Friday, July 20, 2012

Yale and the Unions

I usually write about constructive, win-win approaches to negotiation that build trust and lead to sustainable agreements that both sides are happy with.  This isn't just because I'm a nice guy but because in most negotiations that's the optimal approach to take.  Today, however, we're going to look at a negotiation that may well have been won (a term I rarely use with respect to negotiations!) by an application of strong-arm tactics.

Yale University recently agreed a new contract with Locals 34 and 35, representing its office and blue-collar workers.  Both sides, naturally, expressed happiness with the agreement, with Yale's President expressing pleasure at the positive relationship Yale has built with its unions and how Yale will continue to be able to attract top-quality staff and the unions cheering the "unprecedented" raises, maintenance of free comprehensive healthcare, and guarantees of interviews for union employees for new job openings.  Local 35 even got a "no layoffs" clause, which its own members could scarcely believe.

By all outside accounts, the unions -- whose workers are already paid well above the norm -- captured the lion's share of the value in this negotiation.  Yale union workers may now be the best-paid university staff in the nation, with very high job security and unsurpassed benefits.

Some of the success no doubt came from conventional, even value-creating, negotiating tactics.  Yale has had difficult labor relations in the past and has a strong interest in avoiding strikes or street demonstrations.  Yale also wanted a four-year contract instead of three and was willing to pay more in wages to get it.

But there is also indication that the unions may have found an external power lever and used it to great advantage.

Last August the unions backed a slate of Aldermen (all with strong union ties).  The unions called this an attempt to rebalance power between the Mayor and the Aldermen (their view was that the Board of Aldermen was largely controlled by New Haven's Mayor); others called it a union takeover that might lead to the Aldermen acting in the best interests of the unions rather than of New Haven.

In discussing his success, Local 35 President Proto allegedly said, "Right now we control 20 out of 30 seats on the Board of Aldermen.  The University is planning to build two new residential colleges.  Any brick they want to lay down has to get approval from the new supermajority on the Board."

Mr. Proto has said he was misquoted (the newspaper originally modified the quote online and then reconsidered and stated it was confident the quote was correct).  But let's take an academic look at this and do two things.  First, let's assume for the sake of discussion that the unions supported a slate of candidates for Alderman with the explicit intention of holding up Yale by linking the union employment contracts to (ostensibly independent) decisions by the Board of Aldermen over whether to grant Yale building rights for two new colleges.  Second, let's suspend our views on whether this would be ethical or even legal if it were shown to be true.

What remains is a textbook example of one party gaining leverage in a negotiation by securing the ability to harm the other party in an unrelated area.  In simple terms, the unions worsened Yale's BATNA from "strikes and protests" to "strikes, protests, and Yale can't build the residential college buildings it needs."  Worse, for Yale, this isn't a single bullet.  Yale will presumably need regular approval from the Aldermen for various developments.  A four-year contract may provide some breathing room, but I would expect to see Local 35 workers getting a high percentage of construction jobs on new contracts.

We tend to look at negotiations somewhat in isolation.  That is, while we're aware of potential effects on relationships and reputation we tend to think about each negotiation as a self-contained exercise that focuses on the interests relevant to what is under discussion.  The negotiation between Yale and its unions is a reminder that we have to broaden our view of possibilities.

That's not to say that we should do what the unions are alleged to have done, but rather that we need to consider a broader range of possibilities.  For Yale, this could have meant recognizing the potential for the unions to add government leverage to the negotiation and looking for ways to mitigate that.  More broadly, however, negotiators need to cast their nets wide when thinking about parties that might be brought to the table, levers of power that might be pulled (for or against them) and tactical and strategic moves the other side might be considering.  I'll be looking at some examples of this in the coming weeks.

Wednesday, July 18, 2012

Mitt Romney and the Power of Norms

Mitt Romney is coming under increasing pressure to release more than just two years worth of tax returns.  Traditionally, Presidential candidates release around twelve years of returns but Romney is arguing that this is no longer sound.  During an interview with NBC in Pittsburgh he explained:

My experience is that the Democratic Party these days has approached taxes in a very different way than in the past. Their opposition people look for anything they can find to distort, to twist, and to try and make negative, and I want to make this a campaign about the economy and creating jobs. And they want to make this campaign about attacking people and diverting attention from our job picture in this country.

Let's take Governor Romney at his word.  That is, let's assume that there is absolutely no impropriety in his returns and that his only reluctance to release them stems from a belief that opposition research by Democrats has become particularly nasty in recent years.  If that's his sincere view, what's wrong with his approach?

It violates norms...those powerful, often-unwritten rules that govern the behavior we expect from each other.  When someone violates a norm we tend to have an immediate and emotional response of mistrust and/or anger which makes it very unlikely that we'll be open to the other party's reasons for doing so.

Enough Presidential candidates have released a dozen or so years of tax returns that it has become expected.  As a result, very few people are open to hearing a rational argument from Romney that he should follow a different path.  He can talk about spin and distortion all he wants; the bulk of the electorate (and the media that filters the news) isn't listening.  As a result, the only reason we will think of for Romney's choice is that he has something to hide.  It looks like he's making a terrible mistake, one that will either taint his perception among voters all the way to November or force an embarrassing reversal.  (It's unfortunate for Romney that he didn't learn from a similar controversy during the primaries, when he originally intended to keep his returns private until closer to the general election.)

Companies are often surprised when customers reject proposals that seem sensible analytically but which violate norms.  Coke and Pepsi floated the idea of soda machines with thermostats that would alter the price of a cold soda depending on the temperature of the day.  Why not?  Soda companies have already established very different price points for sodas that have nothing to do with cents per ounce.  A 20-ounce bottle typically costs more than a 2-liter bottle, and cans and bottles bought in packs cost a fraction of what individual servings cost in a convenience store.  Surely cola customers have fully embraced the fact that we pay mainly for convenience and immediate refreshment than we do for the specific mix of carbonated water and high-fructose corn syrup we happen to drink?

But no.  Testing showed universal dislike for the concept.

Negotiators should be mindful of norms, particularly when negotiating in unfamiliar territory (e.g. in another culture where we may not know the norms) and when we have come up with something particularly clever as a reason to do things differently.  As Governor Romney is learning, an argument can only work if people are willing to listen to it, and clever ideas (like variable pricing for soda) can easily blind us when the underlying problem isn't logic but the violation of a norm.

Consider banks.  Commercial banking has been consistently growing the amount of income it generates from fees, and for the most part its consumers have grumbled but gone along.  The fee too far?  Charging a monthly fee for the use of debit cards.  Similar revolts have been experienced when banks have tried to charge for checking services.

If we look at this from a purely rational point of view, what could be more natural than a service provider charging a fee for a service?  If checking or debit cards had never existed and banks introduced them with a fee then certainly some customers would choose not to buy these services but would any of them be angry at the offer?  Unlikely...but it is now a norm that these services be free.

Now let's look at a pair of moves that, while generating some blowback, seems to have stuck.  Airlines have made two significant moves that both violate long history and thus could easily be responded to as norm violations.  First, they began charging for luggage.  Second, and more recently, they have begun charging more for window and aisle seats.

I think the airlines have probably fared better for two reasons.  First, they had a near-unanimous front.  Both the change to bag fees and reserving better seats for premium fares were initiated by nearly all major airlines at the same time.  Second, while few people are really fans of airlines, it was widely understood that rising fuel costs and economic recession had pushed them to the brink.  As a result, while we may not have liked the changes, we understood them.

As a negotiator I try very rarely to break norms.  Sometimes, however, it's unavoidable.  In those cases, the following guidelines are often useful:

  1. Consider the responses of third parties.  Are their players (e.g. the other airlines) who can help your change become the new normal?  Are their competitors or rivals who may seize on your violation to gain ground?
  2. Get agreement on the underlying problem (or opportunity).  When you propose something that breaks a norm, this helps the other side recognize that you're not breaking it lightly.  Just as important, it gets them engaging in the logical side of the question before the emotional response is triggered.
  3. Openly acknowledge that your proposal would violate normal practice.
  4. Ask the other party for their input, including counter-proposals that might solve the problem without breaking any norms, or additional steps that might address issues related to the norm.
  5. Go slowly.

How might Mitt Romney have used this approach?  I'm not convinced he had a good solution, but his team should have anticipated the response.  One possible approach would have been to start a dialogue about the hit-job nature of modern politics and the trivial issues that often dominate news cycles.  He could have used clips of Obama bemoaning the fact that small issues decide big elections and perhaps some elder statesmen from both parties to help make that case.  Then, when he decided not to release more returns he should have explicitly acknowledged that this was an unusual step and that he understands that some people will think the worst.  (Instead, he appeared combative and arguably arrogant as though asking for more returns was a new and unreasonable demand.)  Finally, he should have discussed his plans and his reasoning with leading Republicans to make sure they were on board; or, if they could not be persuaded, he should probably have given up on this particular fight.