Negotiation vs. Nogatiation: A Measure of Leverage and Ethical Imperative
Normally I start my articles off with an anecdote of some sort. I set the stage with a story. I’m not going to do that here—if you want an example or anecdote—just tune in to your news broadcast or newspaper and look at the current ‘negotiation’ happening for our border security. With this as my muse—I will now share my opinions and experience in the field of negotiations as it pertains to leverage.
There are countless tactics and strategies for negotiation (at the end of this article I’ll also list out some of the books I’ve read on this subject that have helped shape my opinion). Most negotiation strategies are centered around equipping yourself with as much information as possible and using that information to construct successful scenarios. Many modern schools of negotiation focus on identifying win-win solutions through identifying common ground and building common goals from that common ground. To do so properly takes time, patience, and both parties acting in relative good faith.
Over the course of gathering information for your negotiation, you may discover that you hold a particular point of leverage. Leverage is the tactical high ground in a negotiation—it’s very difficult to overcome if you’re opposing it. There are times when the leverage is so extreme that it creates what I’ll call a “Nogatiation” (I’m not very clever). A Nogotiation is a farce. It’s not a negotiation and it barely pretends to be one. Some may call it Brow-Beating, strong arming, intimidation, coercion, amongst many other names—but ultimately it’s a scenario where one party has all the say in the way things end up. If enough research is done—there is generally one party in most negotiations that has very significant leverage, and they generally have the option to choose this nogotiation strategy. Many negotiations will opt out of this strategy, because it’s generally very short term thinking and can absolutely tank a relationship. It generally leads to Pyrrhic victories. Most people are more interested in long term relationships and engagements than short term wins. But they do happen—and I’ll let you do an analysis on our current global stage (hint: both parties do this, and one party thought they held much more leverage than they really did).
Let’s look at an example of where a “nogotiation” can happen. Let’s say you’re a very wealthy contractor (with a plane and a yacht and many leather bound books on mahogany shelves). You build massive hotels and casinos and have amassed a fairly significant amount of properties and wealth. As your companies have prospered, you’ve also built a strong litigating office within your company. Let’s say you hire a small business to provide a service—let’s say painting. This service comes into your new construction and fulfills their end of the contract—which was to paint the interiors. This was a large, game-changing contract for this small business—let’s say $200,000.00—most of which was paid to labor and materials for the painting. It’s reasonable to assume that this business probably stood to make around $50,000 or so in gross profit from this engagement. This small business does not own a general counsel or some form of litigation office, and you learned this fact. Your contract with this painting service withheld $100,000 for the completion of the project. Contract be damned—you now decide to only pay the company $50,000 of that completion bonus—and you control every bit of leverage.
Let’s walk through this scenario as the small business. I’m a small business owner and this cashflow is critical for my business—I will go bankrupt without it and I won’t be able to payroll my employees. I also don’t have the means to litigate the contract—as litigating this contract will surely cost much more than $50,000. I’m also told that if I lose the litigation, I’ll get stuck paying the legal fees of the big corporation—which could amount to hundreds of thousands of dollars over the course of a multi-year litigation. I can take the $50,000—break even on the project and pay my workers and the vendors I bought paint from. Or I can attempt to fight this, and welch on my pay to my workers and not be able to pay in full for my supplies since my cashflow was dependent upon this payment. What am I to do?
Even though the painter had a valid contract. Even though the painter had lived up to his end of the bargain. It doesn’t matter—the leverage does not rest there. The leverage rests on the potential cost, risk and time of litigation, and unfortunately for the small business, all of those cards are owned by the wealthy contractor. As such, the large contractor can bully this person into a “nogotiation” scenario.
As you can see from the situation above—ethics is critical to negotiation. It’s not as hard as one might think to find a very steep point of leverage. In my opinion—this is a horrible business practice, especially with how abundant information is. Reputation precedes negotiations—and if I become known as someone who commonly brow-beats my contracts—then I’ll lose the ability to hire great contractors. I’ll also likely lose negotiation in the terms of the initial contracts—I won’t be able to negotiate holding back a significant part of the contract to validate quality—no company in their right mind would allow me to do so with the reputation I’ve built. Companies will also likely very heavily pad their margin to account for the potential loss of revenue due to my unethical whims. So—while I may have ‘won’ the day with this ‘nogotiation,’ I certainly set myself up for long term pain and disadvantage.
My recommendations on successful negotiation is to find the leverage and discuss that leverage openly with your counterparts. Put it out on the table, but not as a threat. Let them know that you’re aware of the dynamic and situation, and that you won’t let it distract you from coming up with a fair solution that is mutually beneficial to both parties. Build strong common ground. Take the time to understand what they’re attempting to accomplish with your service or product, and take the time to explain what you or your organization hope to gain through a business partnership. Negotiations are less about winning and more about building. Build trust. Build common ground. Build solutions that accomplish both parties objectives. Build empathy. Build a model that drives objective results. If your goal is to be a “winner” you should have played professional sports—because in my experience, collaboration is infinitely more powerful than competition.
Two books I highly recommend on negotiation are: Never Split the Difference and Getting More.
As always, I’m very interested in your thoughts and opinions here.
It’s lonely being a statue. It’s more lonely being a bad actor negotiator.
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