Bargaining for Advantage
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The final stage of negotiation, closing and gaining commitment, poses some significant challenges. In competitive situations a number of strong psychological levers, including the scarcity effect and overcommitment to the process, can cause one side to panic when it would be better off making a calmer, more rational decision.
Yet holding out poses risks, too. The other side may have genuine leverage and take its business elsewhere. Firmness can also lead to impasse. Although disagreement often prompts parties to become more creative in their search for solutions, it can also put deals and relationships in jeopardy. How you close therefore requires a measure of judgment, not just passionate commitment to your goals.
Finally, negotiations are not over until the parties have secured commitments to performance. Agreements alone are not enough unless the relationships and trust between the parties are deep and stable. The secret of making commitments is simple: Set the situation up so the other party has something to lose if it fails to perform. And be willing to take a similar step yourself.
This chapter concludes our tour of the bargaining process, but there is one final topic to cover before you can go to the bargaining table with confidence: ethics. Can you bargain with the devil without losing your soul? I think so, but it’s not easy.
Bargaining and Closing Summary
11
Bargaining with the Devil Without Losing Your Soul: Ethics in Negotiation
The market is a place set apart where people may deceive each other.
—ANACHARSIS (600 B.C.)
Most people I play cards with I trust, but I still want to cut the cards.
—JOHN K. O’LOUGHLIN, ALLSTATE INSURANCE COMPANY
I have reserved the discussion of ethics for the end of our study of bargaining because ethical questions suffuse every aspect and stage of the negotiation process. Now that we have fully explored the intricacies of preparation, information flow, explicit bargaining, and commitment, we have the background knowledge we need to probe the tough ethical questions all negotiators confront.
Let’s start with a story. It comes from the life of the late Darrell Sifford, a Philadelphia newspaper columnist. Sifford was a fatherly figure to those who admired him. He often urged people to be honest and straightforward with each other. But when it came to his first real haggling encounter, he felt it necessary to take a different path. He wrote about the subject in one of his newspaper columns.
Sifford and his wife were living in Minneapolis, Minnesota, in a large high-rise apartment complex. Sifford decided to go shopping for something to decorate their TV room. As he was walking by a discount furniture store display window, he spied an elegant world globe illuminated by a light inside. The globe sat atop an attractive cherry stand. He immediately fell in love with it.
As he entered the store, an elderly, enthusiastic salesman greeted him. “What can I do for you?” the salesman said.
“That globe in the window,” said Sifford. “I want to look at it.”
The salesman led Sifford to the window, where Sifford looked at the globe more closely and turned over the price tag. It was a shocker: $495.
“That’s more than I wanted to pay,” said Sifford, shaking his head.
The salesman sympathized and began showing Sifford a variety of other globes, but none had the charm of the first he had seen. After looking at a few alternatives, Sifford said he wanted the globe in the window but did not want to pay $495 for it. The salesman asked Sifford if he lived in the area, and Sifford pointed to his apartment building in the distance.
“Then you don’t have a problem,” the salesman said. “The store automatically gives a discount to people in the neighborhood. How does four hundred and fifty dollars sound?”
“That sounds high,” Sifford replied.
At this point, as Sifford told the story to his readers, an inner voice told him that he should bargain for this globe. He had never haggled in a store before and had always thought that bargaining was slightly degrading, a practice for people who either did not have money or were too cheap to spend it. But he was far from his native Philadelphia, so he decided to go for it. No more Mr. Nice Guy.
Sifford considered for a moment whether it was OK for him to stretch the truth a little and quickly decided that it was. He pushed on.
“I saw a globe just like this in a discount catalog for three hundred and twenty-five dollars,” Sifford lied. “How can you call yourself a discount store if you’re that much higher than the catalog?”
“It cost us more than that,” the salesman responded, “but I tell you what I’ll do. I’ll sell you this globe for four hundred dollars. That’s a steal. You can’t find a better price in any store.”
“Then I’ll buy it from the catalog,” said Sifford firmly. “Thanks for your time.” And he headed for the door.
The salesman jumped. “I’ll talk to my manager,” he said. He returned less than a minute later. “My manager is in an especially good mood today. He says you can have the globe for three hundred and fifty dollars,” he reported.
“That’s not good enough,” Sifford replied, walking back to the globe and looking carefully at it. “Look at this! There’s a nick down at the bottom. This is damaged merchandise.”
The salesman looked at the stand. There was a barely noticeable mark. “I don’t understand this,” he said. Sifford reported that the salesman was actually smiling as he said this, suggesting a certain admiration for Sifford’s tactic. “We don’t deal in damaged merchandise. Let me talk to my manager again.”
A minute later the salesman returned. “You drive a hard bargain,” the salesman said. He gave Sifford the globe for $325. Sifford proudly carried the globe, no longer just an ornament, home to his wife.
The Core Ethical Problem for Negotiators
Sifford got a bargain. But he made up a lie about a catalog price to get it. Did he act ethically? He clearly thought so, and millions of people around the world would be astonished to learn that such a lie is in any way morally troublesome. People say all kinds of things to position their demands when they are buying and selling, and, as the ancient Greek quotation from Anacharsis that led the chapter suggests, people have behaved this way for thousands of years. Lies are indisputably a feature of everyday social life in every culture.
A study done in the 1990s at the Harvard Business School asked more than 750 MBA students, who came from all over the world, to rate a long list of questionable bargaining tactics. The tactics ranged from bluffing in opening demands and lying to strengthen a bargaining position to bribing someone to provide information about an opponent’s bargaining position. Students were quite comfortable with what the investigators called traditional competitive bargaining tactics, such as bluffing about bottom lines, opening demands, time constraints, and other offers. They even approved promising (contrary to their real intent) that a future relationship would develop in return for concrete concessions.
Sifford’s conduct seems to fall comfortably within the zone of traditional competitive bargaining tactics as defined in the Harvard study. Isn’t that the end of the matter?
Perhaps. Yet many people of good conscience would see an obvious problem with Sifford’s choice: He told an outright lie for the purpose of gaining an advantage for himself. And among the most effective of what Professor Gerald Williams has called “cooperative” negotiators, a scrupulous desire to “conduct oneself ethically” in negotiations is a major motivational objective. These negotiators do not see bargaining as a game and generally do not think of lies as legitimate moves in the process.
So Sifford’s lie might make some people feel, if not outraged, at least uncomfortable. They would ask some hard questions.
If Sifford’s lie is OK, when are such lies not OK? Would it be ethical for the salesman to lie to Sifford, inventing a fictional “interested buyer” who was planning to purchase the globe later that day for $350 (or more) if Sifford did not?
Perhaps most compelling, isn’t lying a habi
t that can become addictive if used regularly? The CEO of an executive search firm in New York estimated that roughly 25 percent of the businesspeople he interviews are “persistent liars.” It does not seem farfetched to suggest that these people may have become liars in their professional lives in part through developing a habit of lying to achieve their less important personal goals. Telling a lie is easy. If a lie works well in small consumer matters, why not lie in situations where the stakes matter a bit more, such as employment? Pretty soon, a measurable portion of a person’s success may depend on using lies. Truth telling becomes an optional, expensive luxury.
Sifford’s lie was trivial, but it raises the core problem we face if we try to act ethically in negotiations. Professor James J. White, a negotiation teacher at the University of Michigan Law School, summed up the problem this way: “The negotiator’s role is at least passively to mislead his opponent about his settling point while at the same time to engage in ethical behavior.”
White’s statement embodies the contradictions many people encounter when they start thinking about bargaining ethics. Is it really possible to speak coherently about ethical ways of misleading someone for a selfish purpose? What does White mean by “passive” deception? Might not active deception about a little issue such as Sifford’s catalog price be more ethical than passive deception about something really important in a multibillion-dollar deal? There are no easy answers to these questions. And the problems become even tougher when you add professional ethical duties such as those imposed on lawyers, physicians, accountants, and others into the mix.
Ethics Come First, Not Last
This subject comes at the end of the book, but your attitudes about ethical conduct are preliminary to every bargaining move you make. Your ethics are a vital part of your identity as a person, and, try as you may, you will never be able to successfully separate the way you act in negotiations from the person you are in other parts of your life. That is “you” at the bargaining table as well as “you” in the mirror every morning.
Your personal beliefs about ethics also come with a price tag: The stricter your ethical standards, the higher the cost you must be willing to pay to uphold them in any given transaction. The lower your ethical standards, the higher the price may be in terms of your reputation. And the lower the standards of those with whom you must deal, the more time, energy, and prudence are required to defend yourself and your interests.
I’ll give you my bias on this subject right up front. I think you should aim high where ethics are concerned. I count myself in the camp that wishes Sifford had found a better way to get his bargain. As I noted in Chapter 1, personal integrity is one of the four most important effectiveness factors for the skilled negotiator. Research on effective negotiation affirms that not only Williams’s “effective cooperative” negotiators but also a wide range of professionals—from accountants to contract managers, and from bankers to professional buyers and sellers—list personal integrity among the important traits of a skilled negotiator.
Fine. But what does personal integrity mean? Am I saying that Sifford lacked personal integrity because he lied to a shopkeeper about having seen a better price elsewhere?
No. Let me repeat what I said in Chapter 1 about what personal integrity means where negotiation is concerned. I said that negotiators who value “personal integrity” can be counted on to “negotiate consistently, using a thoughtful set of personal values that they could, if necessary, explain and defend to others.” This definition puts the burden on you as an individual—not me as a judge—to construct your own ethical framework. I learned long ago that the best way to teach others about values is to raise tough questions, give people tools to think about them, then get out of the way.
Although I wish Sifford had not lied, he passed my test with flying colors. He published an article candidly discussing his behavior. The article was read by thousands and debated by many. If your own negotiation behavior can withstand scrutiny like that, you have “personal integrity” in my book. I may disagree with your choices, but we will have an honest, principled disagreement.
My goal in this chapter is not to preach to you about ethics but rather to give you some tools for making choices like the one Sifford made. Reasonable people will differ on ethical questions, but you will have personal integrity in my estimation if you can pass my “explain and defend” test after making a considered, ethical choice. After we have examined some ways of thinking about your own duties, we will look at how you can defend yourself when others use ethically questionable tactics against you.
The Minimum Standard: Obey the Law
Regardless of how you feel about ethics, everyone has a duty to obey the laws that regulate the negotiation process. Of course, bargaining laws differ between countries and cultures, but the normative concerns underlying these different legal regimes share important characteristics. I will look briefly at the American approach to the legal regulation of deception as an example of the way law works in negotiations, but basic principles of fairness and prudence in bargaining conduct are global, not national.
American law disclaims any general duty of “good faith” in the negotiation of commercial agreements. As an American judge once wrote: “In a business transaction both sides presumably try to get the best deal . . . . The proper recourse [for outrageous conduct] is to walk away from the bargaining table, not sue for ‘bad faith’ in negotiations.” This general rule assumes, however, that no one has committed fraud. As we shall see, the law of fraud reaches deep into the complexities of negotiation behavior.
There are six major elements of a fraud case. A bargaining move is fraudulent when a speaker makes a (1) knowing (2) misrepresentation of a (3) material (4) fact (5) on which the victim reasonably relies (6) causing damages.
A car dealer commits fraud when he resets a car odometer and sells one of his company cars as if it were brand new. The dealer knows the car is not new; he misrepresents its condition to the buyer; the condition of the car is a fact rather than a mere opinion, and it is a fact that is important (“material”) to the transaction; the buyer is acting reasonably in relying on the mileage as recorded on the odometer when she buys the car, and damages result. Similarly, a person selling her business commits fraud when she lies about the number and kind of debts owed by the business.
Lies about important facts that go to the core of a deal are not unknown in business negotiations. But most negotiators don’t need a lawyer or an ethicist to tell them that such misrepresentations ought to be avoided. These are cases of fraud, pure and simple. People who try to cheat you are crooks.
More interesting questions about lying come up on the margins of the law of fraud. What if the dealer says you had better buy the car today because he has another buyer ready to snatch the car away tomorrow? That may be a statement of fact, but is it material? It looks like Sifford’s little lie about his catalog price. Assuming Sifford is innocent of legal fraud in the globe case, should we hold a professional car dealer to a different legal standard? Is the car dealer’s lie about the other buyer fraudulent or just a form of creative motivation?
Suppose the seller does not state a fact but instead gives an artfully phrased opinion? Perhaps the person selling her business says that a large account debt “could probably be renegotiated” after you buy the firm. Could this opinion be deemed so misleading as to be fraudulent if the seller knows for a fact that the creditor would never consider renegotiation?
Let’s look briefly at each element in the law of fraud and test where the legal limits lie. Surprisingly, though we would all prefer to see clear black and white rules outlining our legal duties, staying on the right side of the law often requires a prudent respect for the many gray areas that inevitably color an activity as widespread and multifaceted as negotiation. Knowing what the law is helps you stay within its boundaries, but this knowledge does not eliminate the need for a strong sense of right and wrong.
ELEMENT 1 : “KNOWING”
For example, a company president might suspect that his company is in poor financial health, but he does not yet “know” it because he has not seen the latest quarterly reports. When his advisers ask to set up a meeting to discuss these reports, he tells them to hold off. He is about to go into negotiations with an important supplier and would like to be able to say, honestly, that so far as he knows the company is paying its bills. Does this get him off the hook? Perhaps. But many courts have stretched the definition of “knowing” to include statements that are, like the executive’s in this case, made with a conscious and reckless disregard for their truth.
Nor is reckless disregard for truth the limit of the law. Victims of misstatements that were made negligently or even innocently may obtain relief in certain circumstances. These kinds of misstatements are not deemed fraudulent, however. Rather, they are a way of recognizing that a deal was based on a mistake.
ELEMENT 2: “MISREPRESENTATION”
In general, the law requires a negotiator to make a positive misstatement before a statement is judged fraudulent. A basic legal rule for commercial negotiators is “Be silent and be safe.”
As a practical matter, of course, silence is difficult to maintain if one’s bargaining opponent is an astute questioner. In the face of inconvenient questions, negotiators are often forced to resort to verbal feints and dodges such as “I don’t know about that” or, when pressed, “That is not a subject I am at liberty to discuss.” When you choose to lie in response to a pointed question probing the strength of your bargaining position, you immediately raise the risk of legal liability. As we shall see below, however, some lies are not “material” and the other party may be charged with a duty to discount the truth of what you tell them.