How can we overcome the market standard objection in negotiations?
This is one of the recurring questions asked by client CEOs on negotiations. Discover the approach SITUASYS takes:
The Innovator's View
Any negotiation objective is usually benchmarked against the market standard. As a negotiator, you are likely wondering how you can overcome a market standard objection in your negotiations, thus achieve a concession that departs from what is usually granted on the market under similar conditions.
Start by adopting what I call the "Innovator's View" of your negotiations and remind yourself that any market standard traces its origins to a first. At some point in the past, some party agreed for the first time to concede something that had not been conceded so far under similar circumstances. The party requesting and eventually receiving this first-time concession was surely facing the same objection: “This is not market standard. We have never done that.”
Yet, apparently, the requesting party reasoned convincingly and received the concession. This concession became known in the industry, through employees, who were part of that pioneering deal, and other deal stakeholders. Thereby, this concession became known as achievable and was requested again and again, until it became market standard to receive it.
Therefore, let yourself not be deluded by the objection: “What you are asking for is not market standard”. By making the case for a reasonable exception to the rule, you can create the first of many transactions that, eventually, might create an alternative to or a new market standard altogether, complementing or replacing the one you are facing today. Adopting the "Innovator's View" will give you the confidence that you can achieve an outcome more suitable to your organization’s needs than the market standard.
Discover the SITUASYS Case, where the Innovator's View enabled synthetic funding for illiquid assets from the only potential trade partner.
Example in History: The Golden Parachute
An example of the "Innovator's View" is the standardization of the so-called golden parachute, the clause in an executive’s employment contract, which guarantees that top executives of a company are generously rewarded if they are forced out in a merger or an acquisition. Attorney Joseph Bachelder III is considered the engineer of the golden parachute. He successfully negotiated such clause for the first time for the contract of Charles Tillinghast Jr., the former Trans World Airlines chief executive, in 1961.
With the advent of the hostile corporate takeover wave of the 1980s, the provisions proliferated, and this can be traced back to Mr. Bachelder’s novel approach to executive contract negotiations and what I coin here as the "Innovator's View”. By 1986 about a third of the largest 250 U.S. corporations had accepted a clause that granted executives various benefits in case of a change in company control. By the early 1990s such clauses had become standard for executive compensation, not only among the largest corporations, where most Fortune 500 firms had adopted them, but also among smaller companies.
Bachelder had been successful in overcoming the market standard, which did not provide for a generous exit package, by having companies agree that there is no better indicator of success than the quality of its chief executive. As many CEOs of acquired firms found themselves with less responsibilities or without a job after a takeover, golden parachutes gave them financial security and kept them from opposing a takeover that would be attractive to the company's shareholders, thereby aligning executives' incentives with those of investors.
“Joseph Bachelder III, Engineer of the Golden Parachute, Dies at 88”, Ephrat Livni, New York Times online, December 28th, 2020
“A Short History of Golden Parachutes”, Peer Fiss, Harvard Business Review online, October 3rd, 2016