Author: Emily Miller

Adapted from “Matching Rights: A Boon to Both Sides,” by Guhan Subramanian (professor, Harvard Business School and Harvard Law School), first published in the Negotiation newsletter.

As dealmakers look for more sophisticated ways to reduce risks and increase returns, a matching right—a contractual guarantee that one side can match any offer that the other side later receives—has become a common and useful tool in negotiations.

As an example, imagine that a procurement officer reaches a five-year, fixed-price agreement with a longtime supplier but is concerned that market fluctuations might make the agreement less attractive to her company in the future. The officer proposes an exit for her company, with appropriate notice, if an alternative supplier can offer a better price. The supplier agrees but demands the right to match any competitor’s offer and keep the business. The parties reach agreement and sign the five-year deal.

As this story shows, matching rights (sometimes known as rights of first refusal or rights of first offer) can create enormous value. While the details vary depending on the negotiation, most matching rights share an underlying structure. Specifically, the grantor gives the right holder the right to buy an asset on the same terms that the grantor would receive from any other bona fide, prospective bidder, otherwise known as the third party.

As a prospective right holder, you should know precisely what a proposed matching right will give you. Many deals that seem to guarantee a matching right are, in fact, murky about the exact consequences that could arise.

For potential right holders, the most common mistake is to fail to specify what will happen if you choose to match a bid. Will your matching bid call off the contest with the third party or launch a bidding war?

Other details are equally important. How long do you have to decide whether to match an offer? If the duration of the matching right is ambiguous, a third party could short-circuit your right by making an exploding offer with a short fuse, forcing the grantor to give you only limited time to match the offer. If you haven’t thought through this possibility in advance, you may fail to match the offer due to time pressure rather than to your unwillingness to pay. The end result is a matching right that is worth significantly less than you thought.

Another important detail is the matching-right “trigger.” Suppose that the contract between the procurement officer and supplier specifies that a “more attractive offer” (from the buyer’s perspective) triggers the supplier’s matching right. If a “more attractive offer” simply concerns the price of a known commodity, this language may be sufficient. But what about a competing offer that provides not only a higher price but also a better-quality product? In this case, a “more attractive offer” trigger doesn’t offer much guidance—and can harm the right holder. The lesson: when considering a matching right, figure out exactly what you’ll receive.

Adapted from “Team Negotiating: Strength in Numbers?”, first published in the Negotiation newsletter.

According to conventional wisdom, when it comes to negotiation, there’s strength in numbers. Indeed, several experimental studies have supported the notion that you should bring at least one other person from your organization to the bargaining table if you can. On average, this research has found that teams exchange more information than solo negotiators, make more accurate judgments of the other side, and create more value, resulting in greater profits compared to individuals.

Researchers Michele J. Gelfand, Jeanne M. Brett, Daphne Huang, Lynn Imai, and Hwa-Hwa Tsai tested these findings across cultures and contexts. In the United States, teams engaged in an exercise involving a potential deal outperformed solo negotiators; however, teams underperformed solo negotiators in the same exercise in Taiwan. When participants had to resolve a dispute rather than a deal, the results changed: teams and solo negotiators achieved similar outcomes in the United States, and teams outperformed solo negotiators in Taiwan.

What explains these intriguing findings? The researchers hypothesize that in collective cultures such as Taiwan, negotiating teams focus on developing relationships, both within the team and across the table, and thus are less likely to challenge each other. The result is greater harmony—and less of the friction that is needed to generate novel alternatives. By contrast, the stress of disputing in collectivist cultures may lead Taiwanese solo negotiators to engage in a “flight response” and take a minimum offer, while a team provides the support and assurance needed to stay at the table. The researchers further hypothesize that U.S. teams in a dispute will succumb to excessive competition, thus inhibiting value creation and distribution.

While more work must be done to pinpoint the factors underlying these results, it is clear that the notion of “strength in numbers” is context specific. The next time you are preparing for an important business negotiation, think through cultural and contextual factors before deciding whether to face your counterpart with a team or by yourself.