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RESEARCH & IDEAS

Five Steps to Better FamilyNegotiations Published: July 9, 2007 Authors: John A. Davis and Deepak Malhotra

Family relationships are complicated, evenmore so when your uncle, mother, or daughter is your business partner. Harvard BusinessSchool's John A. Davis and Deepak Malhotraoutline 5 ways to analyze and improvedealmaking and dispute resolution while

protecting family ties. As they write, familynegotiations are difficult yet also containbuilt-in advantages. Key concepts include: Compared to managers in other businesses,

managers running a family business are faced with additional complexity innegotiations because of personal relationships and family history.

Negotiators who negotiate multiple issues simultaneously are more easily able torecognize value-creating tradeoffs.

Effective negotiators get past stated positions (what a party demands) and understand the underlying interests (why the

party wants what it demands).

Negotiations between family memberswho own a business are differentdifferentfrom negotiations between non-family membersand also different from negotiations betweenfamily members who don't have a business.This is because family relationships aredistinctive kinds of relationships, and having afamily business raises the stakes ofand oftencomplicatesa family negotiation.

Consider first what sets family relationships

apart. Relatives (especially in nuclear families)typically have long-standing relationships thatare based on strong emotional ties and lifelongfeelings of dependency. These characteristicslead to stronger loyalty and sensitivity to oneanother but also greater reactivity in their interactions. Family relationships also havedeeply ingrained patterns that have developedover years of interacting. Relatives develop and

play certain roles in their families, which tendto become fixed and limit the ways familymembers interact. Some of these patterns androles can aid communication and negotiation,and some can derail communication and disputeresolution. In addition, communication betweenfamily members is notoriously complicated.Because of the sensitivity of their relationships,relatives struggle between openness and caution

in their statements to one another. Familymembers also tend to have difficulty listening toone another without judging what they hear inthe context of countless prior experiences thatmay have little to do with the current topic theyare discussing.

In addition to these factors that apply to allfamily relationships, family members who arein business together have a lot at stake and feel

pressured to consider what's good not only for the family but also for the business and itsowners. There is generally a lot more for familymembers to manageand negotiate overin afamily business system. Issues such asdividends and reinvestment, nepotism and

professionalism, loyalty to stakeholders, andorganizational change are ever present; they can

be tripwires that spark intense feelings and havewide-ranging implications for the business,family, and owners. In many cases, family

members have multiple roles in the system, likefather-owner-manager, daughter-employee, or aunt-owner. These multiple roles and ties cancreate more shared objectives and as aconsequence, more potential for value creation.However, these multiple roles and ties can beconfusing to coordinate. Relatives canexperience role confusion (should I act as afather or boss, a daughter or vice president?)and struggle over the appropriate role to play ina particular negotiation (e.g., is this afather-daughter negotiation or a boss-employeenegotiation?). In vaguely defined situations,

there is increased opportunity for misunderstanding and conflict.

But given the distinctive nature of negotiations for families in business, 5 basic

principles of negotiation that have provenrelevant in a wide variety of deal-making anddispute-resolution cases can help familynegotiations to be productive while protectingfamily relationships. Some of the 5 principles of effective negotiation are easier for familymembers in family business systems to apply,and others are more difficult. But all 5

principles of effective negotiation can be

successfully leveraged in negotiations betweenfamily members in family business systems. Wewill review the principles and their applicabilityto family negotiations below.

1. Analyze the negotiationspace

The negotiation space consists of all partiesthat are affected by the negotiation, or that canaffect the negotiation. Before you negotiate, it iscritical that you consider the interests, the

power, and the constraints facing each party. Inthe case of family businesses, many of the

parties affected by a negotiation, or able toaffect it, will be around for a long time. It isdangerous to negotiate only considering theinterests of those at the bargaining table whenthose who are not at the table will be affected

by what is negotiated and can assert their rightsor power in the future.

A typical strength of familynegotiations is that family

members generally prefer toreach mutually acceptableoutcomes in their negotiations.

The negotiation space in a family businesssystem is often extensive and typicallycomplex, involving family members,employees, and owners of the business, and alsomay involve key stakeholders of the family

business system (e.g., customers and suppliersof the business, members of the community inwhich the family lives, etc.). Because familymembers in a family business system havehighly interrelated lives, even if a relative is notdirectly involved in a negotiation, he or shemight have a keen interest in its outcome and beable to affect the outcome. For example, if afather and his son are negotiating over the son'semployee compensation, the negotiation spaceis likely to include (among others) the son'simmediate boss, the son's coworkers, his sister (who is considering joining the business nextyear), and his mother. The wife-mother may not

be a manager, board member, or owner, andhave no official say in this matter, but she maystill have a strong influence on both the father and the son, and her support may be critical for reaching a negotiated outcome that everyone

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finds acceptable and fair.

2. Don't try to beat the otherside

Winning in a negotiation doesn't necessarilymean that the other party needs to lose. On thecontrary, most successful negotiations entail the

possibility of mutual value creation, compatibleif not aligned interests, and cooperation. In fact,trying to beat the other side often results innegative results for both sides. The personinflicting injury will almost always end uplosingpsychologically, socially, and/or financiallyas well. This is obvious in anegotiation between family members who wantor need to keep a mutually supportive familyrelationship.

A typical strength of family negotiations isthat family members generally prefer to reachmutually acceptable outcomes in their negotiations. This constructive attitude is due inno small part to the strength of family ties:Typically, family members are genuinelyinterested in one another's welfare and prefer toavoid conflict because of its effect on futureinteractions. But some family relationships areweakened to the point where beating the other side is consciously or unconsciously desired byat least 1 party in the negotiation. So it is worththinking through whether you wish to work together with the other side to negotiate andresolve conflictsor whether you wish to"win." If it's the latter, hopefully you will have afriend or advisor discourage you from this path.

3. Understand the otherparty's interests, constraints,and perspective

Many people see negotiation as anopportunity to persuade and influence the other side to give them what they want. As a result,most people do not go into negotiation with thegoal of listening to and learning about the other

party. This is unfortunate, because to get whatyou want in negotiation, you often need tounderstand the other side's needs and interests

so that you can "give a little to get a little (or alot)." Even if the other side is entirely willing tohelp and is ready to give you what you want, itmay be critical that you understand theconstraints that he or she faces in meeting your demands. In other words, effective negotiationrequires that you understand the other side'sinterests and constraints, and that the other

party understands your interests and constraints.Most family members are typically well

intentioned when they negotiate, and one wouldthink that such an orientation would make iteasy for family members to listen to each

other's perspective and to learn about eachother's interests and constraints. But this isn'tthe norm for several reasons. First, relativestend to be less curious and inquiring about their relatives than they are of others they know less

well. This stems partly from anassumptioncommon among familymembersthat they already know what theother party wants, likes, and needs. Second, thelong history of a family can also institutionalizeroles for family members that are rather intractable, making it difficult, for example, for

parents, children, and siblings to see each other as they are currently rather than as they werewhen they were younger. Third, becausefamilies generally fear conflict, they avoidcertain conversations (that may be useful or necessary in a negotiation) for fear it will touchon a sensitive issue or encourage personalcriticism that they won't know how to manage.While this might alleviate tension in the shortrun, it also perpetuates the status quo. Theconsequence: negotiations that involvelistening, learning, and the exchange of authentic views between peers do not becomethe norm in most families.

Ironically, it turns out, people in closerelationships (such as spouses) often negotiateworse outcomes than do people who care lessabout their counterparts!1 Why? Because thosein close relationships often avoid making their own interests and priorities known tootherseven when these are extremelyimportant issues to themand instead,compromise across the board in order to avoid

being perceived as greedy or overlyself-interested. This makes it incumbent onfamily members to encourage others to identifytheir core interests and concerns.

4. Avoid single-issuenegotiations: identify andnegotiate multiple issuessimultaneously

Value is created in negotiation when each party gets what it values most, and makesconcessions on issues that the other side valuesmore. But for this to happen, you need toidentify all of the issues that are of concern to 1or more of the parties, and to negotiate multipleissues simultaneously. People will often getstuck on the most salient issue in a negotiation(e.g., salary or status) and spend too much timehaggling over that 1 issue. Or, even when theyunderstand that there are a lot of issues toresolve, they will go through the issues 1 at atimeand then argue excessively about their incompatible demands on each issue.

Negotiators who negotiate multiple issuessimultaneously are more easily able torecognize value-creating tradeoffs. Because of the complex negotiation space in which

business families operate, and because familymembers in business have many overlappinggoals and interests, family members generally

are negotiating multiple issues simultaneously.But they are not always doing so consciously,transparently, or systematically enough.

While any multi-issue negotiation is goingto be complicated, the likely outcome is

considerably worsened when negotiators become overly focused on a single issue or dimension. The far superior approach is for all

parties involved to work together to identify allof the issues that are relevant in the currentnegotiation, and then identify which issues aremost important to each person (and whichissues each person can concede on).

5. Negotiate over interests,not positions

Effective negotiators get past stated positions (what the party demands) andunderstand the underlying interests (why the

party wants what it demands). Often, disputesover positions will be irreconcilable, whereas afocus on interests will lead to a mutuallyacceptable agreement. Some families areexceptional at encouraging family members todream and explore their authentic interests andto express these interests within the family.These families have cultures where familymembers can talk openly about their goals,needs, and fears. If a family member doesn'tknow what his or her interests really are, asupportive family can encourage the familymember to talk about possible scenarios andgradually uncover his or her true interests. This

process requires patience and a nonjudgmentaland positive attitude about the family member and his or her possible choices. In a trustingenvironment where an individual's true needs,goals, and fears can be expressed, a negotiationover interests rather than over positions is more

likely.

Concluding thoughts Negotiations between family members in

family business systems are typically morecomplicated and difficult than those betweennon-related individuals in non-family businesssystems. Because family relationships haveexisted for many years, they have deeplyingrained tendencies, some of which canfacilitate a constructive negotiation and somethat can hinder it. But if some family members

begin to leverage the 5 principles of effectivenegotiation we have outlined, they will increasetheir chances of successful dealmaking anddispute resolution. The likelihood of successincreases further if others in the family businesssystem learn to put into practice these

principles.Footnote:

1. Valley, K.L., Neale, M.A., & Mannix, E.A.(1995). "Friends, lovers, colleagues, strangers:The effects of relationships on the process andoutcome of dyadic negotiations." In R.J. Bies,R.J. Lewicki, & B.H. Sheppard (eds.), Researchon Negotiation in Organizations, vol. 5: 65-93.Greenwich, CT: JAI.

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About the authorsJohn A. Davis is a senior lecturer of

business administration at Harvard BusinessSchool.

Deepak Malhotra is an assistant professor in the Negotiation, Organizations & Marketsunit at Harvard Business School.

HARVARD BUSINESS SCHOOL | WORKING KNOWLEDGE | HBSWK.HBS.EDU


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