Category Archives: negotiation

Anatomy of a Positional Negotiation (redux)

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Back in March I wrote this post about the breakdown in negotiations between Ryan Smyth (a hockey star) and the Edmonton Oilers. Because things fell apart despite the fact that Smyth, the Oilers and their fans all wanted an agreement, this negotiation remains my favourite example about how process, and not substance, can torpedo agreements and destroy relationships. Indeed, the case is so good, it has become a key teaching tool in my negotiation workshops (when in Canada, of course…).

Interestingly, recent events have added to the important negotiation lessons that can be drawn.

When sharing the case some people contended that Smyth and the Oilers didn’t fall out but instead cut a secret deal, one that would bring Ryan back to Edmonton once he became a free-agent. The fact that, after being traded, Ryan stood crying in the Edmonton Airport while awaiting his flight to New York didn’t dissuade these doubters. This was of course, all part of the act.

Well, on July 2nd, on the first day of free-agency, Ryan Smyth signed a contract with the Colorado Avalanch for $31.25 million. A bad outcome for Oilers fans, but a good outcome for my credibility as a negotiation consultant.

So why didn’t Smyth go back to Edmonton?

I can think of two reasons – both of which spring from the positional negotiation process Smyth and the Oilers adopted.

Firstly, the previous negotiations permanently damaged relations between Smyth and the Oilers. A haggling process never builds a stronger relationship. It generally involves the parties slugging it out as they tell one another why the other’s current offer is insulting. Of course none of it’s “personal.” But isn’t it is telling that the Oilers broke off negotiations and traded Smyth without notifying him (I believe he learnt he’d been traded by watching TV). Moreover, as I mentioned before, Smyth was distraught enough to cry during the interview in the airport. You don’t have to be a negotiation consultant to know that when one person makes another cry, the agrieved party is looking for ways to work with them again. In this case, Smyth probably wasn’t receptive to any new offers from the Oilers. Their prior negotiation burnt that bridge.

Second, the Oilers painted themselves into a corner on the issue of price. I’ve maintained that Smyth probably wanted to be in Edmonton or Calgary. In the above linked to YouTube video Smyth says his heart is in Edmonton, and he probably wants to be close to family, community, charitable work, etc… I suspect he might have accepted a marginally reduced salary in order to stay there. But with other teams now offering over $31 million, the Oilers probably needed to offer $29-30 million in order to compete. Given their previous “best” offer had been $27 million, any new higher offer would be an admission that they’d undervalued Smyth. That left them with two options. Option 1: Eat humble pie, offer $30 million and admit they’d been lowballing Smyth. In the testosterone world of hockey I suspect the Oilers GM’s ego couldn’t stomach that choice… Not that it would have mattered, any such an offer would have been tainted. It would be like saying “sorry we tried to screw you in our previous negotiations, but we hope that you’ll come work for us now that we’ve been forced to offer you more.” That left option 2: Save face by walking away and claiming the Avalanch over-paid.

Of course, the Oilers’ GM may genuinely believe that Smyth isn’t worth $30 million. Who knows, he may be right. Only time will tell. But, the negotiation process he adopted – and not the substance – destroyed an opportunity for getting Smyth at a much lower price. Most people believe negotiations succeed or fail based on substance (can buyers and sellers agree on a price), sadly that is only sometimes the case. All too often, the determining factor is how we conduct negotiations.

First Nations Negotiation Process: …and into the fire

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Yesterday I was commenting on Jim Prentices proposed reform to the First Nations treaty negotiation process. Specifically, he is considering giving the Indian Claims Commission (ICC) the authority to make legal rulings and thus settle agreements.

While the details have not all been made clear, it would appear that Prentice’s reform seeks to shift the ICC’s role from that of mediator – where any agreement is determined by the parties themselves rather than being imposed by a third party – to arbitrator – where agreements are imposed by the arbitrator and to which the disagreeing parties agree, in advance, to be bound.

The problem with arbitration is that it may not solve the underlying problems plaguing the process. For example, Prentice sites two shortcomings of the current process – it is too slow, and not perceived to be legitimate.

Arbitration, may increase the speed. However, it may not be any more legitimate, and could actually be less so…

For example, on what basis would arbitrated decisions be made? What would be the guiding principles the arbitrators would reference? Who would establish these principles? Will these be negotiated? If so, by who? All First Nations and the government? Or a representative sub-group? Ultimately, if the principles that guide the arbitration are not perceived by all parties to be fair and legitimate, or if the arbitrators themselves lack the respect of the opposing parties then the process may actually be seen as less legitimate then the current negotiations.

Indeed, this is even more important given the nature of the negotiations. Because the parties are negotiating over sovereignty this process is deeply political. Will Canadians, or First Nation, feel comfortable handing such a sensitive decision over to a third party who has no track record in making these decisions and so, to which the outcomes will be unpredictable?

Another problem with arbitration is that it does little to resolve any relationship/trust/cooperation problems between the parties. By bringing in a third party to resolve the dispute First Nations and the government will establish a problematic precedent: When we don’t agree, bring someone else in to arbitrate.

In many respects, treaty settlements are not the end of the process but the beginning. Treaties form the basis for a new relationships between First Nations and the government. Regardless of the treaty’s specifics, the parties are going to have to learn to work together more effectively going forward. To assume, that once the settlement is out of the way, all the actors will know their jurisdictions and powers and so will get along, is probably a false one. Just ask anyone whose ever worked on Fed-Prov relations…

If Canadians are serious about creating a new relationship with First Nations it feels odd that the first step in establishing this new relationship would be to put a third party between the two groups. Negotiating can be fair, legitimate and (relatively) speedy. The question isn’t about arbitration, it is about whether this (or any) government wants to make it a priority.

First Nations Negotiation Process: Out of INAC and…

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It is looking increasingly likely that Jim Prentice will reform the First Nations treaty negotiation process. Specifically, he is considering giving the Indian Claims Commission (ICC) the authority to make legal rulings and thus settle agreements.

While the full implications of this decision need to be weighed one part that is a positive development is getting these negotiations out of the hands of INAC. It must be difficult for First Nations to believe that the government is negotiating in good faith when the party they are negotiating with is the same party that provides all their services. This point became the basis for a discussion paper I submitted to the Aboriginal Report to the Liberal Renewal Commission and shared as a post on the Dominion Institute Blog.

“On the one hand, INAC is First Nations’ key partner, essential to ensuring service delivery, representing them and their issues at the cabinet table, and enabling them to raise critical issues in other government ministries. On the other hand, it is also their negotiation counterpart with whom it may be necessary to lock horns and disagree with to ensure a fair and equitable interpretation of their treaty (or in the case of aboriginal groups in British Columbia, to secure a treaty).”

It would appear that even Jim Prentice recognizes the perceived conflict of interest in having his department simultaneously represent First Nations interests within cabinet while negotiating against them… During an interview on Question Period he apparently conceded: “There has been a complaint in this country for 60 years that the government of Canada serves as the defendant and the judge and the jury and the research body. And that it’s too much. And the government of Canada is in conflicting roles. And that’s something that we are trying to get to the heart of.”

Amen.

So moving negotiations out of INAC is a plus. But their remains the question of whether an independent committee like the ICC will be any more legitimate. I’ve argued that the way forward is the establishment of an independent secretariat – with its head reporting directly to cabinet – as the home for these negotiations. Both sides need to represent their interests, handing the process over to a third party probably does not accomplish that. More importantly, an independent may be faster but it is also unclear if it will be more legitimate then the current process. In short, done incorrectly, this may be create as many problems as it solves…

I’ll pick up on this thread tomorrow. For now, Prentice is off to an interesting start. At least he’s thinking new thoughts. However, my fear is that this line of thinking will devolve into: “Out of INAC and into the fire…”

Negotiating with the Enemy: the case of Iran, Syria and the United States

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After my friend Taylor published this post about the US-Syrian-Iranian negotiation he asked me how would I structure the talks and what would be the most significant obstacle.

Back in the 1970’s Roger Fisher used a method called the one-text that helped create the document that became the basis for the 1978 Sinai Agreement between Israel and Egypt. The one-text process is a variation of mediation that is simple, but powerful. Clinton also proposed using the process in 2000 with the Israeli’s and Palestinians.

The one-text process feels appropriate because it works best in multi-party negotiations where trust is low. Iranian-Syrian-American relations have deteriorated to such an extent that any conversation is unlikely to be open, honest, or even civil. In short, they are unlikely to be productive. The basis for an agreement, and even just communicating, will be hard to establish. Think that diplomacy is above that? Then why did Bush feel the need to confirm that if Condi ran into her Iranian counterpart, she would be civil?

Indeed, this is the main issue: can the parties trust each other? There are enormous opportunities for joint gain… but the domestic risks for each of the actors are also enormous. This is the tragedy of the situation. Each actor (Syria, Iran and the US) is now hostage to the negative perceptions their domestic populations have of one another, negative perceptions their respective elites helped create, foster and nurture. How can Iran, America or Syria cut a deal with a country that have for 20 years been labeled as a mortal enemy? This would be, at best, politically problematic in the US and potentially destabilizing for the Syrian and Iranian governments.

Consequently any functional solution cannot threaten (in the short and medium term) the legitimacy of any of the actors domestic standing. This probably means that any negotiated solution will have to be discrete. The parties may come to agreement, but they cannot be seen coming to an agreement.

A back channel one-text thus becomes the obvious choice. The starting point being that all the parties recognize the opportunity cooperating presents, but also recognizing they can’t be seen working together. Of course, the other challenge is that this means there are huge risks for cooperating, but the costs of defection (particularly if the interest calculus shifts) are low. The negotiators would have to find a way to make the costs of defection feel relatively high versus the costs of cooperation. A one-text process that explores their interests may reveal such an outcome, but if I had an answer to that quandary offhand I’d probably be in an air conditioned room in Turkey right now, working with State Department officials.

Ironically, the main obstacle to using the one-text process would likely be a reluctance on the part of the United States to submit itself to a mediated process.  I suspect that although the Americans feel it is a good enough process for everybody else, the world’s only superpower will never enter into mediation.

New Book Review: Robert Axelrod's "The Evolution of Cooperation"

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About 6 weeks ago during a trip to Ottawa David Brock urged me (for a second time!) to pick up a copy of Robert Axelrod’s “The Evolution of Cooperation.” As the title suggests it is a book about the conditions under which cooperation might emerge. While I’m willing to concede that this book may not be for everyone’s cup of tea, it is still a fine cup I belive many would enjoy. Indeed, given how frustrating and empty game theory felt while I was in grad school I wish I’d had this book at my desk.

I’ve written a review of the book you can find here. In short, I’m glad I moved it to the top of the batting order – it was completely worth it. Thanks D-Rock.

Negotiation: Destroying Value in Pursuit of Egality

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I’m always looking for new creative examples of how people can destroy value in a negotiation – especially when in pursuit of the holy grail of egality.

You may laugh at this man, who literally took half the house in the divorce, but ask yourself honestly: how many times have you terminated a negotiation by walking away with something that was worthless to you, simply because you wanted to send your counterpart a message?

Egality and equity are powerful norms that, when violated, can push us to adopt a punative strategy. The problem is that this can pretty quickly lead to a downward spiral. More often then not, the result is a scorched earth policy where we would rather destroy value than allow our counterpart to recieve more than us.

It may feel good at the time, but then, I have to ask: what are you going to do with half a house?

[tags] negotiation [/tags]

The Smyth Deal: The Anatomy of a Positional Negotiation Gone Wrong

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A classic negotiation challenge is when parties lock into positions. Both sides articulate a demand – usually followed a threat such as “take it or leave it” – and then hopes the other side blinks first.

In the case of Ryan Smyth and the Edmonton Oilers’ I can almost imagine each parties’ statement. Smyth’s agent probably declared “my player is worth $6M dollars not a penny less – take it or leave it.” While the Oiler representative said “we can afford $5M and not a penny more – otherwise, we’ll go to the trading block.” Then, with both sides locked into a price, two things probably happened. First, the negotiation was restricted to a discussion about money to the detriment of the parties numerous other interests. Second, any change in either parties’ position would cause them to lose credibility and/or face. Consequently, any progress in the negotiation would have paradoxically increased the level distrust by confirming each party’s suspicion that the other could and would bend more.

And of course, this is what happened. Smyth was willing to accept less, and the Oiler’s were willing to pay more. A fact made evident as they managed to haggle their way to a difference of $5.4M and $5.5M per year. But getting closer probably had the perverse effect of making the negotiation harder. Each concession made the subsequent ‘demands’ appear less credible and firm. So, to prove that this was indeed ‘their final offer’ each side had to appear more and more inflexible. The result? A negotiation that collapses over a disagreement of $100,000 a year or $500,000 over the life of the contract – about 1.8% of the deals’ monetary value. Oiler’s GM Ken Lowe’s statement this was “a hockey decision and not a financial decision’ is laughable. This was neither a hockey or a financial decision – it was en ego decision.

Indeed, a tearful Smyth was more honest. While getting on a plane at Edmonton International Airport he summed up the process by virtually pulling the definition of positional negotiation out of a textbook: “We were stuck in our concrete, they were stuck in theirs.” (Edmonton Journal) Interestingly, the very fact that Smyth was crying indicates that, while both parties were arguing over money, financial concerns probably only made up a small fraction of each party’s numerous and complex interests.

To contrast against their positions I’ve quickly brainstormed the following list of each party’s core interests:

 

Ryan Smyth’s Interests

 

Oiler’s Interests
  • Maximize (or receive fair?) compensation
  • Set precedent for future negotiations
  • Stay close to/not have to relocate, family
  • Maintain links to community
  • Play on winning team
  • Play on Stanley Cup contender
  • Profitable franchise
  • Increase franchise’s marketability
  • Increase personal marketability
  • Increase interest in hockey
  • Play in a market where hockey is a major sport
  • Minimize (or pay fair?) compensation
  • Set precedent for future negotiations
  • Profitable franchise
  • Field a winning team under the salary cap
  • Field a Stanley Cup contender
  • Increase franchise’s marketability
  • Increase Smyth’s personal marketability
  • Increase interest in hockey
  • Maintain/improve morale of team and fans
  • Strong positive presence in the community

As you can see, money makes up only one (albeit important) piece of the puzzle. But in both cases numerous other issues whose value cannot be easily quantified also factor importantly.

For example, one wonders if $100,000 a year (our of $5.4M!) was worth forgoing if it allowed Smyth’s to keep his family in Alberta and stay close to them (especially given the after tax value of the $100K). Smyth probably also had an interest in maintaining/continuing his community work in Edmonton, a place he likely genuinely considers home (unlike Long Island). Smyth probably also had an interest in ensuring that the Oilers have enough money under the cap to acquire other key players that would have given him the chance to hold up a Stanley Cup.

Meanwhile, the Oiler management likely have an interest in players that are marketable and increase the profile of the team in the community (which Smyth is uniquely positioned to do). One wonders how much the lost revenue from merchandising will cost the Oilers. In a small market a local town hero can be worth their weigh in gold (and then some).

The point is that Smyth and the Oiler’s had relatively few conflicting interests compared to those that were either common or simply different (but not conflicting). Had both parties looked at their full range of interests, and not focused almost exclusively on money, it’s hard to imagine that some creative value-increasing options were not possible. For example: the difference of $100,000 could have been donated to a charity of Smyth choice every year – thus helping Smyth’s marketability, improving both his and the Oiler’s standing in the community all while not contributing to the salary cap. Or the $100,000 could have been converted into bonus pay contingent on Smyth’s performance. Ultimately, two negotiators thinking creatively about this negotiation as a collective challenge, and not locked into an ego-driven game of chicken, could have found a deal. But then Smyth’s agent is probably rewarded based on the money he pulls down and the Oiler’s manager on how much money he saves, so in the end money drove the negotiations… right over the cliff.

[tags]NHL, negotitation, negotiating, Ryan Smyth, Oilers, Edmonton, mozilla, sports, hockey [/tags]

Air Canada: A Case Study in how not to Negotiate with your Customers

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Fellow travelers looking for a laugh MUST check out my buddy Beltzner’s list of Air Canada inspired haiku’s. Pure genius.

Speaking of Air Canada, WestJet is creating a network of lounges across the country. Great news. Finally some comprehensive competition for Air Canada and some negotiation leverage for the consumer.
Most Canadians don’t even know how badly Air Canada treats them. My favourite example? Air Canada will launch a plane with empty business class seats. In contrast, most US carriers will keep upgrading passengers until all biz class seats are filled (usually prioritizing by status). Why? Because it costs them virtually nothing and helps maintain brand loyalty. In negotiation theory we call that a low-cost/high-value option – something that costs one party very little but benefits the other party significantly.
Alas, Air Canada is essentially telling its customers: Yes, we’d prefer to keep these seats empty rather than reward you for being our customer, even in spite of the fact that it would costs us nothing.

Second example: Never trust what an Aeroplan rep tells you on the phone. I’ve had two friends who, coming within a thousand miles of getting status, proactively called Aeroplan to see if they should book additional flights to ensure they would meet the threshold. Both were told not to worry, there was no need. Yet, in the new year, Aeroplan refused to grant them status. Needless to say, they now ALWAYS book their international flights with another carrier. Nothing breaks trust faster in a negotiation than breaking your word.
Air Canada better pray WestJet doesn’t join a reward program like One World. Between the lure of lounges and reward miles the only thing faster than an Air Canada jet will be the speed at which business travelers jump to WestJet.

I don’t even have a hate on for Air Canada… but this guy does. Plus, the site is a good resource if you feel aggrieved.

(Added on Feb 13th: So I’ve heard through the grape vine that Air Canada does not fill its business class seats because it only packs enough biz class meals to feed the number of people who buy biz class seats. Is this really an insurmountable barrier? One wonders a) if the money saved from not tracking business class travelers might offset the cost of packing enough meals for everyone; or b) if anyone who were upgraded cared if they got a meal, I know I wouldn’t, frankly the extra leg room is far more valuable then airplane food. Was on a AC flight today where several seats in Biz Class remained empty…)

[tags]negotiation, air canada, airlines, air travel, travel[/tags]

Does Jobs really want to set my iPod free?

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Will your music be set free? Will you be able to share your songs from iTunes, move them from machine to machine with impunity? Steve Jobs claims “he’d like nothing more.”

Yes, some of you may have read this note from Steve Jobs about the current and possible futures of digital rights management (DRM) in the music industry. For those, like me, who don’t dabble in acronyms like DRM on a regular basis, this basically refers to how online resellers like iTunes encode their music so that a) you are limited to copying it 5 times; and b) you can only play it on their proprietary system (like an iPod – ever tried playing a song from iTunes on something else… it won’t work).

Taken on its own Jobs’ note makes it look like he’s taking on the music industry unprompted, fighting for the little guy – the consumer (that’s me and you!). The truth is a little more complicated. Even this Herald Tribune piece, which has all the pieces to the puzzle, reverses cause and effect and buries the important parts at the back of the piece. The important fact is that Norway’s consumer ombudsman, Bjoern Erik Thon, told Reuters that Apple “must make iTunes music compatible with other players than the iPod by the end of September, or we will take them to court.”

Apparently, several European countries are proposing similar rulings. What makes this interesting (and my understanding of EU law could be flawed here – so please send me clarifications) are the EU’s rules around mutual recognition. Consequently, a ruling that found Apple violating consumers rights in one EU country could be quickly adopted across all the member states. If that happened, the theoretical future scenarios Jobs mentions in his memo would very quickly become the here and now options he would have to implement in a manner of weeks.

I have little doubt that Jobs would prefer to maintain the status quo. He’s got the dominant online music vendor that forces people to use his proprietary hardware. Do you really think he wants to give up this virtual monopoly? No way. Let’s be clear, this memo is the opening salvo in an effort to renegotiate iTunes agreement with the record labels in case the European regulatory environment changes (which is beginning to look very possible). Like any savvy negotiator he’d prefer to negotiate today, when he’s got options, as opposed to 7 months from now, when he’s got a gun to his head and the music labels are threatening to pull the plug unless he shares Apple’s proprietary licensing system – FairPlay – with everyone. Such an agreement would allow anyone to sell music that can play on an iPod effectively destroying his monopoly distribution arrangement.

Jobs isn’t a champion of the little guy – he just likes to look like he is. The change of heart outlined in this memo was not prompted by his concern for consumers but out of concern for the future of iTunes.

Thank you Nicolas T. for the HT link and the prompting email.

[tags]itunes, steve jobs, copyright, copyright law, music, negotiation, apple, ipod, DRM[/tags]

A Nation Alone

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Barring some dramatic change of heart by one of the main parties it appears the House will pass a resolution acknowledging Quebec as a nation within a nation. Obviously, the news commentary has focused on what this means for the country and its politics. This is clearly a departure from Trudeau’s vision of Canada, but beyond that, it is unclear if anyone understands the implications of this vote. As my friends know, I work as a negotiation consultant, and despite all the discussion surrounding the resolution, from a negotiation perspective, I feel one issue has gone unmentioned.

For many Quebecers this resolution is likely not an affirmation, but a reaffirmation. For declaring Quebec a nation within a nation reaffirms the ‘two’ founding nations vision of Canada. And therein lies the problem. Nationalist Quebecers don’t need Canada to recognize or affirm it as a nation – it already knows it is. The challenge for Quebec nationalists is that they need the rest of Canada to perceive itself as an (English) nation. And yet, most Canadians outside Quebec don’t see themselves as part of any (particularly English) nation. I’m not sure ‘English Canada’ shares a common sense of heritage, destiny, collective identity or any of the other ingredients of nationhood… independent of Quebec. (Sidenote: Some Ontarians who see themselves as part of a nation, might disagree, but I can inform you that Nova Scotians and BCers don’t feel part of the Ontario nation). While this could change, as it stands today ‘English’ Canada appears to possess a largely post-nationalist view of itself. They see their country as composed of 10 provinces and 3 territories that are more or less equal. Shaking them from this view will be neither easy, nor pleasant. Which brings us back to that serious dilemma confronting Quebec nationalists. Specifically, what is the value of being the sole nation in what is supposed to be a bi-national federation? If who you perceive as ‘the other’ doesn’t share this bi-national vision – who do you negotiate with?

Consequently, this resolution doesn’t get to the heart of the matter. It does not reconcile the two competing conceptions of the country (10 equal provinces vs. two founding nations). Instead, the resolution is premised on the assumption that enough soft-nationalist Quebecers will be satisfied with a theoretical reaffirmation of the two founding nation thesis to counterbalance harder nationalist who either want out of the federal structure altogether, or who wish it operationalized and/or re-institutionalized their bi-national view of Canada.

That assumption may be correct – I genuinely don’t know. But is seems to me that, nation or no nation, resolution or no resolution, the real question, and answer, to the issue of Canadian unity remains unchanged: Are ‘English Canadians’ willing to re-cast the federal structure along bi-national lines or do Quebecers believe their national aspirations can be achieved as one of ten provinces within a federated Canada?

[tags]canadian politics, quebec, negotiation[/tags]