“Dear Stan,
We’ve been negotiating with a current partner to spin out a business entity from the partnership as our separate ownership. It’s a segment of our joint business activities that is no longer congruent with the partner’s mission and is also incompatible with their business practices. We agreed in principle to do so last December, and had been working together pretty well towards a June 30th separation date. We created the separate legal entity, drafted a separation agreement that seemed to be acceptable to all parties, notified our customers and began receiving advanced orders and deposits against shipments due after July 1st. About two weeks before the separation date, our partner suddenly came to us with a new set of financial reports that essentially said we owed them a lot of money for activities prior to the separation date. The amount that they said we owed, oddly enough, was almost exactly equivalent to the sum of our advance order deposits. We don’t believe we owe the amount they claim, but are uncertain as to whether or not to move ahead. What would you advise in this situation?
Signed,
Chain Yanked in San Diego
Dear Yanked,
This type of last-minute power play is not uncommon in the process of negotiation. Recently, I wrote a column about research that describes the long human history prior to our explosive population and concomitant technological advancement, and its impact on forming our behaviors around trading. It is because of the size of our “tribe” and the ability of individuals within it to not be held publicly accountable for unfair trading practices that our historically collaborative and fair business practices from the Stone Age have given way at times to predatory actions. It will help to understand the dynamic itself, and also to apply the research to find a way to reduce the chances of what you must feel is extortion. The dynamic of last-minute stalling or changing the deal is a matter of rationalization, and of leverage.
Rationalization literally means to reason through a problem or dilemma. The word has come to connote deceit as well, when the reasoning is constructed to support a pre-existing conclusion, rather than to arrive at one. Rationalizing a conclusion after the fact is a way of obtaining some objective, if indeed those reasons will be compelling to the parties involved. But before someone can be successful in rationalizing a predetermined outcome to someone else, the first person who must be deceived is the person doing the rationalizing. How could that be? Are we so self-deluded that we can lie to ourselves effectively and actually believe the arguments we are proposing, even though objective evidence shows the rationale to be flawed? The answer is, unequivocally, “yes”. Our conscious minds contain the thoughts we can talk about. Our unconscious and sub-conscious minds contain the parts of our mind that we have no awareness of, and therefore can’t talk about. Among other contents, our sub-conscious thoughts include self-preservation and appetites which cause us to pursue satisfaction. Unconscious thoughts include long-standing habits and traits that we have acquired through many years of reinforcement. So our non-conscious parts of the mind are those that have the power to deceive ourselves as to our true motives. In your case, the partner has rationalized that the numbers show you owe the money. They need the money badly and it’s very tempting to believe that they’ve found the evidence to support the conclusion already arrived at, i.e., the money is owed.
The second aspect of this is the concept of “leverage”. This means that one person has the ability to influence the other party towards accepting a position that they would otherwise not choose, in order to avoid a consequence or to obtain a reward that means more to them than what they would be giving up. The Stone Age trading partners would not look for an opportunity to gain leverage, most of the time. Because if they did, then they would earn a reputation for being unfair in trading, they would lose trading partners and could not rely upon others to help in times of need. But with the ability to hide in a large group, leverage becomes more tempting to apply, by the non-conscious mind at least, and by the conscious mind for some. Usually, at the last stages of a deal’s conclusion, that is the opportunity for someone inclined to apply leverage to do so. Why then? Because there is so much invested in the process of making the deal that simply getting it done becomes more important than what is being given up. The party who wants the deal the most, is the most vulnerable to applied leverage.
Hindsight would indicate that you did not properly conclude negotiations prior to the separation date, which left you exposed to leverage. But to equalize your negotiating position, you can apply hunter-gatherer strategies: use public forums to expose the attempt at leverage, and the rest of the business community will become your leverage. This must be done carefully and strategically. But properly played, you will remove the lever and return to collaborative negotiating.