Co-Opetition - Adam M. Brandenburger [110]
Business negotiations involve both promises and threats. Some of those threats, however, are better left implicit. We witnessed a case where a supplier, frustrated by the slow pace of ne gotiations over a contract renewal, threatened to cut off the buyer if he didn’t agree to the supplier’s terms. The buyer gave in to the supplier in the short term. He had no choice. But the damage was done. The buyer, seeing that the supplier didn’t have a problem inflicting harm on him, could hardly continue the relationship. The buyer set out to ensure that he would never again be caught in a vulnerable position. He found a new source of supply, and even a backup to that new source. As soon as he could, the buyer stopped doing business with the original supplier.
What should the supplier have done? He should have allowed the buyer to come to his own realization about what might happen if negotiations deadlocked. If the buyer continued to drag his feet, the supplier could have suggested bringing in a mediator. A skillful mediator knows that part of his job is to help each party see the consequences of failing to reach agreement. A good mediator would have helped the buyer see that if he pushed too hard, the supplier might well cut him off. The buyer needed to face this fact, but when the supplier made the threat to cut him off, he let the cat out of the bag, and that was the beginning of the end of the relationship. It would have been much better to have a third party help the buyer peek in the bag and see that there was a cat inside. That might well have been all that was needed to stop the buyer from dragging his feet.
Supplier and buyer needed to maintain a fog over what could happen if the negotiations broke down—not necessarily a thick fog, but definitely some fog. The use of a mediator would have helped preserve a mutually convenient fog.
When inexperienced negotiators get frustrated by the slow pace of discussions, they often start making more explicit threats. That’s a mistake. If you’re not sure whether you can hold your tongue, think about bringing in a mediator.
Negotiations are about coming to an agreement, but that doesn’t necessarily mean that everyone has to see things the same way. Agreements can be reached even when people stick to their differing perceptions. Indeed, differences of opinion can actually make it easier to reach an agreement. The following disguised story of a fee negotiation between an investment bank and its client shows how this works.
Disagreeing to Agree The client was a company whose owners were looking to sell. The investment bank had identified a potential acquirer. So far the investment bank had been working on good faith; now it was time to sign a fee letter.
The investment bank suggested a 1 percent fee. The client figured that its company would fetch $500 million and argued that a $5-million fee would be excessive. It proposed a 0.625 percent fee. The investment bankers thought that the price would be closer to $250 million and that accepting the client’s proposal would cut their expected fee from $2.5 million to about $1.5 million. Ultimately, one side would be proved more right than the other as to the market value of the company. But, right now, there was a fog.
Naturally, the investment bank thought it knew best. It could have tried to convince the client that a $500-million valuation was unrealistic and that its fear of a $5-million fee was therefore unfounded. The problem with this approach, though, was that the client didn’t want to hear a low valuation. Faced with such a prospect, it might have walked away from the deal and even