Five of the most memorable negotiation stories of 2009

As 2009 draws to a close, we look back at the year it was for business and diplomatic negotiations in the United States and around the world. Certain negotiations were in the news for a good portion of the year. Some were short but memorable. This year saw many mergers and acquisitions, sell-offs, labor disputes, and discussions of global issues such as climate change.

Here’s our round-up of five of the most memorable negotiation stories of the past year.

Health care reform
Marathon United States Senate sessions on health care reform culminated in the first Christmas Eve vote in decades. Health care reform is not a done deal yet, even though negotiations between lawmakers, the administration and various lobbies have been ongoing since early this year.

Copenhagen and climate change
In early December, the world witnessed two weeks of contentious discussions in the Danish capital that highlighted divisions between the developed and less developed countries. The results were not encouraging: only resulting in the adoption of a non-binding resolution on the reduction of carbon dioxide.

American journalists released from North Korea prison
Back in August, Kim Jong-Il gained a large concession from United States negotiators: a top-level visit from Bill Clinton. The North Korean leader wanted a big name in American politics to come personally to discuss the release of the two American journalists, Euna Lee and Laura Ling, who had been imprisoned and sentenced to 12 years of hard labor for illegally entering North Korea.

Chrysler
Back in April it seems the American car industry was going to collapse. Chrysler was on the brink of bankruptcy and there were hard negotiations going on between the U.S. Treasury and the carmaker’s creditors. In the end, Chrysler was able to declare bankruptcy, restructure the company and later emerge from bankruptcy.

New York Times – Boston Globe
In April, it seemed like the end had come for the venerable Boston newspaper. The Boston Globe’s owner, The New York Times was in negotiations with the Globe’s unions to cut costs dramatically or close the newspaper. In the end, the Boston Globe was saved.

What negotiations do you think were the most important or memorable? Please add to our list.

What makes a bad deal? AOL-Time Warner

Not every deal that is negotiated turns out to be good for either or both parties. In an article published Saturday, the United Kingdom newspaper Telegraph dissects what it calls the worst deal in business, the AOL-Times Warner merger. (Read the whole article here: http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/media/6622875/Final-farewell-to-worst-deal-in-history---AOL-Time-Warner.html)

The AOL-Time merger happened back in 2000, and brought together a large media company with a leading internet company. But the deal went badly. Today, AOL and Time Warner have been separated, and both are facing challenges, including recently announced layoffs at AOL.

The Telegraph article explains the reason for the merger:

“Although each of the two original companies had its own reason for merging – AOL wanted broadband capability from Time Warner Cable and additional content to use across its sites; Time Warner desperately needed a way to digitise its content and reach out to a new online audience – neither strategy was played out in practice.”

But, according to the Telegraph article, there were several problems during the negotiation that led to the disastrous merger.

1) Not knowing enough about the other party

The Telegraph reports that Steve Case of AOL and Gerald Levin of Time Warner:

"... knew little of one another – and arguably of one another's businesses – before they struck the deal. An aging Levin, a lawyer by training, had worked his way quickly through Time Inc's corporate ranks, and while aware of the need to have an internet strategy, had little idea of the best way to get one."

2) One party dominates the other/Unwillingness to cede control

"In the negotiations for the deal, Case used AOL's larger market value to dominate Levin.... Case became chairman and Levin chief executive in charge of operations. Neither man wanted to cede control."

3) Questionable motivations on each side

“...the deal was motivated not by logic or strategy but by egos.”

4) Not recognizing or dealing with culture and management differences

Can you draw any other lessons from the AOL-Time Warner deal? Do you think any other big merger deals will face the same fate?

Negotiations in the spotlight: Philadelphia Transit

Negotiations have been big news this week in Philadelphia.

Philadelphia public transit, run by the Southeastern Pennsylvania Transportation Authority (SEPTA) had been partially stopped due to a six-day worker walkout, which ended today. At issue was the new contract between the SEPTA transportation worker’s union (TWU), which represents 5100 workers, and SEPTA officials.

The labor strike began on Tuesday of last week, disrupting trolley and bus service in Philly.

“Workers had asked for a 4 percent annual pay raise and a $25-per-month increase in pension payments for each year of service. It previously sought a 6 percent annual wage hike. Transit officials had proposed no pay raises for the next five years, and then offered a 2 percent increase for the third and fourth years of the contract.”
Read more: http://www.allheadlinenews.com/articles/7016920509#ixzz0WNuK1nO4

Resolution was reached over the weekend, with the intervention of Pennsylvania Governor Ed Rendell, who brokered a tentative contract agreement.

According to the Wall Street Journal:

“One last-minute sticking point in the contract negotiations was that Septa wanted a provision to re-open the contract if U.S. health-reform legislation is passed, in case reform would change the economics of union members' health plans. But the union objected and that language was stripped out...” (http://online.wsj.com/article/BT-CO-20091109-711603.html )


The Philadelphia Inquirer is reporting the following:

“The five-year contract also calls for a 2.5 percent raise in the second year, and a 3 percent raise in each of the final three years. It increases workers' contributions to the pension fund from the current 2 percent to 3 percent and increased the maximum pension to $30,000 a year from the current $27,000 a year.”
http://www.philly.com/philly/news/breaking/69522612.html?page=1&c=y

Endgame: a movie about negotiation.

Last night on its Masterpiece Contemporary series, PBS aired Endgame, a movie based on the real, secret negotiations to end apartheid in South Africa. The talks took place in the United Kingdom between representatives of the African National Congress (ANC) led by Thabo Mbeki (played by Chiwetel Ejiofor) and representatives of the Afrikaner South African government led by Professor Will Esterhuyse (played by William Hurt).

The secret negotiations started in 1985 and culminated in 1990, when both parties agreed to hold official negotiations to abolish apartheid. In 1990, the de Klerk government made a large concession by freeing ANC leader Nelson Mandela.

The negotiations came about in an unusual way. Michael Young, who was then the chief of public affairs and communications for Consolidated Goldfields, believed something needed to be done to stabilize South Africa, which at the time was embroiled in growing violence and repression. The instability was threatening the company’s interests, so Young proposed “creating a neutral arena” to encourage negotiations. Young recruited both Mbeki and Esterhuyse, and convinced them to engage in secret negotiations on neutral ground in England. No one was to know about the talks and Consolidated Goldfields was not to be implicated.

Young arranges for ANC and South Africa government representatives to meet in a large country house in England, where he wanted to “maximize opportunity for chance meetings.” Part of the strategy was to break down the distrust between both sides.

The meetings start with an agreed agenda, in which the first order of business is to find out what demands, hopes and fears each side has. The ANC want to end apartheid and have majority rule. The government wants assurances that the ANC will stop the increasing violence. Complicating the negotiations was that during the first phase, which took place under the Botha government, government negotiators did not bring anything to the table. Later, when de Klerk took office, the negotiations were able to proceed because de Klerk government was able to offer to free Mandela.

If you missed Endgame on PBS, it will have its theatrical release this Friday, October 30. Here is one of dozens of reviews: http://www.boston.com/ae/tv/articles/2009/10/24/endgame_is_a_masterful_retelling_of_how_apartheid_fell/


Did you watch the movie? What did you think?

Business Negotiations in the News

There have been two high profile negotiations reported in the news this week: General Motors-Penske and General Electric- Comcast.

GM-Penske
As part of its bankruptcy restructuring, GM planned to sell its Saturn brand. It had been negotiating with Roger Penske, who in turn had been negotiating with Renault-Nissan. Penske was unable to reach a deal with Renault, and the entire deal fell through. As a result, GM announced on Thursday that it will close all Saturn dealerships nationwide.

GM started Saturn in 1982 in order to compete with Japanese imports. The brand did well, and people liked its policy of no-hassle sales. However, sales had been declining, especially during 2009.

Read the Detroit Free Press account of the collapsed deal here: http://www.freep.com/article/20091001/BUSINESS01/910010457/1318/Collapse-Saturn-deal-stuns-GM

GE-Comcast
GE, parent company of NBC Universal, is negotiating with Comcast, the cable company, to spin off NBC by giving Comcast a 51% ownership. GE, which currently owns 80% of NBC, would buy the additional 20% from Vivendi. The new company would be entertainment focused and include some Comcast properties such as the Golf Channel.

CNBC is reporting that “Comcast would merge content assets that it values at as much as $6 billion, along with cash, so that it would take a 51% ownership stake. GE would control 49% and—as part of the spin off of NBC Universal—would be able to contribute as much as $12 billion in debt to the spun off entity...” (Read the full report here: http://www.cnbc.com/id/33123120 )

The negotiations are still ongoing and no deal has been struck.

Negotiations in the Spotlight: Japan Airlines Corp.

Financially troubled Japan Airlines Corporation (JAL) is negotiating with both American Airlines and Delta Airlines. JAL, which posted a loss of $1 billion in the March-June quarter, is looking for financial support. The Japanese airline has a reported $8 billion dollars of debt, according to Joshua Williams of the Japan Headlines Examiner blog (http://www.examiner.com/x-16352-Japan-Headlines-Examiner~y2009m9d13-JAL-in-separate-business-talks-with-Delta-and-American-Airlines ).

Currently, JAL code-shares with American, and is part the OneWorld alliance, which also includes American. Intense negotiations have been taking place over the past four weeks to discuss a joint business venture “in which the two carriers would seek antitrust immunity to work closely in setting schedules and prices for service around the world,” reports the Associated Press (article is here: http://www.google.com/hostednews/ap/article/ALeqM5h82j-RWQfv5PpmCocqx7gOGb5m2gD9AM3EH00)

Delta, which does not currently have a Japanese code-sharing partner, is seeking access to the Haneda airport. Currently, Delta has a Japan presence at Norita Airport, though its partnership with Northwest. Delta is offering to buy a $300 to $500 million stake in JAL. If Delta wins the negotiation, JAL would become part of the SkyTeam Alliance and drop the OneWorld membership.

These negotiations have been highly secretive and are in process. ATWOnline reports that JAL “would not comment on the reports, adding that ‘(it) is looking at a wide range of measures, including potential tie-ups with other airlines. But thus far, no decision has been made on any.’ Delta declined to comment to this website.” Read the full story here: http://www.atwonline.com/news/story.html?storyID=17847

Negotiations in the Spotlight-BART vs ATU

A looming deadline and increased public pressure forced an eleventh-hour resolution to intense negotiations between the Bay Area Rapid Transit (BART) ( http://www.bart.gov/ ) and the Amalgamated Transit Union Local 1555 (ATU), its largest worker’s union. Reaching the tentative agreement averted a strike, which would have stilled the San Francisco area’s mass transit and stranded thousands of commuters.

BART is projecting a $310 million deficit over the next four years due to a decline in ridership, state transit funding and sales tax revenue. The BART Board of Directors had set a target of cutting $100 million in labor costs. The BART management wanted $38 million in savings from the ATU.

Last week, the ATU announced that it would strike. Final negotiations between BART and the ATU started on Saturday, and went through to Sunday night. According to the Daily Californian: “Much of the controversy surrounding a contract that union members rejected on Aug. 10 was focused on cost savings that ATU officials said disproportionately affected their union members.” (Read more here:



http://www.dailycal.org/article/106274/bart_strike_averted_following_last-minute_negotiat

The intense negotiations resulted in a tentative agreement, which still needs to be ratified by the ATU’s membership. Details of the agreement have not yet been released, but the San Francisco Chronicle reports that BART management was looking for “a wage freeze, the elimination of 49 of the system's more than 200 station agents through attrition, a cap on health benefits for all BART employees, and changes to work rules to promote efficiency.” (Read more here:



http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/08/16/MN77199F58.DTL&tsp=1

If a deal had not been reached, both BART and the ATU would have faced many angry mass transit users. This may have led to more financial losses. It was necessary for both sides to reach an agreement.

Proof -- Persistence Works

Yesterday morning, American journalists Euna Lee and Laura Ling arrived back in the United States after being detained in North Korea since March. It was a joyous occasion that came about thanks to a mission by former President Bill Clinton and also to months of “back channel” negotiations between the United States and North Korea.

At first, it seemed that Clinton had gone to North Korea to negotiate for the release of the journalists. The media later reported that Clinton was recruited to fulfill the North Korean leader Kim Jong-Il’s request for a very high level American representative. In fact, the negotiations had already been concluded and Clinton’s trip was the final demand from North Korea.

In the past few months, North Korea has been testing the United States. They have been testing missiles, threatening to attack Hawaii and had sentenced Lee and Ling to 12 years of hard labor, which was seen as a harsh punishment for a minor offense. Kim Jong-Il had been rumored to be sick and there has been talk of regime change.

From the moment the journalists were detained in March, through Bill Clinton’s arrival in North Korea, secret negotiations were being held with the North Koreans, with the assistance of the Swedish government. The United States relied on third parties to be able to communicate with the North Koreans, and found a way to reach a win-win, face-saving scenario for both countries.

For the North Koreans, Bill Clinton’s presence fulfilled Kim Il-Jung’s desire for the appearance of a high-level American official (he had rejected former Vice President Al Gore) and also gave him the sense of being taken seriously. The release of the journalists was deliberately not linked to any other issue the U.S. may have wanted to discuss such as North Korea’s nuclear ambitions. For the U.S., the journalists were released in what appeared to be a non-official humanitarian mission led by Bill Clinton, so the American government fulfilled its pledge not to negotiate directly with terrorist nations.

The New York Times reports that the administration will not change its strategy for dealing with North Korea, but that: “The release of the journalists could break an impasse between the United States and North Korea because, officials and outside experts said, there was virtually no prospect of reviving nuclear negotiations as long as the women appeared to be headed to a North Korean prison camp.” (Read the full analysis here:

http://www.nytimes.com/2009/08/06/world/asia/06kim.html?hp

In diplomatic negotiations, as in business negotiations, it is important to be able to reach win-win deals. Persistence and careful consideration of demands ultimately pay off in achieving a satisfactory resolution.

Negotiations in the Spotlight: NFL vs. NFLPA

The NFL and NFL Players Association Negotiations

Soon, the National Football League (NFL) will be entering negotiations with the NFL Players Association (NFLPA). This will be a high-stakes negotiation, as football is the most popular and most profitable sport in the United States, making about $8 billion each year.

This will be the first negotiation between new NFLPA Executive Director DeMaurice Smith (read an interview with Smith in the Seattle Times here: http://blog.seattletimes.nwsource.com/seahawks/2009/06/08/the_business_en.html

and NFL Commissioner Roger Goodell.

Several items are on the table:


1. Collective bargaining agreement expires in 2009 and negotiations on extending the agreement began on June 1.
2. Players are seeking a larger portion of the league’s revenue streams.
3. Players’ salary cap is due to be removed in 2010.
4. NFLPA wants access to NFL financial accounting. Read full story on ESPN.com: http://sports.espn.go.com/nfl/news/story?id=4181186
5. Expanding the playing season (more games translates to more revenue).

The sour economy is playing a big role in this negotiation. Sponsorships have slowed and ticket sales are down. Players want to make more but team owners are claiming they are getting less revenue.

In a June 9 Forbes Magazine article, Tom Van Riper reports that these negotiations could escalate to a strike or lockout because each side is looking to establish its power
(Read full article here:

http://www.forbes.com/2009/06/09/nfl-players-union-business-sports-football.html In the article, Riper writes: “Goodell's biggest weapon for averting a strike: Convincing the players that it is the worst possible time for a stoppage given the recession. The last thing anyone wants is to antagonize an already stressed-out fan base by haggling over too many details.”

It seems that the recession could work in the NFL’s favor. It will be interesting to watch these negotiations unfold, and see how they affect other sports negotiations.

Negotiating Labor Strikes

Striking out

In Canada, the City of Toronto’s workers are on strike after a breakdown in labor negotiations with the city.

At issue are job security, benefits, and other union demands. The strike will stop garbage pick up in Toronto, as well as several other municipal services.

A strike to show unhappiness with labor negotiations is not unusual. In this case, a strike that affects a basic and necessary service such as garbage removal is bound to stir up discontent and discomfort, which in turn will create pressure on the City of Toronto to go back to the negotiating table. Many workers’ unions have used strikes as a pressure tactic to regain traction in labor negotiations that are deadlocked.

Are strikes a good negotiating tactic? While we are not advocating striking, we do know that strikes, as Dr. Chester Karrass says, are maneuvers that can impact the negotiation process. Karrass writes that strikes “affect the expectation of the parties and alter the balance of power.”

In his book, Give and Take: The Complete Guide to Negotiating Strategies and Tactics, Dr. Karrass goes on to say that strikes are a phase in negotiations. Negotiations may go on during or after a strike, but “the estimates of probable costs are sharpened by reality. The biggest difference is that both parties convey their resolve by accepting the real costs in preference to a deal that they don’t like. They test each other’s strength and resolve in the marketplace of suffering.”

In essence, strikes are designed to tip the balance of power and to create an environment that is more favorable to concessions.

We will see how long the garbage strike goes on in Toronto. By targeting this essential service, the strikers know that pressure will build quickly. It remains to be seen how many concessions Toronto will make in order to stop the strike.

Do you think that strikes are a good tactic? Please share thoughts in the comments.

Negotiation News Round-Up

Boston Globe Negotiations

The negotiations are still going on over at The Boston Globe. Recently, we wrote about the highly-charged negotiations between the owner of the Globe, The New York Times, and the various unions at the Globe. Now, the Times and the Boston Newspaper Guild are negotiating on how to cut $10 million in costs. The unions had agreed to a 23% cut in salary to achieve those cuts. Read the AP report via Google here:

http://www.google.com/hostednews/ap/article/ALeqM5jkzBYoal_s1ms77Fzrfv3jMppZggD98SM6RG1

Purchasing.com: Suppliers do their homework

We know that good business negotiators always do their homework. This article, from Purchasing Magazine, discusses how suppliers prepare for a negotiation with purchasers. However, the article tells us, even though suppliers are well prepared, purchasers generally have the advantage since they have the budget.

Automaker Negotiations

We’ve seen both Chrysler and GM go under Chapter 11 bankruptcy protection and have seen that the negotiations there involved the United Autoworkers, among others. We have not heard much about Ford, since it is the one American car manufacturer that did not ask for a government bailout. However, Ford does have ongoing negotiations with unions. Ford CEO Alan Mullaly discussed how Ford is working on its profitability with Fox Business News, and said “Ford is committed to continuing to reduce debt and become profitable again in 2011. He said negotiations with the UAW are ongoing and that Ford will continue to work on improving “all elements” of its competitiveness.”


Negotiations with Iran?

Iran’s contested elections may pose a big challenge for U.S. negotiators. It is not clear that the declared winner really obtained a majority of the vote. There have been days of protests, and the United States has been waiting to see what the outcome is. Robert Kagan argued in a Washington Post op-ed that these protests are not good news for President Obama’s desire to negotiate with Iran, “but, rather, an unwelcome complication in his strategy of engaging and seeking rapprochement with the Iranian government on nuclear issues.”

At issue is the legitimacy of the Iranian government. In his book The Negotiating Game, Dr. Chester Karrass says that legitimacy is “a source and symbol of power.” He also says that buyers, sellers and governments build strength on “the basis of higher institutional or cultural authority.” In the case of Iran the legitimacy of the government is being challenged, setting the stage for negotiators questioning the power and authority of Iran’s re-elected president to negotiate with the United States.

Nuclear Arms Negotiations

Negotiations in the Spotlight: Cold War Arms Negotiations Continue

Nuclear arms negotiations are probably the most fraught and delicate negotiation scenarios because of the hugely destructive nature of nuclear weapons. During the Cold War, the two super powers stood in opposition over each country’s nuclear defense. In political speak, both countries were discussing a ‘MAD’ world—mutually assured destruction. Even though the Cold War has ended, we continue to see issues regarding nuclear weapons. Last week, we witnessed North Korea’s nuclear weapons tests, and its lack of interest in negotiating regarding its nuclear program.

At present, the United States and Russia are still engaged in arms negotiations. Today, negotiators from both sides will meet in Geneva to talk about the START treaty (the Strategic Arms Reduction Treaty originally negotiated with the USSR and proposed by President Ronald Reagan). The talks aim to renew the treaty before President Obama meets with Russian President Medvedev in July.

However, the negotiations are being hamstrung by differing goals. The U.S. is looking for progress on the 1991 treaty, which expires in December. American diplomats are also seeking to “reset” relations with Russia, which became very tense during the Bush Administration.

On the other side, the Russians want to discuss the planned U.S. anti-missile shield in Eastern Europe, which Russia views as a threat to its security and the U.S. sees as vital in protecting its interests against Iran. Also, the Russians may be seeking to increase their power. A Russian military analyst, Alexander Goltz is quoted in a report by the Agence France Presse (AFP)

http://www.google.com/hostednews/afp/article/ALeqM5gnzRC0HGzAbrR81ZiUOidvTEOReg

saying “The Russians are aiming to make the process last as long as possible, because the talks restore their status as a world power.”

Another crucial issue that is affecting the negotiation is that the U.S. wants Russia to provide help in containing Iran’s nuclear program.

We will know more about the result of these negotiations at the presidential summit in Moscow next month.

Sonia Sotomayor Saves Baseball Negotiations

Easing negotiations: How Judge Sonia Sotomayor’s ruling “saved” baseball

As Judge Sonia Sotomayor goes through confirmation hearings for retiring Justice David Souter’s spot on the United States Supreme Court, we will no doubt be hearing a lot about her opinions and rulings. One that is particularly interesting is Sotomayor’s injunction in 1995 that ended that year’s Major League Baseball players strike. The ruling had everything to do with negotiations.

During the 1995 strike, players were at odds with baseball team owners about salary caps. When the owners took back salary caps, they then abolished salary arbitrations and forced player negotiations to go through the baseball commissioner’s office. The players cited unfair labor practices in a court case that went to Judge Sotomayor, who, among other things, had to determine whether baseball owners were undermining collective bargaining and engaging in unfair labor practices.

Baseball players and owners were at a stalemate, and tension and anger had all but stopped any negotiations on salaries. Judge Sotomayor’s ruling restored the terms of the previous agreement between owners and players, and it was done before the baseball season’s opening day, effectively allowing the season to go on as normal.

In the end, Sotomayor’s ruling resulted in putting the negotiators from both sides back on track. As Donald Fehr, executive director of the Major League Baseball Players Association says in a May 26 New York Times article: “Her ruling did not produce an agreement, but it gave the parties time to get on with normal business and get back to the bargaining table and produce an agreement.” (Read the full article from the New York Times here:

http://www.nytimes.com/2009/05/27/sports/baseball/27sandomir.html

The same New York Times article quotes Daniel Silverman, then the regional director of the National Labor Relations Board New York office as saying that “Sotomayor shrewdly understood that although labor law permitted each side in a negotiation to choose its representative, the competition among clubs for players’ services would have been diminished if all deals were negotiated by the commissioner’s office.”

Sotomayor leveled the negotiation “playing field” by putting owners and players back at square one, and allowing them to start negotiating from there and not from what was perceived as an unfair salary situation.

The Sound of Silence

A negotiation in progress:

Pat: And we’re also going to need XYZ….
Roy: (Silence)
Pat: (Thinking:) Well that stunned him. He doesn’t know what to say… I must be pretty good at this.
Roy: (Silence)
Pat: (Thinking:) He’s certainly taking his time. He doesn’t seem to feel compelled to respond… I wonder what he’s thinking…
Roy: (Silence)
Pat: (Thinking:) I bet he’s thinking he never expected to hear THAT.
Roy: (Silence)
Pat: (Thinking:) Maybe he’s thinking , “I can’t believe she said that. That’s nowhere near what I can do… we can’t make this deal.”
Roy: (Silence)
Pat: (Thinking:) Maybe he’s thinking , “I can’t believe she said that. Where does she get off? I thought she understood this business, but clearly she doesn’t. What a weird demand.”
Roy: (Silence)
Pat: (Thinking:) Do I have something on my lip?
Roy: (Silence)
Pat: (Thinking:)I’ve clearly blown this…
Roy: (Silence)
Pat: (Thinking:)Maybe I can save this… I should have taken that negotiating class..
Pat: You know, Roy, you’ve got a good point. We don’t need XYZ… we could settle for about, uh, half of that?
Roy: (Silence)
Pat: (Thinking:) And how about if we throw back that last concession you made, also, just to show how much I value this relationship… Deal?
Roy: (Thinking:) Definitely. I absolutely have to have Chinese food for lunch. Did she just say “Deal”?
Roy: Sure, okay, you’ve got a deal…

REMEMBER:
1. Watch your assumptions about what’s in the mind of the other party.
2. Silence is a powerful tool in negotiation

Until next time...think about it.

Price and Perceived Value

I imagine everyone has heard, "You get what you pay for." In the world of negotiating, we worry about real versus perceptual value. We wonder, "Do people feel better if they pay more?"

The person responsible for pricing at a large California winery once told me, "In the absence of their ability to evaluate quality, people will pay a higher price to insure quality!" Almost everyone has compared two similar items and has chosen the more expensive one so as not to make a mistake. Valid or not? We'll never know!

In the world of the consumer, we have an amazing example of this perception: the hamburger. Years ago, McDonald's decided to capture a larger market share by reducing the price of their hamburger from $0.99 to $0.49 in a special promotion. What happened? They didn't sell any hamburgers. People became suspicious of the product. McDonald's had reduced nothing but the perception of the value of the product.

There is a new hamburger war going on now that is exactly the opposite of McDonald's approach.

2002: DB Bistro Moderne in New York introduced a $29 hamburger. They sold about 200 per day.

2003: Old Homestead Steakhouse in New York introduced a kobe beef hamburger for $41.

Later in 2003: DB Bistro introduced as $50 version with truffles.

2007: A hotel in Jakarta, Indonesia added a $110 Kobe beef hamburger to its menu.

Ok, this is a little silly, but, each of these restaurants sells a bunch of hamburgers each day. Why? There is more to the buying motive than satisfying the needs of form, fit and function. People buy for a lot of reasons we will never be able to measure.

This provides a large "BEWARE!" when we negotiate on the buying side of the desk. There is a war between evaluating Total Cost and Psychological Gratification!

Jim Sauerwein

Is There a Place For a Sense of Humor in Negotiating?

In his first book, What They Don't Teach You at The Harvard Business School, the late Mark McCormick makes this observation: "Other than common sense, the most important asset in business management is a sense of humor. Laughter is the greatest diffuser of business tension and you want to be capable of using it."

Ben Franklin's rules for bargaining include: "Keep your sense of humor."

There is indeed a place for a sense of humor in the negotiating process. I imagine most of us would rather negotiate and do business with someone who keeps the process somewhat relaxed and even enjoyable. Noel Coward gives us some good advice for balance: "Wit is like caviar. It should be served in small portions and not spread about like marmalade."

You may remember that Henry Kissinger's early days in government service were not very productive. It was not until he hired a couple of humor consultants to teach him a sense of humor did Mr. Kissinger become effective. In the book, Travels with Henry, the author reports that some of the arms limitation talks in the Kremlin included laughter and downright silliness. Of course, these were not silly people, it is just that they needed some device for keeping the pressure maneagable and laughter was that device.

Remember, laugh and the whole world laughs with you.....

Jim Sauerwein

NBC and NFL Football Negotiation

Most of us just watched the 2007 Super Bowl. Here's the background on interesting negotiation NBC had with the NFL. NBC negotiated the broadcast rights to NFL football.

It all started with NBC wanting to get their ratings up and deciding that NFL Football was the way to go. This is a great example of a Both-Win corporate negotiation. Sports Illustrated magazine covered it in an article last year.

In any competitive negotiation you must first protect your interests (what's the best deal for me). And at the same time look for opportunities to create an outcome that is good for both parties. The people at Harvard talk about Win-Win ----- Karrass calls this type of negotiation a Both-Win.

After being shut out of NFL broadcasts for nine years, NBC negotiated a six-year deal with the NFL for about $600 million a year. NBC lags in the ratings game and hopes this NFL deal will help them gain ground on ABC and CBS.

What did NBC get with the deal?

• Four hours of potential top 10 prime-time programming every week.

• Two Super Bowls (2009 and 2012) - talk about advertising $$$$.

• The annual Thursday-night opening game.

• Two wild-card games each season.

• A platform to promote NBC's prime-time lineup of shows.

• And the right to choose the late-season games it will broadcast, so fans can see the most competitive games at the end of the season (a right the NFL would not provide before)

Now, keep in mind that NBC is owned by GE.

Here's what else was negotiated into the deal.

• GE Finance will play an increased role in the NFL loan pool financing program that helps NFL owners finance new stadium construction.

• GE's new Security Services Unit will promote and provide stadium security to NFL owners.

• Fans and players will have the advantage of on-site medical technology provided and promoted by GE Medical Products.

• And, it costs a lot to illuminate these football stadiums. GE is the leader in energy efficient lighting technology and manufactures a lot of light bulbs.

The investment firm of Goldman Sachs estimated that the value of these GE add-ons could be worth as much as $500 million in profits to GE.

This was a great example of expanding a negotiation to come up with a creative deal involving much more than just broadcast rights.

Note from the Author . . .

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Jim Sauerwein

Unusual Real Estate Negotiation

This was negotiated as part of a real estate lease contract.

One section of the lease deals with the term of the lease. It states:

"Subject to the provisions of Article XI relating to amendments, this declaration and the covenants herein contained shall be in effect until February 13, 2031. Notwithstanding the foregoing, this declaration shall become ineffective and the covenants herein shall be extinguished upon the expiration of twenty-one (21) years following the death of the last survivor of the following named persons and all children and other issue (including legally adopted children and the issue of legally adopted children) of the following named persons:

Ronald Reagan, Governor of California

John Lindsay, Mayor of New York City

Richard M. Nixon and his Daughters, Julie Nixon and Patricia Nixon

Lyndon B. Johnson, President of the United States, and his daughters Lucy Baines Nugent and Linda Johnson."

Now here's a negotiator that likes to have fun with contract terms.

How do you suppose the parties deal with the uncertainty of when the lease is going to end? I guess it's assumed to be so far in the future that no one really cares.

I'd hate to have to track each of these family trees and try to determine when the lease terminates!

Trade A Paper Clip For A New Home?

Kyle MacDonald started with a red paper clip and ended up with a new home. And the whole negotiation was handled via the internet and on Craigslist.

In July of 2005 this 26-year-old blogger from Montreal set out to see if he could trade his red paper clip for something else, and that for something else, over and over again until he had a house. It took him over a year but he was successful. Here is the sequence of his trades:

He first traded the red paper clip for a fish-shaped pen.

Then he got a small ceramic doorknob with a smiley face on it in exchange for the pen.

A Coleman camping stove for the doorknob.

A generator in exchange for the camping stove.

A 'party package'– an empty beer keg, a neon Budweiser sign and a promise to fill the keg – in exchange for the generator.

A used snowmobile for the beer package.

A free trip to Yaak, British Columbia, in exchange for the snowmobile.

A 1995 van in exchange for the trip.

A recording contract, studio time and a promise to pitch the finished product to music executives in exchange for the van.

A year's free rent in exchange for the recording contract.

An afternoon with rocker Alice Cooper for a year's free rent.

A snow globe depicting the band Kiss in exchange for the afternoon with Alice Cooper.

Actor Corbin Bernsen, a snow globe collector, offered Kyle a paid speaking role in a movie in exchange for the Kiss snow globe.

The town of Kipling, Saskatchewan (Canada), is giving Kyle his house.

The town will hold a talent show for the movie role. The town gets a lot of free publicity and Kyle gets his new home.

Rock, Paper, Scissors Negotiation

You may have seen the rock, paper, scissors TV ad during the 2007 Super Bowl last week. That was all about beer. But here's a real life negotiation that used rock, paper, scissors --

In 2005 Maspro Denkoh Corporation, a Japanese TV equipment manufacturer, decided to sell its corporate collection of Impressionist paintings -- worth around $16 million. Maspro contacted the world's top two art auctioneers, Christie's and Sotheby's, and asked for proposals.

Maspro Denkoh's president Takashi Hashiyama determined that both companies' proposals were so similar he couldn't pick a winner. So Mr. Hashiyama decided the bidders would have to play a game of "Rock, Paper, Scissors" to determine who won the business.

Mr. Hashiyama stated: "It probably looks strange to others, but I believe this is the best way to decide between two things which are equally good." The game of "Rock, Paper, Scissors" is a cultural institution in Japan and something often used to make arbitrary decisions.

Why use the game to decide? The team that lost wouldn't get in trouble with its corporate bosses (e.g. it is important to save face) and Maspro wouldn't have a loser bearing a grudge against them (e.g. we need to preserve future relationships.)

The game was announced on a Thursday and would be played in the Maspro's Tokyo office the following Monday. Instead of making symbols with their hands, as is traditional, he required that the presidents of the Japanese units of both companies write down their choice, in Japanese, on a piece of paper. Per the game's rules, which automatically determine a winner—paper covers rock, rock smashes scissors, scissors cut paper.

Christie's and Sotheby's sales teams scrambled to research the psychology and strategy of the game of Rock, Paper, Scissors prior to the Monday meeting.

Christie's picked scissors and Sotheby's picked paper. Christie's won the business.

Redstone and Murdoch -- The Media Negotiators

These two media powerhouses approach their business negotiations in two very different ways.

The contrasting negotiating style between Sumner Redstone (Viacom, Paramount Pictures, MTV, cable TV and CBS) and Rupert Murdoch (News Corp., MySpace.com, IGN Entertainment, 20th Century Fox, satellite TV) is remarkable.

The Los Angeles Times yesterday took a look at how these two media powerhouses are handling their negotiations in China—obviously a huge market for both of them.

Negotiating deals in China requires extensive personal dealings with government officials and the building of many business relationships. Sensitivity to cultural differences is very important, as many western business people sooner or later discover.

The Times talked with a businessman who has observed both men deal with Chinese officials. He described how Redstone, 83, and Murdoch, 75, responded to questions on sensitive issues like censorship and business dealings.

"Sumner gives an answer right away. He says either yes or no. It's almost an impulsive response. He has a strong opinion."

It's different with Murdoch. "He pauses, and his answers are long and complicated. You feel like he is saying important things, but at the end of his answer you don't have any idea about his opinion. He hedges everything. Murdoch's reserve can strike some as deviousness."

It was reported that Sumner has "a near-photographic memory. A favorite Redstone debating tactic is to recite his opponents' words back to them in perfect detail weeks or months after they were spoken."

Redstone appears to negotiate deals that are very opportunistic rather than strategic. He cuts deals because they are available to him rather than looking at how the deal may fit into an overall corporate strategy. His negotiating style – inpatient and spontaneous.

Murdoch appears to be much more of a strategic negotiator. One analyst called Murdoch "the most long-term manager I've ever seen. He thinks on a 5, 10 or 20-year horizon and has been willing to suffer enormous financial pain to get where he thinks he needs to go.

"I wonder how their Chinese negotiations will turn out?"

Knowing a little about the Chinese and how they negotiate business arrangements, my money is on Murdoch.