In business negotiations, share the wealth wisely

Don’t just offer a gift; negotiate it instead

By on / Business Negotiations

After graduating from the University of Chicago’s business school in 1971, David G. Booth took what he had learned and ran with it. The firm he founded, Dimensional Fund Advisors, bases its investment decisions on the type of academic research Booth absorbed from his professors in Chicago. That scholarly approach has paid off: Dimensional Fund Advisors now manages $378 billion.

No surprise, then, that when Booth was looking to share some of his wealth, he thought of his alma mater. In 2008, Booth told the dean of the business school that he wanted to give $300 million, which at the time was the largest gift the University of Chicago had ever received and the largest given to any business school, writes Paul Sullivan in a recent New York Times article on large donations to colleges. Admitting that Booth was offering more than the school had planned to ask him for, the dean offered to name the school for him.

The idea hadn’t occurred to Booth. “I just wanted to pay my debt and get on with it,” he told Sullivan.

In most of our business negotiations, we try to drive a hard bargain, giving away not a penny more than is necessary even as we strive to ensure that our counterpart is satisfied with her own outcome.

By contrast, like Booth—now the namesake of the University of Chicago’s Booth School of Business—many of us fail to negotiate the gifts we give on behalf of ourselves or our organizations. We might fail to frame a gift as a negotiation for various reasons. Maybe, like Booth, we view a donation as repayment of a debt and thus hardly a gift at all. Perhaps we think that attaching strings to a gift would undermine our honorable intentions and the thrill of doing good. We might be fearful of seeming tacky, calculating, or even cheap.

Though a spirit of open giving makes sense when it comes to birthday presents and acts of kindness in our personal lives, it is often a mistake in the business realm. When we fail to negotiate the terms of our gifts, we typically leave value on the table. Even if we don’t want anything tangible in return, we at least want the reassurance that our donations are being applied wisely and doing good in the world. If we don’t negotiate a gift, we may end up feeling disappointed in the recipient and in ourselves when the gift isn’t appreciated or used as we’d intended.

Here we offer advice on how to negotiate gifts that achieve as much as they possibly can.

What’s up for negotiation?
Gifts come in many forms: charitable donations aimed at helping an organization or individual, bonuses to reward good performance, support that would enhance your (or your organization’s) public profile, and so on.

When you’re thinking about giving a gift, consider the goals underlying your donation. Are you simply trying to do a good deed? Do you want the gift to motivate top performance, to your ultimate benefit? Ideally, how would you like your gift to be used?

Once you’ve identified your goals, you should be able to make a list of the issues you would like to negotiate with your potential beneficiary. Here are just a few to consider:

Offer size and type. How will the size and components of the gift be determined? Are you prepared for the other side to negotiate for a larger gift, or is yours a “take it or leave it” offer? If the party needs more money or resources later on, can they return to you with another request, or is this a one-time-only donation?

Involvement. Consider whether you want to negotiate a contract that stipulates how the recipient can use your gift. You might negotiate to be involved in making decisions about an ongoing project that you will be funding. Be aware, though, that there may be legal and ethical constraints on quid pro quo arrangements. A donor to a college can’t choose what scholar will be granted an endowed chair, for example.

Return on investment. Look for ways to help the recipient make the most of the gift. Because he wanted to minimize the tax burden of his gift on the University of Chicago, for example, Booth decided to give dividend payments rather than shares in his company.

Of course, prior to negotiating a major gift, you will want to discuss the relevant tax, financial, and legal issues with your (or your organization’s) accountant and lawyer.

Making gifts with strings
When meeting with potential recipients, clarify that you view the discussion as the start of a negotiation rather than a mere formality before a check signing. “I’d like to open up a conversation about how we can each benefit from your organization’s continued financial health,” you might say.

Thanks to the norm of reciprocity, you probably won’t have to work hard to convince your counterparts to view giving as a two-way street. Ample psychological research has shown that human beings have an innate, powerful drive to respond in kind to others’ behavior, whether it’s positive or negative. In negotiation, we tend to reciprocate concessions, threats, emotions, and information sharing. Therefore, don’t be surprised if your recipient offers you rewards for your gift without even being asked, as the University of Chicago did when Booth made his offer.

Reciprocation isn’t a sure thing, though, so prepare to negotiate your gift assertively, and don’t feel guilty about attaching strings. You have a right to put in place mechanisms that increase the odds that you will both be satisfied with the transaction.

“Gifts with strings” are common in the corporate world. In 2010, for example, Millard “Mickey” Drexler, the chairman and CEO of J.Crew, offered the retailer’s creative director, Jenna Lyons, a $1 million bonus with significant strings attached. If Lyons left within two years, she’d have to repay the bonus in full; if she left between two and four years later, she’d have to repay half of it. Presumably due in part to such rewards, Lyons is still the company’s creative director, and she and Drexler are said to have a close and trusting work relationship.

Meeting their needs
Discussing ways to meet your requirements for the gift is only one side of the negotiation. You should also prepare to question the other party about his or her interests in the gift.

Consider this story from Harvard Business School professor Deepak Malhotra. Some years ago, a group of managers got together and decided to surprise one of the firm’s administrative assistants with a promotion. The woman, Doris, had worked for the firm for 30 years and was planning to retire in a few years. The managers wanted to celebrate and reward her excellent service to the firm, but the budget didn’t allow for a higher salary. The promotion was essentially a symbolic gesture that wouldn’t change Doris’s pay or responsibilities but would give her greater prestige.

Doris was initially delighted and grateful for the promotion. At first, she didn’t mind that it wasn’t accompanied by a pay upgrade. But when she realized that she had become the lowest-paid employee among those with her new title, she was deeply offended. She asked for a raise and was turned down. Doris ultimately decided to quit the firm—accepting a hit to her retirement benefits in the process—rather than continue to be mistreated.

As this story suggests, gifts are more likely to backfire when they are given unilaterally rather than being negotiated. Surprises can be nice, but be aware that fairness concerns and other intangible qualities can powerfully affect how recipients react to gifts. The managers might have better rewarded Doris for her years of service by asking her up front about what she valued and how she would like to be recognized.

In our own negotiations, we should aim to give something that is truly wanted. By negotiating with the recipient, we can ensure that the joy of giving works both ways.

“Brother, can you spare a dime?”

What should you consider when asking someone for a donation? Here are a few pieces of advice for approaching other parties with hand outstretched:

  • Build relationships slowly. People who know us well will be much more ready to negotiate a gift with us than people we’ve just met. For this reason, it pays to cultivate relationships with those we may want to ask for help down the line.
  • Identify their needs. As you get to know potential donors, ask questions to identify what they value most and then look for inexpensive ways to help them get more of what they want. For example, a donor might value naming rights, publicity, or a gift given in a loved one’s honor.
  • Follow up. Don’t just take the money and run. To help donors feel invested and appreciated, keep them in the loop about the progress of projects they’ve helped to fund. Asking them for feedback can help you correct course as needed.

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