BATNA – No deal options
Chapter 6
BATNA
• A comparison of your options, your best
option might be walking away.
• For example using another supplier,
making something yourself, going to court
etc.
• Perception and reality of BATNA play a
key role in most negotiations.
• Often not given enough time by
negotiators.
BATNA
1. Use your best BATNA and that of the other
parties to find a ZOPA (Zone of potential
agreement)
2. Make sure the other side sees you as able to
walk away.
3. Protect your BATNA
4. Consider worsening your BATNA in carefully
selected circumstances
5. Use your understanding of BATNAs to
understand if negotiation can change things.
ZOPA
• ZOPA means the set of possible
agreements that is better for each side
given its interests than their BATNA.
• Sellers minimum is lower than buyers
maximum.
• Joe will sell his house for a min of
$200,000 and Mary will buy it for a max of
$250,000
Question
• Let's assume that you're preparing to negotiate the
sale of your car to a possible buyer, John. John is the
only person who responded to an ad that you posted
a week ago. You need at least $4,000 from the sale to
finance the purchase of a truck that you have ordered.
You want to keep your car for three more weeks,
which is when the truck will arrive. The reasonable
value of the car is $5,000. You've done a lot of
research on this. You've looked at a lot of online
calculators in coming up with this value. If you can't
find a buyer willing to pay at least $4,500, you'll sell
the car to a friend, Mary for 4,000. You know that
Mary will let you keep your car for the next three
weeks.
Questions
1. What's your overall goal in reaching the
negotiated agreement with John?
2. What issues are most important to you in
reaching that goal?
3. What is your best alternative to a negotiated
agreement?
4. what is your reservation price? (The lowest price
That you will accept)
5. What is your most likely price? What's a
reasonable price that you would be happy with?
6. And then finally what is your stretch goal?
Stretch Goal
• Negotiation research shows that the
people who select the largest stretch goal
Are the most successful in negotiations
overall.
• If the stretch goal is completely
unreasonable people might walk away
from the deal.
Answers
1. Sell the car.
2. Price is an important issue and the reason
is that you need the money to buy a truck.
The transfer date is important, because you
need the car in the next 3 weeks.
3. Selling the car to your friend, Mary
4. 4,500.
5. 5,000.
6. 6,000.
ZOPA
•
•
•
•
Johns reservation price is 5,500.
Reasonable price is 4,500
Stretch goal is 3,500.
What two numbers is the zone of potential
agreement between?
Finding agreement
• What if John needs the car immediately?
How can you respond?
• Ask why?
• Focus on his interests and maybe you can
meet those interests e.g. give John a ride
to work every day.
Decision Trees
• A decision tree is a very useful tool in
doing the BATNA analysis and making all
sorts of business decisions.
Example
• Your company has sued a supplier for
$4.6 million. There's a 50-50 chance your
company will win. Future legal and other
expenses to litigate the case total
$400,000 which you will not get back.
During negotiations, the defendant has
offered to settle the case for two million.
Should your company accept the offer?
Decision Tree
Litigate
Choice
Settle
4.2
-.4
2
Decision Tree
• Should you acquire Company A, which has a $21
million value, or Company B which has a $15
million value. The price is the same for both
companies.
• If you acquire Company A, there's a 90% chance
the government will challenge the acquisition, and
a 60% chance the government will win. If the
government wins, a value of A drops to 14 million
because of legal fees plus sell-off costs. Even if
the government loses, the value drops to 19
million because of legal fees. Where as if you
acquire company B, there's not going to be a
government challenge.
Decision Tree
A
Choice
B
GC
No GC
No GC
Win
Lose
Decision Tree
16.5
Choice
15
.9*16
.1*21
.6*14
.4*19
The other sides no deal options
• By understanding the other sides no deal
options the ZOPA can be extended.
• Example of Japanese company buying
2/3rds of a US company.
• There were no good external options for the
deal for the Japanese and negative internal
options. The company had much cash.
• The US negotiators pushed for and got a
higher price than they expected.
Make sure they believe you can
walk away
• On some occasions your willingness to
seriously consider no-deal options may be
harmful e.g. an employer who likes loyalty.
• This could be viewed as a threat and lead
to escalation.
• In most circumstances developing
attractive outside options and showing a
willingness to use them can help you to
improve your results in negotiations.
Make sure they believe you can
walk away
• “ If you can walk away you can’t
negotiate.. He who cares least, wins”.
• The other sides observation of your calm
readiness to walk away can be an
advantage.
Make sure they believe you can
walk away
• “ You would never do a deal without talking
to anyone else. Never.”
• “Whenever we feel there’s a possibility of a
deal with someone, we immediately call 6
other people”
• Adding another interested party at the start
of the negotiation can be much more
effective than having a better negotiating skill
alone.
• It can help to change the perception of the
other side and your self-perception.
Improve no-deal options
• Company A biggest and B next biggest
Company C next biggest and D smallest.
• If company A buy company C then
company B is left with a negotiation to but
company D with no no-deal option.
• So company B should act first and
approach company C for negotiations on
a merger.
Improve no-deal options
• Edgar Bronfman was negotiating on behalf of
survivors of the holocaust with Swiss banks
• The Swiss banks believed that all legal
issues had been settled years before so had
a strong position,
• Bronfman formed a “coalition of interests”
away from the table which threatened the
interests of the banks.
• The banks conceded and paid $1.25b.
Protect your no-deal options
• Avoid actions which can accidently worsen
your no-deal options.
• You can make a bargain which could worsen
them.
• For example a Canadian company which
needed cash quickly agreed to a nine-month
period of exclusive negotiating rights with an
Australian company.
• They had no credible alternative and
accepted a not generous deal.
Under special circumstances consider
strategically worsening your no-deal options
• This can be risky e.g. retreating armies
burning bridges so troops had to fight.
• Companies can worsen their no-deal
situations to bind themselves into staying
with a deal.
• AT&T and BT made a deal with no exit
options in the contract.
• The enterprise was unsuccessful and
there was a messy break up.
Use the no-deal options to decide
the role for negotiation
• The closer the situation becomes to costless
dominance or a perfect market the less
important the role of negotiation becomes.
• For example in the currency market there a a
large number of buyers and sellers so a no
deal option is the market price.
• The opposite situations have more potential
for negotiation, the closer the power of the
parties and the more imperfect the market.
Summary
• No deal options are just one part of a negotiations
set-up.
• We can find a ZOPA by understanding no dealoptions
• As no-deal options can be a source of power
improving your no-deal options and worsening
those of the other side can influence the outcome
of the negotiation.
• The advanced negotiator looks at the value of the
time spent on moves away from the table
compared to time spent on interpersonal tactics
at the table.
Get the parties right
Chapter 4
Question
• Who could be potential interested parties
when buying a car?
Answer
•
•
•
•
•
•
You
Sales Rep
Sales Manager
Spouse
Kids
Other Dealers
Interested parties
• Interested parties may not be obvious and
if you can’t indentify them correctly you
could have some problems.
• Who is missing from the table?
• Who shouldn’t be there?
Parties Mapping
1. Does the map include the highest-value
players, to ensure that your deal can create the
greatest possible value?
2. Does the map include the full set of potentially
influential players, including those who may be
part of the “informal negotiation”?
3. Does your map identify potential blockers (as
well as potential allies), does your all-party
map include those involved in the internal
decision making and governance processes?
Parties Mapping
4. Does the map pinpoint agents or representatives who
may have the wrong incentives and the ability to shape
the decisions of other parties by distorting or selectively
providing information in a self-serving way?
5. Does the map anticipate potential negotiations with
those who must approve the deal?
6. Does your all-party map take account of those who must
implement the agreement?
7. Are too many parties unnecessarily complicating the
negotiation?
High value players
• We often look too narrowly, mainly to
familiar circles, in determining the parties
with whom we should negotiate
• “Who might value this deal the most, and
is that player part of the negotiation?
• The player could be external or inside the
company you are talking to.
Adding a party
Internal Champion
• You can find and nurture an influential
internal champion elsewhere on the other
side—one who really understands and
benefits from the deal.
• It’s the uniquely high value that you offer
to the champion—value that is potentially
at risk if there is no deal—that gives the
internal high-value player a stake in the
success of the negotiation.
Internal Champion
Have you mapped all the potentially
influential players?
• A great salesperson seeks to identify and
win over the ultimate decision makers,
who may be different from those at the
table.
• An informal negotiation can overshadow
the formal one.
• You should be on the look out for parties
who may not be signing the contract but
have influence.
Have you mapped all the potentially
influential players?
Have You Included Those Involved in the DecisionMaking and Governance Processes?
• While favorable overall economics are
generally necessary for a deal to succeed,
they are often not sufficient, given the
range of interests that may matter.
• Keep all potentially influential internal
players on your radar screen—especially
those who may wield blocking power.
Don’t lose sight of their interests or their
capacity to affect the deal.
Have You Mapped Influential Parties with the
Wrong Incentives?
• If you have skilled and informed agents
faithfully representing you, and they will
make negotiating choices that are exactly
aligned with your interests.
• The reality of agency often departs from
the ideal.
• Try to understand the agents
relationships, their interests, and their
ability to filter Information and shape
Get all the Interests Right
Chapter 5
Question
• Define Interests?
Answer
• Whatever you care about that is
potentially at stake in the negotiation.
• Your interests are why you’re involved in
this negotiation in the first place.
Get the interests right
1. Whatever each party cares about that is at stake is an
interest.
2. Make mapping interests—yours and theirs—a central
priority.
3. Don’t let price overshadow a potentially richer set of
interests.
4. Don’t mistake bargaining positions for the richer set of
underlying interests.
5. Ask, listen and probe.
Get the interests right
6. Use standard public sources to map interests.
7. Use internal sources.
8. Use knowledgeable advisers
9. Be aware of unconsciously skewed perceptions: the
mythical fixed pie, self-serving role biases, and partisan
perceptions.
10. Take deliberate steps to counteract the psychological
mechanisms that can unconsciously change interest
perceptions.
Make mapping interests a central
priority – Your Interests.
• Negotiators often fail to sort out the truly “musthave” from the “important” and from the
“desirable but not critical.”
• The best negotiators are very clear on their
ultimate interests but know their trade-offs
among lesser interests and are remarkably
flexible and creative on the means of advancing
• Perfume supplier - amount of space allocated
to the line, the desirability of the location on the
sales floor, their look, cost-sharing on special
promotions.
Make mapping interests a central
priority – Their Interests.
• Your counterparts will say yes for their
reasons, not yours.
• What do you need to understand about
your counterpart e.g. their competitive
challenges, before you can strike the best
possible deal with them?
Make mapping interests a central
priority – Their Interests.
• What are these people really trying to accomplish with
this deal?
• What is their current strategy and how would this deal fit
in?
• Who is taking the lead?
• What is this person (and her team) like, and what’s their
negotiating history?
• How will this deal affect their status, compensation,
and future prospects?
• Who else is paying special attention to the deal?
• Who will have to approve it?
Pair work
• Student A is given an imaginary $100 to
divide with student B as she likes.
• Student B can disagree with the
arrangement and neither student will get
anything.
• Can you negotiate an agreement?
Don’t let price overshadow a
potentially richer set of interests.
• People tend to care about much more
than the monetary part.
• Relationships – North Vs South and East
• The Social Contract – Resolving conflicts
• The Negotiation Process - Respectful
• Ethics - Reputations
Don’t mistake bargaining positions for
the richer set of underlying interests.
• “Focus on interests, not positions.”
• Issues are the things that are on the table and
up for direct discussion.
• Positions are the negotiating parties’ stands on
those issues.
• Interests, as we’ve noted earlier, are whatever
you or your counterparts care about that is at
stake in the process.
• Compatible interests often underlie incompatible
positions
Question
A
B
•Issue
•$100,000
•Position
•Base Salary
•Interest
•Job security
Ask, Listen and Probe
• If unsure of other sides interests an
exploratory meeting can be set up.
• You could invite them for an informal
dinner.
• Direct communication can work wonders
• E.g. Sales rep whose bonus was based
on new contracts.
Use public sources to map interests
• Internet searches often give you a good,
even nuanced, understanding of people,
companies, and industry contexts.
• Newspapers digital archives, Annual
reports, 10-Ks, Analysts’ reports, can
provide a useful outsider/insider
perspective
Tap Internal Sources
• Sources who have personal experience in
dealing with your prospective counterparts
• Whom do you know who has already
negotiated with these people?
• What do they know about the other party’s
concerns, preferences and hot buttons?
• A friendly lunch can yield enormous
insights.
Tap Knowledgeable advisors
• Lawyers, accountants, investment
bankers, or industry consultants.
• Ask in detail about their relevant industry
experience and familiarity with your
potential negotiating counterparts.
• Who on the other side is likely to be
reasonable, and who is likely to be
unreasonable? To what kinds of
arguments are they receptive?
Activity
• Have an arm wrestle with your partner.
• If you touch the table with your partners
hand you get 1 point.
• How many points can you make in 15
seconds?
Psychological Traps
• The Mythical “Fixed Pie”
• people cling to the perception of
underlying conflict, even where their real
interests are compatible.
• Self-Serving Role Biases
• Partisan perceptions
Counteract physcolical
mechanisms
• Knowing that such mechanisms exist can
help in specific situations.
• It is useful to seek the views of outside,
uninvolved parties who are not caught up
in the dynamic.
• Prepare the argument for the other side.
Chapter 7 Sequence and
Process
Sequence
1. Scanning widely to map the range of potential parties as
well as the relationships among them.
2. “Mapping backward” from the target (more promising)
game to the current (less promising) situation.
3. Carefully orchestrating the stages of reaching the target
setup, which calls for: Decisions on which parts of the
process should be separated or combined, public or
private.
Scanning Widely and Mapping
Backward
• It’s helpful to think in terms of a “value net”
which may extend beyond the immediate
confines of the negotiation.
• Who outside those confines might value an
aspect of a deal the most? Who might minimize
the costs of production, distribution, riskbearing, finance, and so on? Who might supply
a piece that’s missing from the current process?
What devices might bring these potential valuecreating parties and issues into the deal?
Scanning Widely and Mapping
Backward
• Sometimes the answer to “who first?” is
perfectly obvious. But in more complex
situations, it often helps to focus on an
interim “target” negotiation and map
backward from that target to the
Scanning Widely and Mapping
Backward
Scanning Widely and Mapping
Backward
• As you scan for sequencing purposes,
pay attention to the relationships among
the players you’ll be dealing with.
• A common problem for a would-be
sequencer is that the most critical party
can be the most difficult to approach.
Scanning Widely and Mapping
Backward
• Bill Daley, President Clinton’s key
strategist for securing congressional
approval of the North American Free
Trade Agreement
• Daley’s response: make more calls, and in
specific directions. “Can we find the guy
who can deliver the guy?” he’d ask his
aides. “We have to call the guy who calls
the guy who calls the guy.”
Backward mapping
1. Start with the endpoint and work back to the present to
develop a timeline and critical path.
2. Next, you focus on the most-difficult-to-persuade player,
who is either the ultimate target or is otherwise critical to
the deal. whom would you ideally like to have on board
when you initiate negotiations with the target?
3. How will you get that party on board? What would make
it easier for him or her to say yes
4. Finally, continue mapping backward in this fashion.
Separate? Together? Public? Private?
Framed How?
Revealing What Information?
• We had no choice but to do it secretly and to do it
quickly . . . There were no lawyers, no auditors, no
environmental investigations, and no due diligence.
Sure, we tried to value assets as best we could. But . . .
we were absolutely convinced of the strategic merits . . .
Why the secrecy? Think of Sweden. Its industrial jewel,
Asea—a 100-year-old company that had built much of
the country’s infrastructure—was moving its
headquarters out of Sweden . . . I remember when we
called the press conference in Stockholm on August 10.
The news came as a complete surprise . . . Then came
the shock, the fait accompli. [Then] we had to win over
shareholders, the public, governments, and unions
Separate? Together?
• Getting Dad to say yes (“since Mom said
OK” [untrue]) and then scurrying to Mom
in the other room asking for permission
(“since it’s OK with Dad” [also untrue:
Dad’s OK depended on Mom’s]). By the
time the parents get around to comparing
stories, Junior has already left with the car
Separate? Together?
• Influencing whether a related negotiation happens
before or after one’s own negotiation—as well as
whether its results become public—can greatly affect
outcomes. For example, while the United States was in
separate talks with Japan, Hong Kong, and Korea over
textiles a Korean negotiator announced that Korea
would wait for the other Asian negotiators to go first.
“After waiting for Hong Kong and Japan to go first,” one
observer reported, “Seoul asked for the features they
had secured and then got some more”.
Process
• Alternative dispute resolution – Mediation
and Arbitration
• Decide, Announce Defend
• Full consensus
ADR
•
•
•
•
•
•
Corporate pledge
Screens
Contract clauses
Online dispute resolution
Arbitration
Mediation
Corporate Pledge
• In the event of a business dispute between our
company and another company which has made or will
then make a similar statement, we are prepared to
explore with that other party resolution of the dispute
through negotiation or ADR techniques before pursuing
full-scale litigation.
• Reactive devaluation. If you're in the middle of the
dispute and you come to the other side and you say,
well let's try going to mediation to, to resolve the
dispute, your proposal might be devalued by the other
side.
Screens
• Screens are basically a list of questions
designed for people in business nonlawyers, and based on the answers to
those questions, the screen will advise
you, for example, whether to use a
binding ADR process or a non-binding
process
Question
• What do we mean by binding processes?
And what do we mean by non-binding
processes?
Contract Clauses
• One possibility is to simply state in the
contract we agree to go to mediation in
the event of a contract dispute. And if the
mediation fails, then we will move to
arbitration
Online dispute resolution
• Less effective however it's cheaper and
more convenient
• E.g. Landlord bills me and my roommates
for damages we didn't cause, broken
window, broken screen, we live in a bad
neighborhood. The landlord insists we
caused the damage and then it had to be
us so we got basically a dispute between
landlord and tenant.
Arbitration
• Arbitration is in a lot of our every day
transactions. That's the fine print, that you
and I never read when we sign up for a
service.
Video
• What we have here is a dispute between the owner of
some real estate, and a contractor. The owner hired the
contractor to build a building, problem is, after the
construction started, the owner made some design
changes. And as a result, the contractor is claiming an
additional $55,000. Also there's a subcontractor
involved, who did some plumbing work hired by the
contractor, who also had to make changes and these
cost an additional $95,000. So the owner has refused to
pay, and this matter is now in arbitration.
Question
• If you were the arbitrator, how would you decide the
case?
Mediation
• Facilitative - the goal of the mediator is to facilitate
conversation, discussion, and negotiation between
the two sides to reach a settlement.
• Evaluative - the mediator would do the same thing
except also would be asked to give an evaluation of
the mediation to provide certain expertise
• Transformative - to transform the relationship
between the parties to give especially one party
who might lack power, or who might lack a voice,
more of a chance to express his or her feelings
Transformative Mediation
• The US Postal Service -800,000 employees
• In 1997 they had 14,000 formal complaints with the
Equal Employment Opportunity Commission.
• In 1998 they started to use transformative
mediation for these complaints.
• They resolved over 17,000 informal disputes. They
had a 30% drop in formal complaints. They saved
millions of dollars in legal costs and improved
productivity, and 90% of the disputants 90% were
satisfied with the process
Transformative Mediation
• A female employee, she's a letter carrier, files a
complaint against her supervisor claiming that
he addresses her by her route number instead
of by her name.
• In transformative mediation and she's allowed to
express her feelings, the parties realize that he
addresses every letter carrier by route number.
He had no clue that people found this offensive.
He started greeting people personally,
apologized for the past conduct, and the
employee withdrew the complaint.
Video
• This is a dispute between a company called
Compuplast and PM Limited.
• Compuplast has agreed to provide Robotics
Software to PM Limited.
• However, it looks like the delivery date will be
delayed. And PM Limited is very upset, because
PM Limited produces door handles for the auto
industry. And if they don't get this Robotic
Software, they're going to lose a lot of business.
• So they cancel their contract with Compuplast
and both sides have threatened to sue
Video Questions
• How does mediation differ from
negotiation?
• What type of mediation is involved in this
film clip, is it evaluative, facilitative or
transformative?
• How would you rate the mediator on a
scale of one to ten?
Answers
1. The mediator uses a caucus where she met
privately and confidentially with each party, to find
out whether they had any private concerns, or
private interests they did not want to express to
the other party. She can try to control the
emotions of the parties
2. Facilitative
3. Active listening, suggesting options to consider
and reality testing
Case Study George Mitchell In
Northern Ireland
Intro
• Aim to make an agreement to the British
and Irish governments and eight political
parties of Northern Ireland.
• 22 months of protracted discussions
capped by an intense 6-day negotiating
marathon to end the violence in Northern
Ireland.
Sides
Starting point
• In the fall of 1995, the British and Irish
governments formally created the
International Body on Decommissioning of
Weapons to study the problem and the
process of decommissioning.
• The governments felt that Mitchell would
be fair, impartial, and acceptable to all
parties in his dealing with the delicate
issue of decommissioning.
Starting point
• Mitchell, Holkeri, and de Chastelain met with
dozens of party leaders and government
officials for six weeks.
• They worked long hours listening, taking notes,
and devising the outline for their final report.
• Stepping outside their mandate, the chairmen
also gathered information on a widevariety of
issues, including language, flags, anthems,
prisoners’ rights, discrimination, and the role of
the police force.
Positions on decommissioning
• The British government and some of the unionist parties
insisted that the paramilitary organizations would have to
give up their arms before the political parties with which
they were associated could enter any negotiations.
• The political parties linked to the paramilitary organizations
on both sides insisted that there could be no disarmament
until after the negotiations were completed and an
agreement reached
• The Irish government and the largest nationalist party, the
Social Democratic and Labor Party (SDLP) wanted
disarmament but feared that making it a precondition to
negotiations would mean that there would never be any
negotiation
Creative Solutions
• “We were convinced that prior
decommissioning was unworkable…What
could we recommend in its place that
• would provide the unionists with enough
reassurance to enable them to enter into
negotiations.
• They slowly began to consider the idea of
“parallel” decommissioning, a strategy that
had recently worked in El Salvador
Creative Solutions
• “At the heart of the problems in Northern
Ireland is mistrust,” stated Mitchell, “Each
(community) assumes the worst about the
other. If there is ever going to be a durable
peace and genuine reconciliation, what is
needed is the decommissioning of
mindsets. That means that trust and
confidence must be built,over time, by
actions in all parts of society.”
Process
• Mitchell decided the best hope for
progress would be to cancel the plenary
sessions scheduled for the next two
weeks. Instead he substituted a series of
meetings in bilateral form, where the
parties met and discussed the agenda
and the rules of procedure, but only in
small groups.
Agenda
Compromise
• All of the parties agreed that a logical next step
should produce a document that identified all of
the key issues for resolution.
• “Only when all of the issues were seen together
could the parties get a sense of where the
necessary compromises might be made.”
• Policing, prisoners, a civic Forum,
Decisionmaking methods, safe-guards, and
decommissioning.
Agreement
• I am pleased to announce that the two Governments,
and the political parties of Northern Ireland, have
reached agreement. The agreement creates new
institutions: a Northern Ireland Assembly, to restore to
the people the fundamental democratic right to govern
themselves; and a North/South Council, to encourage
cooperation and joint action for mutual benefit. It deals
fairly with such sensitive issues as prisoners, policing,
and decommissioning…This Agreement proves that
democracy works, and in its wake we can say to the
men of violence, to those who disdain democracy…your
way is not the right way. You will never solve the
problems of Northern Ireland by violence.
Compromise
• “Signs of chemistry became evident as
parties and personalities got back to each
other‘s points or ideas in other than
negative tones.”
• Parties canvassed their various
proposals, concepts and models but,
more importantly, they explored each
other’s ideas, seeking further
explanations or offering explanations for
their own reservations or objections.
Litigation
• Possible viewpoint of some trial Lawyers
• ADR (alternative dispute resolution)
stands for alarming drop in revenue.
Decide, Announce Defend
• A decision is made on the project, and its
characteristics and private terms are negotiated
with those who must formally approve the deal.
Then it is announced. If opposition arises, the
contracting parties defend what they have done.
• aims at generating a comprehensive, detailed,
legally binding, and permanent deal. This
agreement, with recourse to the courts or
binding arbitration, is expected to govern the
details of the relationship.
DAD Example
• Stone Container Corporation, then one of the world’s largest
paperboard entities, used a DAD approach on a forestry initiative in
the La Mosquitia region of Honduras.
• Stone executives negotiated quietly with the new president and his
ministers, arriving at an agreement that, at the president’s request,
was kept secret until the implementing regulations could be
finalized.
• Leaked versions of the supposed agreement identified a huge tract
that had been earmarked for logging by Stone (over a very long
time frame).
• International activists from the Rainforest Action Network (RAN),
along with other environmental and indigenous peoples’ advocates,
rose in protest.
• On the eve of major protests in the capital city, the president
unexpectedly withdrew his support.
Full consensus
• Seeks agreement among the full set of
stakeholders.
• Stakeholder – Anyone who has an interest in
the result of the negotiation, e.g. employees,
NGOs, Government.
• Seeks a framework document with the key
terms fixed, but often with a built-in expectation
of continuing adaptation and possible
renegotiation in the face of specified (or even
unanticipated) events.
Full consensus Example
• Conoco’s effort to build consensus for its environmental
management plan (EMP) for oil extraction in Ecuador’s
Oriente region.
• Conoco sought to draw together a diverse set of
stakeholders for a four-day meeting on a floating hotel
on the Rio Napo.
• These groups voiced deep skepticism about Conoco’s
real motives, and that consensus-building effort rapidly
degenerated into suspicions and recriminations.
• Conoco then tried to negotiate an agreement with
“moderate” environmental groups. Leaked minutes of
these Conoco-NRDC meetings generated even greater
controversy among stakeholders.
Hybrid Process Example
• Stone Container undertook another forestry
project in Costa Rica using a stakeholder
process but this time it was hosted by the
government.
• Its Costa Rican talks included stakeholder
groups, but only as advisers to the ultimate
decision makers in government.
• While this project also attracted protesters, the
process generated enough support that Stone
could move forward with a version of the
project, which was widely hailed.
Important design choices
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Auspices – Who controls the process
Mandate – Who is making the decision
Participation
Decision rules – Sub-groups, Consensus
Agenda – Who deals with what issues
Staging of process
External communication
Post deal arrangements
Process Choice Summary
• Will ADR be involved
• Will we have a DAD or FC approach
• We should use the checklist for process
design. You should decide whether to
impose your preferences or leave some
things to happen naturally.
Agents and Ethics
Website Week 2
Law and ethics
• There's probably no other situation in
business or in life that will challenge your
ethical standards like a negotiation.
• There are a cluster of standards that are
based on legal principles.
• There are general ethical standards that
go beyond the law.
Law and ethics
• Sometimes the law has nothing to do with
ethics - the law in England says that you
have to drive on the left hand side of the
road.
• “Thou shalt not kill” is a moral principles
around the world, and it is also a legal
principle.
Ethical Standards
• Fraud, which is defined as false
representation of a material fact that is
relied on by the other side.
• Fiduciary duty, which is a high duty of trust
and loyalty.
• Unconscionability, and that is conduct that
violates principles of good conduct.
Question
• Would you ever deliberately lie during a
negotiation?
Question
• You have offered to sell your house for
$300,000 to the buyer. Let's also assume
that your reservation price is $250,000.
That is, you would be willing to sell it to
the buyer for as low as $250,000. During
the negotiation, the buyer asks you, are
you willing to sell your house for
$250,000? And you say to the buyer, no,
absolutely not. Now, have you committed
fraud?
Answer
• It is not fraud in the legal sense of the
word.
• False representation, you've lied.
• Material fact,
• It’s not a kind of representation that is
relied on by the other side. No buyer in
this scenario should rely on your
statement that you're not willing to change
on price.
Question
• A real estate developer hired an agent, and asked the
agent to try to find a $10 million loan for a real estate
development. The real estate developer, by the way,
promised to pay a $50,000 commission to the agent for
coming up with the loan. The agent was successful. The
agent went to an insurance company and arranged for
the $10 million loan. The insurance company was also
very happy and decided to pay a finder‘s fee to the
agent. So the agent then went to the developer and
said, okay, I'm ready for my $50,000. And the developer
said, I decided not to pay you. Now, what would be the
logical result in this case?
Answer
• The court decided, that the agent was not
entitled to the $50,000 commission
because agents owe a fiduciary duty to
their principals, in this case the real estate
developer. And by accepting payment
from the other side, the agent breached
this fiduciary duty. The agent was being
paid by both sides. Whereas the duty of
loyalty should have been only to the real
estate developer
Question
• If you're an agent or in the position of the
agent and this situation arises, how could
you arrange to be paid the $50,000 and
also be paid the finder's fee?
Answer
• Before accepting the finder's fee, he could
have gone to the developer and explained
the situation and asked permission to
receive the finder's fee.
• The agent could have acted as a true
finder. In other words, not be an agent for
either party, which involves a fiduciary
duty.
Question
• Are these deals ok?
• You bought a farm from a farmer and the
mineral rights from the farmer without
disclosing the discovery you made of the
gold on the farm.
• You bought stock in a mining company
you are working for from another
shareholder without disclosing the
discovery of the gold
Answer
• You're dealing at arms length with the
farmer, and there's no general duty.
• because you're an employee of the
company. You are buying stock from one
of the company owners. You owe a
fiduciary duty to the company. It violates
insider trading laws.
Unconscionabilty
• Procedural unconscionabilty - Does one
party have an absence of choice because
of unequal bargaining power?
• Substantive conscionabilty - Are the terms
of the contract unreasonable?
Question
• I make a contract to give you 10 dollars
for 20 dollars. Is this a legal contract?
Voluntary Ethical Standards and
Guidelines:
• Organizational standards. (If your
employer has a Code of Conduct, does it
provide standards for your negotiations?)
• Someone you admire. (What would
someone you admire do in your
situation?)
• Family test. (How would you feel when
describing to your family what you did
during a negotiation?)
Voluntary Ethical Standards and
Guidelines:
• Newspaper test. (How would you feel if a
newspaper article in the local paper
described what you did during a
negotiation?)
• Golden Rule. (Treat others as you want
to be treated. Keep in mind that fairness is
very important to the other side.)
Organizational standards
• The J & J Credo. We believe our first
responsibility is to the doctors, nurses and
patients, then to mothers and fathers and
all others who use our products and
services. Such as the injured parties.
• After a poisoning, Johnson & Johnson
decided to recall 31 million bottles of
Tylenol, which resulted in a $100 million
loss.
Golden rule
• doing onto others, as you would have
them do unto you. Treating others as you
want to be treated. Treating other people
fairly.
Fairness
• Attorneys often her from their clients, I
want to sue that company. They treated
me unfairly. And the attorney tries to point
out, this lawsuit's going to cost a lot of
money.
Financial benefits of trust
• Warren Buffet decides to buy a $23 million
company from Wal-Mart.
• Typically there are a lot of transaction
costs. Millions of dollars in legal and
accounting fees.
• In this case, all of that was avoided and
Buffet concluded the negotiations with a
two-hour meeting and a handshake.
• He trusted Wal-Mart,
Question
• Which voluntary ethical guideline do you
like. why?
Summary
• Select one or more, of the general ethical
standards, to use for guidance when
ethical issues arise. Sometimes when
ethical issues arise, it's tough to select a
standard in the heat of the moment. So try
to adopt one or more of these standards
in advance
Agents
• Should you use an agent to negotiate for
you?
• Should the agent be a secret agent?
• We should find out how much authority
the agent has.
Question
• Let's assume that you are a baseball superstar.
You've just graduated form college and you're
about ready to negotiate a contract with a pro
team. If you hire an agent your fee is going to
be probably 3% of your earnings. And so the
question is should you negotiate with an agent,
or should you negotiate on your own with
probably some help from, from your friends or
relatives? What are the factors you should
consider in deciding whether to negotiate on
your own or using an agent?
Factors
1. Is the agent a better negotiator than you.
2. Does the agent have more experience in
negotiating the kinds of issues that are going
to arise
3. Does the negotiation involve a technical matter
that requires the expertise of an agent; such
as, a complex legal negotiation that requires a
lawyer to negotiate
4. How much time do you have to invest in a
negotiation
Secret Agent
• Companies for various reasons, don't want, the
other side to know that they are in back of the
deal.
• Walt Disney had to use an army of secret
agents when buying 27,000 acres because he
knew that if the people selling the land realized
that he was behind the purchases, property
prices would skyrocket.
• After he acquired the 27,000 acres, prices
jumped from $183 an acre to $1000 per acre.
Question
• What is the first question you should ask
in any negotiation?
Answer
• Does the agent have authority from the
principal to do the deal.
• You might go into great details in the
negotiation with the agent, but at the end
of the day the agent's going to say well,
sorry, but I don't have authority. I have to
go back and get approval from somebody
else. And you might have to restart.
Types of agent authority
• Express Authority – Principal tells agent
they have authority
• Implied Authority – Principal hires agent in
a relevant position
• Apparent Authority – Principal indicates
there is authority when actually there is
not.
Apparent authority - Question
• A company hired an agent Lee to negotiate with a
manufacturer. And the company gave the manufacturer
a letter of authority. The company said, Lee is our
authorized agent. Now, privately to Lee, the company
said, Mr. Lee, you can acquire equipment, but you are
not authorized to pay over 300 per unit. In other words,
that was the reservation price. You cannot pay over 300
per unit. So we started negotiating with the
manufacturer, and as it turned out paid 400 per unit. So
now there's a contract. The company refused to honor
the contract. And the question is, is the company bound
by the contract made by its agent Lee?
Answer
• By giving the manufacturer the letter of
authority saying Lee had authority to
represent the company, the company
created a situation where it appeared that
Lee did have authority and the
manufacturer should be able to rely on
that letter of authority in holding the
company liable.
Question
• A borrower with no collateral who wants a
personal loan says to you the banker what
if I ask my general manager if he will sign
a guarantee on behalf of the company. So
the company will guarantee the loan.
What would you do as the banker in this
case?
• Are you now satisfied that if the borrower
doesn't repay the loan that you will be
repaid as a result of this guarantee?
Answer
• That the company was not liable as
general managers have no authority to
guarantee loans made by employees.
• The bank should have asked the
company, does the general manager have
authority
Agents - Summary
• Check the 5 factors before deciding if you
should use an agent or not.
• Is it appropriate to use a secret agent?
• Do not assume the other side has full
authority just because they are negotiating
with you.
• Determine authority at the beginning of a
negotiation. Don't ask the agent. Ask the
principal.
Setting up Summary
• Before we start the negotiation with the
other side we should analyze the parties
interests and no deal options.
• This helps us to set up the right
negotiation and be prepared to make the
best deal.