Jul 26, 2015

It’s vital to master the art of negotiation

The baroque deals to rescue Greece have acted as a reminder of just how important negotiation is in life. 

Who got the better of the Greek bailout talks? Hard to say. But I fear both sides will feel the final result is a bad outcome.

Almost all of us bargain when we buy a house or a car, but only a minority are involved in such trading for a living. In many cultures, everyday goods are not sold at a fixed price, so even buying the groceries involves a routine haggle. This sort of minor bargaining is healthy: by doing it all the time, we fear negotiations less and hone our skills. It means you become better at asking for a pay rise, or dealing with a builder who wants to overcharge you — or indeed at buying a business.

In a way I do the latter for a living. Am I a good negotiator? I’m not sure. I suspect most of us over-rate our abilities when it comes to making agreements. The experts say you need to be well prepared, unemotional and patient to negotiate expertly; sometimes I am none of these. I probably rely too much on gut instinct and improvisation, rather than being scientific about the process. I still like to carry out final negotiations myself and not delegate the big points to middle men — be they lawyers, headhunters or bankers.

As Shakespeare wrote in Much Ado About Nothing: “Let every eye negotiate for itself and trust no agent.” In that way I have only myself to blame if the deal craters — and ultimately I have more at stake.

I have learnt first-hand that mediation is almost always better than litigation, which plagues commerce. Going to court is an expensive, long-winded and capricious way to resolve disputes. By contrast, mediation costs far less and is quicker and much more likely to lead to a satisfactory conclusion for both sides. Contracts of any kind should require all parties to make sincere initial attempts to sort out their differences through mediation, before serving claims.

Complex negotiations, such as over the purchase of a company, provide much more intellectual stimulation than transactions where price is the only factor. If a single number is the sole determinant, the process becomes a wearing argy-bargy. By contrast, many vendors also care a great deal about certainty, timing, warranties, and indeed what happens to the business after the sale. A host of variables can make brokering the deal a very stimulating exercise. The best negotiations are ones where imagination allows the two sides to devise mutual advantages that turn it into a win-win experience. Often that means moving away from an exclusive focus on headline price, and instead considering the transaction from the other party’s perspective. The worst sort of talks can be where the objective truth is forgotten and it becomes a contest about the personalities — an ego battle.

Auctions of companies are curious procedures. Initially, there is asymmetric knowledge, since the potential buyers do not know how many other genuine bidders there are.

But once the deal has become exclusive, the buyers tend to hold the whip hand: they may be juggling three other acquisitions, while the vendor has just one company to sell. The latter will always be serious; but the buyers might just be tyre-kickers.

Unlike certain vital activities, one’s negotiating ability is greatly improved if the matter is not one of life or death. Obsessive negotiators can be dangerous. If they have no alternative, or give even a whiff of being desperate, their position is hugely weakened. You need to be able to walk away if the terms are simply unacceptable. Having a range of options allows you to put any compromises into perspective, and calibrate more accurately what you want to achieve.

I am fascinated to observe the BBC’s manoeuvrings with the government over its licence renewal. It is certainly well prepared, as it should be, since the BBC has whole departments whose single purpose is to guarantee its regressive £3.7bn tax take.

Having faced off against the corporation over several years when I chaired Channel 4, I can say that without doubt the BBC is the most powerful lobbying organisation across the whole of British society. But are its punchy negotiating tactics going to pay off? My initial impression is that it has overplayed its hand with an aggressive, pre-emptive attack on the government’s green paper.

I am sure there is an elegant solution to the current conflict; I’m not convinced the BBC’s gambit is the right way to reach it.

Children can be surprisingly effective negotiators, even though they have never studied the subject. They are very persistent; they are uninhibited; they know what they want and they go for it; and they are clever at playing to our emotions.

To me this demonstrates that all the rules put forward by negotiation gurus need to be taken with a pinch of salt. We each have our own style — and it’s always better to be natural than bogus.