The Complex Art Of Negotiations

The Complex Art Of Negotiations

Judy Olian

(Judy Olian is dean of Penn State's Smeal College of Business and host of "About Business," a monthly call-in show airing at 7 p.m. on the first Tuesday of each month on WPSX-TV, WPSU-FM, and at http://wpsu.psu.edu/abusiness/index.html.)

In a parallel to the Tyson-Holyfield fight, Michael Eisner, the beleaguered Chairman and CEO of Disney, is battling Comcast President Brian Roberts to thwart Comcast’s takeover attempt.

The Comcast move follows Pixar’s decision to dump Disney as the distribution arm for its movies. Pixar is the brilliant animation company behind "Toy Story," "Monsters Inc.," and "Finding Nemo," movies that made hundreds of millions for Disney. Steve Jobs, founder of Pixar, announced that “after ten months of trying to strike a deal with Disney, we're moving on.” Disney executives responded that they could not accept Pixar’s reduced terms and had to walk away. Disgruntled Disney shareholders blamed Eisner, and the negotiation failure opened the door to Comcast.

Why do negotiations break down? In two recent articles in the Harvard Business Review, James Sebenius and his associates, David Lax and Ron Fortgang, describe three critical elements of negotiation. Most of us key in on the value and substance of the deal, the business issues. According to these authors, the business issues are only a small piece of the equation. The other elements often missed or dismissed are the set-up of the negotiations and the people dimensions. Are other parties or valued assets brought into the negotiations to strengthen the negotiator’s chips, are the talks sequenced to advantage one side or the other, is the scope of the deal restructured to advantage either party? Communications and style are also critical – do the sides bully or display theatrics, or do they practice refined diplomacy. What’s the chemistry between the parties?

Negotiations that focus on narrow business issues—the “three bids and a buy” model—often result in short-term partnerships and vulnerability to competitors on a limited set of issues like price and terms. They rarely offer the weaker party any room to maneuver—one party has defined the parameters of the negotiation and holds all of the cards.

How can parties bolster their limited clout? They can align themselves with heftier players that offer economic or political benefits. They can offer the promise of other buyers if a deal is struck so that the scope of the deal expands beyond the original parameters. An agreement that is less costly can be reached because of larger benefits associated with the negotiator’s partners. Other partners also imply greater threat if a deal is not reached.

Take, for example, negotiations between small business owners and health insurers. Unless they partner with other small businesses, they are at the mercy of major insurers. By pooling their bargaining power, and by sequencing how they bargain, they can chip away at the large insurer’s clout.

Similarly, Sebenius and his colleagues describe how Edgar Bronfman, the former Seagram CEO and Jewish activist, had for years tried to engage Swiss banks in negotiations to release the accounts of Jewish victims of the Nazi regime. Lacking any negotiating clout, he was repeatedly rebuffed by the Swiss banks until he allied with other U.S. financial institutions and pension funds to force the issue, or suffer loss of their business.

There are also the social dimensions of the negotiation process, affecting trust among the parties. Sebenius provides an example of negotiations between Wal-Mart and Proctor & Gamble. Each of the negotiation teams signs a confidentiality agreement to assure that information is shared only between the teams, and not with the parent companies. That breeds trust between the teams, protects any proprietary information, and enables the parties to reach agreement for the long haul.

The opposite was true of American Airlines’ negotiations with its unions, when it failed to disclose a critical feature of the top management team’s compensation while simultaneously demanding employee wage cuts. Once the details were leaked, employees’ trust in management was destroyed until the CEO was removed.

Parties come to a negotiating table with an idea of the ultimate deal they’d like to strike, and the risks if they don’t. Rather than narrowing the scope of negotiation, they can broaden the issues to include other partners, assets or transactions that will follow if they get the deal they want, or that will be lost if they don’t. They need also to prepare for the personalities and cultural norms that will shape the negotiations. When egos clash—Eisner with Jobs or Roberts—negotiations falter. If the chemistry is wrong, it needs to be fixed by changing the players or molding their behaviors.

Once the heat of the negotiation has dissipated, the best outcomes are those that last. They’re successful when the parties can live with the products of their negotiation without being weakened or feeling exploited. Failed negotiations carry many risks. They can be lopsided to the point of crushing the other party, or they can expose an opponent who isn’t able to reach agreement. Just ask Michael Eisner.

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