan and Switzerland to irrigation of farmland through the use of common water canals in Spain; the Philippines; and Bali, Indonesia. Bali's unique system of water management combines Hindu religious values

dictating equal sharing with elaborate social structures and complex engineering.26 Balinese rice farmers belong to community organizations called subaks. All subak members have the same right to irrigation water in return for free communal work on subak activities. The water is allocated by dividing the total amount of water available by the number of subak members and their needs. Work obligations are directly proportional to the amount of water farmers receive. Members can participate in the manual labor necessary to maintain the complex irrigation system or provide financial compensation in lieu of manual labor. Upstream and downstream participants cooperate in this system because the flow of water also affects the population dynamics of rice pests. If downstream fields are not sown because of lack of water, pests will move upstream!

An important factor in developing and maintaining local norms is keeping control of the resource out of the hands of outsiders. The subak system in Bali has successfully done so for over one thousand years. So long as the need for water in Bali was primarily agricultural, the subak system worked extremely well. However, increasing land values because of tourism have caused Balinese in some subaks to sell their land for hotel development. Other areas have effectively reinforced their commitment to the use of land only for agricultural purposes, and the subaks continue to control the allocation of water.27

Advice for Using Norms to Regulate Behavior in Social Dilemmas. Assuming that people affected by the social dilemma share a common set of norms to regulate behavior, as do the subaks in Bali, there is still the problem of adherence to norms. Adherence to norms works on several levels. Commitment and reciprocity norms align self- and collective interests. Equity norms provide a standard for judging one's own and others' behavior, and so minimize defection from cooperation. Barring local area norms from incursions by outsiders sustains local norms and reduces defection. Here is some advice for using rights-based approaches to generate cooperation in social dilemmas:

Make commitments that you are willing to follow through on. Ask for others to make similar commitments. Ask for generalized reciprocity and indicate when you are willing to engage in it. Find out whether equity or equality dominates social interaction in the cultures with which you are interacting. When local norms are working to generate equilibrium, try to buffer those local areas from incursions by outsiders.

Because it is extremely difficult to buffer local norms from external pressures and social change, we also need to consider more formal, rights-based solutions to social dilemmas that are in the form of government regulation.

Rights-Based Approaches: Using Legal Regulation, Monitoring, and Enforcement Regulatory solutions to social dilemmas range from privatizing commons to capping use to setting up tradeable permits programs. Each of these different approaches to regulating behavior in social dilemmas has strengths and weaknesses. They also appeal differently and at different times to people from

different cultures.

Privatization of Commons to Regulate Behavior in Social Dilemmas. Privatization works by defining boundaries within which an entity—person, organization, or community—has the sole right to use the resource. For example, each subak in Bali has total control over allocation of water within its own watershed area. Although this area is not private property, it is treated as such. Privatization works to conserve resources (the public interest) because it aligns self-interests with the public interest: resource users who control their resource (such as the Balinese subaks) conserve the resource. Privatization is appropriate for managing resources such as meadows and

forests that do not move. But as we saw in the opening example of the Pacific gyre, many natural resources move in unpredictable paths through air, water, and soil. Managing these resources requires negotiating harvesting caps and monitoring and enforcement.

Cap and Trade Programs to Regulate Behavior in Social Dilemmas. Cap and trade systems are designed to motivate polluters such as power plants to reduce greenhouse gas emissions. A government entity, for example the EU, sets a limit on how much of a pollutant can be emitted. It then generates emissions permits equivalent to the cap. Power plants buy and trade permits. Plants that have reduced their emissions can sell their excess permits; plants that need excess permits buy them in a market. The idea behind these systems is to provide an economic incentive to power plants and other polluters to reduce their actual emissions by investing in emissions control initiatives. These systems seem to be successful when demand for permits exceeds supply, but many systems have been stymied in recent years as the global recession has reduced demand, and high oil prices have motivated the switch to natural gas, which burns cleaner than coal or oil. This has meant that there have been more permits available in markets than buyers, which reduced the value of the cap and trade system's incentive to reduce greenhouse gases.28

Regulation can be controversial. If you want to see the kind of discussion that parties generate about cooperation in a social dilemma, just review the articles and postings on the web concerning the U.S. Clean Air Act. The National Resources Defense Council suggests that new carbon pollution standards, which it argues can be generated under existing authority in the Clean Air Act, will cut

existing power plant emissions 26 percent by 2020 (relative to peak emissions in 2005).29 But then for a different opinion, see the Wall Street Journal.30 It is difficult to reach consensus about what is the appropriate rights-based standard. As in every other type of negotiation we've studied, rights-based approaches, whether normative or legal, often generate conflict, with one side advocating the rights-based approach that benefits its interests and the other side advocating a different rights-based standard that benefits its interests. Maybe interests-based approaches are worth considering.

Interests-Based Approaches to Negotiating Social Dilemmas An interests-based approach to managing a social dilemma involves realigning self-interests so that they are consistent with collective interests. This either requires reframing the situation or shifting people's social identity from the self to the group coping with the social dilemma.

Reframing the Situation. Give different people the same social dilemma situation, such as the fish- harvesting problem, and you will be surprised at the variation in their behavior. For example, the powerful party in our SHARC dilemma exercise can harvest between four hundred and two thousand metric tons of fish. American managers playing this role use the full range; but even so, 50 percent of them harvest less than sixteen-hundred metric tons, which leaves them with a loss of profits no matter what other parties do. Why do they do so? In class discussions they take the moral high ground: “It was the right thing to do.” Several different research studies suggest that reframing a social dilemma as a moral or ethical problem is more likely to engender cooperation than framing it as a business or economic problem.31 The moral, ethical frame stimulates a cooperative and possibly even an altruistic knowledge structure. The economic or business frame stimulates a competitive and defensive structure. Thus, the advice is

Reframe the social dilemma as an ethical or moral dilemma, not an economic one.

Shifting Social Identity from the Self to the Collective. The way to shift social identity from the self to the collective interests is to make group identity salient.32 This requires developing a group to which all the parties belong and whose goals they can identify with. One of the easiest ways to

accomplish this is to identify a common competitor or adversary, much as the early environmental protesters in Taksim Square in Istanbul, Turkey, did as their masses swelled in the early summer of 2013 (described further on).33

There are three techniques for making social identity salient. The first is setting collective goals. A collective goal is a goal that all group members agree to. A collective goal may help parties recognize that their self-interests can be promoted by cooperating with others. A major factor motivating OPEC members to renegotiate quotas and stick to them is their individual economic problems caused by low oil prices. In this situation OPEC members' collective goal of improving their individual economic situations is aligned with their self- interests. A second technique for making social identity salient is increasing contact,

ideally through face-to-face meetings. Contact places dispersed parties to a social dilemma in personal communication with one another. Contact works if it generates respect for differing interests and leads to trust that cooperation will be reciprocated and commitments to quotas will be kept. The hierarchical structure that links the different Balinese subaks provides contact among subaks responsible for different watershed areas. Without the Balinese subaks' thousand years of history of cooperation, it is necessary to build trust between parties who are interdependent but who previously have had little contact with each other. The way to do this is to signal cooperation, much the same way the airlines engage in competitive dilemmas do when raising prices: one or all parties take small cooperative steps that are easily monitored. Once there is an initial basis for trust, larger cooperative steps may be possible. The psychologist Charles Osgood called this approach GRIT, or “graduated and reciprocated initiatives in tension reduction.” His idea was that one party can stimulate tension reduction by making a small unilateral concession and indicating that the counterpart should reciprocate. If the counterpart does reciprocate, the party initiating GRIT can make a second concession, and so on. If the first concession isn't reciprocated, Osgood advises not to give up too easily, as some counterparts take longer to get the idea of cooperating than others. He advises trying again.34

A third technique for making social identity salient is recategorization. Recategorization involves encouraging parties to a social dilemma to see themselves not as separate entities but as a single group confronting a common problem. This often involves invoking a superordinate category. For example, in dealing with oil-consuming nations, Saudi Arabia might represent itself as Saudi

Arabia, the largest oil-producing country in the world, or as OPEC member Saudi Arabia. The distinction is subtle but important because the difference signals the priority of collective interests over self-interests.

Cultural Differences and Making Social Identity Salient. The three techniques for making social identity salient may work somewhat differently for people from dignity, face, and honor cultures. In face cultures, as we discussed in Chapter Two, the unit of social perception is the group, the self is viewed as interdependent with social identity groups, in-group goals have primacy over personal goals, and in-group harmony is valued. In contrast, in dignity cultures the unit of social perception is the individual, the self is viewed as an independent rather than a socially interdependent entity, personal goals are primary, in-group goals are secondary, and in-group confrontation is acceptable.35 We do not have data on managers from honor cultures participating in the SHARC social dilemma exercise; however, the honor culture profile suggests that they are likely to act more like the dignity culture managers (strongly protective of self-interest) than like the face culture managers—at least those from Japan and Korea. The implications of these cultural differences and our research suggest that

people from face cultures should find it easier to align self- and collective interests than people from dignity or honor cultures. Exhibit 6.4 showed that U.S. managers confronted with a decision to reduce harvesting from the current rate of 5,000 metric tons of fish to the sustainable 2,500 metric tons reduced their harvesting only from 5,000 to 3,988 metric tons when simply confronted with the problem, while Korean (3,581), Japanese (3,637), and Chinese (3,416) managers reduced significantly more. But given the opportunity for discussion— when commitments could be made to harvesting levels—the overall level of harvesting evened out. Perhaps the reason for this greater need for communication in dignity than in

face cultures has to do with the cultural differences discussed in Chapter Two associated with explicit versus implicit communication, independent versus interdependent norms, and egalitarian versus hierarchical social structures. People from dignity cultures, because self-worth is relatively independent of social constraints, may need to hear others' explicit communication of commitment to cooperation before they feel comfortable cooperating themselves. People from face cultures, in which self-worth is interdependent with social roles and responsibilities that determine social status and behavior is

constrained by social monitoring and sanctions, should know what their own behavior is expected to be in the social dilemma and be able to predict what others will do on the basis of their social status. Cooperation also may result simply from hearing others articulate the logic for

harvesting patterns that are different from one's own self-serving interests. This may lead parties to reassess their judgments of fairness. It is also possible that just meeting as a group enhances group identity, leading to recategorization and cooperation, regardless of what parties talk about!36

In-Groups and Out-Groups: Risks in Making Social Identity Salient. Increasing social identity using collective goals, contact, or recategorization works by redefining the boundaries of in-groups—that is by broadening the membership of the in-group to include those who previously did not belong and did not identify with the in-group. Doing so successfully still leaves at least one, more likely many, out-groups to which in-group members do not belong or identify. The out-group serves as a reference to what the in-group does not stand for and so contributes to in-group solidarity and identity. One of the most effective ways to use recategorization is to increase the salience of the in-group by creating a contrast with an out-group. Group members making decisions in social dilemmas are twice as likely to cooperate with other in-group members when there is an out-group to compete against, than when there is no out- group.37

Increasing social identity by distinguishing people's membership in in-groups and out-groups entails its own risks by hardening divisions within a society, which can lead to escalation of violence. In such situations social dilemmas can occur within and between groups. As I am writing this chapter, in June 2013, a very vivid intergroup social dilemma is occurring in Turkey. The initial protests were about an environmental issue, saving Gezi Park in Taksim Square in Istanbul. The peaceful sit-in protests escalated after riot police used tear gas and water cannons to try to disperse the protestors. At this point the makeup of the protest group quickly broadened to include a diverse set of other anti- government groups uniting under the banner of grievances against Prime Minister Recep Tayyip Erdogan's authoritarian style. On the Turkish side was the government of Prime Minister Erdogan, which was strongly supported by the conservative religious majority in Turkey. After the second week of protests spreading to more than sixty cities with violent clashes with the police that led to

three deaths and almost five thousand injuries, an opening appeared on the government side suggesting a social dilemma within the cabinet: how to address the protests cooperatively or competitively. Bulent Arinc, a deputy prime minister and government spokesman, announced after a seven-hour cabinet meeting to discuss the protests held Monday, June 10, 2013, that the prime minister had offered to meet with some of the protest leaders and that he anticipated the meeting would be held Wednesday, June 12, 2013. One can just imagine some of the discussions that took place in that cabinet meeting: concerns about human rights abuses, Turkey's bid to enter the EU, and Istanbul's petition for the 2020 summer Olympics; discussions about the implications of the Turkish currency losing value, borrowing rates rising and currency flight affecting sustained economic growth in the wake of the political crisis; and of course the right of a democratically elected government to move policy to support the interests of the majority. Then on Tuesday, June 11, 2013, Prime Minister Erdogan in addressing his political party called the protest movement “an uprising against the democratic administration” and the groups protesting in the square “terrorist organizations.” That evening riot police once again tried to disperse protestors in Taksim Square with tear gas and water cannons.38

There is quite a bit of recent research on intergroup social dilemmas that can be used to understand how the structures of these situations, which typically involve two groups with heterogeneous values and their representatives, affect cooperation. In general, individuals gain more than noncooperative groups, and it is better to be an individual facing a noncooperative group than two individuals facing each other. Facing a noncooperative group provides an opportunity to take advantage of the group, which given its nature it is having difficulty coordinating.39 In our example of the events in Taksim Square, clearly the prime minister acting as an individual has the upper hand against the diverse group of protesters. The fact that both groups, protesters and government, share a common fate makes them less cooperative because they have very different views of what that common future looks like.40 And then there are individual differences in how representatives of groups act, or social motives. Some people have individualistic social motives—that is, they are out for themselves; others have cooperative social motives—that is, they put the interests of the group first; still others have competitive social motives—that is, they promote their interests at the expense of others. It should not be a huge surprise that collectivists negotiate as competitively as individualists when just the counterpart, not their

own group, will benefit from the concessions. But when their own group and the counterpart's group both benefit, collectivists are willing to self-sacrifice in order to provide benefits for their group as well as the counterpart's group.41

Keep in mind though that the research above has been conducted in Israel, the Netherlands, and the United States—all dignity cultures—and that, as we have seen in the research reported earlier in this chapter about people participating in social dilemmas in face cultures, there are likely to be face and honor cultural effects. For example, culture may differently affect the boundaries parties draw between in-groups and out-groups.42 In addition, members of face cultures tend to make sharper distinctions between in-groups and out-groups than do members of dignity cultures.43 Finally, members of face cultures tend to cooperate more with members of their in-groups and compete more strenuously with members of out-groups than do members of dignity cultures.44

Here is some advice for avoiding risks when making social identity salient: Identify potential in-groups and out-groups. Be sure to build in sufficient buffers between them (for example, the geographical buffers between Balinese subaks) so as to minimize out-group competition when you increase in-group salience and cooperation. If you cannot build in buffers, consider contact or recategorization to enlarge the size of the in-group. Choose representatives with collective social values. Send a representative with collective values to negotiate with a competitive outgroup. Consider culture!

Negotiating Individual and Collective Interests in Social Dilemmas The first step in becoming more effective in negotiating cooperation in social dilemmas is to recognize that all dilemmas are a balance between self-interests and collective interests. The requirement to balance those interests will not disappear no matter how effectively the dilemma is managed. The challenge is to negotiate solutions that keep self-interests and collective interests in equilibrium. Regulation may be the obvious approach, but there are more subtle and more psychological approaches, using norms and interests, that may limit the need for

regulation and have been shown to work effectively when regulation and enforcement are not practical. If regulation is necessary, then experience with caps and tradable permits suggests that negotiating a combination of government regulation and free markets is an effective way to manage social dilemmas, even across national boundaries. Finally, it is important to realize that culture matters in managing social dilemmas. Putting collective interests first is simply more acceptable in face than dignity cultures. Market solutions fit better with social structures in dignity cultures and possibly in honor cultures than in some face cultures. Powerful parties may be more willing to take the lead in cooperation in face cultures; in dignity cultures they may need to be shamed into cooperation (such as picketing Gap) or legally sanctioned when their cooperation means that the collective interests are ignored (for example, the LCD colluders). In this chapter we have just begun to see the role of governments in

negotiating global solutions to social dilemmas. In the next chapter we delve into the role of government in negotiating foreign investment.

Notes

1. National Geographic Education, “Great Pacific Garbage Patch,” http://education.nationalgeographic.com/education/encyclopedia/great-pacific- garbage-patch/?ar_a=1. 2. See http://www.ted.com/talks/capt_charles_moore_on_the_seas_of_plastic.html for Captain Charles Moore's February 2009 TED talk. 3. D. M. Messick and M. B. Brewer, “Solving Social Dilemmas: A Review,” in L. Wheeler and P. Shaver (eds.), Review of Personality and Social Psychology, pp. 11–44 (Beverly Hills, Calif.: Sage, 1983). 4. G. Hardin, “The Tragedy of the Commons,” Science, 1968, 162, 1243–1248. 5. P. Lattman, “Trial Date Set for Former SAC Trader in Insider Case,” New York Times, June 5, 2013, http://dealbook.nytimes.com/2013/06/05/ex-sac- trader-martoma-faces-nov-4-insider-trading-trial. 6. U.S. Energy Information Administration, “What Drives Crude Oil Prices?” http://www.eia.gov/finance/markets/supply-opec.cfm. 7. C. Krauss, “OPEC Opts to Increase Its Level of Output,” New York Times, December 14, 2011, http://www.nytimes.com/2011/12/15/business/global/opec-sets-oil-production-

target.html. 8. The Associated Press, “Taiwan Company Fined $500 Million for Price- Fixing,” New York Times, September 20, 2012, http://www.nytimes.com/2012/09/21/business/au-optronics-fined-500-million- in-us-price-fixing-case.html. 9. W. Isaacson, Steve Jobs (New York: Simon & Schuster, 2011). 10. B. X. Chen and J. Bosman, “Fallout from Apple's Loss on E-books,” New York Times, July 10, 2013, http://www.nytimes.com/2013/07/11/technology/judge-rules-against-apple-in- e-books-trial.html. 11. K. Koeninger, “Grocers Complain Potato Cartel Fixes Prices,” Courthouse News Service, April 22, 2013, http://www.courthousenews.com/2013/04/22/56909.htm. 12. The Associated Press, “Taiwan Company Fined $500 Million for Price- Fixing,” New York Times, September 20, 2012, http://www.nytimes.com/2012/09/21/business/au-optronics-fined-500-million- in-us-price-fixing-case.html. 13. The Points Guy, “Higher Airline Change Fees Are Here to Stay—United, US Airways, and Delta All Raise Prices,” May 1, 2013, http://thepointsguy.com/2013/05/higher-airline-change-fees-are-here-to-stay- united-us-airways-and-delta-all-raise-prices. 14. M. Gunther, “Game On: Why Walmart Is Ranking Suppliers on Sustainability,” GreenBiz.com, April 15, 2013, http://www.greenbiz.com/blog/2013/04/15/game-why-walmart-ranking- suppliers-sustainability. 15. Unilever, “Unilever Sustainable Living Plan,” http://www.unileverusa.com/sustainable-living/uslp. 16. Globescan and SustainAbility, “The 2013 Sustainability Leaders,” April 28, 2013, http://www.sustainability.com/library/the-2013-sustainability- leaders#.UbKMCfnVC88. 17. KTVU, Video, “San Francisco Protesters Picket Gap Over Bangladesh Factory Safety,” http://www.ktvu.com/videos/news/san-francisco-protesters- picket-gap-over/v3XnT. 18. The plan, criticized as less stringent than the European plan, calls for $42 million for worker safety inspections and $100 million in low-cost loans to help factory owners address safety problems. S. Greenhause and S. Clifford,

“U.S. Retailers Offer Plan for Safety at Factories,” New York Times, July 10, 2013, http://www.nytimes.com/2013/07/11/business/global/us-retailers-offer- safety-plan-for-bangladeshi-factories.html?pagewanted=all. 19. N. L. Kerr, “Norms in Social Dilemmas,” in D. A. Schroeder (ed.), Social Dilemmas: Perspectives on Individuals and Groups, pp. 31–47 (Westport, Conn.: Praeger, 1995). 20. K. Wade-Benzoni, A. Tenbrunsel, and M. H. Bazerman, “SHARC: Competitive Version,” available from www.negotiationexercises.com. 21. K. Wade-Benzoni, T. Okumura, J. M. Brett, D. Moore, A. Tenbrunsel, and M. H. Bazerman, “Cognitions and Behavior in Asymmetric Social Dilemmas: A Comparison of Two Cultures,” Journal of Applied Psychology, 2002, 87, 87–95. 22. A. W. Gouldner, “The Norm of Reciprocity: A Preliminary Statement,” American Sociological Review, 1960, 25(2), 161–179. 23. R. Axelrod, The Evolution of Cooperation (New York: Basic Books, 1984). 24. J. E. McGrath, Groups: Interaction and Performance (Englewood Cliffs, N.J.: Prentice Hall, 1984). 25. E. Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action (New York: Cambridge University Press, 1990). 26. I. G. Suarja and R. Thijssen, “Traditional Water Management in Bali,” LEIS Magazine, September 2003, 25–26. 27. T. Sertori, “A Thousand Years On, Can ‘Subak’ Survive?” The Jakarta Post, April 18, 2013; UNESCO, “Cultural Landscape of Bali Province: The Subak System as a Manifestation of the Tri Hita Karana Philosophy,” World Heritage List, can be found at http://whc.unesco.org/en/list/1194; S. Vaessen, “Bali's Ancient Irrigation System,” Al Jazeera, August 29, 2012; R. P. Lorenzen and S. L. Lorenzen, “A Case Study of Balinese Irrigation Management: Institutional Dynamics and Challenges,” presented at the Southeast Asian Water Forum, 2005; D. Roth, “The Subak in Diaspora: Balinese Farmers and the Subak in South Sulawesi,” Human Ecology Interdisciplinary Journal, 2011, 39(1), 55–68. 28. M. Galluci, “Tougher Northeast CO2 Cap Seen Doubling Revenues by 2020,” Bloomberg, February 11, 2013, can be found at http://www.bloomberg.com/news/2013-02-11/tougher-northeast-co2-cap-seen- doubling-revenues-by-2020.html. 29. Natural Resources Defense Council, “Using the Clean Air Act to Sharply

Reduce Carbon Pollution from Existing Power Plants,” December 4, 2012, can be found at http://www.nrdc.org/air/pollution-standards. 30. S. Power, “Why the Clean Air Act May Be Past Its Prime,” Wall Street Journal, April 17, 2010. 31. C. D. Batson and T. Moran, “Empathy-Induced Altruism in a Prisoner's Dilemma,” European Journal of Social Psychology, 1999, 29(7), 909–924; A. E. Tenbrunsel and D. M. Messick, “Sanctioning Systems, Decision Frames, and Cooperation,” Administrative Science Quarterly, 1999, 44(4), 684–707. 32. M. Hewstone and K. Greenland, “Intergroup Conflict,” International Journal of Psychology, 2000, 35(2), 136–146. 33. T. Arango, “Park Defender Helped Set Off Turkey's Crisis,” New York Times, June 4, 2013, http://www.nytimes.com/2013/06/05/world/europe/istanbul-protests-started- over-trees.html?pagewanted=all. 34. C. E. Osgood, An Alternative to War or Surrender (Urbana: University of Illinois Press, 1962). There are also examples of GRIT in the context of poltical disputes in T. Armstrong, “Introduction,” in Breaking the Ice: Rapprochement Between East and West Germany, the United States and China and Israel and Egypt, pp. 3–30 (Washington, D.C.: United States Institute of Peace, 1993). 35. S. H. Schwartz, “Beyond Individualism/Collectivism: New Dimensions of Cultural Values,” in U. Kim, H. C. Triandis, Ç. Kâğitçibaşi, S-C. Choi, and G. Yoon (eds.), Individualism and Collectivism: Theory, Method, and Applications, Cross-Cultural Research and Methodology Series 18, pp. 85–119 (Thousand Oaks, Calif.: Sage, 1994). 36. P.A.M. Van Lange, W.B.G. Liebrand, D. M. Messick, and H.A.M. Wilke, “Social Dilemmas: The State of the Art: Introduction and Literature Review,” in D. M. Messick, W.B.G. Liebrand, and H.A.M. Wilke (eds.), Social Dilemmas: Theoretical Issues and Research Findings, pp. 3–28 (Oxford, U.K.: Pergamon Press, 1992); R. M. Dawes, J. McTavish, and H. Shaklee, “Behavior, Communication, and Assumptions About Other People's Behavior in a Commons Dilemma Situation,” Journal of Personality and Social Psychology, 1977, 35(1), 1–11. 37. G. Bornstein and M. Ben-Yosef, “Cooperation in Intergroup and Single- Group Social Dilemmas,” Journal of Experimental Social Psychology, 1994, 30, 597–606. 38. S. Arsu and C. Yeginsu, “Turkish Leader Offers Referendum on Park at

Center of Protests,” New York Times, June 12, 2013, http://www.nytimes.com/2013/06/13/world/europe/taksim-square-protests- istanbul-turkey.html?hp. 39. T. Kugler and G. Bornsetin, “Social Dilemmas Between Individuals and Groups,” Organizational Behavior and Human Decision Processes, 2013, 120, 191–205. 40. C. A. Insko, T. Wildschut, and T. R. Cohen, “Interindividual–Intergroup Discontinuity in the Prisoner's Dilemma Game: How Common Fate, Proximity, and Similarity Affect Intergroup Competition,” Organizational Behavior and Human Decision Processes, 2013, 120, 168–180. 41. H. Aalderin, L. L. Greer, G. A. Van Kleef, and C.K.W. De Dreu, “Interest (Mis)alignments in Representative Negotiations: Do Pro-Social Agents Fuel or Reduce Inter-Group Conflict?” Organizational Behavior and Human Decision Processes, 2013, 120, 240–250. 42. T. M. Probst, P. J. Carnevale, and H. C. Triandis, “Cultural Values in Intergroup and Single-Group Social Dilemmas,” Organizational Behavior and Human Decision Processes, 1999, 77(3), 171–191. 43. H. Triandis, Individualism and Collectivism (Boulder, Colo.: Westview Press, 1995). 44. K. Leung, “Some Determinants of Conflict Avoidance,” Journal of Cross- Cultural Psychology, 1998, 19(1), 125–136.

7

Negotiations Between Governments and Foreign Direct Investors

Foreign direct investment (FDI) is a major engine of globalization, economic development, and often cultural change. Companies seek access to resources, markets, and low-cost labor, while governments seek infrastructure, technology, job creation, and economic development. Sound like a win-win negotiation? That is certainly the intent, but integrating the profit-making goals of global companies with the economic development goals of government policymakers is a major negotiation challenge. This chapter draws attention to issues and interests that make FDI negotiations complex and challenging. It begins by identifying and contrasting the interests of foreign direct investors with the interests of governments and moves on to the types of challenges that surface when you actually try to make FDI work, including the following:

Protecting legal rights when the rule of law is weak Dealing with corruption and coming face-to-face with your own ethical standards Navigating complex layers of government bureaucracy Protecting the safety of your own people Avoiding entanglement with human rights abuses

Investors and Governments' Interests in FDI To begin to understand the complexities and challenges of FDI, we need to understand the interests of both the foreign direct investor and the government of the nation in which the investment is to be made. The investor's interests are already familiar to us—an opportunity to make money—but governments' interests are much more complex, and as the examples further on illustrate, governments' interests are typically quite different from those of other private companies with which the investor is likely to have had the most experience

negotiating deals. Government interests are also likely to be multifaceted, requiring a negotiation among government parties that the foreign direct investor may have little influence over.

FDI Interests The business news is full of examples of major new FDIs that illustrate the breath of FDI interests. Some investors are looking for opportunities to invest excess cash in return for access to resources or technology not otherwise available. Others have a successful business model that they are interested in extending. Still others are looking for inexpensive labor and opportunities for global sourcing. Chinese companies in particular are on a buying spree for various types of

resources. The state-run China National Offshore Oil Corporation (CNOOC, pronounced SEE-nook) recently purchased Nexen, a Canadian oil producer that also has properties in the Gulf of Mexico. The deal's approval by both the Canadian and U.S. governments suggests that government regulators are now more willing to accept Chinese ownership of strategic assets than they were seven years ago when CNOOC tried and failed to get U.S. government approval to buy Unocal.1 What has changed? Apparently, three important strategic concerns on the part of the Canadian government. First, Canada is looking beyond the United States for energy markets, particularly given that the United States has delayed approval of the Keystone XL pipeline project to take Canadian oil to Gulf of Mexico refineries. Second, extracting oil from sands is enormously expensive, and the Chinese have the resources to do it. Finally, CNOOC plans to keep Nexen management and establish Calgary, Alberta, as its headquarters for North and Central America.2

In another example, Club Med is looking for new markets. A buyout by a Chinese conglomerate, Fosun International, and an investment unit of the French insurer, ASA, may be the first step in a major expansion of Club Med's tourism model in Asia. China is the world's biggest source of foreign tourists; Club Med is currently reeling from the euro crisis.3 But will the French government approve? France has been notably defensive about its cultural icons. The French Minister of Industrial Renewal recently blocked Yahoo! from buying a majority stake in French video website Dailymotion, saying he did not want 75 percent of the rare French web-success company to be sold to the American giant.4

The spring 2013 tragedies of factory fires and factory collapse in Bangladesh have placed global attention on the compromises beyond cheap labor that are made to reduce the costs of garment production. Cheap labor makes a significant difference in price. The cost of cutting and making a dress shirt is $1 to $1.50 in Bangladesh compared to $3 to $4 in China. But now some manufacturers are questioning the wisdom of manufacturing in countries including Bangladesh, Pakistan, and Venezuela, where, historically, cheap labor goes hand in hand with cutting corners on safety.5

What Governments Want from FDI Governments generally are interested in FDI for contributions to infrastructure they otherwise cannot afford, for technology that they otherwise lack access to, and jobs that they otherwise cannot create domestically. But they want all this without compromising their political power, their national security, and their cultural hegemony. India is seeking investments equal to $1 trillion by 2018 to modernize its

infrastructure. The government estimates that one-third of India's production of fruit and vegetables is lost annually due to spoilage. There is cold storage capacity for only 11 percent of production, and on the crowded, potholed, always-under-construction highways of India where trucks share space with donkeys, horse carts, bicycles, and sometimes even camels, a truck is lucky to average 186 miles per day compared to 500 miles per day in the United States.6 To that end the Indian government finally opened the door to big-box retailers in the fall of 2012, but only after being pushed to do so by business executives wanting to jumpstart India's sagging economy. What the big-box retailers, Walmart and Carrefour, know best is what India lacks: logistics. The trade-off India negotiated with them for access to India's $450 billion retail sector that is projected to grow 10 to 12 percent annually is an investment of $100 million in capital, with at least 50 percent going to infrastructure such as cold storage and transportation.7

Yet the decision to open India to big-box retailers in return for infrastructure investment did not come without political fallout. It almost toppled Prime Minister Singh's coalition government in the fall of 2012. Protests against it brought legislative sessions to a standstill. Singh's coalition partner, Mamala Bannerjee, withdrew her party's support of Singh's Congress Party and joined the

opposition, claiming that the big-box retailers would throw small shopkeepers out of work, impoverish farmers, and hurt consumers. Prime Minister Singh was forced to put the new policy regarding multibrand retail up to a vote, which he narrowly won only because Ms. Bannerjee's party and a second opposition party walked out, refusing to vote.8

BP's joint venture, TNK-BP, despite its woes, is an example of a successful transfer of technical know-how. In Chapter Four we discussed BP's unfortunate and frustrating experience trying to manage TNK-BP. Recall that in November 1997 the Russian government opened its oil and gas industries to foreign investment, primarily to get cash and know-how to revive this ailing sector. At the time the Russian oil industry, though privatized, was producing less oil than during the Soviet era.9 In 2003 BP combined its various ventures in Russia with those of a group of Russian businessmen to form the joint venture TNK-BP. By 2008, when the Russian government had changed its outlook on foreign and private ownership of the oil sector and begun reestablishing government control over its oil and gas industry, BP seemed to have accomplished the Russian government's goals: TNK-BP production was up by 41percent.10 Job creation and economic development via tourism are what lured Spain (where unemployment in 2013 was about 25 percent) to the idea of EuroVegas, the giant resort that Sheldon Adelson's Las Vegas Sands' company has proposed to build on the outskirts of Madrid: twelve hotels with thirty-six-thousand rooms, six casinos with eighteen-thousand slot machines, and three golf courses. According to a Boston Consulting Group report (underwritten by Sands), the venture would create 260,000 jobs in the greater Madrid area, 160,000 of them directly associated with the completed project, as well as thousands of jobs for Spain's heavily unemployed construction industry.11 As of this writing the EuroVegas deal was ongoing but those opposing it argued that there was no precedent for believing that a casino complex could revive a national economy and that the economic impacts of casinos are not uniformly positive, giving Atlantic City in the United States as an example.12

Identifying Governments' Vulnerabilities and Interests These examples may have suggested to you already that although investor interests in FDI may be quite straightforward, government interests seldom are.

Governments contemplating FDI need to balance the competing interests of many constituencies inside and outside the government. At a minimum, to facilitate FDI, governments have to engage in the complex multiparty negotiations discussed in Chapter Five involving different layers and divisions of government. They may also have to negotiate with protest groups, unwelcome at the table or unwilling to come to the table, and work through compromises. The EuroVegas investment provides an excellent example of how investors'

interests engage many segments of the potential host county—all with different interests. Las Vegas Sands wants to borrow two-thirds of the investment (some of that from the Spanish banks and guaranteed by the Spanish government). Las Vegas Sands seems to have asked about special income and employment tax rates, as well as lifting restrictions on visas for foreign workers. Las Vegas Sands also wants restrictions on indoor smoking lifted. Thus at least two layers of government, national and local, are involved, as are many different ministries overseeing issues ranging from banking and taxation to labor to health.13 And this is only the beginning. Large complexes such as EuroVegas require real estate, which means displacing people who frequently do not want to leave family land. As we learned in Chapter Four, in all negotiations, parties' interests make them

vulnerable to threats and power plays. Governments are no exception. Just as governments' interests are not necessarily the same as those of a private enterprise, neither are governments' vulnerabilities. Private companies are vulnerable to the opinions of financial markets that normally value growth and change. Governments are vulnerable to the opinions of their political supporters: religious organizations, labor unions, and the military—all groups that frequently prefer the status quo and strenuously resist change. All this should make it clear that whenever you negotiate on behalf of FDI you

need to begin with the assumption that government interests are going to be multiple, complex, conflicting, and supported by a variety of different constituencies within and outside the government. In evaluating sites for FDI, you need to analyze the parties and their interests—both those who are going to support, but especially those who are going to resist your investment. Here are some questions to ask when doing this:

Economic policy statements. What is the government saying about FDI to its domestic constituents? What is the government saying in world forums? Read the local press. Who is resisting?

Economic development plans. How controlled is the economy? Can you frame your investment as a contribution to the country's economic development plan? Economic legislation. What laws have been passed to encourage FDI? Are those laws enforced? Recent history of foreign investment. Who has and who has not been investing? How have they been treated? What has been the public response to recent FDI—protests, willingness to negotiate, support? The press. A free press is powerful in generating economic transparency. Is there a free press in the country? What is the free press saying as opposed to the press that is the mouthpiece for the government? What are the Internet sites saying about current economic, political, and social conditions? Are there Internet sites discussing your particular investment? What are they saying? Other sources. What are global information sources such as the World Heritage Foundation saying about the political, economic, and social conditions of the country?

Organize your information and analysis in a Negotiation Planning Document (see Chapter One) that identifies all these parties across the FDI table, their issues, and their interests. Identify which parties are going to be able to provide you with explicit political and economic support and which ones are not. Make sure you understand the motivation behind support and opposition. Consider what can be done to address the interests of the opposition. Anticipating that government interests are going to be multifaceted is just one

predictable challenge of FDI. There are others as well, including the nature of the legal system, the level of corruption, the complexity of the bureaucracy, and the stability of the government.

Predictable Challenges to Foreign Direct Investment Even when welcomed, foreign direct investors have to expect and be prepared to navigate many predictable challenges: protecting legal rights in a foreign country, especially where rule of law is weak; corruption and their own ethical standards; complex layers of government bureaucracy; keeping their employees safe; and avoiding entanglement with human rights abuses. In this section we

discuss these challenges and how negotiation skills can be used to address them. In the following section we address unpredictable challenges posed by government and political and economic instability.

Rule of Law: Legal Interests and Risks The rule of law refers to whether or not a government exercises its power in accordance with well-established and clearly written rules, regulations, and legal principles.14 Some governments have more clearly established, systematically functioning legal systems with laws and courts than others. The World Bank Governance Indicators report provides good information on the strength of nations' reliance on rule of law.15

A major reason to be concerned about rule of law in a country in which you are a foreign direct investor is that despite the goodwill and good intentions generated at a negotiation table, implementation of negotiated agreements is likely to strain relationships. If parties are unable to resolve disputes through negotiations, even if their contract has a dispute resolution procedure with a provision for off-shore arbitration, they are likely to get caught up in a local legal system that is probably innately biased against the foreign investor. Keep in mind that sovereign states have the power to take property, cancel contracts, and halt business activity, and they occasionally do. For example, as we'll discuss in more detail later in the chapter, the Argentine government of President Christina Fernández de Kircher expropriated 51 percent of the Spanish energy company Repsol's stake in the Argentine oil and gas company, YPI, in May 2012.16 If you are not willing to cut your losses and leave, if you want to be compensated, who will make the decision?

Example: Danone Versus Wahaha The Danone company's experience with its Chinese partner Wahaha is an important example of how rule of law can affect a joint venture (JV) relationship gone bad. Along with its Hong Kong partner, Baifu, Danone set up a joint venture with Hangzou Wahaha Group in 1997 to produce, distribute, and sell food and beverage products under the Wahaha brand in China.17 Danone and Baifu made a 500,000,000 RMB cash contribution to set up the JV. Each owned 25.5 percent. Wahaha got a 49 percent interest in exchange for the use of its well-known trademark and for agreeing that it would not “use the trademark for

any independent business activity, it would not transfer the trademark to any other entity, and it would not allow any other entity to make use of the trademark.” In 1998 Danone bought out its partner Baifu and became the 51 percent owner of the JV—an action that appears to have been perfectly legal, but a surprise to Zong Qinghou, the head of Wahaha, who was running the JV's day- to-day business but was now clearly no longer the majority shareholder. The original JV agreement called for Wahaha to transfer its trademark brand

name to the JV. This required the approval of the Chinese government trademark office, but in 1999 that office refused, deciding that the trademark belonged to the state. Rather than dissolve the JV in lieu of this setback, the partners decided to enter into an exclusive license agreement for the trademark brand. This, too, needed to be registered with the Trademark Office; however, apparently the parties did not register the full license agreement with the Trademark Office. Instead they registered an abbreviated license, apparently knowingly leaving out key elements that might not have been acceptable to the Trademark Office. Subsequently, Mr. Zong ran a very successful joint venture, which by 2007

held a 15 percent share of the very large Chinese market for bottled water. The only problem was that at the same time Mr. Zong was running the JV, he was also setting up a series of competing companies, selling the same products as the JV and using the Wahaha trademark. Danone, apparently enjoying its profits and not paying too much attention to business, did not learn of these companies until 2005, at which point Danone offered to buy 51 percent of the competing companies from Mr. Zong. He refused. Dispute resolution ensued. Per the arbitration clause in the May 2007 JV

agreement, Danone filed for arbitration in Stockholm, claiming that Zong and his parallel companies had siphoned off as much as $100 million from the JV. Danone next filed suit in presumably more friendly California against a company with offices there apparently owned by Mr. Zong's daughter, a California resident, seeking to enjoin that company, Ever Maple, and other companies from selling product in China under the Wahaha name. Then on June 13, 2007, Wahaha Group applied for arbitration before the Hangzhou Arbitration Commission, seeking to have the trademark license agreement declared void. Interestingly, the basis for the claim in this Hangzhou arbitration was that “the license was illegal at the time it was granted because it was intended to avoid the requirements of Chinese law.” The dispute became public and personal. Danone had Mr. Zong and his family

investigated and accused him and his relatives of fraud. Mr. Zong and his

executives struck back in news conferences denouncing Danone executives by name and pointing out that they had played no operating role in the company. Indeed, at one point Danone executives apparently were barred from entering the JV offices. Finally, more than two years into the dispute, in September 2009, wiser heads

prevailed and Danone and Wahaha withdrew their arbitrations and lawsuits and dissolved their joint venture. Though the terms of the settlement were not made public, analysts estimated that Danone would receive at least $500 million for its share of what had become a $2 billion Chinese company.18

How did the rule of law as it was practiced in China affect the Danone- Wahaha joint venture? In the first place the Chinese Trademark Office had the authority and apparently a sufficiently flexible process for interpreting its standards that it refused to allow the Wahaha trademark to be transferred to the joint venture. It seems highly likely that both Wahaha and Danone entered into the JV believing that this transfer would be easily forthcoming. Second, thwarted, the JV partners seemed to have taken the risk that the Trademark Office, being in the business of granting trademarks, would not be inclined to monitor how the JV partners used the license. Both partners for their own reasons were willing to go ahead with the JV, while recognizing that the JV did not legally hold the trademark. What should Danone have done differently? Retrospect suggests a little less

trust and a lot more monitoring in this situation. Danone must have known that the JV did not own the trademark. Nevertheless, Danone agreed to go ahead with an exclusive license arrangement, which they also must have known was not legally binding. They apparently trusted their partner and did not closely monitor their partner's day-to-day running of the business. One good thing about the Danone-Wahaha JV is that it had an arbitration clause. Although the complexity of arbitrating this dispute is mind boggling, the time, cost, and risk of arbitrating the dispute may have had the positive effect of encouraging settlement.

Hedging Legal Risks Contracts that cross national boundaries should have explicit dispute resolution clauses. Among other things, these clauses should specify the jurisdiction to which the contract terms are subject. English common law dominates international business, but any legal system that has a well-specified commercial code will do.19 The clause should state that in the event of a dispute, the parties

should endeavor to negotiate a resolution. The clause should provide also for neutral third-party assistance, in the form of mediation and arbitration that is outside the influence of either of the disputing parties. When parties hope to continue their relationship, mediation is the preferred third-party procedure, as a mediator may be able to help the parties negotiate an interests-based settlement. When the relationship has ended and the claim is for damages, arbitration may be preferable because it is binding.

Corruption A major issue in dealing with bureaucracies is corruption. Corruption is behavior that departs from what is legally, ethically, or morally correct.20 The global standard for defining corruption seems to be the U.S. Foreign Corrupt Practices Act (FCPA) passed in 1977. This act makes it unlawful for any American to bribe a foreign official either directly or through an agent for the purposes of obtaining or retaining business.21 The U.S. Department of Justice's website provides an easy-to-read explanation of the act.22 It clarifies the definition of “any American” as an individual or a representative of a firm, including such a person authorizing or assisting a third party. It defines intent and points out that the act need not be completed; an offer or a promise is sufficient to violate the act. It defines a foreign official as any public official and points out that the role of the foreign official is less important than the intent of the payment. The business purpose test is whether the act was intended to obtain or retain business. The definition of bribery in U.S. law is specific and its reach is broad.

It focuses on intent to provide a “gift” to a foreign official for the purpose of gaining or keeping business. The gift can be almost anything—money, expensive watches or other jewelry, luxury trips, or children's tuition at prestigious universities around the world. The law is not limited to what American nationals do, but extends to the actions of their local agents.

Extent of Corruption Corruption is a growth business, according to a survey by Ernst & Young of managers in thirty-six countries in Europe, Africa, India, and the Middle East.

The perception of corruption in the form of “cooking the books” and bribery is widespread in Southern Europe (Greece, Portugal, Spain); pervasive in Eastern Europe except for the Baltic states; and rife in the Middle East and India, with the exception of the U.A.E.23 The World Bank, however, cautions that some developing economies have less corruption than some wealthy countries, and that, even where corruption is high, governments vary in how much they tolerate it. Nevertheless, the World Bank estimates bribes paid for licenses, regulations, and contracts from the private to the public sector at $1 trillion annually.24

Implications of Getting Caught U.S. companies routinely brief their negotiators not to pay bribes, give in to extortion, or accept or offer personal gifts, and coach them to explain to their agents, who are frequently not U.S. nationals, that these same rules apply to them as well. The U.S. Department of Justice is more active than ever in enforcing the American act. Firms are fined, individuals lose their jobs and sometimes have criminal charges brought against them. For such reasons, company compliance departments are playing an increasingly important role in overseeing firms' global businesses. For example, since the April 2012 New York Times article alleging that a former Walmart executive in Mexico, Eduardo Castro-Wright, used millions of dollars in bribes to facilitate the company's rapid expansion in Mexico,25 Walmart has trained employees and introduced new compliance procedures for obtaining licenses, which have slowed down its expansion in India. For example, it is requiring its Indian landlords to attest that they have not paid bribes for land deals and licenses.26

The costs to Walmart of the Mexico scandal have gone beyond these new compliance measures. In a March 2013 filing with the U.S. Securities and Exchange Commission (SEC), Walmart explained that, between October 2012 and March 2013, it had spent $157 million in legal costs associated with its investigation and expected those costs to increase. “We could be exposed to a variety of negative consequences as a result of these matters … and we can provide no assurance that these matters will not be material to our business in the future,” Walmart told the SEC.27

In one of the most surprising recent examples of getting caught, IBM paid $10 million to settle civil charges that to obtain contracts worth millions of dollars to IBM, over one hundred of its employees had handed out bags of cash to South

Koreans and arranged trips with no business purpose for Chinese government officials. The SEC in its complaint alleged that IBM's internal controls weren't sufficient to spot or prevent the alleged bribes, in some cases recording the payments as legitimate business expenses. IBM neither admitted nor denied the allegations, but it paid the fine.28

Criminal charges associated with violations of the FCPA often go hand in hand with money laundering or tax evasion charges. For example, a former and current executive of the U.S. subsidiary of Alstom, the French power equipment maker, have been charged with bribery and money laundering in association with contract negotiations in Indonesia. The former executive pleaded guilty to conspiracy to violate the FCPA in November 2012; the current executive was arrested on similar charges when he arrived at Kennedy airport in April 2013.29

Global Anti-Corruption Initiatives The United States is not alone in trying to minimize corrupt practices in global business. Forty countries that are members of the Organization for Economic Cooperation and Development (OECD) have signed the “Convention on Combating Bribery in International Business Transactions.” The OECD targets the offering side of the bribery transaction in an effort to eliminate the supply of bribes to foreign officials. Signatories take responsibility for the activities of companies registered in their countries by passing, implementing, and sanctioning tough legislation against bribery and corruption. OECD opposes the tax deductibility of bribes and makes recommendations for combating corruption in aid-funded procurement and ending money laundering.30

Transparency International takes a different approach. It is an independent, nonpartisan, nonsectarian international organization that works with government, business, and civil society to build coalitions to combat corruption. Of particular use to FDI is Transparency International's research, which includes reports such as the Bribe Payers Index, an annual global corruption report that provides country-by-country information, and the organization's interactive Corruption Perceptions Index map.31

Generating Your Own Ethical Standards The definition of corruption does not stop with what is legally correct; corruption can also be failure to abide by what is ethically and morally correct.

How do you know if a business activity is ethically or morally correct? There is guidance in corporate codes of business ethics, but ultimately you need to have your own internal code of ethics. Negotiators who find themselves in situations in which legal or corporate

standards do not provide a basis for ethical judgments must determine their own ethical course. To act unethically means to violate the legal, social, and/or personal norms of conduct in your own culture. To act ethically you need a personal standard that gives you guidance. Here is some advice: Have a personal standard that focuses on your reputation. Would you want your act announced on the front page of your hometown newspaper? Would you want your proud parent or mentor to know you did this? This “reputation” standard rules out “game” standards such as “Everyone knows the rules” or “No one is being forced to play, so anything goes” or “Don't worry, there's no future anyway.” The reputation standard recognizes there is always a future and that it is a small global world. Your reputation will precede you. In responding to another party's unethical act, be imaginative and restrained. An indirect response, like those we discussed in Chapter Four, using stories and metaphors, may help the other understand he has violated your ethical standards without so much loss of face that the relationship is irreparably damaged. Have some ideals. Believe that an ethical basis for interaction is a fundamental structural imperative for a democratic society and a free economy. Act accordingly. Know the limits of your standard. There are situations of survival that can test anyone's ethical standards. Thankfully, these do not occur very often in global business negotiations. Have someone you respect to talk to outside your industry. It is important that the respected someone be outside your industry. Organizations and even industries may slip into a phase of unethical and illegal behavior where “everyone is doing it, and nobody is being questioned about it.” It seems likely given how many employees were involved that there was a “culture of bribery” in IBM in Asia and Walmart in Mexico.

What to Do When Confronted with Corruption The decision whether to engage in or reject corrupt practices is ultimately a

social dilemma. If all parties engage in corrupt practices, trust will be low, transaction costs will be high, and integrative potential will go unrealized. If all parties refuse to engage in corrupt practices, trust will be high, transaction costs will be low, and integrative potential should be realized. The interesting case is when some parties reject corrupt practices and others

engage in them. Research and theory suggest that in large groups in which some parties are ethical and others unethical, over time the ethical parties will choose to interact with each other, ultimately generating an environment for which unethical parties are unfit.32

Cooperation in social dilemmas is philosophically a long-term utilitarian response. Utilitarianism judges the morality of an act by the consequences it produces, and those consequences are evaluated either against a “greatest good” criterion or against a set of principles.33 In the short term, being ethical costs. While “Just say no” (the strategy suggested by a Mexican government official when questioned about corruption at a Latin American business conference at my school) may satisfy your own ethical standards, it does nothing to change the practice of corruption and may mean that you will lose the business opportunity. (Caving in to extortion, of course, reinforces the practice and may cause it to escalate.) Still, negotiators willing to apply moral imagination can sometimes generate

strategies that may actually stymie an unscrupulous opponent, even in the short run. Like the wicked witch of the West in The Wizard of Oz who could not tolerate water and disappeared in a cloud of steam when doused from Dorothy's bucket, corruption usually cannot sustain itself in the spotlight of publicity. Corruption thrives in environments in which information is controlled and withers in the light of public scrutiny. The World Bank is trying to put the spotlight on global corruption hotspots with its Governance Indicators report that evaluates government's control, or lack thereof, of corruption in 215 economies around the world.34 In 2012 India topped the list.35

Choosing to expose corruption and holding people accountable for actions that have inflicted harm on others is a negotiation strategy itself. Confronted with corruption and being unwilling to acquiesce, the global negotiator must consider the costs and benefits of whistle-blowing. Exposing corruption takes moral courage. It is much easier to simply cut your losses and walk away from corruption than to face it down in situations in which government is weak and itself deeply involved. Confronting corruption may require a collective response.

For example, there has been an effort in Uganda since 2009 to develop a joint response to corruption. A recent evaluation of that effort reveals the complexity of the problem and mixed results. The biggest joint response success seems to have been in addressing widespread corruption in the management of GFATM, the Global Fund for AIDS, Tuberculosis, and Malaria. Ultimately, the GFATM Board and its inspector general along with help from development partners, the government of Uganda, and the anti-fraud units of the United Kingdom and the EU were able to convict five people and recover 63 percent of the missing funds.36 Parties who would not confront corruption on their own may be willing to engage in joint action, both because it is more powerful and difficult to ignore, and in a group they will be more difficult to prosecute. Companies that find themselves facing corruption in global negotiations have

at least the following options: Publicize the corruption. Corruption generally thrives in the dark and has trouble sustaining itself in the public spotlight. But when corruption is pervasive and public and the government is helpless to or won't act against it, stronger measures than publicity are needed. Unite with other firms to resist the corruption. Joint action is more effective than working alone. It is also more difficult for a country to prosecute its major foreign investors for defying a country's law than to prosecute a single foreign investor acting alone. Promote NGOs and other institutions that are fighting corruption in the regions where you are investing. Leave or choose not to invest at all, and make public your reason for doing so. Operating in an environment of corruption significantly increases costs of doing business and protecting personnel.

Bureaucracy In many countries the politicians come and go but the bureaucracy remains. It is the bureaucracy that implements political initiatives, and it is the bureaucracy with which foreign investors will have to negotiate for permits, tax rates, and infrastructure access to power, water, sewage disposal, and other essentials. There are two major pitfalls in dealing with bureaucracy when negotiating

globally: failure to understand the bureaucracy's interests and failure to understand how to work with bureaucracy's power.

Understanding Bureaucracies' Interests

Understanding Bureaucracies' Interests One can usually assume that bureaucrats will resist change that might threaten their lifestyle. One can also expect the presence of competing factions within bureaucracies, either between ministries, and sometimes even within or between national and local agencies. Thus, when negotiating globally, it is wise to learn about the bureaucracy at all levels of the government. What you are seeking is information that will help you discover bureaucratic interests relevant to negotiating the deal, but particularly to implementing it. To find out about the country's bureaucratic structure, ask the following questions:

Are policy decisions made or only implemented by the bureaucracy? What decisions are implemented at what level of the bureaucracy? How do bureaucrats get their jobs? Are they elected, appointed, hired on merit? How well and regularly are they paid relative to private sector employees in the country? What are the relationships between various agencies and between national and local levels of the bureaucracy? Is there a climate of corruption and extortion?

Understanding Bureaucracies' Power Bureaucracies are powerful because they generate the permits, documents, and licenses and carry out the inspections that firms need in order to do business. The challenge is how to get them to do this in a timely and fair manner. As a foreign investor you are not going to change a bureaucracy. Count on the bureaucracy to outlast the terms of elected officials and your own international assignment. Figure out how to work with the bureaucracy. A thorough analysis of interests is the place to start. Then, when you run into

roadblocks, you have the same strategic options as discussed in the chapter on dispute resolution (Chapter Four). Alternatively, you could try to use rights to get a bureaucracy to move at your pace rather than theirs. For example, you might ask the ministry that facilitated your FDI to intervene and speed things up. But keep in mind that government bureaucrats do not like to invade each other's turf. You could try power also, for example, broadcasting to the international business press that a country in which you have just made a major investment is unfriendly to FDI, although that is likely to make everyone, including your company, look bad. So interests are a better approach. Either working alone if you have the

language skills or with a local partner if you do not, you can learn about

bureaucrats' interests by asking for their help and advice. Appeal to their expertise. See if they will introduce you to others in their vast network of contacts who can also help you understand and navigate through and around barriers. An interests-based approach does three things to facilitate working with bureaucrats: it signals your respect, it acknowledges their expertise, and it reaffirms their power. Remember, too, that bureaucracies are mainstay structures in hierarchical

cultures. We learned that in hierarchical cultures, when you acknowledge the other party's power over you, that party is socially obliged to help you in order to affirm that the party actually has power! Try this approach with bureaucrats.

Keeping Your Employees Safe in Global Assignments One thing that a good relationship with the local bureaucracy of a country can do is help you keep your employees safe while on global assignment. Remember, political leaders come and go, and with them their top ministers, but the bureaucrats that keep the infrastructure going are much more stable. They can provide interpretations of current events that no analyst monitoring news reports over the Internet can match. And the bureaucrats' interests in safety and well- being of their own families and your interests in the safety and well-being of your employees are aligned. Build relationships with bureaucrats for this specific reason! The risk of violence or kidnapping of foreign workers is an important

consideration in deciding to do business in a country or to continue to stay in a country. The World Bank Governance report includes a section on violence that will give a foreign direct investor a good sense of the risks to employees. When risks are high there is no substitute for strong relationships with locals who can interpret events, and a contract with a private agency responsible for continuously monitoring risk to employees and able to mobilize their evacuation. It is also essential to have a single, off-site point of contact within the company who is responsible for monitoring safety conditions for employees working in that country. Among this point person's responsibilities should be keeping in touch with on-site employees, who themselves are keeping in touch with their local contacts, monitoring outside reports of safety conditions, and making the call and arrangements to pull people out if necessary. This person should be positioned to coordinate the company's response to events such as kidnapping. In the event of kidnapping, this person needs to have the support of professionals as

well as direct access to the CEO.

Some Advice About Negotiating with Hostage Takers Police and military in many parts of the world use violence to deal with hostage takers, but hostage or kidnap situations frequently can be negotiated by knowledgeable professionals. Begin by identifying such a person to try to get a conversation going. From there, proceed as in any negotiation by understanding interests—yours and theirs. Kidnappers' interests are frequently financial and sometimes political—

revolutionaries need money to sustain their revolution. Negotiating a politically motivated hostage or kidnap situation is substantially more difficult than negotiating the financially motivated hostage or kidnap situation, because to address politically motivated hostage takers' interests requires involving an array of governments, each with its own complex interests. Coordinating a response is difficult enough when the “only” parties on the team are the companies, their insurers, and their consultants. After identifying interests, analyze BATNAs on both sides. The hostage takers

or kidnappers' BATNA is to kill or maim the hostages, which they may do but only reluctantly, since their hostage is their leverage. Remember from Chapter Four that if one party opts for power, the other is likely to reciprocate, and that the goal of using threats is not to have to follow through on them. On the corporate side, a SWAT-team-type response to the kidnapping of your employees in a foreign country is not a good BATNA. In the first place it's too risky; your employees might get killed. In the second place, you may not know where your employees are being held, and even if you do, they may be moved. An analysis of your own and the other party's BATNA in hostage or kidnapping situations strongly implies that negotiations with a generous reservation price are in order. Following is some hostage negotiation advice:

Make contact as quickly as possible, to get a demand, make a counteroffer, and settle quickly. Moving quickly helps prevent anchoring, and it keeps kidnappers' hopes alive that money will be forthcoming. The hostage is worth nothing to the kidnappers dead, and is usually not a threat alive and released, because the kidnappers are pros and cover their faces. Understand the market. Initial demands for cash are typically three to four times what the final settlements are. Overpaying is bad because it doesn't seem to reduce the number of incidents, but rather raises the ante. The FBI and private consulting firms generally are quite good at helping identify

where the market is. Keep understandably terrified family members off the negotiating team. At the same time, the family needs a single point of contact into the negotiating team, who will keep them informed of events and strategy. Without such communication family members may try to initiate a second negotiation channel, use the media, or otherwise jeopardize the negotiation strategy.

Avoiding Human Rights Abuses One use of foreign investment is to produce goods and services more cheaply than can be produced at home. And by outsourcing production, jobs are created, giving developing economies a boost. But there is a trap. Governments of developing countries may not have sufficient labor and work safety laws to protect workers, or they may not have the ability to enforce such laws, or they may simply turn a blind eye to worker exploitation and safety infractions. The conditions under which low-cost goods have been produced have caused substantial negative publicity for global retailers in the wake of the series of tragedies in Bangladesh in 2012–2013. What can be done? This problem, as we discussed in Chapter Six, is a social

dilemma. A manufacturer that cuts corners on safety and exploits labor can bid more cheaply, and so is motivated to do so. A retailer that outsources manufacturing to factories in developing countries has no legal authority to impose safety and labor standards. As Walmart and Gap pointed out in the wake of the Bangladesh tragedies, they neither owned nor managed any of the Bangladesh factories where lives were lost. Have these retailers then no moral or ethical obligation concerning working conditions in factories where the shoes and clothing they sell are produced? Have they no power to enforce change? In the wake of the Bangladesh tragedies there are two very interesting debates

or negotiations concerning the moral and ethical obligations of retailers such as Walmart and Gap and Carrefour and H&M toward the workforce that produces the apparel that they sell. One debate is about whether to continue to outsource manufacturing to countries where worker safety and labor standards are lax. The other question is, if we stay, what is the extent of our moral, ethical, and financial responsibility for the conditions under which merchandise is manufactured? At least one major American company, Disney, has decided to end the

production of branded merchandise in Bangladesh. But the government of

Bangladesh, with 3.6 million garment workers, desperately needs the jobs associated with filling the orders of Western retailers.37 If all the Western retailers previously having apparel manufactured in Bangladesh left as Disney intends to do, the cost to the Bangladeshi economy and to people's livelihood would be devastating. Other retailers in both America and Europe say they will continue to contract

manufacturing in Bangladesh, but they are taking rather different approaches. The European plan, called the Accord on Factory and Building Safety in Bangladesh, is supported by H&M (the Swedish firm that is the top buyer in Bangladesh), Carrefour (the world's second largest retailer), other European retailers, and a few American ones. This plan calls for rigorous independent inspections of the Bangladesh factories and a binding obligation on the part of the signatories to help finance improvements for fire and building safety that are estimated to cost on average $500,000 per factory or $1 billion over the next several years. Many American retailers, including Gap, Macy's, Target, and Walmart, have refused to join the European plan, arguing that its financial obligations could make them legally liable in the United States for damages in the event of another factory tragedy and that its governance and dispute resolution mechanisms (there is an arbitration clause) impose restrictions on supply chain management that are best left to retailers and their suppliers. Activists have protested in front of the American retailers' corporate headquarters and stores, and postings have poured onto Facebook urging them to join the European plan.38 Rather than joining the European plan, the American retailers have announced their own, called the Alliance for Bangladesh Worker Safety. It commits $42 million for inspections and $100 million for loans and financing to help factory owners address safety problems. Unlike the European Accord, retailers joining the American Alliance are not legally committed to finance safety upgrades in Bangladesh factories.39

There are both ethical and economic issues to consider when deciding to operate in a country where rights violations (at least from a Western perspective) are rampant. The ethical issue is the morality of contributing to the economy and thereby supporting a government that does not protect human rights.40 The economic problems need not only occur in the country where the violations occur, they may occur at home, where rights-monitoring interest groups organize public opinion using the press, shareholders' meetings, social media, and publicized visits to individual members of the corporate board and the executive

committee. The Walmarts and Carrefours of retailing are big enough to do much on their

own to improve working conditions in individual factories and in countries where dangerous working conditions are widespread and government seems incapable of fostering change. But seeing the situation in Bangladesh as a social dilemma, we can also see that the retail sector working together has the potential to cooperate and coordinate a solution that addresses problems not only in Bangladesh but in other developing countries as well.

Unpredictable Challenges Political and economic instability are two unpredictable challenges to foreign direct investment. Once again the World Bank's Governance Indicators report provides insight into nations' political and economic stability. A major concern of foreign direct investors, particularly those that do business directly with the government, is expropriation. Other unpredictable challenges include currency fluctuations and ripple effects from regional or global political and economic forces beyond the control of governments and the foreign direct investors.

Expropriation Expropriation refers to any changes in the FDI agreement on the part of the government that were not part of the original agreement. Expropriation usually is in the form of additional taxes or nationalization of assets. A recent example of nationalization is the May 2012 expropriation by the Argentine government of President Christina Fernández de Kirchner of the Spanish energy company Repsol's 51 percent stake in the Argentine oil and gas company, YPI.41 The events leading up to this expropriation are interesting and provide some insight into the factors that may, but probably should not, motivate a government to expropriate rather than renegotiate. Repsol bought a 75 percent stake in YPI in 1999 during the Argentine

financial crisis. (Argentina defaulted on its debt in 2001.) To try to boost economic activity in Argentina, then President Néstor Kirchner froze prices for oil and gas. As the economy recovered, consumer energy prices remained fixed, with the effect of encouraging consumption, discouraging investment and development of new resources, and ultimately the need to start importing oil and gas at world market prices. By 2011 the government's bill for importing oil and

gas was $9.4 billion—equal to about 20 percent of the Central Bank's foreign- exchange reserves.42 And then there was one more development: oil shale technology and a newly identified shale basin in Argentina. Clearly, there were significant pressures on the Argentine government to act. What is interesting is why the government expropriated Repsol's share rather

than opening negotiations with Repsol to restructure pricing in the industry. One consideration may have been whether Repsol commanded the technological know-how to develop Argentina's oil shale reserves. The government subsequently signed a $1.5 billion exploration agreement for that with Chevron in May 2013.43 Still, Argentina might have negotiated with Repsol to bring in Chevron or another partner to explore shale production; to raise the price of oil and gas to consumers, as it ultimately did; and to avoid the fallout of expropriation. The fallout of expropriation is significant and is a major reason why it actually

doesn't occur very often. Sovereign states do have the right to seize capital and resources, and the foreign direct investor's only recourse is through the state's own court system. It has no recourse via the World Trade Organization because investment interests are not covered by that pact. The World Bank does have an International Center for Settlement of Investment Disputes, but it lacks clout to enforce its arbitrators' decisions. For example, when Venezuela lost an arbitration in a dispute with ExxonMobil, it simply announced it would no longer participate in the World Bank's arbitration system.44

Expropriation in the form of nationalization as in the Repsol example is extremely rare for several reasons.45 Nationalization sends shock waves through the FDI community already doing business in the country and strongly discourages other investors who were considering investing. Also, nationalization does not seem to have the desired effect of increasing production: just the opposite, probably because of the loss of skilled workers. In one study in mining, expropriation in the form of nationalization or taxes decreased production by six percent.46 How well did things turn out for Argentina? In the third quarter of 2012, after the Repsol expropriation, production of oil was flat; gas was off by 2 percent and profits down a third.47 Argentina may have wanted oil sand technology that Repsol may not have had, but they needed management and know-how to run their current oil and gas industry.

Currency Fluctuations and Economic Instability

Currency Fluctuations and Economic Instability When a country becomes economically unstable its currency may collapse, leading to rampant inflation, as was the case in Thailand in the Asian financial crisis of 1997. How to hedge against currency fluctuations depends on whether the country's

money is movable or immovable. Movable money is currency that is easily converted (dollars, yen, euros). Immovable money is currency that is not easily converted. It's the money of governments that “regulate the entry to, possession in, and exit from their territories of both foreign and local currencies.”48

There are several ways to protect against currency fluctuations. One is to limit the length of contracts. Another is to include contingent contracts in agreements, such as discussed in Chapter Three. A contingent agreement might foresee inflation and call for parties to return to the table and renegotiate the agreement if there is a predefined level of change in currency valuation. A third approach is to hedge in the futures markets, which essentially shifts the risk to a third party.49 Whatever approach negotiators choose, they need to prevent themselves from being locked into prices that make no sense for either party after currency changes in value. What can happen without such renegotiation provisions? Fresh examples are

scarce because of low inflation that resulted from the recent global financial crisis. For a good example, we reach back to the 1990s Asian financial crisis. Consider the fate of a Thai company producing athletic shoes for a U.S. company. Negotiated in 1996, the agreement provided that the Thai company be paid at a rate that at the time provided it with profits over its costs. But the rate was set in Thai baht. This seemed reasonable for both companies when the contract was signed. However, when the baht lost its value in the summer of 1997, the U.S. company began making extraordinary excess profits. It was able to buy many more baht for the same amount of dollars. This made the shoes cost the U.S. company less, but it was still selling the shoes for the same price in dollars as before the baht decreased in value. Because of inflation that accompanied the drop in the baht, the Thai company was no longer making money on the shoe contract. The buyer and supplier needed to reopen negotiations. Why would negotiators, especially ones from countries whose currencies are

stable, enter into contracts that have renegotiation clauses that essentially rule out excess profits due to currency fluctuations? The question itself is cultural.

Negotiators from hierarchical cultures might not even consider it a question. They are likely to presume that risk must be shared and accept that unforeseen circumstances are legitimate reasons for reopening negotiations. When cultures value relationships and are based on status hierarchies, negotiators are more likely to think that windfall profits due to currency fluctuations are to be made in the currency markets, not at the cost of the viability of your business partner. High-status parties will naturally take care of their weaker partners. It is the negotiator from the egalitarian culture (such as the United States), in which all parties look out for their own interests, who may find it difficult to contemplate a renegotiation clause.

Ripple Effects Even when well-managed, governments and economies are not immune to regional political shocks. Consider the cascade of political change associated with the Arab Spring, or the global financial shocks, such as the U.S. banking crisis in 2007–2008 that led to a global recession and contributed to the European sovereign-debt crisis, or the 1997 Asian financial crisis kicked off by overwhelming foreign debt. In crisis situations there are two priorities. Keeping your people—both expat and domestic—safe, and protecting your assets.

Negotiating Globally with Government Government plays an important role in global negotiations. When government is not directly at the table as a party to the negotiations, it is still a major part of the political, social, and legal environment that affects global negotiations. Understanding this environment may make the difference between an agreement and an impasse. It may allow a deal that is profitable for the private company and that meets the government's social and political standards. It may make the difference between a dispute that can be resolved in private, where a relationship can be preserved, and a dispute that is argued in a public forum, where relationships are irrevocably broken. Such understanding does not come without effort and investment. It requires study and planning; it requires time, patience, and creativity; it requires weighing the advice of legal and cultural experts; and sometimes it requires moral courage to confront corruption and human rights abuses.

Notes

Notes

1. S. Shengxia, “CNOOC Seals Nexen Acquisition,” People's Daily Online, February 27, 2013, http://english.peopledaily.com.cn/90778/8144984.html. 2. See I. Austen, “Canada Clears $15 Billion Chinese Takeover of an Energy Company,” New York Times, December 7, 2012, http://dealbook.nytimes.com/2012/12/07/canada-clears-15-billion-chinese- takeover-of-an-energy-company. 3. E. Pfanner, N. Gough, and K. Bradsher, “Buyout Offer Brings China into the Orbit of Club Med,” New York Times, May 27, 2013, http://dealbook.nytimes.com/2013/05/27/club-med-targeted-in-700-million- privatization. 4. France24, “French Minister Under Fire for Saying ‘Non’ to Yahoo!” France24, February 5, 2013, http://www.france24.com/en/20130502-french- minister-montebourg-block-yahoo-deal-dailymotion-usa. 5. S. Kapner, B. Mukherji, and S. Banjo, “Before Dhaka Collapse, Some Firms Fled Risk, Wall Street Journal, May 8, 2013, http://online.wsj.com/article/SB10001424127887324766604578458802423873488.html 6. A. Sharma and B. Mukherji, “Bad Roads, Red Tape, Burly Thugs, Slow Wal-Mart's Passage in India,” Wall Street Journal, January 12, 2013, http://online.wsj.com/article/SB10001424127887323622904578129294224588914.html 7. Retail Sector in India Growing at Phenomenal Pace,” The Times of India, June 25, 2012, http://articles.timesofindia.indiatimes.com/2012-06- 25/news/32408603_1_retail-sector-retail-industry-global-retail-development- index; V Bajaj, “India Puts Wal-Mart Deal with Retailer Under Scrutiny,” New York Times, October, 18, 2012, http://www.nytimes.com/2012/10/19/business/global/india-opens-inquiry-into- wal-mart.html. 8. Sharma and Mukherji, “Bad Roads, Red Tape.” 9. F. Hill and F. Fee, “Fueling the Future: The Prospects for Russian Oil and Gas,” Demokratizatsiya, 2002, 10(4), 462–487, http://www.brookings.edu/ ∼/media/research/files/articles/2002/9/fall%20globalenvironment%20hill/200205_demokratizatsiya.pdfI 10. S. Reed, “Rosneft Completes Acquisition of TNK-BP,” New York Times, March 21, 2013, http://www.nytimes.com/2013/03/22/business/global/rosneft- finalizes-acquisition-of-tnk-bp.html. 11. J. Blitzer, “The Casino Is Coming to Town,” New York Times, September, 11, 2012, http://latitude.blogs.nytimes.com/2012/09/11/madrid-government-

courts-a-mega-casino. 12. P. Tullis, “EuroVegas, Baby: Billionaire Sheldon Adelson's Rescue Plan for Spain,” Bloomberg Businessweek, March 1, 2013, http://www.businessweek.com/articles/2013-03-01/eurovegas-baby-billionaire- sheldon-adelsons-rescue-plan-for-spain. 13. E. Pinedo, “Spanish Casinos Bet on Rebirth Through Eurovegas,” Reuters, October 15, 2012, http://www.reuters.com/article/2012/10/15/spain-casinos- idUSL5E8LE4CR20121015; G. Tremlett, “‘EuroVegas’ Gambling Complex to Be Built Near Madrid After £8.3bn Secured,” The Guardian, February 8, 2013, http://www.guardian.co.uk/world/2013/feb/08/eurovegas-gambling-complex- madrid. 14. Farlex, “Rule of law,” The Free Dictionary, http://legal- dictionary.thefreedictionary.com/Rule+of+law. 15. See World DataBank, “Worldwide Governance Indicators,” http://databank.worldbank.org/data/views/variableselection/selectvariables.aspx? source=worldwide-governance-indicators. 16. “Feed Me, Seymour,” The Economist, April 16th, 2012, http://www.economist.com/blogs/americasview/2012/04/argentinas-oil- industry. 17. S. M. Dickinson, “Danone v. Wahaha: Lessons for Joint Ventures in China,” China Law Blog, http://www.chinalawblog.com/DanoneWahahaLessons.pdf. 18. Dickinson, “Danone v. Wahaha”; D. Barboza, “Danone Exits China Venture After Years of Legal Dispute,” New York Times, September 30, 2009, http://www.nytimes.com/2009/10/01/business/global/01danone.html?_r=3&. 19. T. Buerkle, “U.K. Firms Lead as Law Goes Global,” International Herald Tribune, July 13, 1999, pp. 11–12. 20. Editors of the American Heritage® Dictionary (ed.), Roget's II: The New Thesaurus, 3rd ed. (Boston: Houghton-Mifflin, 1995). 21. United States Government, Anti-Bribery and Books & Records Provisions of The Foreign Corrupt Practices Act, 1977 (amended in 1998), can be found at http://www.justice.gov/criminal/fraud/fcpa/statutes/regulations.html. 22. United States Department of Justice, “Foreign Corrupt Practices Act: An Overview,” can be found at http://www.justice.gov/criminal/fraud/fcpa. 23. F. Norris, “A Troubling Survey on Global Corruption,” New York Times, May 17, 2013, http://www.nytimes.com/2013/05/18/business/economy/a-

troubling-survey-on-global-corruption.html?_r=0. 24. The World Bank, “Six Questions on the Cost of Corruption with World Bank Institute Global Governance Director Daniel Kaufmann,” World Bank News & Broadcast, can be found at http://go.worldbank.org/KQH743GKF1. 25. A. Martin, “Wal-Mart Vows to Fix Its Controls,” New York Times, April 24, 2012, http://www.nytimes.com/2012/04/25/business/wal-mart-says-it-is- tightening-internal-controls.html?_r=0. 26. M. Bahree, “Wal-Mart's Path to Power in India Hits Its Limits: The Lawyers,” Wall Street Journal, April 1, 2013, http://online.wsj.com/article/SB10001424127887324373204578373830411211410.html 27. M. Stendahl, “Wal-Mart Says $157M FCPA Legal Tab Will Grow,” Law360, March 27, 2013, http://www.law360.com/articles/427706/wal-mart- says-157m-fcpa-legal-tab-will-grow. 28. J. Holder and S. Raice, “IBM Settles Bribery Charges,” Wall Street Journal, March 19, 2011, http://online.wsj.com/article/SB10001424052748704608504576208634150691292.html 29. E. Pettersson, “Alstom Executives Charged in U.S. with FCPA Crimes,” Bloomberg, April 16, 2013, http://www.bloomberg.com/news/2013-04- 16/alstom-executives-charged-in-u-s-with-fcpa-crimes.html. 30. See OECD, “Convention on Combating Bribery of Foreign Public Officials in International Business Transactions: Ratification Status as of 20 November 2012,” http://www.oecd.org/daf/anti- bribery/antibriberyconventionratification.pdf. 31. See Transparency International, http://www.transparency.org. 32. D. L. Messick and W.B.G. Liebrand, “Individual Heuristics and the Dynamics of Cooperation in Large Groups,” Psychological Review, 1995, 102(1), 131–145. 33. In contrast, the philosophy of relativism judges the morality of an act by its acceptability in the contest. Relativism justifies engaging in corruption in corrupt environments, other things being equal. For more information, see R. J. Lewicki, J. A. Litterer, J. W. Minton, and D.M. Saunders, Negotiation, 2nd ed. (Burr Ridge, Ill.: Irwin, 1994). 34. To access the World Bank Governance Report, go to http://info.worldbank.org/governance/wgi/index.asp. This Governance Indicators report also evaluates governments on five other criteria important to FDIs: voice and accountability, political stability and absence of violence,

government effectiveness, regulatory quality, and rule of law. 35. T. Paulson, “World Bank Corruption & Transparency Index,” Humanosphere, February 6, 2013, http://www.humanosphere.org/2013/02/world-bank-corruption-transparency- index. 36. M. de Vibe, “A Joint Response to Corruption in Uganda: Donars Beginning to Bite,” Chr. Michelsen Institute, 2012, 1, http://www.cmi.no/publications/publication/?4396=a-joint-response-to- corruption-in-uganda. 37. S. Greenhouse, “Some Retailers Rethink Role in Bangladesh,” New York Times, May 1, 2013, http://www.nytimes.com/2013/05/02/business/some- retailers-rethink-their-role-in-bangladesh.html?pagewanted=all. 38. S. Greenhouse, “U.S. Retailers See Big Risk in Safety Plan for Factories in Bangladesh,” New York Times, May 22, 2013, http://www.nytimes.com/2013/05/23/business/legal-experts-debate-us- retailers-risks-of-signing-bangladesh-accord.html?pagewanted=all. 39. S. Greenhouse and S. Clifford, “Retailers Offer Plan for Safety at Factories,” New York Times, July 10, 2013, http://www.nytimes.com/2013/07/11/business/global/us-retailers-offer-safety- plan-for-bangladeshi-factories.html?pagewanted=all. 40. There are many sources of information about human rights practices. The U.S. State Department publishes Human Rights Practices reports. Organizations such as Amnesty International, PEN International Writers' Union, and Physicians for Human Rights publish their own specialized reports. The American Association for the Advancement of Science publishes a web- based directory of human rights resources at http://shr.aaas.org/coalition/WG/5/Projects/bibliography/index.shtml. 41. “Feed Me, Seymour.” 42. “Sparks in the Dark: A Half-Hearted Policy Retreat,” The Economist, January 19, 2013, http://www.economist.com/news/americas/21569705-half- hearted-policy-retreat-sparks-dark. 43. “Chevron Agrees Terms of Argentina Shale Investment: YPF,” Reuters, May 15, 2013, http://www.reuters.com/article/2013/05/15/us-ypf-chevron- idUSBRE94E16K20130515. 44. R. Minder and S. Romero, “Spain Weighs Response to Nationalization of YPF,” New York Times, April 17, 2012,

http://www.nytimes.com/2012/04/18/business/global/spain-weighs-response- to-nationalization-of-ypf.html. 45. R. Duncan, “Price or Political: An Investigation of the Cause of Expropriation,” Australian Journal of Agricultural and Resource Economics, 2006, 50(1), 85–101. 46. R. Duncan, “Costs and Consequences of the Expropriation of FDI by Host Governments,” 2006, can be found at http://ageconsearch.umn.edu/bitstream/139524/2/2006_duncan.pdf. 47. “Sparks in the Dark.” 48. G. Salacuse, Making Global Deals (New York: Times Books, 1991), 137. 49. Professor Torben Andersen, my colleague at the Kellogg School of Management, Northwestern University, comments that hedging against currency fluctuations is straightforward in simple situations but is typically much more difficult and sometimes almost intangible in more complex settings. He suggests the following references: C.S. Eun and B. G. Resnick, International Financial Management, 4th ed. (New York: McGraw-Hill Irwin, 2007), especially Part Three, on foreign exchange exposure and management; D. K. Eiteman, A. I. Stonehill, and M. H. Moffett, Multinational Business Finance, 11th ed. (Reading, Mass.: Addison-Wesley, 2007), especially Part Four, on the foreign exchange exposure.

8

Will the World Adjust, or Must You?

When parties negotiate, culture matters. Yet as global business and technology make our world smaller and smaller, some argue that we are moving rapidly toward one culture, especially in the context of business. Isn't it just a matter of time until the culture of negotiation is the dignity model of information sharing in deal making and direct confrontation in dispute resolution negotiations, in which negotiators are motivated by self-interests and BATNAs underlie reservation prices? The answer is probably no. In this final chapter we first discuss why negotiators cannot expect a standardized global negotiation culture and then reprise some of the advice throughout the book for adjusting strategy without compromising outcomes or integrity when negotiating globally.

Why Not to Expect a Global Negotiation Culture Based on the Dignity Model A standardized global negotiation culture is unlikely. Cultural differences in negotiation strategy are not trivial. Cultural institutions of family, church, and state monitor, sanction, and reward normative behavior. And people carry their culture with them. Although people may change countries and cultures, either temporarily or permanently, and ultimately they may become quite adept at switching cultural hats, being comfortable and effective in navigating the norms of a new culture does not mean that people completely abandon all behaviors and mindsets of their original cultures. People do adjust toward the negotiation norms of a new culture. We saw that at the end of Chapter Three in the review of the intercultural negotiation studies, when face culture negotiators adjusted to negotiating in dignity culture and dignity culture negotiators adjusted to negotiating in honor culture.1 But would you predict that they would continue to use those negotiation strategies upon returning home? Of course not! In a variety of contexts, we have seen differences in how dignity, face, and

honor culture negotiators strategize. In deal making, we saw major differences in use of the Q&A strategy versus the S&O strategy associated with cultural differences of interpersonal versus institutional trust, and between cultures of holistic versus analytic mindsets. In dispute resolution, we described major differences in reliance on interests, rights, and power that were associated with cultural factors such as status hierarchies and direct versus indirect confrontation. We saw similar cultural differences in reliance on interest, rights, and power when we considered when and why people cooperate in social dilemmas. Direct versus indirect confrontation and status hierarchies were also powerful cultural factors influencing behavior in multiparty decision making. Overall, we have learned that just as different cultures develop different

greeting behaviors, so do they also develop different negotiation strategies. People's use of negotiation strategy is generally similar to that of others within their culture and therefore functional, but differs between cultures. What this means is there is more than one effective way to negotiate. In any social interaction, functionally successful strategic behavior is likely to

replicate and reinforce itself. This becomes one source of the stability and continuance of separate cultural patterns of negotiation. Another stabilizing and perpetuating factor is the degree of cultural tightness or looseness. In Chapter Two we discussed how, in tight cultures, institutions such as family, government, and religion reflect cultural values; reward everyday behavior that is consistent with their norms; and monitor, sanction, and thereby constrain everyday behavior that is inconsistent with those norms. The tightness-looseness dimension reveals two reasons why we should not

expect a single global negotiation culture. First, as we know, cultural tightness reduces behavioral variation within a culture. But second, cultural tightness may also affect people's flexibility and their speed of adjustment when changing cultures. This is because institutional monitoring in tight cultures makes situations strong. Strong situations limit the range of people's behavior and leave little room for individual discretion.2 In contrast, a “weak situation” challenges people to figure out the limits on appropriate behavior, and the culture allows them to do so by testing those limits. From this flows a pair of insights: one is that a lifetime or even a childhood of behavioral restraint from living in a tight culture may cause people to be cautious about testing limits; the other is that people in tight cultures may be less skilled at behavioral flexibility and testing normative limits simply due to lack of practice. This is not to say that people

from tight cultures cannot adjust and learn to test limits in a loose culture or, for that matter, that people from loose cultures cannot learn to constrain their more freewheeling behavior to the norms of a tight culture, just that either adjustment may take time and certainly will take effort. We've reviewed several studies indicating that the dimensions of cultural intelligence (CQ), particularly motivation and cultural metacognition, may facilitate this effort in the context of negotiations.3

In social interaction strategic behavior that is functional is likely to replicate and reinforce itself. In addition to functionality, cultural tightness-looseness contributes to the stability of cultural differences in strategic behavior. In Chapter Two we discussed how in tight cultures the norms of institutions such as family, government, and religion reflect cultural values, but also reward everyday behavior that is consistent with norms and sanction behavior that is inconsistent with those norms. There are two implications of these conclusions about tight and loose cultures

and adjustment of negotiation strategy. First, negotiators from loose dignity cultures should have experience with a wider range of negotiation strategy than people from tight face and honor cultures. Second, experience experimenting with adjusting behavior to the situation should make negotiators from loose dignity cultures more adept at flexible strategic approaches than negotiators from tighter face and honor cultures. Thus it may be easier in the short term for negotiators from dignity cultures to adjust their strategy at the negotiation table than it is for people from tighter face or honor cultures. This suggests that the initial tendency in an intercultural negotiation would be for the dignity culture negotiator to move away from direct confrontation, Q&A, and interest-based dispute resolution to indirect confrontation, S&O, and a more subtle power- based dispute resolution with the involvement of third parties. For all these reasons a global negotiation culture based on the dignity model

seems unlikely. And although strategic change may be easier for the dignity culture negotiator than for those from face or honor cultures, they all must confront the same challenge: make the necessary strategic adjustments without compromising interests or integrity.

Toward Becoming a More Effective Global Negotiator

At the heart of becoming a more effective global negotiator is the challenge of accommodation versus self-compromise. To be effective in a global environment, negotiators need to develop a facility with different negotiation strategies so that they can adjust to accommodate the strategy used by counterparts globally without compromising their own interests or integrity. Global negotiators will be able to accommodate to the extent that they understand culture and negotiation strategy as it applies in different negotiation contexts such as deal making, dispute resolution, multiparty decision making, and social dilemmas and in different parts of the world, whether in dignity, face, or honor cultures. They need to understand and be able to use creative approaches (including the ones we've discussed in this book) for handling challenges to cooperation in different negotiation contexts and especially when interacting with government officials. They need to continuously cultivate tolerance and respect for the positions, interests, and priorities that people from different cultures bring to the negotiating table. They need to know when not to accommodate but rather to maintain their personal and their organization or government's integrity and protect their people. And they need to have an ethical standard that meets personal, corporate, and legal criteria and will carry them through situations of corruption, bribery, and extortion. Effective global negotiators accommodate to a degree. They are willing to

adjust their strategy to the cultural situation that they find themselves in, so long as they do not compromise their interests or their integrity. To avoid such compromises requires first having a very clear idea of one's own interests and ethics. Second, it requires learning about the counterpart's interests and respecting them, even as they differ and clash with one's own interests. As a negotiation progresses, effective global negotiators never lose sight of interests and BATNA as criteria for evaluating agreements. At the same time, they do not lose sight of their own ethics, the ethical standards of the organization or government they represent, and what ethical compromises are being sought by the counterpart. They understand that an ethical basis for global business practice is a social dilemma. When people treat each other ethically, cooperation ensues and all profit from lower transaction cost and higher joint outcomes. When people treat each other unethically, some agreements that are possible do not get made. Agreements that do get made come with costs: costs of monitoring counterparts' compliance with the agreement, and costs of forgone joint gains that were undiscovered during low-trust negotiations. Negotiators know the long-range benefits of managing social dilemmas for cooperation by using

interests, rights, and power. They know what can be done in the short term to combat corruption, ranging from just saying no to explaining limitations to shining a spotlight to engaging in joint action.

Deals, Accommodation, and Safeguards for Dignity Negotiators The effective global deal maker knows why, when, and how to use Q&A and S&O deal-making strategies. What might accommodation entail in deal making, especially on the part of the possibly more flexible, and potentially more vulnerable, dignity culture negotiator interacting with a face or honor culture negotiator?4

Spending more time developing trust and reputation prior to the negotiation than one might do in dignity culture. Using all the techniques suggested in Chapter Three to test for trust, develop trust, and negotiate effectively in the absence of trust.

Negotiating deals effectively in the absence of trust means using offers much earlier in the negotiation than is normative in a dignity culture. At the same time, when doing so, the dignity culture negotiator needs to avoid three traps: being anchored by a counterpart's offers, being lured into a reciprocal display of negative emotion, and giving up on negotiating joint gains. Some safeguards are in order:

To protect from being anchored, make opening offers that exaggerate self- interests and focus on goals; write down opening offers; do not be afraid of what would seem in your own culture to be a huge gap to close between opening offers. To avoid being lured into a reciprocal display of negative emotion, initially ignore it; ask interest-based questions about substantiated offers; counter with multi-issue offers and explain why they are good for the counterpart, what they will allow you to do; ask for a multi-issue offer in return and for it to be explained. Chart those offers! To avoid losing sight of the potential for joint gains when engaged in S&O strategy, use and update your planning document; be vigilant about searching for differences in interests, in risk, and in short- versus long-term time perspectives. Chart offers and write down what offers get substantiated, ask why and why

not questions, look for trade-offs in the counterpart's concession patterns; jump in to make counter multi-issue offers, possibly use MESO, and consider the risks to you of proposing a contingent contract.

Resolving Disputes in Direct- and Indirect- Confrontation Cultures The effective global dispute resolver understands the differences between deal making and dispute resolution and does not treat BATNAs, costs, or emotions in the same way in the two contexts. The effective global negotiator understands that direct confrontation is expedient for limiting the escalation of costs of disputing, both financial and motivational. He knows, when confronted, how to use interests, rights, and power to address conflict and disputes. The global negotiator realizes that different cultures emphasize different

strategies when resolving disputes. Disputants in some cultures emphasize interests, in others power. The type of rights, for example emphasis on equity, equality, or need, that are put forth to justify claims will vary with culture, as will how early in the process third parties get involved and with what authority. All this the expert negotiator should be able to handle in direct-confrontation cultures. The bigger challenge, particularly for the dignity or honor culture negotiator,

would seem to be recognizing and responding without offending indirect- confrontation initiatives made by honor or face culture disputants. Recall that in indirect confrontation the claimant neither makes the claim explicitly nor explicitly states what an acceptable response would be, but signals the issue and respects the counterpart to act appropriately. Aside from the fact that negotiators from direct-confrontation cultures may have little experience reading indirect- confrontation signals, the signals of indirect confrontation vary so much from one culture to another that even a dispute resolver skilled at reading the signals of indirect confrontation in his own culture may fail to correctly interpret signals in another culture. This is one of those times when the effective global negotiator cannot rely on her knowledge. Part of being an expert is knowing the limits of your expertise. Most cultural outsiders need help interpreting and responding appropriately to indirect confrontation, and a teammate with local knowledge; an uninvolved local acquaintance, for example an alum of your school; or a legitimate third party in that culture should be able to explain what you are experiencing across the negotiation table, and may be able to intervene for you

by acting as a shuttle diplomat.

Using Negotiation Strategy to Make Team and Multiparty Decisions The effective multiparty negotiator understands that the two fundamental elements of multiparty (team) decision making are the same as in two-party deal making or dispute resolution: the strategy (what process we are going to use to make the decision) and the outcome (what the decision is going to be). The complexity comes with the additional parties. Rather than one strategy, in multiparty, multiculture decision making, there could be as many different strategies as there are parties. Recall the strategic distinction between accommodating to a subgroup

dominant process versus a hybrid or fusion process. The subgroup dominant process may lead to an expedient decision, but is less likely than hybrid or fusion processes to lead to a creative decision that integrates members' interests and thereby is relatively easy to facilitate. Both hybrid and fusion processes respect members' differing approaches to teamwork. The hybrid process is time consuming and carries some risks. It requires that

the team come up with its own unique approach to teamwork, which may be a hybrid of the approaches that team members were originally comfortable with. Because this approach may take time to develop, it may be reserved for teams that will be working together full time for a long period. The risk with hybrid teamwork is that in the process of developing it, social identity shifts to the team. This may be a good thing, because it should facilitate cohesiveness and productivity. It may be bad if it isolates the team or erects strong in-group versus out-group boundaries for a team that needs to process information across those boundaries. Fusion teamwork is no panacea, either. Resting on its principles of coexistence

and meaningful participation, it does not require team members to accommodate a single integrated process as do both subgroup-dominant and hybrid teamwork. Fusion allows differences to coexist, sometimes simultaneously (subgroups approach the task using different processes) and sometimes dynamically and sequentially (the teamwork process shifts as the group works on the task). When it works, fusion requires a lot of tolerance on the part of team members, but it can produce creative outcomes.5 The risk with fusion teamwork is procedural chaos, or as Janssens and Brett put it, the fusion dish in which differences fail to

come together “tastes like mud.”6

The most direct application of negotiation strategy to team decision making, or preparation for team-on-team negotiation, is to extend the Negotiaton Planning Document by adding columns for every team member and rows for all their issues; this practice can generate both the common and the unique information that the team members have that is relevant to the decision. There are barriers of culture, time, distance, and psychology (such as trust) to sharing information in teams. But working through a common planning document should help to overcome some of these barriers. Although team members might not be willing to share their targets on issues, they may be willing to share their minimums, and their interests underlying those minimums. If those minimums have been stated honestly, they provide the basis for a first agreement from which the team can then try to improve by engaging in second agreement negotiations in which they seek more creative trade-offs, or set up monitoring to minimize costs to those whose interests are not well met by the first agreement. The team's goal should be to reach high-quality decisions that creatively meet the interests of members, minimize interpersonal conflict, and, importantly, address the interests of the organizations in which the teams are embedded. The team is more likely to reach those goals if it understands its BATNA and the pros and cons of alternative decision rules, and especially if it engages in second agreements.

Generating Cooperation in Social Dilemmas The biggest challenge of social dilemmas is fostering cooperation when self- interest continuously lobbies for competition. Yet we know that cooperation is possible, albeit sometimes not involving all parties. Although we are threatening our planet by our population size and excesses, many parts of our global society are working together in small local ways to preserve it. What we learned in Chapter Six is that managing social dilemmas involves the same negotiation strategies of interests, rights, and power that we used in Chapter Four to manage disputes. And, just as we learned in Chapter Four to navigate among rights, power, and interests when negotiating the resolution of disputes, it may be necessary to try multiple strategies either simultaneously or sequentially to generate cooperation in social dilemmas. People all over the world live communally, so they actually have very strong

interest-based skills for managing the social dilemmas of everyday life. Where people lack skills is in bridging the gaps between a series of local solutions. For

example, some local solutions to recycling require that the consumer carefully sort recyclable discards into categories; other solutions just require sorting garbage from recyclable trash. When people change communities they need to learn and abide by the new rules. When communities change recycling companies they, too, have to change to new rules. I love the story told me by one executive who has been an expatriate in Japan and intentionally rented a house in a Japanese, not an expat, community. He found that the recycle rules were pretty complex, and his family tried to follow them. They learned that they were not quite achieving neighborhood standards when he observed neighbors re- sorting the family's recyclables prior to pickup. He said he watched what they were doing, tried to model it, and after a few weeks the neighbors were still checking, but not re-sorting. He figured he had learned and was trusted to continue to do it right when even the checking tailed off. Bridging those gaps between different local practices often requires learning and accommodation. This is what helpful neighbors at the local level, and governments and international agencies at a higher level, are for, and why they need the dispute resolution skills of Chapter Four and the multiparty negotiation skills of Chapter Five.

Avoiding the Pitfalls of Foreign Direct Investment Foreign direct investment, too, can be viewed as a social dilemma—the investor's self-interest to generate profits, tempered by the collective interests of what a host country will allow, or given the power differential between the investor and the developing country, tempered by the investor's own ethical and moral standards, those of the other countries in which it does business, and those of its customers and clients. We saw this struggle of differential interests most graphically in the aftermath

in 2012–2013 of the tragedies in the Bangladesh garment factories. American consumers picketing outside of Gap headquarters and stores tried to shame Gap and other large American retailers into doing more than just committing to inspections, providing a pool of low-interest loans for improvements, and threatening to remove orders from Bangladesh if improvements were not made. They wanted Gap and the others to join the EU consortium, which was willing to make direct investments to improve safety and was not threatening to withdraw business. Notably, such public shaming was not sufficiently powerful to get many American retailers to join their European counterparts, perhaps because it

was not accompanied by a strong enough economic boycott of the retailers' stores.7

Chapter Seven is full of advice for the foreign direct investor, from how to identify host governments' interests and work with their complex, entrenched, and sometimes corrupt bureaucracies to how to protect legal rights when the rule of law is weak and protect employees when the political environment is unstable. Perhaps the most important takeaway of Chapter Seven is vigilance. Setting up an FDI is complex, often requiring vigilance to limit accommodations that overly compromise the investor's interests and integrity in order to get the investment approved. Running an FDI also requires careful vigilance and careful attention to what is changing, not just in the economic but also the local and regional political and social environments, and thereby threatening to compromise safety, interests, and integrity.

Why Me? One of the questions that managers often ask is, “Why me? Why do I have to do all the adjusting? Why do I have to tolerate coexistence? Why do I have to pay seemingly unrelated ‘social fees’ for the privilege of being a foreign direct investor?”8 There are two answers to this question. The first is that it isn't just them. Cultural accommodation is not just one-sided. Host countries make many accommodations to adapt to the needs of the investor: case in point, Madrid's accommodations to attract the Las Vegas Sands company.9 The second is that the party that wants the deal, that wants the dispute resolved, that needs to bring together multiple parties in the context of a team or a social dilemma to move ahead is in a better position to be flexible on the process than the party that has neither these motivations nor the skill set to do so. In the end, having the skill set makes the difference. If you know how and why

people in different cultures use negotiation strategy differently, you are well positioned to accommodate their strategy without compromising interests or integrity. Creating agreements that integrate parties' interests brings stability to foreign direct investments because such agreements generate more value to share among the parties.

Excellent Global Negotiators

Excellent global negotiators know that to make deals, resolve disputes, and reach decisions across cultural boundaries, they must exercise strategic flexibility and engage in cultural accommodation. Although culture will very likely affect negotiators' interests and priorities, negotiators need do nothing out of the ordinary to integrate those interests once they understand them. It is the process of understanding negotiators' interests that is likely to require strategic flexibility when negotiating across cultures. So long as strategy stays within ethical boundaries, excellent global negotiators are less concerned about the negotiation process than that their interests ultimately are met.

Notes

1. W. Adair, “Integrative Sequences and Negotiation Outcome in Same and Mixed-Culture Negotiations,” International Journal of Conflict Management, 2003, 14(3/4), 273–296; W. L. Adair, T. Okumura, and J. M. Brett, “Negotiation Behavior When Cultures Collide: The United States and Japan,” Journal of Applied Psychology, 2001, 86(3), 371–385; N. J. Adler and J. L. Graham, “Cross-Cultural Interactions: The International Comparison Fallacy,” Journal of International Business Studies, 1989, 20, 515–538; J. M. Brett and T. Okumura, “Inter- and Intracultural Negotiation: U.S. and Japanese Negotiators,” The Academy of Management Journal, 1998, 41(5), 495–510; L. Imai and M. Gelfand, “The Culturally Intelligent Negotiator: The Impact of Cultural Intelligence (CQ) on Negotiation Sequences and Outcomes,” Organizational Behavior and Human Decision Processes, 2010, 112, 83–98; J. Graham, “The Influence of Culture on the Negotiation Process,” Journal of International Business Studies, 1985, 16, 81–96; L. A. Liu, C. H. Chua, and G. K. Stahl, “Quality of Communication Experience: Definition, Measurement, and Implications for Intercultural Negotiations,” Journal of Applied Psychology, 2010, 95, 469–487; L. A. Liu, R. A. Friedman, B. Barry, M. Gelfand, and Z-X. Zhang, “The Dynamics of Consensus Building in Intracultural and Intercultural Negotiations,” Administrative Science Quarterly, 2012, 57, 269–304; J. H. Natlandsmyr and J. Rognes, “Culture, Behavior, and Negotiation Outcomes: A Comparative and Cross-Cultural Study of Mexican and Norwegian Negotiators,” International Journal of Conflict Management, 1995, 6, 5–29; J. Ramirez-Marin, J. Brett, S. Aslani, C. Tinsley, and L. Munduate, “Expectations and Emotions: Spanish Honor and Anglo Dignity in Intercultural Negotiation,” paper presented at the International Association for

Conflict Management annual meeting, 2013, Kyoto, Japan; M. Kern, S. Lee, Z. Aytug, and J. M. Brett, “Bridging Social Distance in Inter-Cultural Negotiations: ‘You’ and the Bi-Cultural Negotiator,” International Journal of Conflict Management, 2012, 23(2), 173–191. 2. M. J. Gelfand, L. H. Nishii, and J. L. Raver, “On the Nature and Importance of Cultural Tightness-Looseness,” Journal of Applied Psychology, 2006, 91(6), 1225–1244; M. J. Gelfand, J. L. Raver, L. Nishii, and others, “Differences Between Tight and Loose Cultures: A 33-Nation Study,” Science, 2011, 332, 1100–1104. 3. Imai and Gelfand, “The Culturally Intelligent Negotiator”; S. K. Crotty and J. M. Brett, “Fusing Creativity: Cultural Metacognition and Teamwork in Multicultural Teams,” Negotiation and Conflict Management Research, 2012, 5(2), 210–234. See also from a different perspective W. W. Maddux, K. Y. Leung, C. Y. Chiu, and A. D. Galinsky, “Toward a More Complete Understanding of the Link Between Multicultural Experience and Creativity,” American Psychologist, 2009, 64(2), 156–158. 4. This is more vulnerable because dignity culture negotiators tend to trust. 5. Crotty and Brett, “Fusing Creativity.” 6. M. Janssens and J. M. Brett, “Cultural Intelligence in Global Teams: A Fusion Model of Collaboration,” Group and Organizational Studies, 2006, 31(1), 124–153, at 148. 7. S. Greenhouse and S. Clifford, “Retailers Offer Plan for Safety at Factories,” New York Times, July 10, 2013, http://www.nytimes.com/2013/07/11/business/global/us-retailers-offer-safety- plan-for-bangladeshi-factories.html?pagewanted=all. 8. By “social fees” I do not mean bribes, which go to personal enrichment for the purpose of obtaining or continuing business. Social fees are contributions to social projects for the betterment of the population of the country as a whole. For example, India's 2012 law opening access to big box retailers requires social fees in the form of infrastructure investments that will provide benefits such as roads and cold storage that go beyond the needs of the FDI site. 9. E. Pinedo, “Spanish Casinos Bet on Rebirth Through Eurovegas,” Reuters, October 15, 2012, http://www.reuters.com/article/2012/10/15/spain-casinos- idUSL5E8LE4CR20121015; G. Tremlett, “EuroVegas” Gambling Complex to Be Built Near Madrid After £8.3bn Secured,” The Guardian, February 8, 2013, http://www.guardian.co.uk/world/2013/feb/08/eurovegas-gambling-complex-

madrid.

Glossary

Adversarial procedure A dispute resolution procedure in which disputants or their agents investigate the facts and present their own arguments to a third party; compare to non- adversarial or inquisitorial procedure. Anchor A reference point that holds negotiators' attention. Anchoring and insufficient adjustment Negotiators' tendency to fail to use information conveyed during the negotiation to update their references points. A priori majorities A faction or coalitions that involve more than half the members of a group that exist before the information-sharing phase of group decision making begins. Arbitration A third-party dispute resolution procedure in which the third party takes a rights- based approach and has the authority to make a final and binding decision. Authoritarian (decision) A procedure in which the decision maker has absolute power. BATNA (best alternative to a negotiated agreement) What each negotiator will do in a deal-making situation if no agreement is reached; what will happen to negotiators if they fail to resolve a dispute or reach an agreement. Broadly focused An agreement that addresses both the surface issues and the underlying problem. Cap and trade systems In which a government entity sets a limit on emissions of a pollutant and then generates permits to polluters equivalent to the cap. Polluters with excess permits can sell them, and those without sufficient permits can buy them. Claim In dispute resolution, the demand for something due. Claim value

The amount of value (resources) a negotiator seeks to receive in an agreement. Coalition A subgroup or faction that accounts for less than a majority of the members of the group. Coexistence The process of recognizing and respecting team members' different cultural approaches to teamwork and combining those different approaches in ways that preserve their unique qualities. Collective goal A goal that a group of people hold in common. Competitive social motive The social motive that maximizes one's own outcome at the expense of the other party's outcome. Conflict The perception of opposing interests, involving scarce resources, goals, or procedures. Confrontation style How a person responds when faced with defiance, opposition, or hostility. Consensus A group decision rule in which no team members publicly oppose a decision, though they may do so in private. Contact Face-to-face interaction among diverse members of a group intended to help them build mutual respect and trust. Contingency An agreement to change the negotiated outcome in a specific way on the basis of the occurrence of a future event. Contingent contract An agreement to change the negotiated outcome in a specific way on the basis of the occurrence of a future event. Contributing dilemma Social dilemmas related to adding to public goods, such as paying taxes, contributing to public radio and television, doing one's share of teamwork. Cooperative social motive

The social motive that maximizes one's own and the other party's outcomes jointly. Corruption Behavior that departs from what is legally, ethically, or morally correct. Create value The process of trying to increase the resources available to negotiators jointly, usually by trading issues or identifying compatible issues. Cultural metacognition A dimension of cultural intelligence (CQ), which measures an individual's ability to deal effectively in situations of cultural diversity. Culture The unique character of a social group, including the values and norms shared by members of the group and the group's social, economic, political, and other institutions. Decision rules The alternative ways that multiple parties can reach an agreement, such as majority rule or consensus. Dignity The prototype of Western society. Its key characteristic is intrinsic self-worth as self-determined or independent from social status. Direct confrontation When negotiators identify the issue in dispute and suggest the resolution. Discuss before decide A norm to talk about the pros and cons of the options associated with each of the issues before deciding any single issue or proposing a multi-issue offer. Dispute Conflict in which a claim made by one party is rejected by another. Distributive A negotiation to allocate a fixed set of resources. Egalitarian A culture that aspires to social equality, especially in political, social, and economic affairs. Equality A norm that distributes the same value of resources to each party.

Equity A norm that distributes resources according to a standard of fairness, usually in proportion to contributions, inputs, or costs. Expand the pie Slang for entering into integrative or value-creating negotiations. Expropriation Refers to any changes in the FDI agreement on the part of the government that were not part of the original agreement. Face The prototype of East Asian society. Its key characteristic is extrinsic self-worth as determined from social status associated and interdependent with the social groups to which the individual belongs. Faction A subgroup or coalition that accounts for less than a majority of the members of a group. Fixed pie Refers to the resources in a negotiation that can only be divided or distributed; a mental representation of negotiations. Free rider A group member who does not contribute to the group but benefits from the group's efforts. Fusion teamwork A group process that preserves cultural differences. Future-based An agreement that addresses how parties are going to interact after the dispute has been resolved. Generalized reciprocity Refers to an exchange available to all members of the team. Reciprocity is an exchange between two people, say A and B. Generalized reciprocity could be an exchange such that A defers to B on the first issue, B defers to C on the second, and C defers to A. Hai “Yes” in Japanese. Hierarchical

A culture that accepts social inequality in political, social, and economic affairs. High-context culture A culture in which meaning must be inferred from the context or situation in which the information was communicated. Honor The prototype of Middle Eastern and North African and Latin American societies. Its key characteristic is self-worth that is both extrinsic as determined by social status and intrinsic as contested for and claimed from social interactions. Hybrid teamwork Refers to a team process that mixes different team members' cultural or personal approaches to teamwork into a coherent, unique, and stable approach to teamwork. Independent A cultural value that links social identity to characteristics of the individual rather than to characteristics of the groups to which that individual belongs. Indirect confrontation When negotiators signal the issue in dispute and leave it to the respondent to determine the resolution. Individualistic social motive The social motive that maximizes one's own gain regardless of the other party's gains. In-group A group to which an individual belongs and from which that individual may derive social identity. Integrative A negotiation to expand the resources to be allocated beyond those resources that would be available if one party took all or two parties compromised (split their differences) on all issues. Integrative potential The maximum possible value available to negotiators if they agree to all compatible issues and make all efficient trade-offs. Also called outcome potential. Interactional justice

Refers to disputants' perceptions of fairness of the third party. Intercultural negotiations Negotiations between parties from different cultures. Interdependent A cultural value that links an individual's social identity to characteristics of the groups to which that individual belongs. Interests The reasons why negotiators take the positions they do; negotiators' needs, fears, and concerns. Interpersonal conflict Conflict over personal responsibility and blame. Intracultural negotiations Negotiations between parties from the same culture. Joint gains The sum of the negotiating parties' individual gains. Limited-duration experiment with evaluation criteria An agreement to try a solution to the dispute for a predetermined length of time, with standards for evaluating whether the solution is working or not. Looseness Refers to the extent to which cultural norms are relatively flexible, generating improvisation and interpretation and greater variation of behavior within the culture. Low-context culture A culture in which meaning can be inferred from the message itself. It is not necessary to know the situation in which the information was communicated in order to understand. Majority A decision rule whereby the alternative preferred by more than half of the members of a group becomes the alternative chosen by the group. Meaningful participation Group discussion using the principle that group members have an obligation to speak up when their knowledge, expertise, or contacts become relevant as well as when they harbor doubts about the direction the group is taking or the feasibility of the group's plan.

Mediation A third-party dispute resolution procedure in which the third party does not have the authority to make a final and binding decision. MESOs (multiple equivalent simultaneous offers) A set of two or more multiple-issue offers that are of equivalent value to the party making the offer, but differentially configured so as to possibly be of different value to the counterpart. Mindset Refers to the way people reason and process information. Minimum agreement Team members' least acceptable position, or reservation price, on their most important issues. Negotiating team Two or more people representing a single party to the negotiation. Negotiation The process of conferring among two or more interdependent parties to arrive at an agreement about some matter over which they are in conflict. Net value Gain greater than the return anticipated from settling for the BATNA. Non-adversarial procedure When third parties or their agents make their own assessment of the situation and identify and interpret the relevant standard for decision making. Non-precedent setting An agreement that focuses narrowly on the issues but does not address the general principles underlying the dispute. Norm A standard of appropriate behavior in social interactions within a culture. Objective standards Precedents or standards of comparison. Offers Proposals or suggestions to resolve issues. Outcome potential The maximum possible value available to negotiators if they agree to all

compatible issues and make all efficient trade-offs. Also called integrative potential. Out-group Any group in which an individual is not a member. Position What a party wants in negotiation. Power The ability to influence others to concede to your wishes. Precedents Standards of comparison, also called objective standards. Preferences Priorities among issues. Priorities The order of importance of a set of issues. Prisoner's dilemma A two-party social dilemma; a situation in which self-interests lead one to compete but collective interests lead one to cooperate. Procedural conflict A dispute over means, including the dispute resolution process itself. Procedural justice Refers to disputants' perceptions of the fairness of the process. Prototype The cultural pattern or model, based on the average or modal characteristic of a culture. Question-and-answer (Q&A) Information exchange regarding interests and priorities. Recategorization The process of changing social identity on the basis of group membership rather than on independent attributes of the self. Reciprocity An equivalent exchange between two people. Reservation price The most a negotiator is willing to offer or the least a negotiator is willing to

take and still reach agreement. Rights Standards of fairness or law that can be used to resolve disputes; similar to fairness standards in making deals. Ringi decision-making When lower-level managers circulate an idea among peers and then submit the idea to their manager, who has authority to accept or reject the idea. Rule of law Refers to whether or not a government exercises its power in accordance with well-established and clearly written rules, regulations, and legal principles. Satisficing In this context, the decision to reach an agreement that is better than BATNA but might not be the best possible outcome if you were willing to put forth more effort. Second agreement An agreement entered into after a negotiated agreement has already been reached. Patterned on post-settlement settlements. Self-worth Refers to a person's sense of his or her own value in society. Sensitivity and response to insults Refers to the way a person is affected by and responds to another's offensive behavior. Social dilemma A multiparty decision-making situation in which, if everyone acts to maximize personal gain, everyone is worse off than if everyone acts to maximize collective gain; yet acting to maximize personal gain is always better for the individual. Social distance Refers to the degree to which people are consciously aware and sympathetic to each other. Social identity A sense of one's own reputation; the impression one thinks one has made on others. Social motives The types of choices that people make in situations such as negotiation in which

they are interdependent. Standards of comparison Precedents or objective standards. Status Refers to a person's position in a social hierarchy. Stereotype A belief that everyone from a given culture will be like that culture's prototype. Strategy An organized set of behaviors chosen because they are thought to be the means of accomplishing the goal of negotiating. Subak Community organizations in Bali, Indonesia, that control water resources. Subgroup dominance A collaboration model in which a coalition or faction controls group processes and outcomes. Substantiation and offers (S&O) Attempts to influence the counterpart to make concessions. Taking dilemma A social dilemma in which parties take resources from the commons, for example, depletable resources such as fisheries and forests. Target The components that would constitute an ideal settlement; goals in negotiation and standards against which to judge opening offers, concessions, and final offers. Task conflict A dispute over goals and resources. Thinking net Slang for the process of thinking about gains in negotiations as greater than gains that should be available from negotiating an agreement with BATNA. Threat An expression of an intention to do harm; an if-then statement about the other party's actions and the consequences if the party persists in them. Tightness

Refers to the extent to which cultural norms are relatively inflexible and formal, generating little within-culture variation. Trade-off An agreement in which parties concede on low-priority issues in order to gain on high-priority issues. Trade-off issues Multiple issues that are low priority to one party and high priority to the counterpart and vice versa. Transaction costs The costs of negotiating. Transactive memory Knowledge of who on the team knows what. Trust The willingness to make oneself vulnerable to the other party, and belief that the other party will not take advantage. Two-thirds majority A large coalition of two-thirds of group members. Unanimity A decision rule that requires agreement among all team members. Utilitarianism A judgment of the morality of an act by its consequences. Value A judgment of what is important in social interactions and other aspects of life. Voice The opportunity for disputants to tell their side of things. WATNA (worst alternative to a negotiated agreement) The worst outcome that the counterpart can impose on a negotiator if parties do not reach agreement.

Name Index

A Aalderin, H. Abel, R. L. Adair, W. Adair, W. L. Adam, H. Adler, N. J. Ala, M. All Africa Allison, G. Allred, K. G. Alon, I. American Heritage® Dictionary Anderson, C. Anderson, T. Ang, S. Arango, T. Aristotle Armstrong, T. Arsu, S. Arzu, H.H.T. Aslani, S. Associated Press Austen, I. Axelrod, R. Ayers, E. Aytug, Z.

B Babcock, L.

Bahree, M. Bajaj, V. Balachandra, L. Banjo, S. Barak, M. M. Barry, B. Barsness, Z. I. Batson, C. D. Bazerman, M. H. Beersma, B. Behfar, K. Belton, C. Ben-Yosef, M. Benet-Martinez, V. Bennett, R. J. Bettenhausen, K. L. Bies, R. J. Bijlsma-Frankema, K. M. Billig, M. G. Blitzer, J. Bodenhausen, G. V. Boldt, E. D. Bond, M. H. Bornstein, G. Bosman, J. Bourdieu, P. Bowdle, B. F. Bowles, H. R. Box, S. Bradsher, K. Brett, J. Brett, J. M. Brewer, M. B. Britton, S. D.

Brousseau, K. R. Brower, H. H. Brown, R. Buarillo, M. Buerkle, T. Bundy, R. P. Bürger, J. Burt, R. S. Butler, J. K.

C Camerer, C. Carl, D. Carnevale, P. J. Carnevale, P.J.D. Carroll, J. Carroll, J. S. Chee, D. Chen, B. X. Chen, C. Chen, Y. Cheung, F. M. Chi, S. Chiu, C. Y. Choi, I. Choi, S-C. Chui, C. Y. Chus, C. H. Cimilluca, D. Clifford, S. Coben, J. Cohen, D. Cohen, T. R. Cole, S.

Colquitt, J. A. Cook, K. S. Cordeiro, W. P. Corkran, L. Crotty, A. Crotty, S. K. Crowley, R. Cummings, L. L. Curhan, J.

D Dawes, R. M. De Dreu, C. De Dreu, C.K.W. de Vibe, M. de Wit, F.R.C. Dickinson, S. M. Diermeier, D. A. Dietz, G. Dirks, K. T. Donahue, E. M. Dorfman, P. W. Drolet, A. L. Druckman, D. Dudley, R. Duncan, R. Dunne, T. C. Dyer, N.

E Earley, C. Earley, C. P. Earley, P. C. Economist, The Eden, L.

Eisenhardt, K. Eiteman, D. K. El Mundo Elfenbein, H. A. Elgar, E. Ellemers, N. Emerson, R. M. Erdogan, R. T. Erez, M. Ernst & Young Eun, C. S.

F Fan, R. M. Farlex Fee, F. Felsteiner, W.L.F. Ferrin, D. Ferrin, D. L. Fischer, A. H. Fisher, R. Flament, C. Folger, R. Follett, M. P. Ford, J. Forgas, J.P. France24 Friedman, R. Friedman, R. A. Fry, W. R. Fukumo, M. Fukuyama, F.

G Galinsky, A.

Galinsky, A. D. Gallucci, M. Gelfand, M. Gelfand, M. J. George, J. M. Gerts, M.J.J. Getman, J. G. Gibson, C. B. Gigone, D. Gillespie, N. Gilmore, D. GlobeScan and SustainAbility Goates, N. Goldberg, S. Goldberg, S. B. Gomberg, L. E. Gonzalez, J. A. Gough, N. Gouldner, A. W. Graham, J. Graham, J. L. Greenberg, J. Greenhause, S. Greenhouse, S. Greenland, K. Greer, L. L. Grove, J. Gruenfeld, D. Gu, J. Gunia, B. Gunther, M. Gupta, V.

H

Haag, C. Hackman, J. R. Hall, E. T. Hanges, P. J. Hardin, C. Hardin, G. Harinck, B. Harinck, F. Hastie, R. Heine, S. J. Herman, J. B. Hewstone, M. Hill, F. Hofstede, G. Holcombe, K. Holder, J. Hong, Y. Y. Hong, Ying-yi Horowitz, R. Hottovy, R. J. Hui, C. Huo, Y. J. Hyder, E. B.

I Ijzerman, H. Imai, L. Indeláová, H. Inglehart, R. Insko, C. A. Ip, G. Isaacson, W. Isen, A. M.

J

Janis, I. L. Janssens, M. Javidan, M. Jehn, K. Jehn, K. A. Jones, G. R. Jowett, B.

K Kâðitçibasi, Ç. Kamdar, D. Kameda, T. Kapner, S. Keisler, S.S. Keltner, D. Kern, M. Kern, M. C. Kerr, J. L. Kerr, N. L. Kim, D. Kim, P. Kim, U. Kim, Y. H. Kimmel, M. J. Koeninger, K. Koh, C. Konar-Goldband, E. Kong, D. T. Kramer, G. P. Kramer, R. M. Krauss, C. Kruglanski, A. W. KTVU Kuenen, L.

Kugler, T. Kühlmann, T. M. Kurtzberg, T. Kwak, R. S.

L Lai, L. Lattman, P. Lee, F. Lee, K.-H. Lee, S. Lempereur, A. Leonardelli, G. J Leu, J. Leung, A.K.Y. Leung, K. Leung, K.Y. Lewicki, R. J. Lewis, S. A. Liebrand, W.B.G. Lin, Y. C. Lind, E. A. Lisco, C. C. Litterer, J. A. Liu, L. A. Liu, W. Lorenzen, R. P. Lorenzen, S. L. Lovelace, K. Luke, M. Lytle, A. Lytle, A. L.

M Maddux, W.

Maddux, W. W. Magazine Insight TN-BK Magee, J. Magenau, J. M. Malhotra, D. Mallozzi, J. Mann, L. Mannix, B. Mannix, E. Manstead, A.S.R. March, R. M. Martin, A. Matsui, F. McGrath, J. E. McKersie, R. B. McRuer. G. McTavish, J. Medvec, V. Menon, T. Messick, D. Messick, D. L. Messick, D. M. Meyerson, D. Miller, D. T. Minder, R. Minton, J. W. Moag, J. S. Moffett, M. H. Moore, C. W. Moore, D. Moran, T. Morris, M. Morris, M. W. Mosakowski, E.

Mosquera, P. M. Rodriguez Mukherji, B. Munduate, L. Murnighan, J. K. Mussweiler, T.

N Nadler, J. Nandkeolyar, A. National Geographic Education Natlandsmyr, J. H. Natural Resources Defense Council Neale, M. A. Ng, K. Yee Nicholson, C. V. Nisbett, R. E. Nishii, L. H. Nishishiba, M. Norenzayan, A. Norris, F.

O OECD Oetzel, J. G. Ohbuchi, K. Okumura, T. Olekalns, M. Önder, Ç. Osgood, C. E. Ostrom, E.

P Patton, B. Paulson, T. Pelled, L. H.

Peng, K. Peterson, R. S. Pettersson, E. Pfanner, E. Pietroni, D. Pilcher, L. Pillutla, M. Pinedo, E. Pitt-Rivers, J. Points Guy Polman, P. Poon, M. Power, S. Prietula, M. J. Probst, T. M. Pruitt, D. G.

R Raia, C. P. Raice, S. Raiffa, H. Ramirez-Marin, J. Raver, J. L. Reed, S. Resnick, B. G. Reuters Ritchie, L. D. Robbennolt, J. K. Roberts, L. W. Robinson, R. J. Rodriguez Mosquera, P. M. Rogers, C. M. Rogers, N. Rognes, J.

Romero, S. Rosenfield, D. Ross, M. Roth, D. Rousseau, D. M.

S Salacuse, G. Sanchez-Burks, J. Sander, F.E.A. Sarat, A. Saunders, D. M. Saunders, M. Schippers, M. C. Schoonhaven, C. B. Schultz, J. W. Schwartz, G. Schwartz, N. Schwartz, S. H. Schwarz, N. Schweitzer, M. E. Sell, L.-C. Semnani-Azad, Z. Sentis, P. Sertori, T. Shafa, S. Shaklee, H. Shapiro, D. L. Sharma, A. Shaw, M. E. Shaw, M. L. Shengxia, S. Sheppard, L. A. Shikhirev, P.

Shirako, A. Sicoly, F. Simons, T. L. Sinaceur, M. Sitkin, S. B. Sivanathan, N. Skinner, D. Smith, D. Smith, K. A. Smith, P. L. Song, W. Z. Sproull, L. Stahl, G. Staw, B. M. Stendahl, M. Stonehill, A. I. Suarja, L. Sun, H. F. Swaab, R. Swaab, R. I.

T Tajfel, H. Takahashi, C. Tan, H. H. TED talk Tenbrunsel, A. Tenbrunsel, A. E. Thijssen, R. Thomas-Hunt, M. C. Thompson, L. Thompson, L. L. Thompson, P. Thucydides

Tiedens, L. Z. Tillmar, M. Times of India, The Ting-Toomey, S. Tinsley, C. Tinsley, C. H. Tinsley, J. Tjosvold, D. Transparency International Tremlett, G. Triandis, H. Triandis, H. C. Trompenaars, F. Tullis, P. Turner, J. C. Tyler, T. R.

U Unilever Ury, W. Ury, W. L. U.S. Department of Justice U.S. Government

V Vaessen, S. van Dijk, W. W. Van Dyne, L. van Ginkel, E. Van Kleef, G. A. van Knippenberg, D. Van Lange, P.A.M. Vroom, V. H.

W

Wade-Benzoni, K. Wall, J. Wall, J. A. Wall Street Journal Walton, R. E. Wang, F. X. Wasti, S. Wasti, S. A. Watabe, M. Weber, J. M. Wee, D. Wegner, D. Weick, K. E. Weingart, L. Weingart, L. R. Weiss, J. A. Welzel, C. Wenger, J. M. White, G. L. Wildschut, T. Wilke, H.A.M. Woolthuis, R. Klein World Bank World DataBank

X Xu, H.

Y Yamagishi, K. S. Yamagishi, M. Yamagishi, T. Yang, G. Yao, J. J. Yeginsu, C.

Yetton, P. W. Yoon, G. Young, D. Yu, S. Yu, Z. Y.

Z Zaheer, A. Zelikow, P. Zhang, C. Zhang, J. P. Zhang, J. X. Zhang, Z. X.

Subject Index

A AAR group, joint venture between BP and Abstract linear thinking, and Western culture Adversarial procedures Agreements. See also Potential agreements Alliance for Bangladesh Worker Safety Alternative dispute resolution (ADR) procedure Analytic mindset, and dignity cultures Analytic reasoning Anchoring Apple, “aikido move,” Arbitration: clauses; and culture; defined Arbitrator(s): authority of; selecting Association of Wholesale Grocers AU Optronics Authoritarian decision rule

B Bali, Indonesia, water management system BATNAs; evaluating; linked; of other party, identifying; in the planning document, evaluating potential agreements against; reassessing; and reservation prices; setting; and stalled negotiations Blackstone, investment in Pátria Bottom line. See Reservation prices Broadly focused agreement Bureaucracy; and global negotiations; interests, understanding; power of

C Cap and trade systems, and social dilemmas Carrefour Chevron

Chimei InnoLux Chunghwa Picture Tubes Claim value Claims, rejection of Club Penguin (Disney) Coexistence Collective goals Combining fundamentals Commitment, norms of Competitive social dilemmas; illegal cartels; legal cartels; risk of involvement in; signaling to manage competitive dilemmas; signaling to manage Competitive social motives “Concern for face,” defined Conflict: and cultures; defined; in dignity cultures; in face cultures; in honor cultures; interpersonal; procedural; task Conflict management and dispute resolution Confrontation style Consensus Contact goals Contingent agreement Contingent contracts; offers, using effectively Contributing dilemmas Contributing social dilemmas, using negotiation strategy to generate cooperation in Cooperative social dilemmas; cap and trade systems; contributing dilemmas; enforcing, rights-based approaches using; interests-based approaches to negotiating; legal regulations, rights-based approaches using; monitoring, rights- based approaches using; negotiation strategy; norms; power-based approaches to negotiating; privatization; reframing a situation; rights-based approaches to negotiating; shifting social identity from the self to the collective; taking dilemmas; utilitarianism Cooperative social motives Corruption; choosing to expose; defined; ethical standards, generating; extent of; global anti-corruption initiatives; in global negotiations; implications of getting caught; U.S. Foreign Corrupt Practices Act (FCPA); Walmart example; what to

do when confronted with Cross-cultural negotiations Cultural barriers Cultural differences Cultural intelligence (CQ) Cultural metacognition Cultural prototypes Culture, and arbitration; cultural boundaries; cultural looseness; cultural overlap, example of; cultural prototypes; cultural tightness; defined; dignity; emergence and development of; face; gains within/across; honor; and negotiating deals; and negotiation; and negotiation strategy; norms guiding social interaction; planning for effects of; prototypical; in a two-party negotiation. See also Dignity cultures; Face cultures; Honor cultures Currency fluctuations/economic instability

D Deal making; conflict management and dispute resolution; distributive; governments, negotiations between foreign direct investors and; integrative; multiparty negotiation and team decision making; negotiation strategy; social dilemmas Deal-making negotiations, advice for Decisions rules; authoritarian; consensus; majority; unanimity; voting Dignity cultures; and analytic mindset; characteristics of; conflict and confrontation in; egalitarian governments and market economies, characteristic of; insulating factors; interactions in; key characteristic of; as prototype of Western society; social independence of dignity; trust in Dignity cultures negotiators, deals/accommodation/safeguards for Direct confrontation Direct-confrontation cultures, resolving disputes in Discuss before decide (norm) Dispute resolution; compared to deal negotiations; and emotions; excellent dispute resolvers; how to start a negotiation; interests; power; rights; strategic approaches to; using third parties in Disputes: and cultures; defined Distributive negotiation

E Electronic communication, surmounting barriers to information exchange in Emotions, and dispute resolution Endesa: Acciona and Enel acquisition of; E.ON offer for; Gas Natural's tender offer Environments; of global negotiations Equality, norms of Equity, norms of Expropriation ExxonMobil

F Face cultures; characteristics of; conflict and confrontation in; as hierarchical social structures; holistic mindset; interactions in; as the prototype of East Asian societies; social interaction; trust in Facilitators Factions/coalitions Fixed pie Foreign direct investment (FDI); avoiding the pitfalls of Foreign direct investment (FDI): corruption; Danone company vs. Wahaha Group (example) Foreign direct investment (FDI): governments' interest in; governments' vulnerabilities and interests, identifying; interests; investors and governments' interests in; legal risks, hedging; predictable challenges to; rule of law Foreign workers, risk of violence or kidnapping of Free riders Fundamentals, combining Fusion teamwork; coexistence; compared to hybrid teamwork; and creativity; cultural intelligence (CQ); cultural metacognition; fusion model, reasons for developing; meaningful participation; risk of; survey statements related to fusion Future-based agreements

G Gap Generalized reciprocity

Getting to Yes: Negotiating Agreement Without Giving In GFATM (Global Fund for AIDS, Tuberculosis, and Malaria) Global assignments: hostage negotiations; keeping employees safe in; risk of violence or kidnapping of foreign workers Global managers, as dispute resolvers Global negotiations: and bureaucracy; currency fluctuations/economic instability; corruption in; environment of; expropriation; with government; planning for; ripple effects Global negotiators: accommodation; deals/accommodation/safeguards for; effectiveness of; and ethics; excellent; and social dilemmas Google, negotiations with the Chinese government Governance Indicators (World Bank) Governments, negotiations between foreign direct investors and GRIT (graduated and reciprocated initiatives in tension reduction) Groupthink; setting norms for negotiating decisions

H High context communication Holistic mindset: and face cultures; and S&O (substantiation and offers) strategy Holistic reasoning Hong Kong Chinese intracultural negotiations Honor cultures; characteristics of; conflict and confrontation in; defined; hierarchical social structures; interactions in; mindset in; and self-worth; trust in Hostage negotiations Human rights abuses, avoiding Hybrid teamwork

I Illegal cartels In-groups Indirect confrontation Indirect-confrontation cultures, resolving disputes in Individualistic social motives Insight, and S&O (substantiation and offers) strategy Insufficient adjustment

Integrative deal making Interactional justice Interactions: in dignity cultures; in face cultures; in honor cultures Intercultural negotiation model; outcome potential, defined Intercultural negotiations; advice for; high joint gains, possibility of; strategic misalignment between negotiators Intercultural negotiators, strategic misalignment between Intercultural simulation data Interests; anticipating; of bureaucracies, understanding; changing the focus from right to interests; defined; uncovering; using to resolve disputes Interpersonal conflict; causes of; managing; minimizing Israeli intracultural negotiations

J Japanese: communication norms; hai, use of term among; insight generation; normative negotiation, value of; and S&O (substantiation and offers) strategy; and trade-off issues Joint gains, defined

K Kidnap situation, negotiating Kirchner, Christina Fernández de

L Language barriers Legal cartels LG Display Limited-duration agreement Linked BATNAs, and minimizing of costs Local norms Loose cultures Low context communication Low trust, and S&O

M

Macy's Majority decision rule Massmart, Walmart's acquisition of Meaningful participation Mediation: and culture; process Mediators; empathy of; negotiation skills of; selecting; training for MESOs (multiple equivalent simultaneous offers); defined; downside of opening with Mindset; and negotiation strategy Motivation Movable currency, defined Multi-issue offers, making Multiparty decisions, using negotiation strategy to make Multiparty negotiation

N “Need for closure,” defined Negative emotional spirals, avoiding Negative substantiation Negotiation: BATNA; contexts for; and culture; deal making; defined; global, environment of; interests; strong relationships between parties to; in teams Negotiation Planning Document; adding parties to; reading/using Negotiation strategy: BATNAs and reservation prices; building blocks of; and culture; and cultures; deal making; deal-making negotiations, advice for; defined; intercultural negotiations; interest of counterpart; issues, identifying; model of; and outcome potential; parties; positions; power, major source of; priority of an issue; target setting Negotiations, trust in Negotiators, interdependence of Non-adversarial procedures Non-precedent-setting agreement Normative negotiation, value of Norms; of commitment; of equity and equality; local; of reciprocity; regulating behavior in social dilemmas using; setting for negotiating decisions

O Objective standards OPEC (Organization of Petroleum Exporting Countries) Organization for Economic Cooperation and Development (OECD) Other-insight Out-groups Outcome potential: defined; and negotiation strategy

P Parties Potential agreements: against the BATNA; against the counterpart's interests; evaluation criteria Power; anticipating; of bureaucracy; defined; major source; uncovering; using to resolve disputes Power/status Precedents Priority of an issue Prisoner's dilemmas (PD); example Privatization, and social dilemmas Procedural conflict Procedural justice Prototypical culture Psychological barriers

Q Q&A (question and answer) strategy; defined; and trust

R Recategorization, and social identity Reciprocity: and dignity cultures; norms of; and trust Relative insight Repsol Reservation prices; and BATNAs; defined; setting Rights; anticipating rights standards; changing the focus from rights to interests; defined; uncovering rights standards; using to resolve disputes

Ringi decision-making Ripple effects

S S&O (substantiation and offers) strategy; defined; and generation of net value; and holistic mindset; and insight; and threats; and trust Samsung Saticficing, defined Second agreements, proposing Self-insight Self-worth Sensitivity and response to insults Settlement rates SHARC dilemma Shark Harvesting and Resource Conservation (SHARC), defined Skills; mediator's negotiation skills Social dilemmas; competitive; cooperative; defined; generating cooperation in; negotiating individual and collective interests in; and prisoner's dilemmas (PD); self-interests, balancing Social distance, defined Social identity; cultural differences; in-groups/out-groups; increasing by distinguishing in-group/out-group membership; making salient; and recategorization; risks when making salient, avoiding Social motives South Africa, Walmart in Standards of comparison Status Stereotypes Structural barriers of distance, time, and part time Subaks, defined Subgroup dominant teamwork Substantiation; believability of; defined; negative

T Taking social dilemmas; using negotiation strategy to generate cooperation in

Target (retailer) Target setting Task conflict Team decision making Team management, challenge of Team negotiation; BATNAs, evaluating; and conflicts/disputes; cultural barriers; decisions rules; environments; generating information in teams; guidance needed in; interpersonal conflict; interpersonal conflict, minimizing/managing; language barriers; meaningful participation; minimum agreement; motivation; multi-issue offers, making; multiple-issue team decisions; Negotiation Planning Document; procedural conflict; psychological barriers; second agreements, proposing; skills; strategy; structural barriers of distance, time, and part time; structuring issues for negotiation; task conflict; team decisions, evaluating; Team Planning Document; teamwork models; as two-stage process Team Planning Document Teamwork models; fusion teamwork; hybrid teamwork; subgroup dominant teamwork Thinking net, use of term Third parties, using in dispute resolution Third parties with authority; arbitration and culture; arbitration process; selecting an arbitrator Third parties without authority; culture and mediation; mediation process; mediator selection Three-culture framework; value of. See also Dignity cultures; Face cultures; Honor cultures Tight cultures TNK-BP Trade-off Transaction costs Transactive memory Transparency International Trust; building outside the negotiation; in dignity cultures; in face cultures; in honor cultures; information sharing, reciprocating; and multiple issue offers; in negotiations; and offer patterns; and Q&A; and S&O; setting a positive tone; testing

Turkish protests (Taksim Square, 2013) Two-party negotiation, and culture Two-thirds majority

U Unanimity Unilever United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards U.S. Energy Information Administration U.S. Foreign Corrupt Practices Act (FCPA) Utilitarianism

W Walk away. See Reservation prices Walmart; Massmart acquisition; in South Africa WATNA World Bank: International Center for Settlement of Investment Disputes

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