Bargaining for Advantage Read online

  When the CEO showed interest in Airbus, it pulled out all the stops to arrange an innovative leasing deal that involved borrowed funds from one American and two French banks, General Electric (the firm that made Airbus engines), and Airbus itself. The French government even threw in millions of dollars’ worth of export credits to subsidize the deal. In short, Airbus supplied not only the airplanes the CEO needed, but also all the money to purchase them. The CEO (Frank Borman of Eastern Airlines) got his jets by looking past the obvious sources of supply to find a seller that needed a buyer even more than he needed planes. He improved his leverage by shifting the “balance of needs” in his favor in the transaction.

  EXAMPLE 2: LEVERAGE OF THE OTHER PARTY’S EGO

  The entertainment business is rife with examples of how the personal ego needs of the participants in a deal can be sources of leverage just as often as corporate business needs. One of the most famous (or infamous) movie executives Hollywood spawned in recent times is hairdresser-turned-producer Peter Guber. Guber made one of his better deals early in his career when he obtained 20 percent of the stock of a booming record company owned by Neil Bogart called Casablanca Records in exchange for a modest 5 percent interest in his next movie, a second-rate sequel to Jaws called The Deep. How did Guber arrange this favorable trade?

  Like many on the periphery of Hollywood, Bogart craved the legitimacy of being a “movie mogul.” As one associate put it, “What Neil wanted more than anything was to get into the movie business and he was willing to pay anything to get it.” Guber became aware of Bogart’s movie mogul fantasy and offered to give him a role in producing The Deep for a big chunk of Bogart’s record company. Bogart’s self-esteem needs provided all the momentum needed to close the deal. The arrangement turned out doubly well for Guber because, as a fruit of the partnership, one of Casablanca’s top artists, Donna Summer, sang the title track for The Deep. The film’s soundtrack, released by Casablanca, sold two million copies.

  EXAMPLE 3: GENERATE COMPETITIVE PRESSURE

  A public utility in Houston, Texas—Houston Power & Lighting Company—was paying $195 million a year to the Burlington Northern Santa Fe railroad (“Burlington Northern”) to carry coal to its giant generating station. Janie Mitcham, the head of purchasing for the utility, was fed up with the outrageous rates and poor service she was receiving, but what could she do? Burlington Northern had a monopoly on rail access to her plant. And rail was the only way to supply the enormous quantities of coal needed to run a generating facility. She tried to negotiate lower rates based on fairness arguments and appeals to the firms’ relationship, but all she got from Burlington Northern was a shrug.

  Then she got an idea: She would build a railroad of her own connecting her plant to tracks owned by the rival Union Pacific railroad, ten miles away. She mentioned the idea to Burlington Northern in a last-ditch effort to get it to reduce its rates, but Burlington Northern was not impressed. It was a lame threat, Burlington Northern executives figured, because the cost of such a project would be prohibitive, more than $24 million. Even Mitcham’s staff was skeptical, calling her idea “The Rail of Dreams.”

  But Mitcham persisted. She got approval from her bosses to go ahead, had plans drawn up, and started building her own ten-mile-long railroad, now nicknamed “Janie Rail.” It was no picnic. Burlington Northern sued her and went to rail regulators to complain; she had to move 300,000 cubic feet of soil, design around graveyards and historic sites, and put up with complaining neighbors. But in the end she got the job done. “Janie Rail” is now a reality—and Union Pacific bid for her business at a 25 percent discount off the rates Burlington Northern was charging. She is saving $10 million per year and stands to save about $50 million a year in the near future.

  Mitcham is enjoying her newfound position of power. In fact, when Union Pacific recently was late with some deliveries, she switched some shipments back to Burlington Northern, prompting a personal visit and apologies from Union Pacific officials, who promised to do better. In short, Janie Mitcham improved her leverage by thinking outside of the box to create a new alternative for solving her supply problem. “Janie Rail” gave her leverage over both her old and new railroad service providers by creating competition for her business.

  Leverage: The Balance of Needs and Fears

  As Chapter 5 revealed, skilled negotiators pay close attention to the other party’s needs and interests. But let’s be clear: They do so for a purpose. They are not negotiating in order to solve other people’s problems. They are negotiating to achieve their own goals. And the most reliable way to achieve your goals at the bargaining table is to acquire and use something everyone wants but only negotiation “naturals” fully understand: leverage. Leverage derives from the balance of needs and fears at the bargaining table.

  For all its importance, many people are confused about exactly what leverage is and how to use it. They also have trouble coping with the fact that leverage is a dynamic rather than a static factor in bargaining. It can change moment by moment.

  The best way to test your own understanding of leverage—let’s call it your “leverage IQ”—is to work your way through an example of a tough, high-stakes bargaining situation, asking yourself each step of the way, “Who has the leverage?” and “Given the leverage situation, what should the parties do next?” If you can understand how leverage works in a concrete situation such as this, you are ready to begin analyzing leverage in your everyday business and professional negotiations.

  The example I have chosen to introduce the dynamics of leverage involves the kind of crisis that makes even expert negotiators break out in a cold sweat: a hostage taking. Many people feel that negotiating with hostage takers sets a bad precedent, but it is safe to say these critics have not had the bad luck to become hostages themselves. Moreover, as unique as a hostage situation may appear, the leverage lessons learned here apply broadly to any business or personal situation in which one side seems to have complete control and is dictating your moves. As you read the following story, watch carefully as the police authorities gradually take a situation that is totally out of their control and carefully turn it around by developing leverage from three sources: information on what the other party wants (both explicitly and implicitly), the power to make the other side worse off, and norms or values the other side respects.

  The Hanafi Hostage Situation

  In March 1977, 12 heavily armed members of a little-known religious sect calling themselves the Hanafi Muslims seized three buildings in Washington, D.C., killing 1 radio reporter, wounding many other people, and taking 134 hostages. The three buildings included the District of Columbia’s city hall, the national headquarters of the Jewish organization B’nai B’rith, and the Islamic Mosque and Cultural Center on Massachusetts Avenue.

  The leader of the Hanafi Muslims, Hamaas Abdul Khaalis, had recently been the target of a brutal crime himself. Hit men from the largest and most powerful black Muslim group of the day, Elijah Muhammad’s Nation of Islam, had broken into Khaalis’s Washington home and murdered five of his children and several women living there. Seven members of the Nation of Islam had been tried for these murders; five had been convicted. But Khaalis was not satisfied. As his group stormed the B’nai B’rith building, Khaalis exclaimed, “They killed my babies and shot my women. Now they will listen to me—or heads will roll!”

  With the Washington police blockading the three buildings, the Federal Bureau of Investigation called to full alert, and the media streaming in, Khaalis made his demands known to the press.

  He wanted three things: the immediate removal from all U.S. theaters of a movie starring Anthony Quinn called Mohammed, Messenger of God; the return of a $750 fine imposed against Khaalis for misconduct during the hit men’s trial; and the surrender to Khaalis of the five men convicted of murdering his children. Barricaded in their respective buildings, the Hanafi Muslims continued to terrorize their hostages and announced that they were prepared to die in defense of their
beliefs.

  Let’s stop this newsreel here—at a time when the action also stopped for the participants. Assume you are an adviser to the FBI and the Washington police chief. You must decide what to do next. What will it be? Storm the buildings and free the hostages, who are clearly in grave danger? Send for the five Nation of Islam murderers and trade their lives for the 134 hostages? Call the distributor of Mohammed, Messenger of God and tell him to stop the show? Your answer, regardless of what it is, will depend on your understanding of the relative leverage the parties had at this point in their confrontation. Let’s assess the situation.

  Who Controls the Status Quo?

  First, it always helps to know who, if anyone, controls the status quo and who is seeking to change it. Leverage often flows to the party that exerts the greatest control over and appears most comfortable with the present situation. Prior to the assaults, the status quo was working against the Hanafi Muslims. They were a marginal group at the fringes of the black Muslim movement and drew, at most, casual monitoring from people in power.

  The hostage taking changed all that. Now the Hanafi Muslims controlled the status quo. In fact, the strategic nature of the Hanafi Muslim action is an important part of the leverage equation. These events were not random acts of violence or botched robbery attempts. Khaalis took the hostages precisely to gain leverage—both to get the attention he craved and to acquire something he could offer in trade. Khaalis was willing to kill others and die himself, but his purpose in taking hostages was neither murder nor suicide; he sought hostages as leverage to achieve specific goals.

  So the Hanafi Muslims gained at least a temporary advantage by seizing control of the status quo. Now what? Both sides were heavily armed; both could harm each other by using their weapons. The power to make the other side worse off by taking away things they have—in this case life itself—is an important source of leverage.

  Threats: They Must Be Credible

  Threats, sometimes explicit but often implied, are a factor in many negotiations. In fact, the other party will ordinarily sense a threat anytime you suggest an option that endangers its status quo (however they conceive of that important reference point). And using threats in most negotiations is like playing with fire—dangerous for everyone concerned. Tell a union during an employment negotiation that you will not give workers an increase in health benefits, and you may get a spirited objection. Take away an existing benefit of any kind, however, and you risk a full-fledged labor strike.

  A second point about threats: They are effective only if they are credible. That means the opposing negotiators must share your assumption that implementing the threat will make them worse off, and they must believe there is a good chance you will carry the threat out. If you yourself would be hurt as much or more than they by carrying out a threat, your threat may lack credibility.

  Which side in the Hanafi Muslim situation could make credible threats? The Hanafi Muslims demonstrated right away that their threats were credible. They killed one person and wounded many others.

  But the police had a credibility problem. They could not use their weapons without placing hostages at risk, a step they were unwilling to take given the hostages’ large number and diverse locations. This significantly reduced the police threat leverage.

  Moreover, the Hanafi Muslims improved their position further by announcing that they were ready to die. At least some of them probably were. Why did this matter? The police weapons did not count if they could not make the Hanafi Muslims worse off. The Hanafi Muslims’ weapons, however, continued to count as the means of both killing the hostages and injuring the police.

  As if all this were not enough, the police were further hamstrung by a variety of laws related to duress and the use of force that constrain civil authorities in hostage situations and govern both parties in ordinary commercial disputes. The police could not go to Khaalis’s house and take hostages of their own, for example. Nor, for obvious reasons, would a threat about the legal consequences of taking hostages and murdering them be useful. It was too late for that. Finally, moves to make life unpleasant in the buildings by cutting off water and electricity would affect the hostages as much as or more than the Hanafi Muslims. In short, the police’s ability to make Khaalis worse off was sharply limited.

  The Hanafi Muslims controlled the status quo and had a definite edge in threat leverage. If your first instinct was to storm the buildings and free the hostages with a SWAT team, think again: The leverage in this situation at this time did not favor the use of force.

  The police weapons in the Hanafi Muslim situation were helpful in one respect, however. By completely surrounding the buildings the Hanafi Muslims had seized, the police regained a degree of control over the situation. Khaalis gradually became aware that he, too, was a hostage. At one point during the thirty-eight-hour ordeal, Khaalis even requested that the police check his home and make sure his wife and remaining family were alive and well.

  Overall, given the leverage situation that exists early on in most hostage crises, the best move is a counterintuitive one: You should acknowledge the hostage taker’s power, indicate that you have relinquished control of the immediate situation to him, and, as odd as it may sound, look for opportunities to build a working relationship.

  For Whom Is Time a Factor?

  What else can we puzzle out about the leverage dynamics in this situation? Another good question concerns time. Which group had time on its side? Although you might think that time favored the Hanafi Muslims, it did not. Khaalis needed time to deliver his message and figure out where he stood vis-à-vis his goals, but he knew that he could not sustain his control over the status quo forever.

  Psychologists have discovered a fascinating fact about time in hostage situations: The passage of even a small amount of time makes a huge difference in terms of the life expectancy of hostages. Experienced hostage negotiators report that if hostages live through the first fifteen minutes of an ordeal, their chances of surviving are quite good.

  Why might this be so? First, time takes a toll on the hostage taker’s “do-or-die” commitment. As one commentator has explained it, “The thought of one’s own death grows tasteless when one has chewed on it for [many] hours.”

  Second, even if the hostage takers maintain their discipline, they sometimes develop relationships with their captives that make killing them in cold blood harder. It appears that such relationships were formed during a more recent, four-month hostage crisis at the Japanese Embassy in Lima, Peru, which ended in a hail of bullets as 140 police officers stormed the 14 rebels holding 72 hostages in the embassy. During the last moments of the government attack on the compound, the Peruvian agricultural minister reported that his guard pointed a rifle at him, then simply lowered his weapon, turned, and walked away to meet his death.

  So time favors the police in a hostage situation. But how does one buy time from a nervous religious fanatic such as Khaalis? By establishing a communication link.

  Khaalis himself took care of the communication link. He had his son-in-law contact an African-American television reporter to announce the Hanafi Muslims’ demands. This reporter continued to serve as the messenger throughout the crisis, and the police tape-recorded all their conversations, carefully analyzing them to plot their next moves.

  Create Momentum: Give Them Little Things

  With a communication link in place, the police set to work building their leverage position by finding things Khaalis wanted that they could deliver. Note the qualifier “that they could deliver.” One of the trickiest aspects of hostage situations is the unrealistic demands that hostage takers usually make. For example, Khaalis wanted to have the five Nation of Islam hit men who murdered his children delivered to him for execution. The authorities could never comply with this request, so they simply deferred the topic, talking instead about other things they might be able to do. The goal was to make Khaalis feel like a player in the situation—to keep him talking.

  Khaal
is’s agenda, like that of many negotiators, was a mix of explicit demands and implicit needs. His actions and silences spoke as loudly as his words. Beginning with the first few telephone calls, the authorities began to assemble a list of concessions Khaalis might value.

  To start the ball rolling, the police made a strategic decision to meet two of Khaalis’s demands. First, they arranged for movie theaters around the country to stop showing Mohammed, Messenger of God. Second, an official from the city government delivered a certified check for $750 to Khaalis’s house, a gesture Khaalis’s wife confirmed via telephone. The police used these concessions to buy time and to establish their credibility. Then they probed to see what they should do next.

  One curiosity was why Khaalis, himself a Muslim, had seized the Islamic Mosque and Cultural Center. As police monitored Khaalis’s telephone conversations, they discovered that Khaalis fancied himself a spokesperson for black Muslims, a role that nobody in the Muslim community acknowledged for him. When Khaalis requested that he be put in touch with the ambassador from Pakistan, an Islamic country, to discuss religious issues, the authorities saw an opening.

  Joined by the ambassadors from Egypt and Iran, the Pakistani diplomat spoke to Khaalis by phone during the first night and second day about Muslim theology and various religious teachings. The diplomats were impressed with Khaalis’s knowledge. He knew his Koran. More important, the authorities confirmed that Khaalis liked playing the role of Muslim religious leader in front of a distinguished audience. They began to see that Khaalis had revealed an important need when, upon storming the B’nai B’rith building, he had shouted: “Now they will listen to me.”