Conducting Effective Negotiations by Joel Peterson at Stanford (Full Transcript)

What is it you like about it? Now the hands disappear. Yeah?

Audience: Well, compared to my engineering field, when I knew everything was right or wrong, black or white, in negotiations everything’s grey, and nobody can say I’m wrong.

Joel Peterson: So you feel better about yourself. You don’t get any bad, and you don’t get any –

Audience: I get credit, you know? Nobody can say they could have done it better.

Joel Peterson: Yeah, all right.

Audience: Yeah the reason I want to go negotiate is that typically I have heights to take him. When I negotiate I’m going to win. I’m going to get better on the other side.

Joel Peterson: So you are going to improve your situation. Okay, so you negotiate to improve whatever situation you are involved in.

Audience: Conflict situation is just rarely the case you can make a deal without some level of negotiation. So I look at it as just as a means to the end, and getting to the end is kind of the goal. On the flip side, doing win-win deals is really a lot of fun.

Joel Peterson: Okay. So you see it largely as eating your broccoli, but sometimes you do get to turn it into dessert. I keep thinking of the first George Bush who made the comment about how he hated eating broccoli. So I actually like broccoli too.

Audience: Yeah I think the win-win thing is fun, and it’s also like a pizza, it’s like putting in the puzzle — if you’re the person, why why why, how you do you get it all together, and make it work. And you look for win-win, and that’s fun if you make it work.

Joel Peterson: So, win-win agreements are fun, and you can negotiate. The higher the percentage of deals you can get that are win-win, the more you like it. Other?

Audience: I think it’s a unique opportunity for creativity in business. It’s one of the most creative aspects of business.

Joel Peterson: It does allow you to fashion solutions according to, usually different kinds of facts, different fact situations, so you get to be, you get to express some creativity. Other things, yeah.

Audience: We are building relationship, as well as the other person.

Joel Peterson: Yeah, building.

Audience: You understand better what they want, where they want to go and you can disclose what you want.

Joel Peterson: Yeah, and I’ll bet you, those of you who said you didn’t like negotiation, saw it as a way of destroying relationships, of stressing out relationships. So, a lot of it depends on, what are you doing to relationships as you negotiate with other parties? How about those of you who didn’t, let’s get some more of things that you don’t like about negotiation. For those who just say, I can do without this. What do you not like?

Audience: This makes me very uncomfortable thing to think that, I do not have enough information to get the most out of this negotiation. And more often than not, I just regret the results, thinking I could have done better.

Joel Peterson: Okay, so you look back on it, and you say, shoot, I got taken. I didn’t get as good a deal as I might have gotten. I lost. Other things you don’t like about, yeah?

Audience: Most of the time, hopefully, the person on the other side is or are, is an intelligent team you’re dealing with. But you do get the what I call amateur, like if I pound on the table – if I can get just intellectually and emotionally tiresome to deal with.

Joel Peterson: You can get abused, in negotiations. And there’s a whole lot of, there are a lot of issues around power and information. If there’s a disparity in power, leverage, information, and you’re dealing with a party who’s going to use that and take advantage of that. You can go out of the room feeling abused. I actually met with Donald Trump in his office in New York, about 20 years ago, before he was a huge cheese, but he was with — well no, he still had the same hair. And actually he tried to sell me an interest in the Washington Generals. Any of you know the Washington Generals? This was a USFL football team that had drafted Herschel Walker. And so he was very proud of that, and he was trying to sell me an interest in that, and I didn’t fall for it. So, that’s my qualification for teaching a class on negotiation.

Actually my qualifications is, I have negotiated billions of dollars of transactions over the years, literally, hundreds if not a thousand different kinds of transactions. I was in the real estate business for 20 years and I was actually the chief financial officer of a big real estate company for about ten years, so I was negotiating debt deals and equity deals, and then partner departures and solving litigation. And, so my life was a diet of — just solid diet of negotiations. And then when I got done with that, I started buying companies and it became a different diet of negotiations. So, I’ve seen a lot of different kinds of negotiations. I’ve experienced the feeling of looking forward to a day when I’m negotiating and with great anticipation, and really loving it, because I like the people on the other side. I like trying to problem solve. I like being creative. I like all those elements. And I also have looked at certain days of negotiating where I dread it. I cannot wait to get the day behind me. So there’s nothing intrinsic about negotiations that say you should like it or not like it. I remember teaching a real estate class here at Stanford about 10 or 12 years ago, and asking the class roughly the same question, but I did it in the form of, who of you likes to buy a new car? And that was the most highly correlated question with who likes to negotiate, and who doesn’t. There are some people who absolutely hate the process of buying a new car, because it feels like you come out a little dirty. You know? You don’t have the — it’s uneven information, uneven power. And whatever, so it can, it can be a bad experience.

Well, who here are expert negotiators? Raise of hands. Every hand should go up. Every hand in the room should go up. You all are here in life, because you have been superb negotiators. You would not be — what is the negotiation? Negotiating is getting what you want at a price that’s acceptable to you. So you have paid prices to be at this place in your life, that you’re happy with. So you are expert negotiators, and I want to ventilate that a little bit, and let you really kind of peer into what it is that you’ve been so good at. But first of all, here’s maybe a little bit of a map for you to start thinking about the terrain of negotiation.

All of the conversations you have in life — if you think broadly about it, everything that you’ve done has been a negotiation. For those of you who are married, you’re negotiating all the time with your spouse, with your children. In your job, you’re negotiating all the time. In school you’re negotiating — I mean, conversations are in effect a give and take, and there’s a give-get transaction, and usually the more informal they are, the more successful people feel. When you do it with friends and family, usually they feel more successful, then you get into these sort of — where we think about negotiations as entrepreneur is in this area of stylized negotiations where there are agreements, there are certain things that we negotiate, we sit down at a table, somebody takes notes, we write it up. And there are certain things that we trade off, and then finally, very formal negotiations. These are typically ones that are done in arbitration, or litigation where there are rules of evidence, where there’s a very structured, narrow thing, and that one is not a very fun one, although I’ve now spent four years in litigation. I’m good enough. In fact, I had one attorney say that I was the best witness he had ever run into. And I started liking negotiation — litigation after that. This was an opposing attorney, too. So you feel pretty good about that.

So what makes for successful negotiations? In across all of those. And I recognize so many people from my past in here, it’s going to be hard not to cold call, on Angie here, or FA, Nicola. So what makes for successful — if you think about successful negotiations what do you think about? I’ve just had a successful negotiation. What’s your self talk? Yeah.

Audience: Set the right expectations.

Joel Peterson: Okay, expectations, your expectations, you’ve set them the right way going in. They’ve been met, therefore you’ve achieved your objectives. That’s a successful negotiation. Yeah.

Okay, so some of it is how you define the terrain. How you and the other party perceive it, and then are you able to execute in that perceived terrain. Bonny?

Audience: Win-win. It’s easy to define what winning is on your perspective, because you’re happy. But I see when on the other side, is that the person, the residual effect after they walked out of the room, and as time goes on that they’re not upset, and they don’t try to undermine and negotiate whatever the result was. So they were happy too.

Joel Peterson: Okay, so you are thinking more broadly than a lot of business people think about negotiation. I mean, these are what I would call enlightened comments about negotiations. Here’s what most business people are negotiating. This is the essence of most business agreements. These five things. So, they’re focused on getting the best price, getting the most attractive terms. Making sure that whatever time frames for execution or deliverables, whatever are acceptable. Making sure the warranties are in place. And then if things go wrong, they’ve got remedies. They may be legal remedies. They may be economic remedies. They’re probably a combination of both. So, most business negotiation, which is in this stylized category, in the middle, is so focused on me getting what I want in these five areas. And people don’t think more broadly than that.

If people who do a lot of negotiating around these things talk about these techniques. Does anybody not run into these before as sort of things that are taught in negotiation classes? Are any of these new to any of you, surprising?

Audience: The bathroom.

Joel Peterson: The bathroom one is a commonly used technique. Feed the person a lot of water, and a lot of food and then just keep talking, keep the pressure on. So, using the bath — bathroom breaks is a powerful — if you’re using techniques, and what do I mean by plane? They’ve got a plane to catch. Their schedule, exactly. They’ve got to catch a plane, and so you just carry on the negotiation. You speak slowly. You make things drag out. You disagree at the last minute. Just as they’re running for their plane, and say oh, you do the Colombo thing, you know oh, one more thing. You know, have any of you been subject to any of these? What does it feel like?

Audience: Well what you have to assess whether it’s always incompetence, or is it actual bad faith? And that can be difficult. And it’s annoying to have — to even have that.

Joel Peterson: Either case, what do you, how do you feel? If you’re dealing with an incompetent party, or a bad actor?

Audience: Wasting your time.

Joel Peterson: It makes you angry. Very few people, don’t recognize these. If you’re on the other side of the table, it’s not like oh, my gosh, what is happening? I don’t know, I don’t understand, this is sure working on me! You know, most of the time you perceive immediately these techniques, and you resent them. You’re angry about them.

So, in term of techniques that people teach, I think these are anti-successful agreement techniques. You may get a deal done. But you’re unlikely to get a deal that is lasting, enduring, flexible, where you build relationships, where you create solutions. But these are used all the time mostly by investment bankers. I’m just kidding. Sorry, sorry, I know. Roy, could you turn that tape off up there?

Audience: I have one other technique which I run into quite a lot dealing with competitors. Which is the, during a set of conflicts, long, long negotiations, maybe over the course of months. You discover that in the course of this supposedly good faith negotiation the competitor, for example, has been actually promoting something completely different talking to somebody else. And the explanation you get when you protest is, I’m very sorry we had no idea that was going on.

Joel Peterson: The impersonation of -.

Audience: Deny, deny, deny, right?

Joel Peterson: Yeah or just innocent, you know I had no idea or oh, my god. Which puts you on your heels, puts you at a disadvantage, maybe there are others, anybody in here experienced other obvious techniques that are being used to gain power. Yeah, John.

Audience: We were locked in a room once. I think it was kind of amateurish back in the early days in eastern Europe, that we just climbed out the window.

Joel Peterson: I bet there are a lot of interesting stories. That was another one, so, yeah.

Audience: Language, there’s a — in terms of an experience having negotiations in China where I was sitting across the table from a gentleman who spoke or at least didn’t claim to have spoken any English. And so I had a translator, fortunately. And so that was one kind of — it’s an interesting barrier. Because I was pretty sure that he understood English. And for a variety of reasons, and smoke was also another one. He was an avid smoker. And I can’t stand smoke, and, and I tried my hardest to make sure that he didn’t know that. Because that’s really affected, kind of the way it helps to have everyone to spend in this four by eight room. It was very interesting.

Joel Peterson: So, making things physically uncomfortable or getting a leg up. There’s another way that I see language used in that is abusive language. You know, people that start dropping F bombs, or shouting, cursing at you, whatever. They believe they get a leg up. And in some ways, most of us kind of react. We go a little bit on our heels when somebody starts cursing at us, or they raise their voice or something. I mean, as tough as you may be, if somebody starts doing that, there’s something in the inner child of all of us that recoils a little bit, and is back on our heels a little. Now, it can cause you to come back in like manner. It can cause you to get to that level yourself, which may or may not be a good thing. Comment?

Audience: So I had actually the opposite happen to me once where we were having issues and then we couldn’t come to an agreement and then they came back and they were actually, they couldn’t do more, more than what they were saying. If they gave me everything so they were treating me with kindness and then they went behind my back and changed it again. So it was the opposite of using the abusive language.

Joel Peterson: So it’s kind of the limp leg. Yes. where people use different techniques to deceive. Andy?

Audience: So Joe, I have a feeling you’re going to tell us ways to actually do this that aren’t these ways, but let’s use these guys examples, where you actually are faced with people like this on the other side of the table. And how do you actually take control or sort of set it on a positive tone, especially if you’re in a situation where you’re sort of feeling like, this is the company I really want to buy. Or this is the job that I really want to get. And you don’t really have as many options but these people are actually coming at you with these techniques. What would you advise us to do?

Joel Peterson: Well, let’s have the group — I’ll give you my, the way I react to it. But anybody in the group, you know, somebody is using one or more of these on you.

Audience: Just call them on it.

Joel Peterson: So calling them on it is one really thing — I’ve actually done this in a litigation where the opposing attorney was deposing me. And he stood up and got right in my face and started to shout at me, he said why did you do such and such. And it really is off-footing. And all it shows in the transcript is why did you do such and such. That’s all it shows. That’s all it shows. And if you answer the way you’re feeling when somebody gets in your face and shouts at you in an accusatory way, you say, well, you son of a gun, I’ll tell you the reason. You know? And you’ll do it in a way that isn’t effective. The most effective thing that I found was exactly what you’re saying. I say why are you standing up and raising your voice? That goes on the record. But it’s – so that’s the most copied down way of doing exactly what your saying is. You really call him on it in a nice way. Why are you raising your voice? What makes you shout about that question? Why are you standing up? Why are you pacing the floor as you get all of it on the record? Now, you don’t need to get it on the record in a normal negotiation, but calling him on it is one thing. What’s another way that you could deal with that?

Audience: I’d start asking questions. That’s where I start to do.

Joel Peterson: Questions are very effective, you know just asking, just posing questions. That’s always a very inoffensive way of taking the volume level down, getting information, cooling people off. Another way.

Audience: You got to reach a higher plane, because if you’re in this type of mode and the other person’s not in good faith in most negotiations we’re going to be doing, you need to have a relationship, and the relationship usually a lot more important than the actual deal you finally end up with in a lot of cases. So, I mean, I think you do have to call him on it. You have to say, you know, what’s your purpose here? And you guys, if he’s doing one and you’re doing another, it doesn’t make sense. You guys have to be both wanting a deal, and both wanting the best in win win.

Joel Peterson: Sometimes you have to have such power, and such an advantage, and you really do need the deal. That they get away with more — that it’s tough to raise them to that level. When there’s such a disparity in terms of information or power, that it can be very tough to do. I tell you what I try to do is make it completely ineffective, just make it so either I ignore it, I just don’t pay attention to what it is they’re doing, by that I mean, I don’t drink water. You know, I am able to outlast, my bladder is better than their bladder. Or I will plan my trip with an extra night of hotel room and I’ll have an extra flight out the next day, so I’m not even anxious about I’ll let him know I’m leaving at 5 o’clock tonight. That oftentimes they’ll push the thing. And I just don’t sweat it. We stay and then, then pretty soon to me it becomes a question of let’s keep staying here, let’s keep working. You know, I’ve missed my plane let’s work. It’s 11 at night, no problem. I can keep working. Well, I mean you kind of make it so that the game that they have setup hurts them. So they really pay the price for whatever game they setup. So make it ineffective. So these techniques really can sometimes work marginally in the short run on some people. But they’re not really very powerful long term techniques.

Now, if you look at textbook discussions on negotiation, you run into these terms. And I’m not going to talk about that — I want to talk really today about very practical, real world situations. But these are — this is the terminology. Some of you are going to take classes or have taken classes in negotiation. These will not be unfamiliar terms to you in the lexicon of negotiation.

So here are some practical keys to successful negotiation. And these will look just so simple minded, which is in fact what most really practical things are born of experience. But the first thing is negotiate with the right person. I’m going to tell you a half a dozen stories here before we wrap up, where you’ll see how I learned these particular lessons, I think. But get with the right party. You would be amazed at how many negotiations go on with the wrong party, with the unempowered lieutenant with somebody who really is not the decision maker, whatever. So figure out who the right party is. And are you talking with the right party?

Secondly is become a trusted negotiator. And I put here that’s a function of CCP, and my students will recognize this. This is a function of character, competence, and power. For somebody to be trusted, they have to be high character, they have to be competent, and they have to be empowered to make a decision. So you wanted — the right party for you to negotiate with is somebody you can trust. The right party for them is that you must be also trusted. So if you want to enter high quality negotiations, getting high levels of trust based on character, competence and empowerment, are really important things to assess.

Then know your own BATNA. What’s a BATNA? Best Alternative to a Negotiated Agreement. Okay, this is a term that was developed by Fisher and Ury in 1981 out of the Hartford Negotiation Study, which they really found that if people could go into a negotiation with an idea of what is their best alternative to this negotiation working out successfully, they came out with better end results. You go in with far more confidence. I’ve taken it to another level. When I go into negotiations now it’s, I figure out, I don’t know it for sure. But I try to assess what is the other party’s BATNA? So I really think hard about what is it they want to achieve, and what are their options because that really helps you kind of assess the whole thing and you’re not just thinking my agenda, my agenda, my agenda. Here’s what I want: price, term, remedies, warranty. This is what I need. And so many negotiators are going in with their own agenda. Well, go in and think about what is the lay of the land for the other party, and that helps.

We’ll talk a little bit later about Fisher and Ury’s map, but I think there are three or four suggestions that they make that are kind of their broad map. They’re really very helpful. Discern the difference between battles and wars. What we used to call the elephant ant. Some people don’t know the elephants from the ants. Have you ever negotiated with somebody for whom every deal point is something that they have to win? You know, everything is compared, everything that’s brought up, they have to win every deal point. I’m here to submit to you that’s a really dumb way to negotiate. This is a give-and-take, if you’re going to try to develop relationships the way Nicola said, or if you’re going to try to come out with creative solutions or whatever, you really don’t want this, I have to win every deal point thing. So know where the elephants are and where the ants are. Be willing to lose some battles to win the war. Yeah?

Audience: Wouldn’t be to my advantage points there that I know, I don’t feel so strongly about. Wouldn’t the other party be doing the same thing?

Joel Peterson: They should be, and you should, I mean, in really effective sort of win win negotiations, you share what you’re trying to achieve. Lee Iacocca has a great line, he was the guy that turned around Chrysler. And he said you know, when I want to achieve something, I tell the other party exactly what it is I’m trying to achieve, and what price I’m willing to pay to achieve it. And that’s really kind of the starting point where it’s sharing, so there’s a lot more sharing of information in that kind of a model of negotiation. It doesn’t always, it’s not always something you can do. And getting back to these techniques, I would say don’t worry too much about techniques, you have to be aware of them. You have to be careful — and it tells you something. Somebody is using — I was thinking when somebody is shouting at me or walking out of the room or throwing things, there is information in that. It’s like, I had a partner one time in the real estate business who looked at a joint venture document that was this thick. And he looked at it and he picked it up and he says, and any document that’s that thick, there’s something in it for me. And in a way anybody who’s throwing things and screaming and shouting and slamming doors or locking you in rooms, or anything like that, there is something in that for you. You know, you can get the high moral ground, you can at least get information. So don’t worry too much about them, but be aware of them. And then really understand what the other party — this is kind of back to the figuring the other person better. But if the more you can understand their values and I’ll tell you stories in a minute that illustrate each of these. The more you can understand really what it is that drives them, what’s important to them, the more likely you are to craft a solution to things that satisfies what it is that’s important to them.

So, here you’ve all seen this before. Just to pause on it for a second. Those of you who dread negotiations probably have experienced some of this win-lose experience. Those of you who said you really enjoyed them have probably experienced more of the left hand column. Okay, so here’s seven situations that have sort of illustrated these points for me, and I only tell you these not because I’ve had some unique negotiating experience, but because you may recognize in some of these things your own experience. You may be able to tie it in to your own experience and internalize it in your own way so that it really does belong to you.

The first one. I taught a negotiation session in the real estate course here at Stanford a number of years ago, and I had a version one and a version two of this. In version one, the instructions were, I want you all to have fun. So this was the three party negotiation. There was a buyer, there were two or three properties a buyer, a seller, and a lender. And they had to come up with a tripartite agreement. And so everybody went off in these negotiating teams, and made deals. The instructions were: have fun, be creative, learn everything you can about real estate and everything, and then just report back on your experiences.

Well, here’s what happened. There were reasonable deals made. They were made quickly. They were relatively easy to understand and document. And there was a lot of camaraderie. People came out of it saying, man this was, this was a fun exercise. We like each other. Aren’t Stanford MBAs cool? I just really love my classmates. So that was kind of the outcome. So that was negotiations 1.0.

So then we changed the instructions. Okay, the objective is to win. You’re going into this negotiation, the idea is you want to win. Your grade’s going to be influenced by it, and the results are going to be published in rank order, and you need to make a report on how you feel about it. What would you guess the change in results was.

Yeah, fewer deals were made. They were made more slowly, a lot more time was expended. I mean, tons more time, people said this, negotiators actually said, took longer and was tougher than anything they had done at Stanford. People were frustrated. and they hated their classmates. They said I will never do business with these turkeys again. I had no idea these people were such jerks. So it fundamentally changed, by the mindset and I set up the mindset that means my fault. But the economic outcomes weren’t any, but they were fewer, as somebody pointed out, a lot more complex deals, a lot of more unworkable, undocumentable, unenforceable, and the interpersonal relationships were strained. So you can see by having this mindset of we’ve got to win, and it’s a zero sum, and it was defined. I mean there were so few things in most business negotiations, there was so little data that was price, terms, timeframes, warranties, and remedies were about the only thing that people could work with. Well, I mean, they just went in and pummeled each other, just beat each other to bloody pulps. So, that’s the first story. And I’ll let you draw your own conclusions from these.

The second one is when I was first starting in business I had a deal that I was working on in ODCA, or as they say ODCA Spain. Did I do that right? Any of the Spanish speakers? And we were going into a bank there to borrow money. And we walked in, and it was clear within a few minutes that they really weren’t quite expecting us. So they ushered us into this office with a guy that said oh, well, you know, so he sat down to listen to us. And as we were sitting there negotiating over financing this office building, two guys in white coats came in, and they took the painting off the wall. And a few minutes later they came back in and took the credenza. And then they unplugged the phone and walked out with the phone. Pretty soon they came in and took the desk put it on a dolly and went out with it. We’re sitting there in these chairs talking and all of the furniture’s been moved out. Well it turns out this guy was not really the person who had anything to do with me, he was just a courtesy party. We said, well, these guys are here, they’re from the United States, make them feel good, and so the negotiation went all of. This kind of, I will tell you, my point on this is goes back to make sure you’re negotiating with the right party. We had absolutely, this guy could not have made any deal with us whatsoever, but we didn’t check it out, so we sat there talking across an empty office about a deal that was never going to happen.

Well, that’s an extreme example of something that we all do a lot of times. We end up negotiating with parties without power, without the ability to make a decision. So you really want to think that through.

The third one was also early on in my career. I was a chief financial officer in my late 20’s, of a big company. I was supposed to make a joint venture with a life insurance company. And so I’d studied all the joint ventures, then I figured out what I wanted on this deal, and what a win-win, I mean I had all, I was steeped in all these things and so, I sat down with a very senior, 50-ish life insurance executive, and we started going through the deal points, and there were eight or ten of them — after I’d been said no, we’re not going to do that in about the eighth deal point, I had rose — I had rose in the ninth deal point and said we really need to have this, you’ve said no on eight of them, and he said Joel, sit down. Just take notes. Your job here is just to take notes. You know, we’re not negotiating anything. Just take notes. We’re the life company. We’ve got all the money. You’re just the developer. Take notes. And, so it was clear to me that what that negotiation was about. That negotiation was not going to be one in that series of discussions. But I was really going to just document it in a way that we had a chance to do our business, and we had options in the future. You know, so that wasn’t the only option that I had.

Limited partners, I recall early on thinking that I wanted to develop a brand. I wanted to be seen as a certain kind of negotiator. And part of my brand was going to be that I would calculate exactly what a deal was worth, and then I wouldn’t budge on the price. I wanted to be known as somebody who knew the value of what it was I was offering. And so if I said, this is a $1 million investment, I didn’t want to settle for $950,000. I really wanted to say, It’s a million dollar. And I guess if you want to trade two nickels for a dime, I’ll do that, but I’m not going to trade a dime for one nickel. So, I really wanted that to be my brand. Because I realized I was going to be in this business a long time and do hundreds of deals. So in negotiating with these limited partners I became very stiff on this. And it was only when I got options, and what happened to me in this in, in one case was a guy said well I’m not going to do the deal. I need to do the deal at $950,000 not a million. I went out that night and called another limited partner, investor group and said I’ll tell you what. If you’ll do this deal at $1 million, I can document the deal tonight. And I can give you all these other things, but I need the agreement tonight. So, and the guy called up the next day to resume negotiations I could say, sorry I’ve already done that deal.

So, I was able to establish that I don’t move on price. And it worked for a while until — the guy and I became really good friends. We ended up doing 300 deals together over a 20 year life span. So, a lot of transactions. About 50 deals or so into it, he said Joel, he says, I just got to tell you, I like to negotiate price. I don’t feel good, unless I can negotiate price. So, if you want it to be a million dollars tell me it’s a million fifty. Just tell me it’s a million fifty. I’ll come back with a million, and then we’ll both feel good. And, so we negotiated that, the last 250 deals we did, I would go in about 5% or 8% higher than what I would accept. He would knock it down. He’d feel good and I’d feel good. So you, kind of going in and having sort of a reasonable rule, what I’m calling ROR, our rules of the road. If you’re going to have serial negotiations with somebody, develop rules of the road.

Senior partner departure. This is a situation, there was a billion dollar transaction. So it was a big deal. And this was 15 or 20 years ago. So it was a very significant transaction. And the partner came to me and said, you know, I want to — let’s agree going into this negotiation. Let’s agree on values. Let’s agree what these properties are worth. And then we’ll make the trade. And on this particular case I thought, you know, the biggest mistake we could make was, would be to agree on the values. Let’s disagree on the values. So, you set up whatever you know, the properties better than I do. You value them however you wish, and then I’ll select. And the very fact that we didn’t agree on values allowed me to select deals where I thought I was getting more than my fair share. He then was able — because he said guys, he was fine with the deal, because he represented what the values were. It was just applying the percentage to the values he’d set. So we were able to get a transaction done.

My departure. So I left the Crow organization with the reputation of being a conciliator. With the reputation of being reasonable. With the reputation of being a win-win dealer. I’d settle all the litigation that Crow would have had for 20 years, departing [partures]. I was seen as somebody who was litigation averse. And because that had become my brand, my negotiating brand, when it came to that, they filed litigation against me, realizing that he’ll never fight. This guy’s such a pussy, such a conciliator, he’s such a giver, he’ll make everything. I really had no place to go. I had set myself up with my brand. So from that I want you to think very carefully about the brand you want to have.

The last story is one that I think you’ll remember.

Audience: So what happened?

Joel Peterson: We ended up in four years of litigation. So I now have a new brand. I’m now known as the ferret. No, it’s interesting, because I think what my brand has become is I am somebody who is very reasonable, who will do win-win negotiations, but if you get to the point where you cross me and my principles or if you do something that I really think is completely unfair then I become very stiff. So, you don’t want to get into litigation with me, but you don’t need to. So, that’s a better brand than the brand I had before, which was the guy will never sue. He will never get into litigation. So, you really want to think carefully, because that brand, and part of my message here is that there are no episodic negotiations. You may think it’s an episode. You may think you’re going in and having a one-off deal with somebody. That person talks to somebody else who talks to somebody else who talks to somebody else, and pretty soon everything is — we live in a very connected world. So think carefully. If you’re doing a lot of negotiation for a living, think very carefully about the brand you want to have.

Now, I apologize to my students, former students for this next one, because several of you have seen this, but I had a negotiation with my daughter over this last topic. So, I’m out here teaching at Stanford. And I come out for basically ten weeks when I teach here. So, she’s back in another state, and we correspond by email. I get back a couple of times, she and my wife get out a couple of times, but we’re basically away from each other. So here I get this email from her.

“Dear Dad, did you hear I’m getting a rat? Won’t that be cool? The pet store lady said that you can train rats to fetch and stay. I wanted to get mice, because they are cuter and don’t have a disgusting tail, but mice just run away, and they never become your friend. Rats will sleep on you, and I’m sure, dad, you’ll become great friends with my rats. I’m thinking of naming them Ritzy and Scraps. Won’t that be cute? And you can even see them when they’re tiny babies. Take deep breaths if you’re getting nervous. I will pay for them and the cage with my very own money. All you and mom have to do is buy the food, which really doesn’t cost much. I’ve already done everything else. I think I’m ready, it’s okay, I can take care of them. I’ve proven I can take care of animals, I even sweep up the cats barf. I can handle it. So, you can trust me to take to care of Ritzy and Scraps. They already have names. I hope you’re doing well at Stanford. Isn’t this warm and fuzzy? I’m doing well here, same normal things, practicing soccer, whining to mom about getting rats. Just, so you know, she already said yes.”

Is this a negotiator? This is an 11 year old kid, I mean some of this stuff, when I ask who are the expert negotiators, I promise you we are born knowing something about negotiation. Just so you know, she oh, yeah, “I’m sure she’s sick of the same conversations can I get a rat, mom? Please, I’ll do my practicing that’s my secret in life. Promise to do my practicing. Love, Elise.”

So here’s this, this is the initial volley. This is the negotiating position. She’s kind of laid out her negotiating position. So you’re sitting out here, 1,500 miles away, thinking no way. She has crossed the barrier I’m unwilling to cross. So, here’s my response, and I want you to notice this, because this is a real life negotiation. And I’m going to have you predict how it came out.

“Dear Elise, are you nuts? I have been killing rats at the house in Woodside, they are not cute, they’re not nice, they are not controllable, they stink, they eat everything, they make little black poops everywhere. And I have to clean up the mess. Just this week, I bought some decon, to put out where the rats live. The next day I found a dead rat near the pool, and another one trapped in the garage. Just to be clear about how I feel, I must inform you, that we smashed its head in with a –“ — I’m a negotiator, come on – “It was fat and ugly. By the way, I think its name was something like Ritzy. In any event, one of the big reasons I was getting so excited about coming home was to get away from the rats. Now I may as well stay, huh? See how hurt. I’m just hurt, I’m appealing to this young daughter. Now what would you like next, a python, or how about some Ebola virus? Or maybe you could raise maggots. Anyway, I still love you and miss you and will see you next week. Love, Dad.”

So how did this negotiation come out? Predict. What’s that.

Audience: She gets the rats.

Joel Peterson: She gets the rats exactly. She got the rats.

Now why would an expert professional negotiator with $10 billion worth of deals under my belt give into this 11 year old kid on some stinking rats.

Audience: Imbalance of power.

Joel Peterson: That’s a great point. Or besides her mom had already said yes, so real imbalance of power. To me this is the difference between knowing the elephants and the ants. You know, I was willing to lose a battle to win the war. And the war, what I wanted, winning for me, defining winning for me was raising a child who’s responsible, who loves me, who will listen to me on things that really do matter, and, so I was really willing to take a kind of different view of this.

Now the really gratifying part about this story is in the end she gave the rats back to the pet store lady, after the pet store lady had told her she would be feeding them to the snakes. So she disliked the rats as much as I did in the end, and she came away saying, dad you were right about the rats.

She, I arrived home and the rats were there.

No, no, that was done, it’s a done deal, mom had already said yes. It was, do you want to hold them, dad? No I think I’ll pass on that.

So, I think we’ve covered most of this, this idea of episodic versus serial, think serial in your mind as you think about your brand. Outside versus inside.

This last was a very much of an inside negotiation. You’ll have negotiations with third parties, and with people who are really close, whether they are employees, partners, brothers, sisters, children, spouses. The inside ones are by far the toughest negotiations, they’re the least forgiving and they’re the most important ones to lose. So this idea that every negotiation is a competitive game that you have to win, it really helps you get over. The more inside negotiations you do in your life the more that you realize you don’t have to win. Certainly not every deal point and you don’t have to win every negotiation. So don’t think of it as a competitive game. This idea about, I just like this quote. “Don’t wrestle with pigs, you get dirty and they enjoy it”. So be very careful who you negotiate with. And that means generating options, that means always having other people to talk with and to do business with. If there’s the worst thing in life is to get in business with people that don’t have the same values you have, that you don’t respect. I mean, it is misery. It’s a different kind of misery from just about everything you know, except being married to somebody who makes you miserable.

Then this idea of being reputation building. I’ve given you my examples of that. But here are some alternative reputations you have. One is, I’m tough, I’m unbending, the legal documents govern. I’ve known a lot of people who are that way. And often they are people who have a lot of money and a lot of attorneys and they really believe that’s a really smart way to do business. Guess what happens? In the end they may not have a lot of money, they may not have the same position of power. And they may not have a friend when things go against them. Live by the sword, die by the sword. You can be flexible, be open to reworking the life company joint venture partner I told you about who just said, take notes, Joel. Turns out, he was one of the most flexible partners you could ever have. So the documents were the documents were the documents. He couldn’t negotiate them, he didn’t want you to negotiate them, just take notes. But when it came to working out the problems of living in the real world of doing business, he was extraordinarily flexible. And so I kept doing business with him. I probably did 25 deals with him over my life in real estate. Because he was such a great partner. He was a tough negotiator documenter but he was a great partner. You can have this reputation of being eager to make deals where you just say I do a lot of singles and doubles. I don’t do home runs.

The other is that there are some people in the negotiating world who just say I only do home runs. If I don’t get a four bagger, if I don’t hit a home run, if I don’t win the thing, those are the only deals I’ll do. So you need to decide what your reputation is there.

We’ve talked about these last couple of — the last one is this Fisher and Yuri, trained problem solver and we’ll talk for a second about Fisher and Yuri. Yeah, comment?

Audience: We’re talking about basically being selective, what do you do when you’re in the situation where let’s just — there’s event that you need to associate with. And they are, we really need — there’s not another alternative out there. You don’t agree with their values. What do you do in that kind of situation?

Joel Peterson: In some cases you just have to suck it up and negotiate with them. In some cases you can get another party in the organization you negotiate with. In other cases you can talk to them and say okay, here’s where I think our conflict is coming, and get to a deeper level and talk with him about that. I used to have a partner that would say to people, you know we’re not making a deal on this, what would it take to make a deal? And that was effective in certain circumstances, you know what would it take to get this relationship on a better footing or to develop a more long lasting give take relationship? And sometimes you can get that real with people. My views going back to the very beginning is generate options so you don’t have one vendor that you really rely on, or one alternative source of financing. I mean, I like having a lot of options, and I realize that’s a bit of a Pollyanna. You can’t always do that. I mean we just did a deal with one of the companies I’m involved in where they were about 40% of our business, they were really important. We had to get that deal done. So consequently we took notes and got the deal done. So you’re going to do some of that. There’s not a panacea to every negotiating problem. You are going to deal with difficult people. You’re going to have win lose negotiations. You are going to have some things that you dread. But I’m just saying that you can nudge it so that it’s a happier experience. It is more of a win, win experience, and the better you choose party.

So here mindsets that I’ve got when I go into your shoes. What time do we end Marcello? Where did Marcello go? At 12, so we have till 12. Are you happy until then, or are people wanting to get out of here? You’re okay? Well, let’s talk a little bit about these. And one of the mindsets that I think is a really good mindset is that a negotiation is just a conversation. It’s just an exchange. You’re good at conversations. You talk to people all the time. So, this idea of oh my gosh, we’re going into a room, we’re closing the doors, we’re sitting on opposite sides of tables. You know, that feels a lot more threatening than I’m just going to talk about our various interests and try to have a conversation to come up with something that’s mutually satisfying, so think of negotiations as conversations and you’re good at it, think of negotiations as a series we’ve mentioned, think that agreements as winning, it’s back to this idea of what is winning, the idea is that your agreement should be durable. There’s no point in coming to an agreement that it terminates in a lawsuit six months later. You’ve not negotiated a good agreement. So you want them there to be some elasticity. Some sense, and usually that is a function of how much trust you’ve developed with your opposite party. If you’ve developed very high trust with your opposite party once you come to an issue the first instinct isn’t, oh my gosh, let’s go to the documents. What do the documents say? Most of the good deals I’ve ever made have never once referred back to the documents. Not once, and some of these things have lasted 25, 30 years, I mean, my whole business career. We never ever once go to the documents. Why? Because we like and trust each other and these are real issues and we sit down and we talk it through. So you want a durable agreement. So that’s another mindset to have.

Another mindset is, this thinking win win. In other words, to recognize that you’re accountable to — a lot of times people think is the negotiator, they’re only accountable to themselves. I’m winning for me. There are very rare negotiations where you don’t have broad accountability. It’s to your employees, it’s to the community, it’s to shareholders, it’s to a board. Sometimes this can be a very effective not in the room party that you can use to give you some breathing room to pause and say, well, I can’t, I wouldn’t feel right about this vis-à-vis the community. I don’t really feel good about dumping this sludge into the river. I mean you really have an accountability. So this idea that there’s an accountability outside your own interest is a good mindset to have.

Watching your language. I don’t think it works to curse, scream, swear, slam doors, walk out of rooms, even bluff. I think bluffing is a fool’s game because all you need to do is bluff once and have it not happen and you have spent your reputation. You are forever more seen as a bluffer. So my view on that is just never bluff. Never use, what I call, high velocity words. Just you think of the words that just sort of raise people’s emotional tension and their temperature. Just stay away from them. And if somebody uses them on you, ignore it. Don’t let it work. And you don’t let your temperature rise. So watch your language and watch –

Audience: What if you are genuinely upset and you get frustrated, you are not doing it for effect and you’re not using a technique that you try to control it at all costs?

Joel Peterson: I think you should try to control it. And here’s why. You know, if you, and if part of it is you’re setting a baseline. Whatever your baseline is, it’s the variation from your baseline that will get effect. So if I say to you, I will never agree to that, that’s pretty powerful. If you know me, if you’ve negotiated with me a lot of times, for me to say, I will never do that. I mean, you really believe. I’ve just screamed that out. Whereas if I’m throwing things around and cursing and, lot of histrionics, I can shout, I’ll never do that. And you’ll say, yeah, yeah, okay, he’ll come back tomorrow. So I think keeping the baseline — keeping the baseline really low is a very smart thing to do. Plus it keeps your own blood pressure down. I did walk out of it. This billion dollar deal that I did out here where we were swapping a billion dollars worth of property. I sat with the partners in the room. There were six of them and one of me. And the most senior of them just said something that was just completely off the wall and unfair. And I just stood up and I said gentlemen, it’s been a pleasure to be your partner all these years. I am so sad that it has to end this way. I am catching my plane and I will be gone. Give me a call in Dallas if you want to talk about this. And it was that simple, before I could get to the airport, I had a call from three of these partners to say, please come back, we want to negotiate business, and it wasn’t that I had gotten up. I’d stood up when they said it, I’d left the room, but my speech was really that calm. And I think they took that as, oh my gosh he is serious. He is really serious. And that’s the message that I’m really serious. That’s the one that I want to get across, not that I’m chapped and that I’m out of control because, people don’t trust that as much. In the end that idea of being trusted, if you really want to be an effective negotiator, be trusted. If the other party can trust you over the long run, you’ll develop that brand. And you’ll develop durable agreements, high trust relationships, creative solutions, relationships with others that you like, etc. So, I’m just recommending it as a different mindset than a lot people have towards it.

Audience: First half question, in North America and Western Europe, I worked all over the world. Getting angry may or may not work, but it’s not a big surprise when it happens. The rest of the world, I mean if you’re always calm, it translates across all cultures.

Joel Peterson: Yes, it’s kind of a universal language. Clarity.

Audience: Something in some cultures is just an absolute no no and you’ve lost them completely, we burned all your credibility.

Joel Peterson: You lose credibility. Yeah, you’re seen as an unstable person.

Audience: Here, people might or might not forgive you.

Joel Peterson: Depending on the industry. Some industries are full of wild people.

Audience: We negotiate through an intermediary, an investment banker, an agent or an attorney who’s actually negotiating an agreement, would you use this as a model for find, for selecting an intermediary because that person can often have a tremendous impact on your brand as well because they might act completely, and they’re off on their own. You don’t really know exactly what they’re doing either.

Joel Peterson: I think you have to be very careful in who you select, because they carry your brand. I’ve seen more attorneys foul up deals than actually facilitate deals. In fact, I select my attorneys in terms of, are they deal facilitators, are they dealmakers, problem solvers? Or are they sort of egomaniacs who throw, who have to be right on every deal point, who have to draft the toughest documents? A lot of times what you’ll do in deals is you’ll get attorneys fighting. And the attorneys will fight. And it’ll destroy the deal and the relationship. So, number one is I try not to have very many intermediaries on the front line. I don’t like to have agents, brokers, investment bankers, or attorneys negotiating my deals. I like to establish a one on one relationship with the other principal, in deals. I really think that’s the safest way to maintain your brand. And it’s the way to create better relationships, to create better outcomes. It’s more work in the short run. It’s less work in the long run. I think there is a reason that people use these intermediaries and I think they can be valuable. I think it’s always smart to have somebody outside the room. Because negotiations are these real time things where you’re exchanging things back and forth, back and forth, back and forth, and you can make mistakes and it really helps to have somebody, whether it’s a board, a partner, an attorney, or whatever who can come in, refine, correct, smooth over. So I like to use them in all those things, a lot of times I’ll say I need to run this by my partners. This makes sense to me but let me check with the attorney or the tax counsel or my accountant on this. So I like to have a little bit of a backed on. So, I use them that way. But I never put them, say, my attorney will associate with your attorney and make a deal. I think it’s very dangerous. Not to say it doesn’t work but, yeah.

Audience: I had a question regarding this idea of not really going above or below the median and as someone, I’m very emotive. That’s who I am and what I’m hearing is poker face, try not to get hooked into these things, try not to be emotional, which to me is really like, if you said, the best way to negotiate is if you’re six foot tall. And I’m five feet tall. So, that, to me it’s like okay, that, I agree, I can see how that would be effective, how do you — so how do I do that?

Joel Peterson: I think you start out by being yourself. Authenticity is something that will be measured by the opposing party, which will go back to trust a lot. I’m just saying that you can modulate. You can keep the swings from being so wild and, and that will help you. Won’t make you 6′ tall, but it may make you 5’2″. I think you need to be yourself. I mean I’m demonstrative too, I mean speak with my hands, I wander around. I get excited about idea. I mean it’s who I am. So I be, I am that. But I just said there are certain things, there are certain thresholds, that I don’t want to cross because I spend a lot — If I crush those thresholds, I’ve spent something that doesn’t return to me what it’s worth. So, if you’re all over the map, and around like that, you just need to realize you’re spending something that’s pretty valuable and you don’t have any place to go. Once you’ve cranked the volume up all the way, there’s no place to go. So, leave yourself a place to go and I think moderate it. And the final one is be likeable. And I know this is — I mean you didn’t come to Stanford to hear be likeable. But when I went through litigation I remember talking with, I think it was opposing counsel after it was all over again. And he said something like, I wanted to dislike, I wanted to hate you. I really wanted to be as angry at you as the plaintiff was. He said, but I couldn’t help, but kind of liking you, and he said, I didn’t want it influencing, I’m a professional and I did my job but it still had an impact. So I talked to my attorney about it and he says, I’ve had the same experience where I’ve got. And he’d deposed Ivan Boesky, I mean you go down the list, people he’d been through, a whole bunch of them and he said, you know, certain of them were really likeable scoundrels and it made a difference. And others, you just wanted to fry. And so this idea, there is something in all, even the most jaded professionally trained litigator who does gladiating for a life, you know, says it makes a difference if you like the other party. So I think there is almost no upside in being a jerk, in being a turkey, I just don’t think it gets you anywhere.

Well, we’re about out of time, well, let’s just see if we’ve got anymore of these. We talked about agents, being of principle. We’ve talked about lawyers as memorializers or agents, disputes. You know, this is in the far end, or the formal end of negotiation whether you mediate, arbitrate, or litigate. I guess my advice on that is, they’re all kind of bad outcomes. And you really want to avoid – you really want durable flexible agreements, and trust relationships. If you have to get to these litigation and arbitration are not that different in terms of — arbitration may be a little shorter and a little less expensive, but you’re still presenting information under rules of evidence typically to a special master or rented judge or something. So it’s very much the same kind of thing. Mediation. That negotiation is a split the baby negotiation. So if you’re right, you’re going to lose half. So I think you just want to be, so this is again in this very style, formalized way The rules of those negotiations very much narrow your outcomes. So, just be aware. Implementing the agreement, flushing out hidden agenda items, outbursts in front – that we’ve kind of talked about all of those, I think.

So Fisher and Ury. Has everybody in here read — how many of you read Getting to Yes? Only a few of you. It may be so old that people don’t read it. It’s still the classic book on negotiation. I would recommend it to all of you who want to become a better negotiator. Written in 1981 by Fisher and Ury, two Harvard lawyers. And they talk about their negotiations in the salt talks. And a lot of data on really sort of what works and what doesn’t. They wrote another book called Getting Past No. So Getting to Yes is the first one, Getting Past No is the second one. Actually the second one is much less read. In fact, is there anybody in here that’s read Getting Past? Okay, great. Not very many people have read it. It’s actually, I think, even a better more insightful book, if you’ve done a lot of negotiating. Those are two really sort of good practical academic texts that give you a good map. And I can usually tell when I’m negotiating with somebody who has studied Ury and Fisher. It’s a different kind of a negotiation. It’s actually quite pleasant.

So here’s the, if you don’t want to read it, here’s the Reader’s Digest version. I’m saving you time. You thought you were wasting an hour with me, I’m going to save you a couple of hours. Basically, the idea is separate, so here are the four fundamentals. Separate the people from the problem, which a lot of people don’t do. They merge them. The problem’s thorny, therefore I don’t like the people. The people who have this issue that is brought before me, because I don’t like the issue or it’s putting me in an awkward position, I also don’t like those people. And so, a lot of confusion, so they say separate those two and focus on interest, not position. In other words, what would you like to see happen? Not what positions are you going to take, is the other party going to take, because positions are not necessarily related to what are really in your interest. People express positions that may not be the actual end point that reflects their interest. Then invent options together for mutual gain where you think outside the box you invent options. And then insist if you can, this is the hardest one for me, is figuring out objective criteria. You know what, what would be a winning deal? What would work? And then assess your deal against these objective criteria. That is the hardest one for me, but I’ve seen it work.

And then finally for me I’d say know your BATNA. Figure it out, write it out, know it going in and my corollary to that is, calculate the other party’s BATNA. So you really know, that it’s not life or death. There are alternatives and you’ll be more likely to have successful negotiations.

Now I’m going to show you, these are again more Fisher and Ury things. But if you’ll just, this is how they deal with some of this, dealing with problems and framing things. So I’m going to flash this slide up and one other slide up, and then have you think about, what else this relates to. You know, discuss each, don’t blame the opponent see the opponent’s intentions, see the situation, from their prospective, give them a stake in the outcome. Don’t react to provocation, step away, don’t respond reflexively, be an active listener, agree when you can. I used to have a friend that I negotiated, a guy that became a friend that I negotiated with, who’d start out every negotiation with all of the things we agreed on. So that you’d go through ten items and say, okay, we agree on this. We agree on this. And you got in this reflexive habit of just agreeing. Okay, I agree to that. That works. I agree to that. That works. Okay, that’s good. And you’d get done to, then number 11 and 12 and 13, which were the tough ones.

So, these are things that Ury and Fisher discussed. And I guess I’ll just tell you, because we’re out of time. My take on this is, this is marriage. You know, this is how I’ve made a marriage work for 35 years, is basically doing these things. And most of the relationships you’re in are subject to negotiation. If you kind of listen to these best practices, your life will work better, your relationships will work better, and your conversations will be happier, your agreements will be more durable, and most of the time you’ll feel like you won. Most of the time you won’t feel dirty, like you need to take a shower. And negotiations won’t be just eating your broccoli but will be something that gives you life, lets your express creativity and build relationships. So, I’ll hang around here after if any of you want to discuss this or have any questions, but thank you very much.

 

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