Dealmaking: Beyond Collusion – How to Include Outsiders in Your Deal in Business Negotiations

By on / Conflict Resolution

Adapted from “Giving Outsiders a Voice in Your Negotiation,” first published in the June 2012 issue of Negotiation.

Beyond collusion

The issue of bidder collusion raises a larger question for negotiators: What ethical responsibility do we have to those who aren’t seated at the table with us?

Harvard Business School professor Max H. Bazerman uses the term “parasitic value creation” to describe the common tendency of negotiators to focus so narrowly on identifying benefits for those at the bargaining table that they overlook potential negative effects of their decisions on outsiders. Collusion is just one type of parasitic value creation; cheating and theft are others.

Compounding this problem, unethical negotiating behavior can be difficult for outsiders to detect. In their book Blind Spots: Why We Fail to Do What’s Right and What to Do About It (Princeton University Press, 2011), Bazerman and University of Notre Dame professor Ann E. Tenbrunsel describe how the pharmaceutical firm Merck sold off two slow-selling but effective cancer drugs to Ovation, a smaller pharmaceutical firm. After the sale, Merck continued to manufacture the drugs for Ovation on a contract basis, and Ovation raised the drugs’ prices dramatically—by at least tenfold.

What was the motivation behind this unusual agreement? If the drugs were unprofitable at their current cost, why didn’t Merck simply raise their prices rather than selling them?

The answer appears to be that the sale benefited both companies financially while sparing Merck the negative publicity that could come from significantly raising the prices of two cancer drugs.

As it turns out, Ovation has a history of buying slow-selling drugs from larger firms and then upping the drugs’ prices.

Regardless of whether the price increase was justified, many would agree that hiding it through a sale is an ethically questionable practice.

However, we typically fail to notice or condemn such subtle tactics when confronted with them. In one experiment that modeled the Merck-Ovation story, Bazerman and his Harvard colleagues Neeru Paharia, Karim S. Kassam, and Joshua D. Greene found that participants were more forgiving of an indirect yet unethical price increase that followed (and thus was concealed by) a sale than they were of a direct price increase, even though the indirect price increase was much higher than the direct increase. When another group of participants had a chance to compare the two scenarios, however, they were able to see the indirect price increase as ethically problematic.

How to include outsiders in your deal

The research we’ve just described suggests that unethical behavior can be difficult for others to detect. All the more reason, then, for us to be vigilant about making moral decisions during our negotiations.

Unfortunately, that can be easier said than done. Bazerman, Tenbrunsel, and colleagues have found that much of our unethical behavior—in negotiations and in other realms—occurs without conscious awareness. Believing we adhere to high moral standards, we nonetheless end up shading the truth, hiding important information, or harming those who aren’t at the negotiating table.

Aspects of our work lives, including goals, incentives, and social norms, can cause the ethical dimensions of a decision to fade from our minds.

In negotiation, how can you be sure that you adequately account for the effects of your agreement on interested outside parties? Try following these three guidelines:

1. Broaden your perspective.

When preparing to negotiate, and then throughout the negotiation process itself, take time to consider how various proposals and outcomes could affect not only you and your counterparts across the table but also your competitors, your customers, your industry, and society at large. This doesn’t mean that you should abandon a deal if it would harm anyone at all. Rather, assess whether your agreement would achieve a net increase in value to society. If it would, says Bazerman, you generally should feel good about inking the deal.

2. Seek wise counsel.

Don’t assume that your own understanding of the law or your counterpart’s assurances will keep you out of legal hot water. Instead, communicate with your attorney(s) throughout the deal-drafting process. Share the motivations behind your business decisions, and ask for clarification of the relevant laws and regulations. If your legal counsel’s advice seems incomplete or vague, get a second opinion. To guarantee that your behavior is ethical as well as legal, ask one or more trusted advisers who are removed from the situation for their opinion.

3. Question your organization’s culture.

Because it can be difficult to recognize when our behavior violates our moral code, unethical behavior is often more effectively addressed at the organizational level than at the individual level. As a manager, hold the negotiators who report to you responsible for ensuring that their actions create overall net value and adhere to the ethical principles of your organization, industry, and profession.

Related Article: Dealmaking Negotiations – How to Build Trust at the Bargaining Table


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