The Naked Negotiator

In their book Partisan Hearts and Minds, political scientists Donald Green, Bradley Palmquist and Eric Schickler show most voters don’t select a political party because it reflects their views. Instead, voters first identify with a political position, usually inherited from their parents or peers. Once they have decided on a political position, they choose the appropriate party.

These findings don’t surprise psychologist Michael Shermer who has spent 30 years of research thinking about how humans form beliefs about the world.

In his brilliant book The Believing Brain, Michael Shermer argues the brain is a belief engine: “Beliefs come first, explanations follow.” The power of these beliefs, Shermer says, shows up in the tribal nature of politics and the stereotypes of what liberals think of conservatives.

Watch the political advertisements in the ongoing battle for the US presidency between the Republicans and Obama’s Democrats.

Here is Shermer’s stereotypes of what liberals think of conservatives:

“Conservatives are a bunch of Hummer-driving, meat-eating, gun-toting, small-government-promoting, tax-decreasing, hard-drinking, Bible-thumping, black-and-white-thinking, fist-pounding, shoe-stomping, morally dogmatic blowhards.”

And what conservatives think of liberals?

“Liberals are a bunch of hybrid-driving, tofu-eating, tree-hugging, whale-saving, sandal-wearing, big-government-promoting, tax-increasing, bottled-water-drinking, flip-flopping, wishy washy, namby-pamby bedwetters.”

If we accept Shermer’s argument that “beliefs come first, explanations follow,” how do you negotiate or settle a dispute between two groups such as mining companies and environmentalists who start with hardened, negative polarised stereotypes of each other?

That’s the challenge I live with constantly, and that’s the challenge I will address in a number of future blog articles.

It’s an urgent and challenging issue. As a world, we can’t afford the cost of intractable disputes caused by partisan disputes.

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Great trial lawyers love using questions to entrap witnesses. Questions however can backfire as this amusing story involving an aggressive lawyer shows.

Lawyer: Doctor, before you performed the autopsy, did you check for a pulse?

Witness: No.

Lawyer: Did you check for blood pressure?

Witness: No.

Lawyer: Did you check for breathing?

Witness: No.

Lawyer: So, then, is it possible that the patient was alive when you began the autopsy?

Witness: No.

Lawyer: How can you so sure, doctor?

Witness: Because his brain was sitting on my desk in a jar

Lawyer: But could the patient have been alive nevertheless?

Witness: Yes, it is possible that he could have been alive and practicing law somewhere.

The moral, of course, is before you start trying to entrap people with smart questions, you need to anticipate the answers.

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McKinsey consultants, Tim Koller, Marc Goedhart and David Wessels, in their book Valuation: Measuring and Managing the Value of Companies (Wiley, 2010) argue the strategic rationale for a successful acquisition conforms to five archetypes.

If an acquisition does not fit one of these five archetypes “it is unlikely to create value.”

Each archetype provides a specific rationale for proceeding with an acquisition.

Archetype 1: Improve the target companies performance
For example, you buy a company, reduce costs, improve revenues, margins and cashflows.

Archetype 2: Consolidate to remove excess capacity from an industry
In a number of industries, capacity exceeds demand. It can make sense after an acquisition to shut down the least productive plants in a combined entity.

Archetype 3: Accelerate market access for the target’s (or buyer’s products)

Large companies with global sales forces can purchase small companies and use their marketing and sales grunt to extract value out of the acquisition.

Archetype 4: Get skills faster or at a lower costs that they can be built.
Between 1993-2001, Cisco purchased 71 companies to become a key player in internet technologies.

Archetype 5: Pick winners early and help them to develop their business.
Here a company makes an acquisition early in the lifecycle of a new industry before others recognise the industry is about to take off.

If these are the five archetypes of successful value creation through acquisition Koller et al argue there are a number of usually less successful, often value destroying strategies. These include:

The Rollout Strategy: Consolidating lots of small companies in highly fragmented companies. Rollout works when businesses can achieve big cost savings or much larger revenues than individual businesses can.

Rollouts are difficult to successfully execute because they invite copycats driving up prices for smaller companies across the industry.

Consolidating to improve competitive behaviour: It’s not uncommon in highly competitive industries for companies to try to reduce price competition by buying up competitors. The authors notes that unless the industry consolidates to just three or four companies pricing behaviour doesn’t change.

Entering into a transformational merger: Transformational mergers capture cost synergies and create a more innovative whole - by creating cultural and business synergies.

Transformational mergers are rare because the timing, the circumstance and the management team all read to be aligned. Execution requires a higher level of management skill.

Buy cheap: Finally, you can create value by buying cheap - that is buy a company below its intrinsic value.

In the authors’ experience however such opportunities are rare and relatively small.

They are more likely to exist in cyclical industries where you can make money by buying at the bottom of a cycle and selling at the top.

It is however much more common for buyers to pay a premium over the current market value.

By highlighting the five types of acquisition strategies that have created value for acquirers in the past, the authors have made it more likely that smart acquirers - will target acquisitions that will create value.

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Niccolo Machiavelli is “much misunderstood” argues Jonathan Powell in The New Machiavelli: How to Wield Power in the Modern World.

Powell constantly quotes from Machiavelli’s, The Prince, to provide a brilliant insider’s account of political life in Tony Blair’s Britain.

Powell points out that The Prince written between 1513 and 1514 still remains useful as a guide book to power and how to wield it in today’s world.

The problem is, Machiavelli views have been caricatured so often that today “Machiavellian”  is a term of abuse.

Read Machiavelli’s classic, The Prince, it’s less than 100 pages long and you’ll quickly find why leaders down the ages have continued to consult it.

Napoleon reportedly said, “The Prince is the only book worth reading.” The Whig historian, Thomas Macaulay, thought Machiavelli was a liberal pragmatist. The philosopher, Bertrand Russell, called The Prince “a handbook for gansters.”

Powell points out Machiavelli was misunderstood because he was so original. Read it. And make up your own mind. I believe Machiavelli is a must read for all serious negotiators.

If you like non-fiction political thrillers, read Powell’s insider account of life in Tony Blair’s political bunker.

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Most negotiators know how important it is to distinguish between the monkey and the organ grinder in a negotiation.

In a deal, it’s the organ grinder who holds the real power. It’s the organ grinder who calls the turn, sets the bottom line and approves concession. The monkey may do most of the talking and project authority, but the real power lies with the organ grinder.

Distinguishing between the monkey and the organ grinder is not always easy. I have worked in a number of deals where the organ grinder likes to create the impression that s/he is a secondary player.

Sometimes you can distinguish between the monkey and the organ grinder in a negotiation by looking out for body language signals that indicate who defers to who. The monkey invariably defers to the organ grinder by using deferential language and relatively submissive body language.

Read this newspaper clipping that reports on Russia’s under-performance in the 2010 Winter Olympics:

“Russia suffered its worst ever Olympic performance, coming 11th in the medal table with just three golds. Mr. Medvedev said that the trainers and coaches who had prepared Russian athletes for the Vancouver games ’should take the brave decision and submit their resignations,’ he said. ‘If they cannot do it, we will help them,’ Mr. Medevdev added.”

When the hapless trainers and coaches later resigned, do you think they did it voluntarily or were they sacked? Were they persuaded to resign or were they coerced?

When it came to making decisions over Russia’s Olympic programme, Medvedev was the organ grinder. In the end, the coaches were monkeys.

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