Wednesday, November 9, 2011


If, as Sun Tzu famously said, war is about deception then negotiation is about information.  I advise people to begin every negotiation by asking questions about the information they have at hand, such as:
  1. What information is critical to this negotiation?
  2. What parts of this information am I missing and how can I acquire them?
  3. How confident am I of the information I do have, and how can I test and/or improve it?
  4. What information do my counterparts have?  How confident am I about my assessment of their information?
  5. What information do I want to share with my counterparts?  What is the best way to do so?
  6. What information might my counterparts want to share with me?  What misinformation might they want to share?
Guhan Subramanian tells the following story to illustrate the gray area of ethics and law that negotiators can find themselves in.  To me, however, it's an even better example of the importance of asking questions about information.

A large division was being sold at auction by an investment bank.  It was understood that the number of serious potential bidders would likely be small (probably as few as three), and the bankers approached each of them to discuss the terms of the deal.  Due diligence would take place over a weekend at the bank's main offices, and bidders would get half-day slots, beginning on Saturday morning.  One interested party asked for the Saturday morning slot, but it was taken.  Same with Saturday evening and Sunday evening.  Sunday morning, starting at 8:00am was available.  When they came in on Sunday the trash cans were overflowing with Chinese food takeout boxes and the investment bankers had stubble and looked a bit rough.

You can probably guess the rest.  When the bankers approached the likely bidders only one was interested so they created the perception of strong interest in order to force the buyer to bid as though they were in a competitive auction.  The buyer paid hundreds of millions of dollars more than necessary.

The legal side of this behavior is interesting.  (Subramanian says that most American lawyers think the bankers acted legally; most European lawyers disagree.)  But let's take a step back and think about what asking the above questions about information might have made possible.

If you're bidding on something that only two other parties are likely to be interested in, what information is most critical to your negotiation?  Surely their level of interest.  And how might you learn something about that?  A rather obvious solution would be to hire someone to photograph (from a distance) everyone entering the building on Saturday and Sunday.  That wouldn't work in all cases, but a typical investment bank has extremely low foot traffic on weekends.  Given that the potential buyers would all be familiar to each other, it's quite likely that those pictures would have been worth many millions of dollars.

Wednesday, November 2, 2011

Relationship Building Before Negotiation

Back when I was a kid, my Dad decided to repaint the outside of our garage.  The garage was at the end of a driveway that bordered the property line with our neighbor, so one of the side walls was visible from the neighbor's house (and not really from anywhere else).  Dad approached the neighbors and asked what color they would like the wall painted.

It was an unusual request, and if I recall the story correctly they thought at first that Dad was asking them to help pay for the project.  No.  He just recognized that since the wall was only visible from their property they were the ones with an interest in its color and it didn't hurt us to have the color be different from the rest of the garage.  They chose something that suited them and Dad bought the paint.

I don't think we ever had any serious negotiations with our neighbors, but suppose we had.  Dad's simple act of generosity would likely have earned him their trust and goodwill, greatly improving the chances that any difficult discussion went well.

One of the most important lessons of negotiation success is that your most profitable work is done away from the table -- sometimes when there isn't anything to negotiate!  We don't always know where we'll find ourselves needing to negotiate, so even cynics should look for ways to strengthen their relationships and in particular their reputation for taking the other party's interests seriously.

Opportunities to generate goodwill, at low or no cost, are all around us.  The challenge is to be mindful of the opportunities so that the next time we're painting a garage or have some other chance to help someone out, we take it.