Do me a favour:

The next time you hand in your yearly budget, add a line item expense for “Being Right”.  Now add another for “Teaching Business Ethics”.  Go ahead and plug in a big fat number with a lot of zeros in both.

Let me know how that flies with the Board.

While most (hopefully all) of you are getting a bit of a chuckle thinking about the idea, all you have to do is look at the year-end statement of corporations all across the world and you’ll likely find those line-items cleverly disguised under “loss from lawsuits” or as a note with a reserve for ongoing litigation.

Here’s the thing:  the goal of corporate conflict management is to reduce risk and minimize loss.  Skillfully handled, you can also maintain or even grow valuable relationships.  But executives who dig their heels in to ‘take a stand on principle’ need to be reminded that there’s no room in the budget for principle.

Does that mean you settle every case that comes up?  Of course not.  Companies can and should defend themselves against nuisance suits and shouldn’t be strong-armed into settlements that aren’t in their best interests.

But there’s the rub:  a company’s interests lie in growing and making money.  It seems to me that teaching an adversary valuable lessons would be something you could charge for, rather than have to pay for.  Why would I throw away good money trying (and failing) to teach the other guy how things are supposed to be done?  Likewise, I doubt many corporate leaders negotiated a “Being Right” benefit addendum to their employment contracts.

There are a lot of factors in play when it comes to dispute resolution on the corporate level — potential relationship and public relations ramifications, legal expenses, risk of adverse judgements, time and resource allocation, precedent, BATNA, not to mention the actual value at stake, just to name a few.  Stubbornness and ego shouldn’t be among them.

When addressing conflict, executives need to think strategically as to what’s in the best long-term interests of their stakeholders, and they need to be humble (and wise) enough to see the difference between how things are and how they should be.

Anything less is irresponsible.

How many times have you been in a job interview and come across the question about salary expectations?

Common wisdom tells us to not make the first offer, which is great on paper, but tends to lead to an impasse.  The hiring manager (or board, or President) doesn’t want to move first, in case you would have come in lower, and you don’t want to move first in case they would have come in higher.  Or worse, in case you’re out of the ballpark altogether!  So there you sit, in a polite standoff.  Well-dressed gunslingers sweating in the sun, each waiting for the other to flinch.

Sound familiar?

Let me help you out:  make the first offer, and make it aggressive.

Here’s why:

Anchoring

Every number after the first is going to relate back to that first offer.  The first number literally anchors the negotiation to that number.

The trick is to come in with a number that’s going to anchor you high enough to get what you want, while not having you thrown out of the building by security.

This is where ZOPA comes in (Zone of Possible Agreement — because acronyms make simple things seem technical).  ZOPA is simply that number that’s higher than the lowest you would accept while lower than the highest they would accept.  Here’s a diagram to make it simple:

You’re essentially on the Price is Right — get as close to the highest number as you can without going over.  Except, unlike the Price is Right, you have access to the information you need, if you’re willing to do the homework.  How do you find out what they’re willing to pay?  By following the advice of every job site to ever hit the internet:  Do your research!

• Speak with the professional association serving your field in your area
• Go to sites like Monster.com and check out their salary tools
• Speak with a recruiting firm specializing in your field
• Check out LinkedIn (but be careful — much of what you do there is available to your present and future employers!)
• Heck, if you know someone at the company, you could even ask them if they could give you a range (again, careful with this one!)

The more information you have, the more willing you should be to make the first offer.  If you’ve done your homework, you already have a pretty good idea what their range looks like.  So anchor high.

Pro tip:  Anchoring above the ZOPA (but still within reason) is a powerful tactic, as it underlines the highest amount your counterpart is willing to offer.  In effect, it forces your counterpart to focus on that highest number as a measure of success in the negotiations, which suits you just fine.  Of course, anchor too high, and your counterpart may very well decide there’s no point in moving forward, so be careful when you employ this tactic.

Of course, the WHEN of your offer is important as well.  You don’t want to talk numbers before they’re fairly comfortable you’re a good fit.  Try this:

“Don’t worry, I’ll be happy to be the first to propose a number as soon as we’re both comfortable that we’re a fit.  I’d like to know a bit more about the position and the company goals, and I’m sure you’ll want to know a bit more about me, before we get down to details.  If everything else looks good, I’m sure we’ll have no trouble getting to a number.”

There’s a lot to be afraid of these days.  Pundits will tell you the economy has been through worse times, and they’re right.  But never before has the economy changed so much, so fundamentally, in so little time.  Industrial revolution?  A snail’s pace compared to what’s happening with the internet today.  So when things go wrong, it’s easy for fear to sneak up on us.

To steal a line from the wise and powerful Yoda, “Fear leads to anger.  Anger leads to hate.  Hate leads to suffering” –and in the case of negotiation, to financial ruin.

Easy for Yoda to say, he could just wave his little green paw and have people do whatever he wanted.  But what do you do when a key client comes to you and demands price concessions at exactly the time you can least afford it?

I’m asking you, seriously, what do you do?

Do you drop your price to keep the client?  If so, not only will you be taking a hit on the bottom line, the new price becomes the jumping off point for any future negotiations.  In other words, this ‘temporary’ price decrease will, like it or not, become permanent.  And what about your other clients?  If you have price parity agreements in place (or even if you don’t), they’ll expect equal treatment.

But if you don’t drop your price, you run the very real risk of losing this client.  And the long-term only matters if you can make it that far.  Not to mention that in this economic climate, your client likely has real concerns and challenges of his own.

First of all, let’s address the fear.  You’re afraid.  Rightly so.  And your monkey brain isn’t wired to distinguish between fear of losing your business and fear of hairy carnivores.  So your palms sweat, your heart rate rises and your  fight or flight responses take over.  You’ll likely get frustrated and angry (fight) or meek and passive (flight).  Pretending you’re not afraid is not going to work.  You are afraid, and telling your inner primate that you’re not is only going to get him to shriek louder.  So what to do?

Accept that you’re afraid.  Become conscious of the unconscious processes going on in your mind and body (sweaty palms, elevated heart rate, and so forth).  The more you engage the rational part of your brain in observing and cataloging processes, the less engaged your shrieking monkey brain will be.   There are interesting studies out there about how engaging the neocortex subordinates the limbic brain, but for our purposes, just look at the monkey.  It’ll help.

As for balancing price concessions vs the risk of losing the client?  Don’t.  At the risk of going to the Star Wars quote well one too many times, “It’s a trap!”

Look at it this way:  your client is more than likely legitimately concerned about his own business challenges in this economic environment, and is likely more than happy to talk to you about them, (because that’s his justification for hitting you up for a price break in the first place).  So listen.  Ask questions.  Don’t go on about how times are tough for everyone — he doesn’t want to hear it.  As I mention in another post, until people feel they’ve been heard, understood and valued, they’re not ready to compromise.

But the more you find out about his particular situation, the more you can start finding ways to help him that don’t involve only price breaks.  In other words, you can start finding other ways to solve his problem without making yours worse.  In Negotiation theory, we talk about ‘trades’ and ‘creating value’, but it’s really just a way to give him something that doesn’t mean much to you but means a lot to him in exchange for something that means a great deal to you and less to him.

A couple of examples are in order:

Payment structure: If his business is seasonal, you may find that tweaking a payment schedule to allow him to pay more when times are good and less in the down months helps him enormously, while perhaps not inconveniencing you too much.

Referral:  I can look at giving you a discount if you can help me land more business.  As a buyer, he likely knows a lot of people just like him, and is in a unique position to recommend you with a great deal of authority.  If he’ll work with you to bring in another client, offer him the volume discount over the whole that he wouldn’t otherwise qualify for.  “What volume discount?” you ask?  The one you just made up to justify a price reduction without resetting the norm for his future purchases, the same one you can now better afford because of the extra business he brought in.

The point is that you’re not taking value off the table, you’re working with him to create value for you both.  And you’re not devaluing your service or product, you’re telling your good friend that he can enjoy the lower price so long as he does what comes easily to him anyways.

But the shrieking monkey part of your brain isn’t qualified to have this sort of conversation.  So instead of ignoring it, accept it for what it is, give it a banana and thank it for its service.  But the grown-up brain is working now.

(This article is in response to a request from a blog follower.  I’m especially grateful, as his question jump started me past a bit of writer’s block.  If you have any feedback, or better still,  suggestions for future blog entries tackling a problem you might be facing, I’d love to hear them!)

…and how you can get what you want anyway.

I love a good argument.  More, I love a good Latin-American argument.  The back and forth, the incremental hyperbole, the wild gesticulations.  It’s fun, and if you’re paying attention you may actually learn something you didn’t already know.

The problem is, arguing for fun and arguing to resolve a conflict are two completely different endeavours.

When we’re in a conflict, whether in business or in a more personal relationship, we tend to want to win.  It’s completely natural.

“If only Bob could understand what I’m telling him, he’d agree with me.”  So we focus on explaining it.  And explaining it again.  And in countering the other guy’s arguments.  “Surely I can make him see reason, if only he’d listen!”

Here’s the problem:  my unstated goal in this discourse is to have the other fellow agree with me.  To put a finer point on it, to renounce his opinion and subscribe to mine.  To essentially say “You were right, and I was wrong”.  Not only is this nearly impossible, it’s not very appreciated.  No one likes to be wrong, fewer still like to admit to it, and of those few, almost none will thank you for it.  So even when you win, you lose.

Since that approach has never worked, and likely never will, maybe it’s time to try something different.

The most obvious?  Zip it.  Simply don’t have the discussion in the first place.  It’s not your job to correct everyone who doesn’t agree with you.  Smile, move on.  Letting other people be ‘wrong’ is liberating, and will free up a lot of your time for more important things.  Like, you know, the things you make money doing.

For those times you can’t do that, when a conflict needs to be resolved, or a negotiation is getting heated, try this approach:

“Bob, I hear what you’re saying and I get it.  I’ve always found you to be a reasonable, informed guy and I like to think I am too.  So I’m sure there’s something here I’m not understanding, otherwise I’d likely agree with you.  Let’s take a step back and help me try to understand where you’re coming from.”

Then take the time to fully understand the context, not just the content, of his side of the disagreement.  Once you feel you have a handle on it and he knows you have a handle on it, see if you still honestly disagree with his assessment.  If not follow up with:

“I understand what you’re saying.  If I were sitting where you’re sitting, I might feel the same way.  I’d like to think that if you were in my shoes, you’d feel as I do.  I look at it differently because where you see a,b,c, I see x,y,z.  Still, I can’t help but feel that, in spite of these differences, there’s an arrangement here if we look for it.”

This approach works for four reasons:

1. Until people feel they’ve been heard, understood and valued, they’re not ready to compromise.  It’s really as simple as that.
2. People make decisions based on their reasons, not yours.  If you want to affect their decisions, you need to appeal to their reasoning, crazy or misinformed as you may find it to be.  Having them explain their reasoning is like having the other coach show you his playbook — take the time to study it!
3. It changes the tone from a war about who’s wrong to a more collaborative fact-finding conversation.  Since you’re already prepared ahead of time with your supporting stats and research (right?), you’ll enjoy a strong advantage in this area.
4. The rule of reciprocity applies — if you show you value their point of view, there’s significant pressure for them to value yours.  This opens the door to face-saving rationalizations for exactly the concessions you’re looking for.

At the very least, you convey that you’re willing to listen and that you respect and value your counterpart.  If you can do that, your conflict will be well on the way to resolution.

One of the classic negotiating mistakes is failing to account for changing circumstances.

By default, when trying to work out way through a negotiation, especially a conflict, we want to go back to where we were ‘before we got into this mess’ (status quo ante bellum, for those of us who like to use the $5 words).  That’s not always a bad thing.  In fact, it was exactly this philosophy, entrenched in the Treaty of Ghent, that allowed Canada and the US to become such strong allies and trading partners after the war of 1812.

While this can be a useful anchoring point, especially when the relationship has value going forward, it can also lead to expensive errors in judgment.

As negotiators, we need to always be aware of the context of our negotiations, and agile enough to adapt as that context changes.  It matters little what I paid for my Florida condo in 2006, it’s worth less now because the context is different.  A personal injury case that might have easily settled 5 years ago for $100,000 could easily be worth ten times that now, based on a few small legal victories along the way to trial.

We look back to where we started to see ‘what’s fair’, when we should be looking at where we are and asking ‘where do we go from here?’.

Don’t fall into the trap of navigating from where you left the dock.  Plot your course from where you are today.  You’ll be surprised at how much easier it’ll be to reach your goal.

Which is easier: learning a skill or learning a behavior?

Anyone with kids can tell you how difficult is it to teach someone to be diligent, honest, friendly, attentive to detail, ambitious, or any of a host of traits we hope to instill. Ever notice how some people seem to always be positive and willing to help out, while others tend to the morose?

There are habits we build over a lifetime, ways of doing things, ways of looking a the world and dealing with other people, that take a herculean effort to change. Many of these habits are what make us excel or fail at our chosen task, and make our collaborations either effective and inspiring or soul-draining time-sinks. And these habits and attributes come with us everywhere we go.

Yet it seems that the default in recruiting is to place an extraordinary amount of emphasis on similar experience, as opposed to complimentary attributes. This in a rapidly changing enterprise environment where markets and practices are in constant flux. This isn’t just ineffective, it’s lazy.

Obviously there are a great number of positions to fill where particular skills are everything and prohibitively difficult to learn on the job. While I’d like my heart surgeon to have a pleasant manner, his skill is far and away the overriding concern.

But much of management, for example, is involved not in performing specific tasks but in maximizing the potential of those around you. Inspired employees perform better, adapt better to change, and add value to their team and business. While you can teach a manager how to use the software in place and impart a profound understanding of the policies and procedures of a particular enterprise, teaching him to be an inspiring leader is much more difficult, if not impossible. Yes a manager needs to know his stuff, but he or she can learn it far more easily than he or she can learn how to get the most out of others.

Client services is another example — dedication, empathy, the willingness to go the extra mile, responsibility, the ability to inspire confidence — how do you teach this? Hire it instead. And look for it in unexpected places.

A case comes to mind from my own experience: I once hired a chef to manage a hotel. The gentleman in question said straight out “I don’t know anything about running a hotel”. Well, no, he didn’t. But he did know a great deal about running a team. He was honest, hardworking, reliable and willing to learn. He picked up the hotel management side remarkably quickly and years later has proven to be invaluable to the success of the business, so much so that when the property changed hands, the new owners made sure he stayed on.

Yes, your new hire needs to know his stuff and past experience is a good indicator of whether or not he does. But ask yourself these two questions:

Can we teach him the position-specific skills he needs to know?
Does he have the attributes we need but can’t teach him?

Do that, and you’ll find it gets easier to find, hire and retain excellence.

There is a better way to resolve your dispute: by hiring an expert mediator who focuses not on rights but on interests—the needs, desires, or concerns that underlie each side’s positions. If someone asks you why a dispute is important to you, your answer will reveal your interests.

As a simple illustration, imagine that two administrative assistants with adjoining desks disagree about whether the window behind them should be open or closed. One claims that she has the right to decide because she has seniority, while the other insists he should get his way because he conceded to the senior colleague in a disagreement about lighting. The office manager asks both to explain their preferences. The senior employee says that the draft from the open window gives her a stiff neck. Her colleague says that without fresh air, he gets sleepy. Suddenly, agreement is easy: the office manager opens a window in the adjoining storeroom, and the two assistants have fresh air with no draft. Acting as an interest-based mediator, the office manager probed for the interests underlying the assistants’ positions. When the positions of disputing parties cannot be reconciled, a focus on interests often will lead to a mutually satisfactory outcome.

But can a focus on interests be applied to complex business disputes? Yes. In fact, a mediator who initially knows little or nothing about the underlying technical issues often can resolve the most complex disputes. Why? In the first place, a good interest-based mediator will be a fast learner, capable of quickly picking up the technical knowledge necessary to discuss the problem. More important, an interest-based mediator doesn’t need to fully understand the technical aspects of a problem to assess why the dispute is important to each party and which solutions each party might accept. By beginning with this knowledge and eventually exchanging settlement proposals, the interest-based mediator can help parties resolve the most complex technical problems.

Adapted from “Beyond Blame: Choosing a Mediator,” by Stephen B. Goldberg (professor, Northwestern University), first published in the Negotiation newsletter, January 2006 and found online here

We generally think of mediation as a dispute-resolution device. Federal mediators intervene when collective bargaining bogs down. Diplomats are sometimes called in to mediate conflicts between nations. So-called multidoor courthouses encourage litigants to mediate before incurring the costs—and risks—of going to trial.

Scott R. Peppet, a professor at the University of Colorado School of Law in Boulder, Colo., reports that mediation has been quietly creeping into transactional negotiation, or traditional dealmaking, as well. In Peppet’s survey of 122 practicing mediators, 48 reported having been involved in deals ranging from $100,000 to $26 million in value. The cases facilitated by the mediators included angel investments, a software joint venture, a physicians’ partnership, the sale of cable television access rights, and a host of business, community, and personal agreements.

Real estate brokers, investment bankers, and executive search firms also serve as dealmakers, of course, but in the end, they typically represent a specific party. By contrast, a true mediator is nonpartisan and is equally responsible to everyone at the bargaining table.

Unlike arbitrators, mediators have no power to impose an outcome on the parties involved. Instead they are process specialists, adept at moving people from narrow positional bargaining toward a problem-solving approach. If negotiators have been cautious about revealing critical information (such as their must-haves and walk-aways), a shuttle mediator—someone who goes back and forth between the parties, carrying proposals, floating ideas, etc.—may discover untapped possibilities for mutual gain. Specialized mediators can also contribute their expertise on deal structuring.

While Peppet is generally positive about the prospects for transactional mediation, he notes that it may raise some legal and ethical issues. It’s not clear, for example, whether communications with a mediator are covered by the same confidentiality protections that apply to court-annexed proceedings. Also, an argument could be made that a mediator involved in a merger or acquisition might have to comply with security regulations and register as a broker.

Adapted from “Mediation in Transactional Negotiation,” first published in the Negotiation newsletter, July 2004 and published online here

I was asked to write an article on Conflict Resolution within organizations for the American Chamber of Commerce’s magazine here in the Dominican Republic.  Here’s the link, I’m on page 15.

A few caveats and observations:

The article is in Spanish.  If that makes it somewhat difficult to read, bear with me:  it was difficult to write.  Writing this article drove home for me how much language limits expression and how communication across language barriers is so much more than a function of translation.  I’ll likely blog about this in a future post.

While I was asked to write on Conflict Resolution, you may note I wrote about Conflict Management.  This because conflict is inevitable and often healthy when properly managed.  We tend to approach conflict as isolated phenomena, something to be prevented, then avoided, and, if all else fails, resolved.  I disagree with this assessment, and in the article I attempt to explain why.

Finally, judging by the photo included in the article, it would appear I am not as photogenic as I would like to think I am…

Does my counterpart’s opinion of myself or the deal matter to me?

Unless you are buying a knickknack souvenir on vacation (in which case, feel free to skip this post altogether and enjoy your vacation!), odds are the person you are negotiating with will be able to affect you in some way down the road, be it through reputation, referrals, how they comply (if at all) with the agreement or in any number of ways.

But if there is a relationship in place, be it a requirement for future performance, a partnership, or even the possibility for referrals (or public complaints), you might want to look past the “Yes” and consider some additional points:

1) Does my current negotiation strategy improve or compromise my relationship with my counterpart?

2) Are my counterpart’s interests being met? If not, what does that say about the medium to long term viability of this relationship?

3) Is the deal we are putting together self-policing? To wit: are there built-in incentives to both parties that encourage them to carry through on or even add value to the agreement?

4) Is there a dispute resolution clause? Hint: there always is an implicit dispute resolution clause: the courts. Is that the one you want to use or would you prefer to build in more viable options (mediation, arbitration, confidentiality clause, choice of venues, etc, or any combination of the above)?

5) Is the case of partnerships, is there a dissolution clause in place? Example: shotgun offers, a formula for valuating the business in case of a buy-out, a non-compete clause, etc).

6) Are there contingencies in place to address events outside the control of the parties? If sales exceed x then a discount of y applies. If the price of concrete drops below x then the agreed price proportionately matches the drop, etc.

7) Is there a referral fee for additional business? Turning clients into champions is good business – do it as often and effectively as possible.

Finally, a bonus tip: Once you have a deal in place, consider reopening discussions and trying to find an even better arrangement. This can be tricky, but can pay major dividends. If you’ve done your homework on the relationship and built trust and an environment of cooperation (instead of purely competition) there is often an opportunity to review the arrangement looking for opportunities to increase value, either between the parties or by an outside agent. All parties have the option to stick with the deal in place, so there is a good chance they will be more forthcoming about their interests and creative with their solutions. And again, if they don’t like the new deal they have the option of sticking to the deal in place. Handled properly, there is an enormous opportunity for value creation.

“Yes” is a great thing to hear, but it’s a jumping off point, not a destination.