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
 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
Decision Tree
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 deal-
options
• 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 Decision-
Making 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 decisions away from
your direct scrutiny
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 “must-

have” 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
 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, risk-bearing, finance,
and so on? Who might supply a piece that’s
missing from the current process? What devices
might bring these potential value-creating 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 non-
lawyers, 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
• 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
5. What's your relationship with the other side
 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.