Chapter 10
Unlocking Deadlocks

If Nothing Works, Change Something

Two parties have been negotiating long and hard. They've stated their respective positions, made offers, heard counteroffers, listened to each other's needs, even traded a few lesser points with each other, but finally have come down to the pivotal issue. It could be price or timing or terms or control. But whatever it is, neither side feels they can give any more. They're eyeball to eyeball and nobody's blinking. Now what?

You've reached deal gridlock. Nobody's going anywhere. How do you break it? Who moves first? Who gives without feeling like the loser? What do you do about the egos that may be bruised or need massaging?

As with all impasses, something has to change—almost anything—whether it's at the heart of the matter or tangential to it.

Two left-turning trucks get blocked halfway across an intersection by a crossing onslaught of bumper-to-bumper taxis. Horns blare, cabbies swear, neck veins bulge, and pedestrians can't even walk on the “walk” sign. Who's going to move? How much? When? Truckers won't; it's defeat. Cabbies won't; it's retreat. More horns, more cursing, more gridlock. Finally, a little blue subcompact, 10 cars behind the cabs, inches slightly left and slightly up. The cab next to him pulls a little right and a little forward. Ten cars, one by one, angle off and creep up a little, each opening a few inches of daylight, eventually adding up to just enough of an opening at the intersection. Two truckers scowl. One turns. The other turns.

Gridlock unlocks. All because one element, not necessarily at the heart of the problem, changed. When deals deadlock, look for the little blue subcompact.

What Should You Change?

Change Locations

If you've been meeting at your office, pick a new location as we did when we moved Cal's five-year contract negotiation to my farm (Chapter 3). Or offer to go to their office. Settings can be intimidating, stifling, stale, or negative. Being on your turf may create a sense in the other party that they've already given in just by being there. In addition, either or both parties can get tired of staring at the same walls. Imaginations and energies wane. After too much time passes without progress, the negotiators may subconsciously associate the surroundings with lack of progress. This is where we don't get anywhere each day. Just by going to their office or a neutral site, you will change the dynamics of the negotiation. Everyone will sit in different seats. You'll each face different directions. The pictures on the walls will be new. The chairs may be more comfortable. Moving sometimes feels like movement. It may not be logical but attitudes shift with locales.

Change Negotiators

Maybe you're the problem. It may not be that you're negotiating poorly, but that the other party isn't hearing you anymore. (You may be guilty of the same thing in reverse.) Nerves may be on edge after being at the table too long. In the heat of negotiation, things may have become personal. When emotions supersede logic, negotiators tune out the substance and let animosity set in. Progress halts.

Do what a smart basketball coach does when his team is being shut down by a man-to-man, full court press, and they need one basket to change the momentum. If the players on the floor are stalled, take someone out—in this case, yourself—and substitute with a fresh player. Send in your partner or associate. Make sure they're briefed on the status of negotiations, but don't prejudice them as to outcome. The whole purpose of bringing in someone new is to bring in a fresh perspective.

The simple change of bodies, a new face across the table with a new style, is often enough to jump-start a stalled deal. One of the hardest moves to make is to remove yourself. But remember, it has less to do with you than with the dynamics of dealmaking. It's not a failure on your part; it's a strategic move.

Call in a Mediator

This is a more dramatic version of the previous suggestion. Maybe both sides are so entrenched, so mired in the impasse, they're unable to see a way out. Then, no one from your side can bring movement to the negotiations and no one from the other side can, either. Both have become so passionate in defense of their positions they require a dispassionate participant.

Go outside of both parties to a neutral party. Mediators have to possess certain qualities beyond impartiality. They must be respected by both sides and able to maintain total confidentiality so the parties can express themselves freely. Mediators have to be expert in the negotiation process, though not necessarily in the specific business or topic. A good mediator can grasp the fundamentals of the deal well enough—mail order sales, personal services contracts, separation agreements, patent royalties—but not become so consumed by esoteric details that he or she loses sight of the broad goals of the deal, which is often what has happened to the negotiators themselves.

The best mediators are good listeners. They assess both positions, probe for sensitive spots, look for areas of mutual interest, and bring simple conclusions to the table. Their lack of emotional attachment to positions enables them to do what the negotiators couldn't, put the deal ahead of feelings.

We were involved in a mediation that was born of a firestorm of feelings, from name-calling to silent treatments to playing the press against each other. Two men who had to work together, professionals in their field, claimed to dislike each other with such a fervor that each called for the firing of the other. That's when we came in. (It's funny but nobody seems to call in mediators when the parties are only mildly annoyed with each other, before they reach real animosity.)

Stepping between Two Police Officers: One White, One Black, Both Mad

My former partner Mark and I were privileged to present a pro bono program to the Baltimore Police Department. We worked with 30 of the leaders of the Baltimore City Police Department, up the chain of command to the very top. No matter how blasé we might have wanted to appear, we were a little intimidated. We had faced tough audiences before, from hostile NFL general managers to hard-charging Manhattan real estate barons. But when the officers walked into the seminar in full uniform, with official firearms on their hips, we realized this was not your average seminar.

At first, the officers were so conditioned by their paramilitary structure, they insisted our lessons did not apply to them. “We don't negotiate,” one colonel said, “We give orders.” After that daunting start, however, they began to respond to our concept of WIN–win negotiation. They started to see how it could apply not only within their ranks but on the streets, as well. Sometimes when facing a 15-year-old, wannabe tough guy, or dealing with officer issues in the ranks, talking, probing, and listening works better than a threat. By the time the session was over, the officers were thanking us, telling us they were genuinely inspired to put WIN–win to work. We had really gotten through to them. Or so we thought.

A week after the seminar, the newspaper carried a big headline declaring that two of the Police Department's top officers—the commissioner and a colonel—were locked in a very bitter, very racial, very public dispute. Both had been at the seminar. Evidently, they were experiencing a problem more challenging than those we'd dealt with in the seminar. Mark and I felt we had established a rapport with the two men. I called the mayor and asked if we could be of service in trying to bring the two parties together. The mayor took us up on our offer.

The two officers agreed to come out to my farm, during off-duty time, to discuss their differences. Their dispute had grown over time and comprised a collection of complex issues. Practicing what we preach, we spent a day giving ourselves a cram course in those issues. Naturally, we agreed to keep the specifics of those issues confidential but we can share the following matters of public record: The colonel, when he'd been a major, had been passed over for the top job when the commissioner was recruited from another city to take command. However, the two men had worked together for several years, seemingly successfully. Beneath the surface, a rift had emerged between them. Small misunderstandings turned into substantial disagreements, eventually turning into major impasses. Recently, the controversy had made front-page headlines, such as “Racial Tension Stifles Leadership of Police Department.” The papers, looking to sensationalize and sell more papers, focused on the racial differences more than the complexity of the issues underlying their battle.

We completed our Preparation Checklist and reviewed our information just prior to the evening's negotiation. We knew both men would come with entrenched positions. We knew we would have to break a strong deadlock. By offering to mediate, by changing locations from the downtown offices of the Police Department to the rural setting of my farm, and by suggesting they dress in casual clothing rather than uniforms, we were already employing deadlock-breaking tools.

We waited for their arrival, wondering who would arrive first, the commissioner or the colonel. Much to our surprise, they came in the same car. The commissioner was unfamiliar with the area but the colonel knew the way, so they'd decided to make the ride together. Two men, who were at each other's throats publicly, shared a ride to the mediation session. Maybe there was hope.

We went into the house, sat down, and began to slowly approach the subject. We listened. We asked questions. Borrowing from the Middle East negotiations, I asked my wife, Cathi, to play Golda Meir and bring us cookies on a break. Like Sadat and Begin, the commissioner and the colonel liked cookies. (Who doesn't?) After more talk, we adjourned until the next day.

We met again. Again, we sat and talked and listened. At one point, Mark sat with one party while I sat with the other, in order to put each at ease enough to deal with the most sensitive subjects. Then we got back together. Yes, sometimes the conversation got heated. And sometimes things got too quiet. But throughout, we were impressed with the dedication that both men had to the city, the police force, and to their jobs. Slowly, we began to see a thaw. Again, without breaking any confidences, we identified areas of agreement, not just those of divergence. The tools of deadlock breaking were working. The location had changed. The tension of one person's office, ringing phones, paperwork stacking up, watchful eyes of other officers, the formality and rank of uniforms were all absent. The view wasn't of teeming urban activity, but of pastoral serenity. The sounds weren't blaring car horns and sirens but quacking ducks and mooing cows. A mediator had been brought in, actually two. The pressure wasn't only on the two principals. Somebody was listening to each of them. Somebody neutral wanted a solution for the sake of the parties, not for a personal agenda.

At the end of the second day, a cautious resolution was reached. The racial aspects had been put aside and the real problems had been addressed. They had found enough common ground to find a way to try to work together. A press conference was called the following day. The deadlock was broken.

As is often the case, the nitty-gritty issues make almost no difference. They vary from negotiation to negotiation. It's the entrenchment that sets in after the issues that creates the impasse. And it's finding a way to change something that gets the process unstuck.

Find Reasons to Agree

This method of unlocking deadlocks is so obvious, it's the one most often overlooked. By the time you reach deadlock and get to the issue that you cannot agree on, you've undoubtedly passed by lots of issues on which you do agree. But that sticky one seems to render all the previous negotiation useless. In fact, you start to feel that the two parties don't agree on anything.

Recount the Points of Agreement

Was the deadline okay? Were the terms? Did both parties complete due diligence? Were your profit definitions the same or compatible? Did you concur on market value? Were the shareholding percentages acceptable? Number of offices? Employees? Benefits? Measurements of success?

In most negotiations, there are many more issues of agreement than disagreement. Unfortunately, we lose sight of them once deal paralysis sets in. All we see is the battle issue: Who gets more board seats? Will the payment be cash or stock? Whose name goes first in the merged entity?

When the sticking point has you stuck, go back to the unsticky points. List every single area of agreement. This accomplishes two objectives:

It shows you how close you are to a deal.
It reminds you of why making a deal is a good idea.

Get Creative

Dee Hock, the one-time visionary leader of VISA, has said, “The problem is never how to get new, imaginative thoughts into your mind, but how to get the old ones out. Every mind is a room packed with archaic furniture. You must get the old furniture of what you know, think, and believe, out before anything new can get in. Make an empty space in any corner of your mind and creativity will instantly fill it.”

Deals deadlock when both sides become too attached to past positions. Six weeks ago, proposals were exchanged. They weren't set in stone then, but positions hardened over time. Now, both parties are negotiating as if their original proposals were carved into holy tablets. Each side has lost the ability to use creativity to look at the situation in a new light. If you have to, clear all of the deadlocked issues off the table and start over again. Agree that without new ideas, the negotiation is over. Get creative.

Wrestling with Deadlocks

Herb Kelleher, the unorthodox but highly successful innovator behind Southwest Airlines, lived up to his reputation when he found his company in a slogan dispute. It seems Southwest was using the phrase “Just plane smart” to describe its no-frills pricing only to discover that Stevens Aviation, an aviation sales and maintenance company, was already using “Plane smart.” Instead of each side's lawyers unleashing the usual barrage of letters and litigation threats, Kelleher and his counterpart, Kurt Herwald, came up with a unique solution. They'd arm wrestle for the slogan. They created a media event around the mock battle, charging admission and selling souvenirs. Rather than fight over rights or compensation for use of the line, all proceeds from the publicity event went to charity. The dispute was settled. Kelleher, 61, lost to Herwald, 37, in what was obviously a setup ending by the two bosses. But, in another fixed outcome, both companies got to use the line. Their companies got press and television coverage beyond their wildest dreams. Plus they saved what Kelleher estimated to be as much as $500,000 in legal costs.

As discussed earlier, the way to get new ideas is to brainstorm. But even before you start generating new ideas, follow Dee Hock's advice and get rid of that old furniture. Here are some guidelines to help you clear the attic and make room for new ideas:

Start all over again. Ronald Reagan and Mikhail Gorbachev were deadlocked in arms talks at a summit in Iceland. Both sides had staked out their positions and neither was willing to budge. After a particularly difficult exchange, Reagan stood up, smiled, told the group they were not going to make any progress, and that they might as well start all over again. Reagan reached across the table and said, “Hello, Mikhail, my name is Ron and I think it's time we talked about the arms race.” It broke the tension and got meaningful talks initiated. By “starting over,” Reagan made it possible for the parties to see past their entrenched positions and be more open to new ideas.
Keep a secret. At times, negotiations deadlock because negotiators try to please third parties who aren't even at the negotiation table. The negotiator might fear reprisals if these third parties ever hear that certain taboo secrets were even discussed. Before beginning your talks, obtain an agreement that all information exchanged will be held in strict confidence. With this protection, negotiators' mental attics that are cluttered with worries over absent, third parties can be cleared out to make room for new, productive, dealmaking ideas.
Recount interests. Don't talk about positions. Don't take stands. Don't mention deadlines. Focus, instead, on each side's real needs, goals to be met, hopes to be fulfilled, both short and long term. Tell the other side, “It's my understanding that you are most interested in salon-quality hairbrushes shipped and delivered to meet your overseas customers' timetable. Am I correct in my understanding?” If the other party agrees, ask them, “What do you think are our main interests in this deal?” By focusing all parties on interests rather than positions (i.e., “We refuse to pay for shoddy hairbrushes”), you create room for new solutions to whatever problems may arise to develop.
Don't stop. When you're engaged in creative problem solving, if successful, pretty soon the hypothetical blends right into the real. You're addressing interests instead of egos; one or both of you has come up with a new approach; together, you're modifying it to work for your circumstances; you're both finding different ways to “win.” You're negotiating again. The deadlock is broken. Keep going.

I had a negotiation early in my sports agency career that was deadlocked, dead-in-the-water, every kind of dead there is. My client was ready to give up. So was I. And so was the other side. Almost.

Eddie, Edward, and 1 Million Dollars

Baseball trivia quiz: Who was the fourth player in the history of Major League Baseball to sign a $1 million per year contract? Hint: He's one of only four players to reach both the 3,000 hit and 500 home run marks. Answer: Eddie Clarence Murray, who is more affectionately known as “Eddie.” I knew the answer because I was the agent who negotiated the contract. One million dollars may not seem like much by today's standard when players sign contracts worth $30 million per year and the average salary is approximately $3.5 million per year, but breaking the $1 million barrier was quite a feat in 1981.

Eddie Murray had already begun to demonstrate Hall of Fame abilities in the years preceding 1981. He was a Gold Glove first baseman. He could switch-hit for both average and power. He was what baseball people call “a complete package.” The year before, in 1980, Nolan Ryan, the legendary strike-out pitcher, had signed the first $1 million per year contract in baseball. Superstars Dave Winfield and Dave Parker had also joined those ranks. When it came time to negotiate Eddie's salary, we viewed their contracts as relevant precedents for Eddie Murray. We set out to achieve a five-year contract worth $1 million per year.

The new owner of the Orioles in 1980, Edward Bennett Williams, known as EBW, was a famous trial lawyer known for his courtroom savvy in defending various notorious clients. Larry Lucchino, general counsel of the Orioles in 1980, was a law partner and protégé of EBW. It was Larry who first approached me about Eddie's contract. After a period of negotiations with general manager Hank Peters, the Orioles offer was stuck at $600,000 per year for four years.

I told Larry we were disappointed and asked him why the Orioles were proposing only $600,000. Larry made it clear that, although the Orioles were a perennial winner on the field through the 1960s and 1970s, their attendance and television revenues lagged behind comparably performing teams. For the Orioles to remain a competitive team, stars like Eddie Murray would have to accept smaller contracts than their counterparts elsewhere in the game. The Orioles felt that they could not compete with the escalating salaries of larger market clubs and were determined to keep their payroll down. The Orioles also felt there were many players who wanted to play for a winner so much, they would accept less than they could get elsewhere.

Eddie was clearly worth $1 million per year. We knew he could get that amount from other clubs in a few years, when he became eligible for free agency. But Eddie's heart was in Baltimore. He wanted to stay, but he also wanted a contract for $1 million per year. I labored hard to demonstrate to Larry why Eddie's achievements plus the recent increase in players' incomes justified a $1 million salary. As with the Brooks Robinson contract negotiation, I had done my preparation. I had learned my lesson from dealing with Hank Peters. Rather than just spilling my guts when I negotiated with Larry, I took my time, asked questions, and listened. The negotiation went on and on, week after week. We still wanted $1 million and the Orioles refused to budge from their $600,000 offer. Larry and I had reached a deadlock.

I was frustrated that we were going nowhere and, worse, Eddie wanted to get his contract resolved so that he could focus on baseball. In order to break the deadlock, I started by using two methods previously discussed. I suggested to Larry, “It seems we have reached an impasse. Why not arrange a meeting so that we can bring EBW into the process?” I knew that Larry would want to still be involved in the process, so we could not totally change negotiators, but adding EBW to the other side's team served virtually the same purpose. It brought in a fresh perspective.

Next, I changed the location of the negotiation. While the talks, up to this point, had been conducted either at the Orioles' offices in Memorial Stadium or at my law firm in Baltimore, I decided to travel to Washington, DC, to meet with EBW. I wanted to put him at ease by going to him, rather than having him come to us. That way, he could feel we were on his turf.

To start the meeting, I used another deadlock-breaking technique by summarizing all of the deal points that Larry and I had reached agreement on previously. I did this to show good faith on our part (not attempting to revisit already agreed-to points) as well as demonstrating our willingness to work together. After my summary, EBW demonstrated his negotiating skills by probing me with the following question. “Ron,” he asked, “does Eddie really need $1 million per year to survive?” It was a fair question.

“No,” I responded, “But remember, a ballplayer's career is much shorter than your average lawyer, doctor, or computer programmer. Eddie has relatively few years to earn his life's income. It's only fair that he try to maximize that income while he is able.”

After being probed by EBW, I knew it was time to probe back. I decided to answer a question with a question. I asked EBW, “If Nolan Ryan is worth $1 million and only plays once every four or five days, do you think that Eddie, performing at an All-Star level, is worth $1 million playing every day?”

“I certainly think he is worth it,” countered EBW. “It's that the Orioles just cannot afford $1 million right now.”

Again, practicing what we preach, I probed, “Why can't you afford $1 million right now?”

EBW explained that, while he had plans to improve Orioles' attendance and television revenues by marketing the club in Southern Pennsylvania and Washington, DC (before they had their own team), as well as other cities and towns in the Mid-Atlantic region, that was an investment that wouldn't pay off overnight. “I think we'll have one of the most successful franchises in baseball, but it will take both time and money. While we're trying to transform this local team into a regional team, we need every penny we can get to bolster that marketing plan.”

At that point, I knew (1) they wanted to keep Eddie and (2) they would pay him the money if they had it. It was time to use some creative problem solving to break the deadlock. We approached the problem from the standpoint of finding ways to increase Orioles attendance immediately and, if they could be found, exploring whether these efforts could fund Eddie's salary. Both sides agreed it would take at least two years to see the results of this aggressive marketing effort. For Eddie to be paid $1 million per year, the Orioles had to come up with the money now.

The Orioles needed an immediate source of cash to fund the contract. Or did they? EBW's question stuck in my mind, “Does Eddie really need $1 million to live on?” As I told EBW, no, Eddie did not need the money now, but he would need it later in life, either after his performance declined or after he retired from the game. I huddled with my partners and we engaged in a brainstorming session. Finally, we came up with a solution often used by lawyers when negotiating a settlement to a lawsuit. Rather than paying the $1 million per year, the club could pay Eddie approximately $700,000 per year, and the remaining $300,000 would be put off, or deferred, to a later date. This was one of the earlier uses of deferred compensation in a Major League contract.

The solution was creative, as it had to be in order to fit the needs of both Eddie and EBW. Eddie now had a contract with the stated value of $1 million. He didn't need the final $300,000 immediately, so the club would owe it to him. The Orioles got what they wanted. They were obligated to pay Eddie $700,000 per year in the short term. That left money available to increase their marketing efforts.

In the end, EBW and Larry Lucchino were visionaries. By tapping into the regional market, they were able to take Baltimore from a town that had trouble getting significantly past the one million fans in attendance, even in a playoff year, to a team that drew over 3 million a year win or lose. By the time Eddie's remaining $300,000 per year was due, there was plenty of money available.

Objective Mechanisms

The single biggest roadblock to successful negotiation is people. If people weren't involved, deals would be objective. They would add up or not, deliver profits or losses, meet timetables, create cash flow or tax write-offs, result in mergers or spin-offs. Deals would be measured against absolute criteria.

But people are subjective beings, fueled by feelings, not just facts and conclusions. Humans don't have strictly objective needs in their deals; they have subjective wants. One negotiator wants to achieve the highest sale in the company's history. Another wants to show the other side who is stronger. Still another wants to make the deal that no one else could make. In fact, more deals are made because humans—with wants, drives, and other emotional motivations—are involved than if deals were determined only by cold, quantifiable measurements. But many deals are lost or stalled because of those same human factors.

When deals become too personal, negotiation runs into trouble. Egos enter; logic leaves. Once that happens, personal success is on the line, not just the success of the deal. Ego is now bigger than the merger, the buyout, the price, the savings, the growth potential, the lease, the contract, the bid, or the bottom line. Ego is everything. The deal isn't. Which negotiator's ego will prevail?

The deal comes to a halt. Deadlock sets in. Ego vs. ego. In order to restart the process, you need to depersonalize it. Someone has to introduce objective mechanisms. An objective mechanism is a standard that exists apart from one party or the other's prejudice. It is purposely nonhuman, nonemotional, unfeeling, impartial—no winners, no one to blame.

Here are some examples of objective mechanisms to depersonalize deals:

You Cut—I Choose

This is a variation on the old parental trick to keep kids from fighting over the last piece of cake. No matter how carefully Mom tries to divide the cake evenly, when she hands one piece to Sam and the other to Samantha, one of them is sure to cry foul, “She got the bigger piece!” So, Mom hands the knife to one (Sam) to do the cutting and lets the other (Samantha) have first pick of the slices. It makes Sam try his best to cut evenly (with no one to blame) so he doesn't give Samantha (with no one to blame, either) a chance to select the lion's share.

Let's say two negotiators are at a standstill. They each represent partners who must liquidate the assets of a company. Each partner wants to retain certain assets, sell others, and put the remainder up for auction. Therefore, they must first divide everything in half. But the division isn't easy. The company's assets comprise a variety of goods, from manufactured inventory to tooling machinery, as well as real estate, short- and long-term investments, partnerships, contracts, and patents. After countless unsuccessful attempts at an equal split, one negotiator suggests that he or his partner divide the assets and the other negotiator or her partner select which half she would like. No one can complain that the other got the bigger piece of cake.

Sealed Bids

Where “You cut–I choose” works because both parties see what's happening and nothing is hidden, the sealed bid approach works for the opposite reason. Neither party sees what the other is doing, but they both don't see equally. Each side submits a bid or a number or a date or a name, the envelopes are opened and each has agreed to outcome rules they determined in advance.

Open the Envelope

I had an experience with a real estate developer and an investor where we used the sealed bid method to solve an otherwise unsolvable dilemma. The two had a falling out and the relationship simply had to come to an end. In fact, that relationship end was the last thing they agreed on. They tried to split up the total properties owned, with one taking certain parcels and the other taking different parcels. As soon as the investor wanted a site, so did the developer. When the developer was willing to part with a piece of land, the investor was sure it was worthless.

After months of fighting over who would get which parcels, it became obvious that one had to buy the other out. But that presented its own problem. How much would one party, suspicious of the other, pay for the other's interest? Each thought the other was trying to steal the property. Neither wanted to “lose” to the other. I represented one of the two, the developer who asked me to try to intercede since they were getting nowhere. My first observation was, they're right. They were getting nowhere.

I suggested my client and the other party, the investor, each call their respective accountants, have separate meetings with them, and each determine the value of the total holdings. After that, I said, each of them should submit a sealed bid to the other with an offer to buy out the other side and own all of the properties. In other words, what would the investor pay the developer for the developer's half? What would the developer pay the investor for the investor's half?

The key rule: The lower bidder would be bound to sell the property to the higher bidder for the higher price.

They agreed and each submitted a sealed offer. We opened the envelopes. My client, the developer, offered to pay $ 1.2 million for the investor's share. The investor offered $2 million for my client's share. The investor “won.” My client was thrilled with the $2 million payment. He got more than what he thought half the property was worth so he was happy to sell. The investor ended up with all of the property for what he thought was a fair price, so he was happy to buy. Both parties benefited from taking emotion out and going to a “blind” method.

External Criteria

When parties can't agree, maybe they shouldn't try. Sometimes they should turn to outside measures and standards.

A landlord wants to raise the tenant's rent 8 percent every year in order to cover anticipated increases in overhead, but the tenant thinks an annual increase of 4 percent is more than adequate. Maybe they should turn to external criteria such as government figures on the inflation rate. Let the rent increases follow neutral data, not the landlord's or the tenant's.

Use the Consumer Price Index, the Dow Jones Averages, Standard & Poor's, published market values, gold prices, OPEC, census data, interest rates—any information that comes from outside the negotiating parties and therefore stands as objective.

Arbitration

As the word says, it's arbitrary, meaning determined by an individual at his or her absolute discretion. Arbitration by an outside party is effective when all methods that directly involve the negotiating parties have been exhausted. At that point, additional perspective is necessary to bring the deal to closure. Arbitrators (and mediators) are professional dealmakers with no vested interest on either side. All the negotiating parties have to agree on is who the arbitrator will be. In some cases, they've decided in advance, just in case they reach a stalemate. In mediation, the opinion is a strong suggestion but is not obligatory. In arbitration, the judgment generally carries more weight. In binding arbitration, the settlement is mandatory.

For instance, in Major League Baseball arbitration, it's an all or nothing binding arbitration. The arbitrator must take either the player's figure or the club's figure and nothing in between.

In labor-management strikes, frequently arbitrators (lawyers, former judges, professors) are brought in because the two sides can't agree and the longer they disagree, the more damage they do to their industry.

Arbitration, particularly binding arbitration, is drastic but in true standoffs, very effective. Sometimes the mere specter of arbitration works to close deals. Both sides know that if they can't settle their deal, a third party will, and it's possible that neither of the two sides will be happy. So, they try harder to find a solution of their own.

Sometimes No Deal Is the Best Deal

We've all suffered from “negotiation fever” at one time or another. That's where you get so caught up in the heat of making a deal that you lose sight of the quality of the deal. If you weren't involved and you were just an observer, you'd whisper in your own ear, “Stop! It's not worth it.” But it's hard to remind yourself to be objective. Some deals just aren't worth making. The trick is knowing which ones and when.

If Deal Fever Persists, Keep Saying “No”

How bad does a deal have to be to be worse than no deal at all? In an episode of the 80s television show Ned and Stacey, there was a scene that carried negotiation demands to absurd extremes and showed the equal absurdity of how far people will go once they're caught up in the fever of a deal.

Ned and Stacey, saddled with a money-losing muffin shop, finally find two business sharks ready to buy the property and level it for their own development. Just before the deal closes, Ned is overcome with guilt. He can't bring himself to take the shop away from the dedicated, elderly couple who lovingly run it. In order to get out of the deal, he tries to raise his demands on the buyers to their breaking point. Both sides have already settled on a price but Ned arbitrarily ups it. The buyers are so caught up in the chase, they agree. Desperate, Ned gets creative, “I want…a monkey. A huge monkey.” His own partner, Stacey, looks at him in shock. But the buyers can't stop themselves. Again, they agree. Ned has to go further, “And I want to meet Kristy McNichol.” Amazingly, the buyers acquiesce. Ned reaches for the totally absurd, “And I want a sponge bath.” Finally, enough is enough. The buyers walk.

It may have been a sitcom, but don't think deals haven't been made with terms as ridiculous or more so. Deal fever makes people forget they have the option of no deal.

During years of corporate law practice, I never gave a sponge bath to get a deal done, but there were a few times when I took a bath by doing a deal I simply should not have done. I'd have been better off with no deal.

Sometimes negotiators get so enthralled with the process, they lose sight of their goals. Remember, you came to the table to buy, sell, invest, sign a contract, place an order, or merge. You didn't come to buy for too high a price, sell too low, invest with a lousy return, sign a punitive contract, or merge yourself into oblivion. You didn't come just to make a deal, no matter how adverse the conditions of the deal. The goal isn't the deal. The goal is the fruit of the deal. Don't pick rotten fruit.

Unfortunately, the negotiation engagement takes on a life of its own. Working out Paragraph 4 on Page 9 becomes so daunting and so challenging that, when and if it's finally agreed upon, your focus simply moves on to Paragraph 5, instead of stepping back and asking yourself if you're still heading toward the achievement of your overall objectives. That's how bad deals get done.

The best deals occur when you remain emotionally objective (much easier said, than done) about the result. If you could really not care about closing the deal, and assume another deal will always come along, you'd probably make better deals every time. Recognizing that detachment is hard if not impossible to impose as a self-discipline, you can employ the tools we've already explained to take ego, pride, fear, anxiety, greed, revenge, and other common deal-related emotions out.

But, perhaps the best way to make a good deal is to remind yourself throughout that “no deal” is a viable, reasonable option.

When Is No Deal the Best Option?

When the other side forces you below your bottom line. If you've prepared before sitting down, you know your starting point for a deal and you know your ending point: the level, price, timing, terms, or whatever, below which you cannot go. This is the walkaway point, which you not only don't want to go beyond, but should not. That's why it's called the bottom line. Any lower (or higher) and the deal no longer pays out, has a return, works, or makes sense for your side. Don't get sucked into going beyond that point and convincing yourself that somehow circumstances will change and maybe it will still work out. If it didn't work out in your calm calculations before you sat down, it most likely won't work out when you've signed under duress. Just stop.
When you have better alternatives than the one proposed. Never stop evaluating the quality of the deal. Remind yourself, at given junctures (every two hours or every two days depending on the length of the negotiations) to look at the big picture. How good is the deal that's on the table? Is it good by absolute standards or merely as good as it's going to get with the other party? What else can you do? Where else can you go? If you know there's another buyer, seller, landlord, tenant, supplier, shipper, or partner with whom you can make a better deal, don't get drawn into a lesser deal just because it's the one at hand. Stop.
When you're confident the other side cannot abide by the terms of the deal. Don't think you're the only one who can get seduced into making a deal just because it's the one on the table. The other side is just as susceptible to temptation. In fact, in their quest to make the deal, they may agree to specifics they can't meet. They might wish themselves into a price they cannot afford, dream themselves into an overly ambitious profit, or just hope to get lucky enough to meet an unrealistic timetable. Again, you have to step back and take a reality check. Can they really do what they say? Can they deliver? Or will you spend as much time and effort enforcing the deal as you have in making it? If the answer to the last question is “yes” or even “maybe,” don't make it. Just stop.
When long-term problems can outweigh short-term gains. Either side may be guilty of falling for “instant gratification” instead of eventual satisfaction. It happens with deals just as it happens when you down that fudge brownie sundae because it's in front of you and hate yourself in the morning when you get on the scale. You may opt to partner with an investor you don't really trust because together, you and Mr. Slippery can land a contract you couldn't otherwise get. However, after the contract has come and gone, you're now the partner in Slippery & Partners. Or you agree to deliver your No-Stick Zippers to Global Trousers, Inc. on a 52-week-a-year schedule that will practically kill your drivers, just so you can beat out your arch rival, Slick-Zip. Okay. You got the deal. Slick-Zip loses. But, now you have to deliver. And deliver. And deliver. Who really got stuck? Before you make a deal right now, take a break, and force yourself to look at the future. If tomorrow doesn't look as good as today, don't sign. Just stop.

Another $10 Game

Since we rarely give away $10 when we play the $10 Game, we often give our seminar participants a second chance to win the money. We tell the participants we're going to “auction off” $10 to the highest bidder. We then tell them that the only rule is, the top two bidders must both pay us the full amount of their last bid.

At that point, the bidding starts. Most people are cautious at first, but pretty soon, someone says, “Okay, I'll bid one dollar,” (since I can get $10 back). We look for the second bidder, asking, “Does anyone offer $2? You can make $8 with a winning bid of $2.” Another person inevitably joins in and the horse race is on. We turn back to the first bidder. “You don't want to lose, do you? Bid $3 and you still end up making $7.” After the first bidder raises the bid to $3, the second bidder goes up to $4, and, in no time, one of the two has bid $9. This is where it gets interesting.

Now we tell the other bidder, “You can bid $10 and break even. If you don't bid $10 and you come in second, then you still have to pay us the amount of your last bid which was $8.” That bidder usually ups to $10, as a defense. Then we tell the $9 bidder, “Right now you're the losing bidder and you have to pay us $9 as your last bid. Of course, if you bid $11, you will win the $10 and only end up $1 in the hole.” Suddenly the bidding escalates beyond the value of the prize, just to avoid losing. On occasion, the bidding has escalated past $20 before we stop the auction. (No, we don't make the bidders really pay us.)

If we had asked the people, before we began the exercise, if they would bid $20 to win a $10 bill, they would have said, “Absolutely not.” But once they get caught up in the competitive atmosphere—once they seek to “cut their losses” by bidding more—the participants begin acting irrationally and making bad deals.

Although not as stark an example as the exercise, the same kind of irrational behavior sometimes takes over in corporate deals.

Economies of Scale versus Deal Fever

Not long ago, we were hired to consult with a corporation that was acquiring various medical practices, which, as a consolidated entity, would benefit from economies of scale. As a part of our preparation, we worked with an accounting firm to establish a precise formula for setting prices to pay for each practice. The formula took into account revenues, number of physicians and employees, all relevant business factors. What the formula did not take into account was the Founder's “acquire at all costs” state-of-mind, once the negotiation or “bidding” process began.

It was a $10 auction atmosphere except for the decimal point. The medical practice auction was in increments of millions of dollars. Time and again when the bidding got out of hand, we would tell the Founder, “Walk away from this one. No deal is the best deal.” The Founder was unswayable. The carefully determined price formula was disregarded because of the Founder's irrational acquisition frenzy.

The Founder had raised $20 million, projected to acquire 10 medical practices. Because the bidding got out of hand, the money ran out after the purchase of only five practices. As a result, those efficiencies and economies of scale of the consolidated practice were severely diminished. Several years later, I talked to the Founder and he told me that he learned from his mistake. “I let my emotions overrule our planning and lost sight of the big picture.”

Not only is “no deal” sometimes the best deal but, as demonstrated by the story of “The Pizza Sauce Salesman,” at times it may lead to a better deal.

When Pizza Hut Sliced the Price of Tomato Sauce

I was flying cross-country, woke up from my nap, and discovered I was traveling next to a tomato sauce apostle. This fellow was the director of national accounts for Hunt Wesson, a division of Con Agra and the makers of Hunt's Tomato Sauce. You may think sauce is sauce. Wrong. He believed in his product. He lovingly and painstakingly told me about the tomatoes, the spices, the recipe, the care, jarring, the shipping, the quality control. He told me more than I really needed to know since I had no plans to compete in the business.

But, as I often do, I asked about recent deals or negotiations. He said he'd just been through one of the biggest of his career. It seems that Hunt's was one of the largest of six tomato sauce suppliers to Pizza Hut, providing the sauce for 30 percent of all their pizzas (which is a lot of pizzas). He swore that his sauce is so good, you could tell, just by tasting a Pizza Hut pizza, if it was made with Hunt's or not, which is to say, Pizza Hut was a satisfied customer.

Nonetheless, one day he got a call from the purchasing agent at the pizza chain. She informed him the company had decided to put the sauce contract out for bid to all six suppliers and select the two best bidders to divide the entire business.

I asked him how he felt given the quality of his product and his long-standing relationship with the customer. He said, he just took it as another bid on another contract, another negotiation. He followed the disciplines he always followed.

First, he called his team together. He elicited opinions from the quality control people, the production people, the sales department, and, of course, the financial people. They reanalyzed their current pricing structure at current order levels and then reanalyzed what they could offer given the possible increase in order level. They did a form of a preparation plan. Then they arrived at a bottom-line financial analysis to determine how far they could reduce their price, while maintaining a reasonable profit margin, and without any sacrifice of product quality—their lowest, best number. That was the number they had to write down on a piece of paper. They didn't think they even had the usual opportunity of making an offer, getting a counteroffer, then countering the counter. They had been told, “submit your final bid first.”

So, they did just that. But they also submitted a value analysis along with the price. They reminded Pizza Hut of why dealing with Hunt Wesson is worthwhile. Quality is assured and guaranteed. There's virtually an unlimited supply of product. If you suddenly need more, you can get it. Should there be a service or delivery question, Hunt Wesson has distribution centers dotted across the country. They sent in the document and the price and they waited.

Ten days later, he got a call from the purchasing agent. Since she worked on practically a daily basis with each supplier, she was confident she knew each of their bids even though the bids had not been formally opened yet. Before that happens, she told the Hunt Wesson man, “You should submit a new bid.” He asked, why. She said, “We agree, your product and service are excellent, and we want to continue doing business with your company, but I'm pretty sure your bid is 2½ cents a barrel too high. So, you're going to finish third.”

I said, “Boy, what a break. So, you lowered your bid and got the contract, right?” “No,” he said, “we didn't change our bid at all.” They regrouped, thought about it, reviewed their analysis, and decided they'd come to the right conclusion in the first place. He called the purchasing agent and reiterated their quality story, reminded her of the long-term relationship, and explained that their bid was the lowest possible number at which they could make a reasonable profit. He even apologized to her for not being able to go lower.

A few days later, he got another call from her. As she had predicted, Hunt Wesson had finished third. She discussed a wind-down period of two and a half months, after which the relationship would end.

Did he let her have it? Did he tell her what a huge mistake she'd just made? No. He shifted back into “sales mode.” He thanked her for being a good customer and wished her the best. He offered to help out as much as possible during the wind-down. Why? Because he knew something, anything, could happen down the line, and she and/or Pizza Hut might once again become a customer. Not long after that, he wrote a letter to her and her boss, the executive vice president, thanking Pizza Hut for a great relationship and wishing them well.

The best deal was no deal. The man from Hunt Wesson didn't take it personally. He took it as business. He had analyzed the situation in his preparation plan. He knew his bottom line. He didn't go below it. He even developed alternatives. He knew it wouldn't be easy to replace a customer as large as Pizza Hut, but he saw a growing chain on the horizon called Macaroni Grill. They would be his first call should the Pizza Hut negotiation fall through. He weighed the short-term victory against the long-term burdens. He resisted today's deal for tomorrow's profit squeeze. In the end, he didn't make a deal just for the sake of making it.

Is that the end of the story? Not quite. Remember, he kept the relationship intact even as it was winding down. About six weeks after that, he got a call from his old customer, the Pizza Hut purchasing agent. She had a crisis: Runny pizza. (Evidently, one of the supplier's sauces wasn't worthy of their dough.) That may not seem like a tragedy to you, but you don't have Domino's, Papa John's, and Little Caesars breathing pepperoni in hot pursuit of your customers. Suddenly, Pizza Hut had to turn to their best source, not their cheapest. She told the Hunt Wesson man that Pizza Hut would give his company the lion's share of their business and he could virtually name his price.

What a turnabout! I asked him how much he raised his price. He said, “It was a good price when we bid and it was still a good price.” In fact, all they did was adjust slightly to cover the costs of short-term delivery demands. Hunt Wesson went from 30 percent of the sauce business to 70 percent. In this case, no deal turned into a bigger deal.

Refresher

Chapter 10: Unlocking Deadlocks

If Nothing Works, Change Something—(Moving Sometimes Feels like Movement)

Change location.
Change negotiators.
Call in a mediator.

Find Reasons to Agree

Recount the points of agreement—two benefits:

Shows both parties how close they are.
Reminds both parties why the deal is a good idea.

Get Creative

Start all over again. If you're stuck, start fresh.
Keep a secret. Confidentiality minimizes worry about what a third party would think, allows room for new ideas.
Recount interests. Don't talk positions, talk real interests.
Don't stop. Keep talking, go from hypothetical to real.

Objective Mechanisms

You cut–I choose: the kids' method.
Sealed bids: fair and honest.
External criteria: for example, government, industry data.
Arbitration: neutral outsider.

When No Deal Is the Best Deal

When the other side forces you beyond your walkaway.
When you have better alternatives than the one proposed.
When the other side can't abide by terms of the deal.
When long-term problems outweigh short-term gains.

*“Guess who took over the company?”*

Mick Stevens © 1998 from *The Cartoon Bank*. All Rights Reserved.