Is Your Agent Faulty?

Adapted from “When a Contract Isn’t Enough: How to Be Sure Your Agent Gets You the Best Deal,” by James K. Sebenius (Professor, Harvard Business School). First published in “Negotiation Newsletter.“

Top executive pay attorney Joseph Bachelder was representing a client who’d just been chosen as a company’s next CEO. After a first session with the board’s representative to hammer out a compensation package, Bachelder took his client aside and informed him that he would get everything he wanted from the negotiation, according to the Wall Street Journal.

Why was Bachelder so confident of total victory? Because, he explained, the board had put the firm’s well-regarded general counsel in charge of the negotiations. Why was this a mistake? “When this is over, you’re going to be that guy’s boss,” Bachelder informed his client. “He knows that. He can’t fight you too hard on anything.”

The board picked a faulty agent for this negotiation—one whose underlying incentives conflicted with the board’s best interests. The general counsel’s dominant interest was to lay the groundwork for a good relationship with the future CEO. As its representative in these critical talks, the board should have instead hired an outside specialist with properly aligned interests.

The faulty agent problem often shows up in Pentagon contracting. Procurement officers are charged with representing the public interest when negotiating with defense contractors. Yet some of these officers quietly make plans to leave the civil service and join one of these defense contractors—at a far higher salary. While still representing the Pentagon, such agents are likely to go much easier on the other side than they should.

While an overriding self-interest in a future relationship with a negotiation counterpart may create a faulty agent, so may the lack of any meaningful future concern. Jerry Kaplan, founder of GO Corporation, an early pen computing firm, criticized the process by which IBM invested in his firm. In his book Startup (reprint ed., Penguin, 1996), Kaplan writes, “Rather than empowering the responsible party to make the deal, IBM assigns a professional negotiator, who usually knows or cares little for the substance of the agreement but has absolute authority….The negotiator begins by assembling a list of interested internal constituents, all of whom are free to add new requirements…or block some minor concession.”

When a faulty agent leads a negotiation, it’s unlikely that the right minds will converge on a productive arrangement. Similarly, while the top management of two companies in a supply chain may speak glowingly of the strength and quality of their partnership, the buyer’s procurement agent may be motivated by monthly targets and penny-pinching while overlooking broader concerns. A fanatical focus on getting the best price may be due in part to how the agent is evaluated by her superior, but also may derive from the organization’s culture.

When suppliers seek advice on dealing with faulty agents, they might be told to listen actively, to improve their body language, and to decide who should make the first offer. Another strategy is to nurture an internal champion on the other side who truly benefits from your added quality and service—and who will pressure the agent on your behalf.