‘There is no harm in entering into a dialogue,” is a common refrain in the board room. So too is, “We have nothing to lose by negotiating. If we don’t like the deal, we can always walk away later.” Far too often, when it comes to negotiations nothing could be further from the truth.
Some negotiations are unavoidable and negotiations are an imperative step in actualizing a company’s business plan. However, negotiations are not cost-free. Negotiations are a tax on a company’s resources, represent a diversion of focus, and heighten your company’s vulnerability to competition.
While we advise companies on developing a range of negotiating strategies, the first strategic question that should be addressed is, “Should we entertain the proposition?”
Here are some reasons why you should reject unessential opportunities to negotiate:
Time. Negotiations consume tremendous quantities of time. Since senior executives’ time is quite often the scarcest resource a company has, senior leadership must be very selective about choosing the negotiations that it will enter.
Diversion of attention. Entertaining too many overtures to negotiate transactions causes executives to lose focus of their business objectives. Negotiating indiscriminately risks causing senior managers to forget which businesses they are pursuing and which markets they should be serving.
Risk of being seduced. Many years ago, when the American Nazi party petitioned to march in Skokie, Illinois, columnist George Will argued that they should not be granted this right. His argument was that if you give fascist parties a right to compete in the marketplace of ideas, they might just win. If you put yourself in a position of being seduced to do something that is not in your company’s best interest, the other side just might be successful in convincing you to take such action.
Information leakage. Competitors know that feigning interest in your business is a proven tactic for gleaning critical information about your company. Despite executing non-disclosure agreements, even seemingly innocuous off-handed comments can convey critical insights to your interlocutors.
Delay. In addition to capturing vital information about your company, competitors conducting due diligence on your organization can use prolonged negotiations to delay you from taking actions that you need to take. For instance, if you are negotiating a potential research alliance, you may not pursue your internal research efforts during the course of the negotiations as aggressively as you otherwise would. The competitors with whom you are negotiating may be disingenuous about forging such an alliance and may be vigorously pushing ahead with their own research initiatives.
Broken relationships. Simply entering into negotiations with one party can contaminate your relationships with other parties. For instance, during the latter part of World War II, the Nazis concocted a disingenuous scheme whereby the Western Allies would supposedly be able to save the lives of 800,000 Hungarian Jews if they provided the Wehrmacht with 10,000 winterized trucks to be used solely on the Eastern Front. The trap was that the moment the Western Allies entertained this proposition, their alliance with the Soviet Union would be attenuated since the trucks were to be used against Soviet troops.
Being used as a pawn. Sophisticated negotiators know that their leverage usually rises when they negotiate with multiple parties. Be aware that the other side could use the negotiation with you to demand more attractive terms from a company that they are genuinely interested in doing business with. They could be using discussions with you solely as a means of legitimizing valuations that they desire.
Concern among employees. Transactions designed to transform your company (or departments such as marketing or research) are of concern to your employees. Unless you are setting the stage for negotiations with your employees, you don’t want to unnecessarily scare your employees that their jobs could be imperiled in light of an impending business (or departmental) combination.
Intellectual straitjacket. Due to the tremendous resources required and emotional investment expended, negotiations tend to take on a life of their own. It is often psychologically easier to consummate a bad deal than it is to terminate prolonged discussions. The most troubling aspect of deal fatigue is that the organization becomes so emphatically committed to “getting the deal done” that it refuses to acknowledge foul play on the part of its counterparts. A host of Israeli governments have embraced “the road map to peace” so tenaciously that acknowledging the culpability of the Palestinian Authority in a multitude of terrorist acts has become impossible since doing so would make a mockery of the negotiations.
Even if you disagree, there is one final point that I would like to make. If you insist on negotiating promiscuously, you should put up some initial resistance to negotiating. Voicing some apprehension leaves you in a stronger negotiating position should you decide to proceed. More successful negotiators go one step further and amplify their reservations in order to win pre-negotiation concessions.
David Wanetick of IncreMental Advantage (www.incrementaladvantage.com), a management consulting firm at 116 Village Boulevard, teaches courses on negotiating transactions through the Business Development Academy and is the author of “The Power of Incremental Advantage.” He will present “Negotiating Transactions” on Friday, August 22, at 8:30 a.m. at the Conference Center at NJHA, 760 Alexander Road. Cost: $595. Call 609-919-1895 for details.
Wanetick majored in economics and political science at Bucknell University, Class of 1988. He worked as an industry analyst for Merrill Lynch.