The ‘Fixed Pie’ in Negotiations
This case study shows how a limited fixed pie distributive negotiation style can damage negotiations with labour unions.
The mythical fixed pie syndrome is one of those bizarre anomalies that still persistently seep stealthily into the minds of the largest corporations. It is not unlike a virulent pestilence that paralyses its host into a rigid mindset, blurring the host’s vision into a fixed stare where its hapless victim can see nothing more than what sits on the negotiation table. Many agreements fail to materialize because of this limited vision. The resulting loss of potential trade-offs forces the opposing parties to squabble over a single bone while dozens more lay scattered about them. They are missed opportunities.
Truth or bluff
In late 1985, Frank Borman, the former renowned astronaut, was the acting president of Eastern airlines, based in the U.S.. The airline was struggling through tough and trying economic times. Labour costs were a critical issue that Mr. Borman sought to address.
Imperiously, Mr. Borman tossed an ultimatum at the three unions like a negotiation gauntlet. Either they were to agree to give the airline hefty wage concessions or he would sell the airline. The union leaders were not impressed by the threat as they all had binding contracts that were not to be renegotiated for some time to come. They believed that the threat to sell off the airline had a hollow ring to it and called what they perceived to be a bluff.
To add weight to his edict, Mr. Borman began to initiate talks with Frank Lorenzo, an industry heavy weight who had previously crushed the unions at Continental airlines. Mr. Lorenzo was known as being ruthless. This obviously made the union become jittery. What the unions didn’t know was that Mr. Borman was bluffing as he really didn’t intend to sell the airline.
Lorenzo however, and not aware of Borman’s sleight of hand tactics, submitted such a significant proposal to the Board of Directors of Eastern Airlines, they began to seriously look at the offer with raised eyebrows and considerable interest. The unions, in the meantime, began to re think their position. As the negotiations progressed, Mr. Borman began to make some grudging but significant headway with his negotiations with two of the three unions. Both the flight attendants’ and pilots’ unions agreed to a 20% wage claw back.
However, the machinists’ unions, which were run by the hard nosed Charlie Bryan, would only agree to a 15% slash in wages. Borman didn’t accept their position. They argued voraciously over the dispute 5%, and both of them took the position that if either side were to fail to make a negotiation concession over the disputed amount, the airline would be ruined.
Like two drivers aiming head on at each other, eyes fixated and jaws squared, they steeled themselves, waiting for who would blink first. Neither did and they crashed headlong into each other, stubborn to the end as the ominous deadline for Lorenzo’s offer arrived. The Board of Directors for Eastern Airlines accepted Lorenzo’s offer. As a result, Borman was tossed, and out of a job. In the bitter end that followed, Lorenzo forced huge wage cuts on the hapless unions and eliminated so many jobs that Eastern Airlines was soon to go the way of the Dodo bird – just another extinct species. It filed for bankruptcy in March of 1989.