Bargaining for Advantage Page 15

  Common Misconceptions about Leverage

  Leverage is a difficult subject for people who negotiate infrequently because we all have certain routine ways of viewing the world that we assume apply to bargaining. For example, we assume that people with a lot of economic, social, and political power always have the advantage. Big companies, high-ranking officials, and the rich usually get their way. So we think that such parties always have leverage when they negotiate.

  We also tend to accept situations as we find them, assuming that power relationships are fixed. Why waste a lot of energy getting ready to bargain when we are selling a widely available commodity and there are only a few buyers in the market? The buyers will simply tell us what they want to pay, and we will say, “OK.” It is all fixed and cannot be changed.

  Finally, we usually believe that our power to influence our surroundings depends on the facts affecting us. We are unemployed; therefore we are in a weak position in a job negotiation. We are the sole source of an important computer component; therefore we are in a strong position and can name our price.

  All three of these beliefs and assumptions about leverage are dangerously wrong. They are dangerous because a skilled counterpart can take advantage of you if you make them. These mistaken assumptions can also lead to self-defeating strategies. In the next few pages, I will explain why these convenient assumptions about the world at large don’t apply in negotiations and what assumptions you should use instead to protect your interests.

  MISCONCEPTION 1: LEVERAGE AND POWER ARE THE SAME THING

  Not true. Leverage is about situational advantage, not objective power. Parties with very little conventional power can have a lot of leverage under the right circumstances. Let’s look at a couple of examples.

  The first concerns negotiating with small children. Assume you are the father or mother in a household with a five-year-old daughter. The menu this evening features one of nature’s healthiest foods, broccoli. Your daughter does not want to eat it.

  “Eat your broccoli, dear,” you say sweetly. Your daughter looks you in the eye and says, with emphasis, “No! I hate broccoli!”

  Who has the leverage?

  You may be big, rich, powerful, and strong, but your daughter has a lot of leverage in this situation. Why? Because she and only she can eat the broccoli. She controls what you want and, at the moment, has nothing to lose by saying “no.” And that isn’t all. She probably senses that the issue is important to you. That improves her position. You may be willing to offer something for her cooperation.

  This critical leverage insight can apply just as readily to negotiations with stubborn politicians, cranky customs officials, and tightfisted budget officers as it does to children. Regardless of how important you are, you had better treat such people with care when they control the decision you want made.

  But back to the dinner table. What can you do about the broccoli? You could try reasoned persuasion, but your daughter is not likely to care much about nutritional standards. So whatever normative leverage you may have will not be worth much.

  Another option is to offer your daughter bribes to encourage her cooperation. Concrete offers of things she likes such as desserts or treats may create attractive visions in her mind. She would lose these delights if negotiations were to break down. The promise of treats might gain you some leverage.

  However, parents everywhere know that using this form of leverage with children carries risks. Bribing your child to do things she should be doing anyway eventually spoils her, making your life difficult, not easy.

  How about resorting to explicit threats, such as spanking her, sending her to her room, or eliminating dessert from the menu? Your size and vocal power make it easy to use threats, but it is risky to do so over an issue like broccoli. If she complies based on your threat, you will pay a price. She will eat her broccoli as slowly as she can, with periodic grim looks in your direction. A participant in the Wharton Executive Negotiation Workshop once told me his child took four hours to eat his dinner one night after he tried the threat strategy. Dinner turned into a contest of wills. Worse still, suppose she calls your bluff and forces you to carry out your threat? You send her to her room, but she still has not eaten the broccoli. You must then either escalate the dispute even further or concede defeat.

  Conclusion? Your child may look small and weak in terms of conventional power, but she has leverage in this situation. Your solution should therefore acknowledge your child’s preferences in some way—either by giving her a choice of another healthy vegetable, compromising on the amount of broccoli, adding a sauce, or serving the broccoli in some heavily disguised form. You will do better as a parent if you recognize your child’s leverage in this situation and frame your strategy to address her interests in some way, particularly her interest in feeling like she controls decisions that affect her. You will also do better as a professional if you take the same approach with the stubborn politicians, customs officials, and budget directors who control implementation of things you want done at work.

  My second example of how little people can gain leverage concerns the casino business in Atlantic City, New Jersey. Like the Tiffany air rights story, this one involves Donald Trump—but this time he does not do as well.

  An elderly widow named Vera Coking owned a small boardinghouse in a prime location in Atlantic City, New Jersey. She was a woman of modest means who had lived in the house practically her whole life. When the casino business came to Atlantic City, several would-be developers expressed interest in buying Ms. Coking’s property to put up a casino.

  First came Penthouse magazine publisher Bob Guccione. He reputedly bid as high as $1 million for her land in the 1980s, but she turned him down. Guccione eventually failed to get a gaming license and abandoned his plans to build a casino. Next came Donald Trump, who was not interested in paying $1 million and simply tried to negotiate with her on the basis of the home’s fair market value. He, too, struck out. Trump eventually developed the Trump Plaza Hotel and Casino nearby and, during a major expansion, tried to negotiate with her again. She asked for $1 million. He declined.

  After more than a decade of fruitless jockeying, lawsuits, and media attention, Trump gave up and expanded the Trump Plaza so it surrounded Coking’s boardinghouse on three sides. The Atlantic City casino authority then intervened at Trump’s request to condemn and clear her property so it would not be an eyesore. Coking was not disturbed. She hired a lawyer to defend her land and went on enjoying her reputation as “Trump’s ulcer.” Her case eventually attracted support from a legal foundation interested in constitutional protections for private property rights. Meanwhile, Trump became the butt of jokes nationwide as cartoonist Garry Trudeau featured Trump’s Atlantic City property disputes in a series of newspaper comic strips.

  Vera Coking was elderly and alone, but she had leverage. Why? She had legal title to her home, Trump needed her land, she knew it, and she was obviously in no hurry to sell. She controled what Trump needed, and, at least as she saw it, she had nothing to lose by saying “no.” In fact, a psychologist might say she used the situation to get something priceless she had probably wanted all her life: attention.

  So leverage is not the same thing as conventional social or economic power. Examine the specific situation you face and ask: What do I control that the other side wants, what do they control that I want, and who stands to lose the most if no deal gets done? Don’t make assumptions about leverage based on wealth or position.

  MISCONCEPTION 2: LEVERAGE IS A CONSTANT THAT DOESN’T CHANGE

  Wrong. Leverage is dynamic, not static. Leverage changes as negotiations proceed. Some moments are therefore better than others for making your needs known and insisting that they be met.

  The Hanafi Muslim example illustrates this point well. Khaalis needed to take hostages before anyone would listen to him. The police needed the Muslim ambassadors to develop a relationship with Khaalis before they could introduce the idea of freeing some hos
tages as a gesture of good faith. Khaalis was smart enough to ask for temporary house arrest instead of jail while he still had enough leverage to get this concession.

  All this may seem obvious, but many very smart people fail to understand the relationship between time and leverage. For example, there is a “golden moment” when job hunters should negotiate for extra benefits such as relocation expenses, bonuses, and company cars. That moment comes after they get an offer from a firm but before they accept the offer.

  During this peak leverage interval, the employer has explicitly committed itself, but the prospect is still free to say “no.” This puts the employer at a potentially greater risk of loss than the prospect, improving the prospect’s position considerably. As compared with the period before the offer is made or the period after the prospect has said “yes,” this golden moment is the time when an employer will give maximum attention to a prospect’s special needs.

  Of course, there are no guarantees the employer will agree to sweeten a deal, even at the golden moment. The employer still controls its job, and, in any given case, the prospect may have more to lose if the offer falls through. But timing matters in every leverage analysis. You improve your chances of success if you ask for things when your leverage is at its height.

  MISCONCEPTION 3: LEVERAGE DEPENDS ON THE FACTS

  Incorrect. Leverage is based on the other party’s perception of the situation, not the facts. When Joshua won the Battle of Jericho in the Bible, he did it with a few cymbals and some torches, not a mighty army. The leaders of Jericho surrendered based on their perception that they had a lot to lose. In the Hanafi Muslim example, Khaalis surrendered when he was treated like a Muslim leader even though he wasn’t one in fact. And the police made a prominent display of their weapons around the hostage buildings even though they could not use them. In short, you have the leverage the other side thinks you have. If the other party thinks you are in a strong position, you are—at least for the moment.

  But the perceptual nature of leverage can also work against you. You may mistakenly assume the other party is stronger than they really are. You may also be in a good position, but the other side may not believe you. In such cases, you must find ways of proving your worth, importance, or power. Some things, such as your ability as an employee or your product’s true value to a customer, are hard to prove. If so, you may need to give away some of your time as a low-paid intern or volunteer to prove your worth or offer some free samples of your product to prompt a later sale. On the negative side, you may need to make a subtle demonstration of your ability to affect the other side’s status quo. It is up to you to see that the other side understands the true leverage situation before it acts unwisely based on a miscalculation.

  Leverage Within Families, Firms, and Organizations

  Leverage works differently inside a family, firm, or organization than it does in competitive markets. The parties’ interdependence based on their shared web of affiliations makes bargaining and persuasion more subtle. You still gain leverage from controlling things that other people need and the advantage still goes to the party with the least to lose, but some important leverage rules are reversed because of the need to preserve and enhance relationships.

  For example, having good walk-away alternatives usually helps you in market transactions. As we discussed, having a good alternative may mean you need the other side less and have less to lose if no deal happens. But inside families and firms—at least healthy ones—people do not rely on or talk about walking away. Such moves look too much like threats and make the speaker appear shrill and unreasonable. Instead of walking away, people rely more on normative leverage, the values and norms the members of the group share. They try to position their proposals in a positive light with reference to these standards, often with objective data and information. I discussed this subject in Chapter 3.

  Similarly, displays of urgency ordinarily weaken your leverage in a market-based transaction. You tip off the other negotiator that you need his agreement very badly indeed and stand to lose a lot if he says “no.” But a show of passionate commitment and persistence can help you get what you want inside a family or an organization. With important relationships on the line, people listen when you come out strongly for your point of view—particularly if you do not make a habit of doing so on every occasion.

  Let me give one brief but notable example of this point. In May 1940, just before the United States entered World War II, the U.S. Army chief of staff, General George C. Marshall, attended a meeting in the White House with senior cabinet officials and President Franklin Roosevelt. On the agenda was the possible mobilization of men and equipment in anticipation of United States participation in the European war. Public sentiment in the country at the time was distinctly isolationist. Roosevelt did not want the United States to go to war in Europe, and he did not want to talk about getting ready for one. No one was even thinking about a war with Japan.

  Marshall was a reserved, very controlled person. He never got emotional about anything. But that day something snapped. After sitting quietly and noticing that the president was not paying attention, Marshall requested permission to speak for three minutes. It was granted.

  Marshall then stood and proceeded to put on one of the most effective, passionate displays anyone ever saw from him. Marshall’s words literally “spilled out” as he catalogued the short supplies, unbuilt weapons systems, and outnumbered troops that would, if hostilities broke out, face Hitler’s well-oiled war machine. Marshall went on and on—well past his three-minute allotment. As one of the meeting’s attendees, Secretary of the Treasury Henry Morgenthau, recorded in his diary, “[Marshall] stood right up to the President.” After this presentation, Roosevelt changed his approach completely. The United States began preparing for war in earnest and, after war broke out, Roosevelt put Marshall in charge of the entire war effort.

  This example may be dramatic, but it is surprisingly typical of life within many organizations. Intensity, particularly if it is coupled with expertise, gets people’s attention. A show of passion backed by solid facts brings abstract argument down to the level of personal concern. It can be very persuasive.

  There is no research I am aware of on why displays of urgency and passion are effective inside an organization, but I have a theory. I think people who work or live together in groups subtly monitor the level of intensity shown by other group members to see what sort of priority an issue has. A display of urgency—particularly by someone who is usually reserved—is a strong signal that “I must win this one.” Interpersonal conflict disrupts an otherwise cooperative group, so people tend to defer to others when this signal goes out.

  Overall, this “intensity” form of leverage probably works best for people within an organization who are by nature reasonable and soft-spoken. If you do not speak with passion often, people will usually pay special attention to you when you do. The “squeaky wheels” who are always complaining and pushing their agendas, by contrast, gain no extra leverage from being noisy and intense. To the contrary, most of us learn to tune them out.

  Summary

  Leverage is a critical variable in negotiation. The party with the least to lose from no deal generally is the party that can afford to insist that critical deal terms break its way. You can improve your leverage using many different moves, including finding good alternatives to achieve your goals away from the table, gaining control over assets the other side needs, forming coalitions, arranging the situation so the other party will lose face if there is no deal, showing the other negotiator you have the power to make him worse off materially, and so on.

  Watch out for the common misconceptions about leverage. Even less powerful people can have leverage in any given situation. And leverage is a dynamic factor based as much on perception as fact. Finally, you can gain power within an organization by showing passionate commitment rather than cool indifference. That is just the opposite of the way leverage works in most market transact
ions.

  A LEVERAGE CHECKLIST

  ✓ Which side has the most to lose from no deal?

  ✓ For whom is time a factor?

  ✓ Can I improve my alternatives or make the other party’s worse?

  ✓ Can I gain control over something the other party needs?

  ✓ Can I commit the other party to norms that favor my result?

  ✓ Can I form a coalition to improve my position?

  PART II

  THE NEGOTIATION PROCESS

  7

  Step 1: Preparing Your Strategy

  In all negotiations of difficulty, a man may not look to sow or reap at once, but must prepare [the] business and so ripen it by degrees.

  —SIR FRANCIS BACON (1597)

  For tough meat, sharp teeth.

  —TURKISH FOLK SAYING

  We have come a long way toward understanding what makes bargaining work. Part I presented the Six Foundations of Effective Negotiation. We discussed: • Different bargaining styles

  • The importance of specific goals and expectations