FACULTEIT

RECHTSGELEERDHEID

Faculteit Rechtsgeleerdheid

Memo II: Negotiating and the ladder of inference

European Contract Law 2011-2012

Jan Vanbockrijck s0183387

1. The case Bart, the marketing manager of a well-known news website about games, has received the traffic numbers of the site. He notices that traffic has been going down. Recently, a couple of writers have been replaced and he immediately assumes that the new writers are the cause of the downfall. Furious with their lack of talent, he decides to fire the new writers. Finding, hiring and training new writers takes time and is costly. Meanwhile, the numbers will keep going down because the quality and number of articles has dropped. It is clear that this decision is suboptimal if the replacements arent much better than their predecessors. After having spoken with both the writers and Bart and having considered all the relevant facts I believe there is way to create value without firing the writers. I receive Bart in my office to show the errors in his judgment and to negotiate an agreement. To make his faulty judgment clear to him, I will use the ladder of inference. Because of his impatience and eagerness to be in control, Bart can be labeled as a competitor.1 During our talk, I will invite him to empathize when needed.

2. The ladder of inference a. Reality and facts Even though it is true that traffic has gone down, the new writers have told me that there are many factors mitigating the downfall. They indicate that this has to do with the older staff not listening to their suggestions and the stagnant state of the site. They believe that if they had more power to change certain things, traffic would go up.

b. Selected reality Bart is interested in only two things: numbers and revenue.

c. Interpreted reality He has little knowledge of anything else but interpreting numbers. He therefore assumes that when the numbers go down, quality must have gone down equally. However, quality cant be measured in absolute numbers, especially not when writing news articles.

d. Assumptions Bart assumes that the older, more experienced staff members cant be the blame for the downfall.

R. MNOOKIN, Beyond Winning: Negotiating to Create Value in Deals and Disputes, Harvard University Press, Cambridge, 2010, p. 51

e. Conclusions The conclusion in Barts eyes is simple. The new writers are horrible and should be replaced immediately.

f.

Beliefs

Bart believes that anything in this world can be expressed in hard numbers. I will try to make him see that this isnt the case when evaluating the quality of a news article. An article may be beautifully written but still have very few readers. This can be attributed to the fact that most people only have interest in certain genres or games and will therefore not read other articles. Just because there is less of an interest in a certain niche market doesnt mean that those readers arent as valuable. If they notice there is no news about the genres or games they are interested in, they will defect to another site, which will decrease overall traffic. g. Actions The course of action is simple and effective in his eyes: fire the new writers and replace them with better ones. However, I believe that there my negotiated deal can create more value.

3. Negotiating the deal a. Exploring the views of the parties It is clear that there are two different views. Barts view is that traffic might go down at first, but will increase once the newest writers are on a roll. The writers view is that traffic will go up once they can make the necessary changes. Their common goal is that they want the traffic to go up and they want the website to flourish. When putting together a draft for the agreement, I will keep this in mind. Both parties have different time preferences. While Bart believes in short-term solutions, the writers are more interested in a lasting long-term plan.

b. Best alternative to a negotiated agreement To be able to create value I will have to try to define the best alternative to a negotiated agreement (BATNA) of both parties. Because of the many factors in play, there can be no numerical value to the BATNA, as there can be no numerical value to the proposed deal. In Barts case the only option is hiring new writers. He has two possible courses of actions that could qualify as the BATNA. First off, because there are no unemployed writers with experience, he can try to lure experienced writers from other websites. This has the advantage that the training will be shorter and that the traffic of the website will go up faster. A clear disadvantage is that he will probably have to pay the new writers more than what is conventional to lure them away and that the reputation of the website will decrease because they have stolen employees from other websites.

The second option is to hire inexperienced writers. Because of their lack of experience, he will have to pay them less than the conventional wages (at least at first). Unfortunately, the costs of training the new writers are a lot higher and the quality when they start will be significantly lower. Therefore traffic will keep decreasing in the beginning, which will in turn harm the confidence of the sponsors and consumers. For the writers the possible BATNAs are moving to another website or starting their own website. Because they have been laid off, the public perception of their skills will be lower than they truly are. So it will probably be harder to negotiate a good employment contract with another website. They will receive less payment and will have less control. Creating a website of their own will negate those side-effects, but takes skills that the writers probably dont have. More importantly, they lack the required funds to cover the necessary expenses, such as buying a domain name.

c. Risk distribution scheme I have learned that there is a great difference between the parties regarding their risk preferences. Bart is frightened that when the new writers take over, the traffic will plummet. He can therefore be considered as risk-aversive. The writers on the other hand are certain that the traffic wont go down if they are in charge and are willing to take the fall if it doesnt. They can be considered as risktolerant. I therefore propose a risk distribution scheme. I will let the new writers do the things that they believe are necessary to increase traffic and if they still produce less traffic because of that, they will be paid less. I will give the new writers more control, but only under two conditions. First of all, they need to work out some sort of a business plan that Bart can agree to. If the writers go outside that plan without Barts consent, they will immediately lose their powers and their jobs. Furthermore, the case will brought forward to an expert who will then assess the damages, if any, caused by going outside the business plan. The writers will pay this expert. Putting together a business plan wont be hard, because in a previous meeting between the writers and the executive staff, they have extensively shown what the problems are in their eyes and also what the best solutions are. This way the writers will be able to pursue their goals and Bart can rest assured that nothing that isnt kosher enough to his liking will occur. Most of the measures have to do with appearance and functionality anyway, which have little effect on the websites reputation and can easily be reversed if they prove to be unsuccessful. Secondly, I will propose an incentive contract. The writers will receive a base salary that is less than their current salary, but they will all receive bonuses for increased traffic, regardless of the individual traffic of their respective articles. The salary is therefore dependent of the success of the proposed measures. An advantageous side-effect to this method is that it encourages teamwork, which is fundamental for the quality of the website. There might be a problem if the work is unevenly divided between the writers. If this is the case, then I suggest that the bonus should be higher if a writer works more hours. Furthermore, the writers will liable for every cent in lost revenue if traffic goes down. This way the interests of both parties are better aligned.

Because the writers are confident of their abilities and Bart only cares about money, I think it is likely that both parties will agree to this agreement.