Bargaining for Advantage Read online

  On a more serious note, let me illustrate how our need to maintain consistency with social roles and routines can interfere with our abilities to communicate and, ultimately, negotiate effectively. This tragic example comes from an actual conversation between the captain and copilot of an Air Florida flight departing from Washington, D.C.’s National Airport on a cold, snowy day. The cockpit conversation was recorded by the plane’s “black box” and recovered later, after the crash that terminated this conversation.

  [The plane is at the gate, awaiting clearance to depart. A heavy snow is falling.]

  Copilot: See all those icicles on the back there and everything?

  Captain: Yeah.

  [Time passes while the plane continues to wait at the gate.]

  Copilot: Boy, this is a, this is a losing battle here on trying to de-ice those things. It [gives] you a false feeling of security, that’s all that does.

  [More time passes. The snow keeps falling.]

  Copilot: Let’s check these tops [wings] again since we [have] been sitting here awhile.

  Captain: I think we get to go here in a minute.

  [The plane begins to taxi to the runway.]

  Copilot [referring to engine instrument readings]: That doesn’t seem right, does it? [Pause.] Ah, that’s not right.

  Captain: Yes, it is. There’s eighty [referring to an instrument].

  Copilot: Naw, I don’t think that’s right. [Seven-second pause.] Ah, maybe it is.

  Captain: Hundred and twenty.

  Copilot: I don’t know.

  [The plane takes off, struggles to gain lift, and then begins to fall into the Potomac River.]

  Copilot: Larry, we’re going down, Larry.

  Captain: I know it.

  [Sound of impact.]

  The copilot in this example failed to overcome his deference to authority in this situation, with tragic results. Sixty-nine of the seventy-four people on this flight, including the captain and copilot, died. The subsequent government investigation of the accident confirmed that the copilot had been correct—the instrument readings were abnormal and the captain should have aborted the takeoff. Partly in response to this and other incidents like it, some airlines now give their flight crews special training on how to communicate regarding safety issues in more direct, effective ways.

  If you feel the “deference to authority” tug before initiating a negotiation or before expressing your true views in an ongoing discussion, examine the situation closely before deciding to defer. Make sure your deference or concession is warranted by a basic, interest-based justification, not just your counterpart’s title or position.

  Summary

  Arguments about standards, norms, positioning themes, and authority are the bread and butter of negotiation. But virtually all the examples used in this chapter illustrate another important truth about the criteria of fairness and consistency: Unless the issue is relatively trivial or the social roles especially strong, authoritative standards and crisp positioning themes alone seldom carry the day against negotiators with high aspirations.

  When stakes are high, people do not make a concession just because they are caught making an inconsistent statement or realize that the other side has a good argument. They make it because they decide after careful consideration that it is within their reach and helps them advance toward their goal. The J. P. Morgan quotation that led this chapter summarizes this point: There are usually two reasons people do things—“a good one and the real one.”

  Put yet another way: A reasoned argument supporting your position is an admission ticket that establishes your request as legitimate and gets the other side’s attention. But argument alone is seldom sufficient to achieve bargaining success. Your request must also be within the zone of the other party’s capability and interests, and your manner of communicating the standard you wish to apply must be persuasive. In the end, only two things determine the right price of something: what a buyer is willing to pay and what a seller is willing to accept.

  In the two pigs example, a very important part of the negotiation was the theft of the ancestral gong. Because the gong was the home of important family spirits, this move amounted to nothing less than a hostage taking by the lender’s son. It added urgency to the borrower’s need to settle the dispute. However, the theft also caused the lender to lose face in the eyes of the elder. Both factors contributed to the final settlement under which the borrower paid the full five pigs demanded and the lender ended up getting only three of them.

  And Gandhi’s argument with the train conductor in South Africa was not the whole story either. The presence of the Englishman gave Gandhi leverage. The conductor faced an uncomfortable choice: He could either throw Gandhi off the train and cause a scene with a dignified-looking and perhaps powerful English citizen or he could leave the situation alone and complain later that someone was illegally selling first-class tickets to coolies. All in all, it was in the conductor’s personal interests to accept Gandhi’s first-class ticket argument and avoid the trouble of an overt conflict.

  GAINING NORMATIVE LEVERAGE: A CHECKLIST

  ✓ Survey the applicable standards and norms. Identify the ones the other party views as legitimate.

  ✓ Prepare supporting data and arguments.

  ✓ Anticipate the arguments the other side will make.

  ✓ Prepare a positioning theme and anticipate the other side’s.

  ✓ If necessary, consider making your arguments before a sympathetic audience.

  4

  The Fourth Foundation: Relationships

  If you treat people right, they will treat you right—at least 90 percent of the time.

  —FRANKLIN D. ROOSEVELT

  Leave a good name in case you return.

  —KENYAN FOLK SAYING

  Negotiation is about people—their goals, needs, and interests. Your ability to form and manage personal associations at the bargaining table is therefore the Fourth Foundation of Effective Negotiation. Personal relationships create a level of trust and confidence between people that eases anxiety and facilitates communication.

  Relationships can help us achieve our goals, and they may also prompt us to modify them. Most of us, for example, would not charge a close friend the same price for a professional service that we might charge a large corporate client. In the introduction to the book, I gave a simple example of a negotiation I had with a neighbor’s daughter over citrus fruit she was selling to fund a school trip. Why did I buy any fruit at all? Because of the relationship between our families.

  At the core of human relationships is a fragile interpersonal dynamic: trust. With trust, deals get done. Without it, deals are harder to negotiate, more difficult to implement, and vulnerable to changing incentives and circumstances.

  What is the secret to creating and sustaining trust in negotiation? A simple but sturdy norm in human behavior: the norm of reciprocity.

  The Norm of Reciprocity

  Dr. Alvin Gouldner has described the general obligation of reciprocity as “duties that people owe one another, not as human beings, or as fellow members of a group, or even as occupants of social statuses within the group, but, rather, because of their prior actions. We owe others certain things because of what they have previously done for us, because of the history of previous interaction we have had with them.”

  The psychological and anthropological research on the norm of reciprocity has confirmed its power in all sorts of transactions, big and small. People are more likely to send Christmas cards to people who first send cards to them, make charitable donations to organizations that have given them a small gift, and make bargaining concessions to others who have made compromises in their direction.

  When it comes to reciprocity, we have long memories. Two-career couples often take turns accommodating each other’s jobs over many years. Ethiopians made a substantial donation to a relief fund to aid Mexico City after a terrible earthquake in 1985. Why? To repay Mexico for Mexico’s aid to Ethiopi
a when Ethiopia had been invaded by Italy in 1935.

  We also keep short-term reciprocity accounts. In ordinary business negotiations we keep a minute-by-minute tally of each disclosure and accommodation. “I’ve told you a little about my needs,” we might say. “Let’s hear a little about yours.” Or “I made the last concession,” we argue. “Now it’s your move.”

  Old school economists often have trouble understanding the role of norms such as reciprocity in exchange relationships. They assume everyone is always out to get the most he or she can from every transaction. Skilled negotiators and businesspeople know better. They understand that stable relationships and reliable interactions based on reciprocity are enormous sources of both economic well-being and personal satisfaction. An ounce of well-grounded personal trust in a business partner is worth a thousand pounds of formal contracts and surety bonds. And being a trustworthy person gains us more than future business. It also gains us self-respect.

  J. P. Morgan Makes a Friend

  A simple example drawn from American business history helps underscore the role that reciprocity plays in negotiations. The example comes from the lives of two of America’s great business tycoons, Andrew Carnegie and J. P. Morgan.

  Carnegie, the great steel mogul of the late nineteenth century, tells a story about the banker J. P. Morgan in his autobiography. It is a story about how, relatively early in their careers, Morgan established a “special” business relationship with Carnegie.

  During the financial Panic of 1873, Carnegie found himself desperate for cash to meet his obligations. Sensing that a favorable bargain might be struck, Morgan asked if Carnegie might be interested in selling his share in a partnership the Morgan family had previously entered into with Carnegie.

  The cash-strapped Carnegie quickly replied that he would “sell anything for money.” Morgan asked for his price, and Carnegie said he would gladly sell out for $60,000—$50,000 for a partnership “credit” plus an additional $10,000 of profit. Morgan agreed, and the two men had a deal. Though $60,000 was nowhere near the millions these two sometimes dealt in, it was a substantial amount in 1873—the equivalent of many hundreds of thousands of dollars today.

  The next day, Carnegie called on Morgan to collect his money. To his surprise, Morgan handed him two checks—one for $60,000 and an additional one for $10,000.

  In response to Carnegie’s surprised look, Morgan explained that his own reading of the partnership accounts had revealed that Carnegie was mistaken about the credit he was owed—the credit was for $60,000, not $50,000. Hence, Morgan was paying $60,000 for the credit plus the additional $10,000 profit agreed to the day before. Carnegie was distressed.

  “Well, that is something worthy of you,” said Carnegie, as he handed the $10,000 check back to Morgan. “Will you please accept these [sic] $10,000 with my best wishes?”

  “No, thank you,” replied Morgan, “I could not do that.” Carnegie kept the $70,000.

  The fact that Morgan saved Carnegie from a $10,000 mistake made a great impression on Carnegie. In his autobiography, he goes on to write that he determined then and there that “neither Morgan, father or son, nor their house, should [ever] suffer through me. They had in me henceforth a firm friend.”

  Morgan had the legal right to buy Carnegie’s interest for $60,000, but he declined to exercise it. Why? Because he saw an opportunity to place his relationship with Carnegie on a special footing—something “more” than the contractual, “everyone for himself” model of the marketplace.

  Notice the dynamic here: Morgan did nothing to endear himself to Carnegie as a likable person with warm, personal charm. He simply used the occasion to send Carnegie a signal that he was trustworthy, handing Carnegie two separate checks to emphasize what he was doing. Both men lived many years beyond 1873, and their ability to rely on each other in business affairs paid off many times, dwarfing the extra $10,000 they exchanged that day.

  The “Ultimatum Game”: A Test of Fairness

  Boiled down to its essence, the norm of reciprocity in negotiation amounts to a simple, three-step code of conduct. First, you should always be trustworthy and reliable yourself. You have no right to ask of others what you cannot be yourself. Second, you should be fair to those who are fair to you. This simple rule sustains most productive bargaining relationships. Third, you should let others know about it when you think they have treated you unfairly. Unfair treatment, left unnoticed or unrequited, breeds exploitation—followed by resentment and the ultimate collapse of the relationship.

  Let me illustrate just how powerful these three rules are as a “code of fair behavior” in bargaining. Negotiation researchers have repeatedly used a simple experiment to prove how sensitive people are to notions of equity and fairness in their bargaining relationships. It is called the “ultimatum game.” It works as follows.

  Suppose you are sitting next to a stranger at a bar. Someone comes in and hands the stranger $100, telling the pair of you that, if you can agree on a division of the $100 between you, you can both keep whatever you agree to. Here are the rules: The stranger must make a single offer to you for some number between $0 and $100. You must then either accept or reject that offer—no haggling allowed. If you accept, you split the money as agreed. If you reject, neither of you gets any money. After a first round of play, the stranger will get another $100 and you will play again.

  Now assume the stranger makes you the following offer: He gets $98 and you get $2. Would you accept or reject? Although $2 is better than nothing, many people in negotiation experiments involving even one round of this game reject this patently unfair division. In fact, some people reject offers going all the way up to 25 or 30 percent of the total amount being divided. Why? Because these divisions are not a “fair” split of the money and by saying “no” people punish the person who has made the unfair offer. True, you lose some money if you turn the $2 offer down—but the other guy loses $98. Many people think it is worth a few dollars to stand up for “fairness.”

  In a two-round game, our inclination to insist on fairness is bolstered by the fact that our behavior in round 1 affects the way the other party will treat us in round 2. Suppose you accept the stranger’s unfair $2 offer in the first round. Now the stranger (not a stranger any longer) gets another $100. What do you think he will offer you in round 2? Probably $2. But what if you had turned down his first offer? What would his second offer be? Something more than $2—and maybe as much as $50. Your insistence on fairness in round 1 would set the stage for establishing a norm of fairness and reciprocity between you in future rounds.

  Now imagine that instead of being greedy, the stranger is a fair-minded person who offers you $50. Almost everyone would say “yes” to this. The $50 split is a manifestly fair division and deserves a positive response. You and the stranger could go on playing this game all evening—until the person supplying the money got tired and went home.

  Finally, suppose the stranger offers you $55 of the $100? This is, in essence, what J. P. Morgan did for Andrew Carnegie during the Panic of 1873. You might, like Carnegie, try to give your generous new friend $5 back to keep your accounts at the “fair” and equal level. But the game does not permit this, so you would have to accept the $55 offer.

  You would also begin thinking about your relationship with the other person somewhat differently. You would “owe” that person something. After J. P. Morgan saved Carnegie from his $10,000 mistake, Carnegie was faced with the problem of finding a way to reciprocate in kind. There was no immediate opportunity, so he determined to look out for Morgan as a firm friend well into the future.

  The lesson to take from these examples of how reciprocity works is straightforward: Just because you have power in a given situation does not mean it is smart to use it. In fact, it may be wiser to follow the lead of J. P. Morgan and use the situation as an opportunity to establish the foundation for a future relationship. Generosity begets generosity. Fairness begets fairness. Unfairness ought to beget a firm respon
se. That’s the norm of reciprocity in relationships. You can also count on the reciprocity norm to help you through the information exchange and concession-making stages of bargaining. Always take turns. After you make a move, wait until the other party reciprocates before you move again. Reciprocity is a reliable guide of proper conduct at the bargaining table.

  The Relationship Factor in Negotiation Planning

  People are complex and unpredictable. No matter how stable your relationship with the other party may be, you must grapple with the problem of trust each and every time you negotiate. That means you must get into the habit of reviewing the relationship factor as a routine part of effective negotiation planning.

  How does one do this? A personal experience may help to show you how it is done. The story involves an American businessman—I’ll call him Barry—who attended the Wharton Executive Negotiation Workshop and whom I later advised regarding a complex global business deal. I have changed a few of the facts to ensure confidentiality, but the story is true.

  At thirty-five, Barry was the president and chief operating officer of his family’s $25 million chemical engineering firm in Ohio. He was energetic, hard-driving, and extremely competitive. Under his leadership, the firm had prospered and grown.