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Friday, December 20, 2002


INTELLIGENCE Ben Sweet

Mastering the Art of Negotiation: Let's Make a Deal

A veteran negotiator reveals classic rookie mistakes.

Jim Freund is a master negotiator with the international megafirm Skadden, Arps, Slate, Meagher & Flom. During his 40-year career, Freund has done billions of dollars' worth of deals, tangling along the way with such pussycat bargainers as corporate raider Carl Icahn and airline gobbler Frank Lorenzo. Jungle asked Freund to identify the most common beginner negotiating errors he's seen over the years.

1. Diving in too fast
Too many young lawyers want to jump right into the back-and-forth of bargaining. That's a mistake, says Freund. Never start a negotiation, he says, until you know how you want it to end. First, identify the client's goals. Say you're handling an employment contract. How much does your client want? Two hundred thousand? Okay. What else? Stock options? Fine. Next, determine your client's "walkaway number"—the figure below which she absolutely won't go. Finally, ask your client to prioritize: "Which is more important to you, the salary figure or the options?" Now you know that the $200,000 is crucial and the options are negotiable. Once you know what you want to achieve and what you can and can't give up, you can develop a bargaining strategy that suits your client's goals. You'll also be less likely to lose sight of those goals in the heat of battle.

2. Cutting to the chase
You've offered to buy a business for $8 million, and the other side has countered with $12 million. You're willing to settle for $10 million, so why not just say so and call it a day? Because you'll almost certainly end up overpaying, says Freund.

One of the keys to successful negotiating is to create a dynamic of shared sacrifice. Each side typically needs the other to make concessions before it will feel justified in making a deal. In this example, a smart negotiator will take your $10 million suggestion and begin to seek concessions from there. Congratulations: You just gave away $2 million of bargaining room. Consider the alternative. You "grudgingly" make a second offer of $8.5 million, and your move is reciprocated by an $11.5 million counteroffer. There: You've set the stage for a series of additional offers and counteroffers that have you meeting at the $10 million middle.

3. Reacting carelessly
A buyer offers $1.5 million for a piece of land. Your reaction? A harmless nod. Oops. That "harmless" nod, says Freund, told the buyer his price is reasonable, even though your client wants $5 million. Rookie negotiators often react improperly, says Freund. Experts prepare a well-thought-out response for each possible situation. In this case, Freund would have been ready with two reactions: One for the low-ball bid that clearly communicates the inadequacy of the offer ("Are we talking about the same piece of property?"); another for a good number (something like "That's a constructive first offer"). Note that "constructive" is a positive—but not too positive—response and "first" suggests that you expect a second offer.

4. Losing patience
Freund tells the story of a young lawyer negotiating a contract out of town. The attorney expected to wrap up the deal within a few hours and catch a flight home. He showed up for a morning bargaining session with his airline ticket poking out from his coat pocket. The attorney for the other party saw the ticket and promptly hunkered down, prepared to drag out the negotiations all day. The young lawyer wound up losing significant gains on the contract—and he missed his plane. The best negotiators, says Freund, have deep reserves of patience and perseverance. The bottom line: "Leave plenty of time for any negotiation, and focus relentlessly on the issues important to your client."

5. Overplaying a strong hand
Say you're representing a software maker in acquisition talks with Microsoft, but you're fielding overtures from other buyers as well. This is the deal your client wants, so you decide to present a take-it-or-leave-it offer to the 'Softies. "If you don't want this deal," you say, "I can make it with one of the other guys." Another gaffe, says Freund. If you're lucky enough to have leverage in a negotiation, by all means use it. But wield power gently, says Freund. A threatening tone can anger an opponent and scotch a deal that might otherwise have gotten done. "Don't give the other guy an opportunity to be irrational," says Freund. Instead, exert leverage in an emotionally neutral way, he advises. Try something like this: "Look, your offer isn't high enough. We would really like to do business with you if you're willing to pay a preemptive price. But what you have offered is not that. If you're not willing to pay, we'll have to go elsewhere." Point made, no one threatened. Send the papers to Gates.

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