Mediation: What Makes the Difference?

Two different mediations. Each with a completely different subject matter. Different cities. Different months. Different lawyers. One involving a construction contract, the other financial services.

Each reached a stage in negotiations where one party offered an amount, x, and the other party sought an amount, y.  Remarkably, the amounts x and y were the same figure in each mediation and thus the difference between x and y was also the same.  That difference, in the overall scheme of things, was relatively small, significantly less than 10% of the principal sums. Neither claiming party had a specific need to achieve y. There was an emotional component present for both. The paying party was on each occasion funded by an insurer. 

At the end of each mediation, the parties’ principals, the clients, met together in an atmosphere of mutual respect and thanked each other for the attempts made to resolve a difficult and long-running matter. The negotiations were, largely, conducted in a spirit of openness and apparent good faith. 

And yet….in one mediation, the parties reached an agreement and, in the other, they did not. What was the reason for these different outcomes?

As ever, there is no one answer. One might ask what had happened, if anything, during the day in each case to trigger or prime a certain response? I couldn’t detect reactive devaluation. Each party seemed to accept that the other was doing its best. Optimism bias, perhaps, but over such a relatively small difference? Could that really cause a deal to be lost, or a bridge not to be built, when the ongoing court costs would soon exceed the difference? 

Possibly the endowment effect: one has so much invested in one’s own view of value, that objectivity is hard to achieve.  But what about risk aversion? In each case, there was real risk on the facts and good reason to settle. And the bird in the hand theory (“carpe diem”) seemed really important, perhaps especially in the case which did not resolve, so that discounting possible future value to achieve present certainty appeared to be a rational thing to do. And yes, costs had been incurred so that the sunk cost fallacy may have had an impact but everyone was also realistic about future cost escalation. This was the time to reach agreement if possible.

There was one factor which may have been material. In one case, the lawyer was quite proactive in carrying out a pragmatic risk assessment and in helping the client to be realistic too. Expectations were managed and any tendency to exaggerate or inflate was resisted. Concessions were offered in order to expedite the negotiations. In the other matter, the lawyer seemed more reactive and willing to leave decisions with the client. There may well have been a different dynamic in that room, a different client-lawyer relationship and expectation – and of course I was not privy to discussions which occurred while I was not present. 

Further, my own relationship with the claiming parties was marginally different. My attempts to test reality and check understanding of risk were received in slightly different ways, one welcoming, another less so. When combined with the different approach of the lawyers, that may have created a sense of pressure by the mediator in one matter, which may in turn have created resistance. It is difficult to do other than speculate.

And my sense was that insurer attitudes were quite different. In one case the insurer was personally present. In the other, the insurer was on the end of a telephone. Might that have made a difference? 

Incidentally, in the case which did not settle, I subsequently suggested (carefully) that the parties might split the difference but (obviously) only if both wished to do so. To my surprise, that I should even make such a suggestion was met with disapproval by both. Perhaps directing their ire at the mediator would galvanise them. Funnily enough, on my desk that evening, I discovered the book “Never Split the Difference” by Chris Voss. Point made.

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