September 11, 2012

Negotiation lessons from the National Hockey League

Posted in Employment Law, Negotiation by Gene Killian |

One day long ago, one of my law professors invited a “negotiation expert” to give a talk to our class.  After the lecture, there was a question-and-answer session.  At the time, the National Football League Players’ Association was on strike.  So, I raised my hand and asked the expert when he thought the strike would end. 

Bad move. The expert condescendingly harrumphed, “I have no idea.” The professor groaned. My fellow students twittered (small “T”, since believe it or not there was no social media back then).  Clearly, if I was worried about a stupid game played by Neanderthals, I wasn’t thinking deep enough thoughts.  

Although time heals all wounds, I think you can see that I still seem to harbor some resentment about this whole episode.  (Have…to…let…it…go.)

The point – and I do have one – is that the “expert” was ignoring the unfolding before him of a major labor negotiation involving hundreds of millions of dollars.  Shouldn’t he have been paying attention?  So let’s not make the same mistake, eh?  Let’s have a look at the current dispute between the National Hockey League Players’ Association and ownership, and see what lessons we can learn, if any, as negotiators (I have to preface this discussion by saying that I need to make some assumptions, since I’m obviously not privy to the closed-door discussions, and the ownership group has apparently imposed a code of “omerta” on its members, under which any owner who discusses the Collective Bargaining Agreement in public is subject to a $1 million fine.)

At the center of the argument is a dispute over what’s termed “hockey-related revenue.”  (I’ll call it “HRR.”)  HRR is the figure used to calculate the salary cap for players.  The league wants to reduce the players’ share of HRR to 46%.  The players’ share was 57% last year.  The sides are also arguing over how to calculate HRR.   For purposes of this discussion, though, I won’t focus on the merits of the arguments, but on three situations involved in the NHL talks, which can apply to any negotiation.

First, let’s discuss the use of an artificially imposed deadline.  The current Collective Bargaining Agreement expires on September 15, 2012.  (I’m writing this a few days before that date.)  Gary Bettman, the NHL commissioner, says that if an agreement isn’t reached by September 15, the owners will lock the players out.  According to Bettman, that’s because once the September 15 barrier is crossed, “the dynamic changes, the business is damaged, and it’ll be harder to make concessions.” (One problem that Bettman faces with his deadline is that, beginning in October, each player will get a check for 8% of last year’s salary, representing escrow money being returned, so the players have a bit of a safety net.  The escrow, which players hate, is money withheld from paychecks to make sure that salaries stay at the 57% level.)  By the way, as a negotiator, I would jump on a statement like that, by saying something like:  “I see you talked about concessions…let’s talk about what concessions we’d still both be willing to make to get to a deal.”

Imposing artificial deadlines in a negotiation can be a useful tactic, especially if tied to some objective marker (here, expiration of the CBA).  After all, to get a deal done, sometimes you need to generate a sense of urgency.  But tread carefully.  Once you impose a firm deadline, it’s usually not advisable to move it, because doing so affects your credibility in the negotiation room (“they moved once, they’ll move again”).  And creating a “drop dead date” sometimes can hamper your flexibility.  What if you’re making progress as the deadline approaches?  How do you plan to handle that issue?  Have an answer ready for that question in advance.

If you’re going to impose a firm deadline, convey to the other side the reasons why the deadline is necessary (for example, in a commercial context, “I have to get this contract done by next week or I have to go elsewhere, because otherwise we’ll lose a customer worth $500,000 in revenue”).  If all you’re saying is “the business will be damaged,” it’s fair for the other side to ask that great question: “Why?”  If you don’t have a good answer tied to objective facts, then your credibility suffers…and credibility is everything in a negotiation room.

What if the other side tries to impose an artificial deadline on YOU?  Normally, this would be deemed an aggressive move.  Under tit-for-tat negotiating theory, you might look to respond with a proportionate aggressive move.  Using the NHL negotiation as an example, one proportionate response might be: “That’s okay, we don’t want to negotiate past September 15 either, since a lot of our guys are making arrangements to play in Europe.” The idea is to set the tone by meeting a threat with a proportionate threat, in the hope that your opponent will retreat to cooperative mode.  Sometimes this works, and sometimes it doesn’t, but you don’t want to try to negotiate cooperatively with an negotiator who’s being aggressive.  That seldom ends well.     

Second, let’s look at the old saw, “I won’t negotiate against myself.”  This usually comes up when one side says to the other something like:  “Your number is too high (or low).  You have to adjust it or we have nothing to talk about.”

In the NHL negotiation, the league initially proposed that the players take a cut in HRR from 57% to 43%. The players proposed that, if they were to take any cut, there should be a “bounceback” to 57% in Year 4 of the CBA.  Management then apparently proposed a six-year CBA, under which the players would go to 51.6% in the first year; 50.5% in the second year; 49.6% in the third year; and then level off at 49.6%.  The owners contended that “if there’s not an immediate reset of salaries, there’s no reason to talk.”  Result: impasse.  Management contends that the players are stonewalling by not specifically responding to the most recent offer, even though the players had previously made clear that they did not want to give away something that had been previously given to them (namely, 57%). In other words, management won’t move unless the players move, and won’t move at all without serious salary cuts.

What do you do if you’re on the players’ side – the side facing the “we won’t negotiate against ourselves” stratagem? What are some counterstrategies?  The most obvious, of course, is to make some sort of counterproposal, but here that becomes difficult because one side says it absolutely will not go to 57% and the other side says 57% is necessary.

One possibility is to try reframing the discussion entirely and looking for new alternatives.  Sometimes, this might require an influx of fresh thinking, by changing negotiators altogether and seeing what happens.  (I note that, recently, both sides in the NHL talks agreed to reduce the number of representatives present at the bargaining table, to see whether that would help.  Apparently, it hasn’t so far.)  Another response might be:  “We’re not asking you to negotiate against yourselves, but we have to get away from your proposal somehow or we’ll make no progress, and we’ve already said that one of the foundations of your proposal is unacceptable to us.  Is there another way to get this done?” In other words, start talking about a range of numbers or options noncommittally, and see whether you can gain some traction that way.  You may end up with a better deal than you were originally proposing.  When you seem to be at impasse, it’s worth a try.                   

The final issue I’d like to discuss (for now) is the concept of negotiating with a partner you’re likely to see again.  In the last NHL lockout (2004-05), the union “blinked” and management got everything that it wanted, principally an overall salary cap.  (Whatever your view of a salary cap and whether it’s been good for the game, the players viewed it as a defeat.)  Be careful about “winning” a negotiation too strongly.  It may come back to haunt you.  Here, the players seem to have hardened their resolve because of the way the last negotiation went.  As Sun Tzu said in an analogous context:  “To a surrounded enemy, you must leave a way of escape.”