“Never do business with friends,” the adage goes. But should you always stay away from an opportunity to negotiate with friends and family? A strict policy of keeping friends and family members out of our business lives would be impractical, and it could cause us to pass up potentially valuable negotiating opportunities.
What special issues do friends and family members face when involved in negotiations together? How can they reduce the cons and capitalize on the pros? Here we examine three common types of dealings with love ones – conducting business transactions with them, negotiating special favors on their behalf, and negotiating the end of a business partnership – and suggest how you can protect the relationship and get a good deal.
Three Negotiation Situations Negotiators May Encounter When Dealing with Friends and Family
Negotiation Situation 1: Business Transactions
Have you ever negotiated the price of an item or service with a friend or relative, such as a used car or the creation of a website? If so, how did it turn out? Now think about what would have happened if you had negotiated with a stranger instead.
Do you think the final price would have been better or worse for you? We’re guessing you might have pushed harder for a better deal for yourself when negotiating with a stranger.
Business transactions between friends or family members can be fraught. Close ties are generally founded on the expectation that we’ll look out for each other’s welfare and not “keep score.” In business relationships, by contrast, we expect to be compensated based on how much effort, time, and money we expend. Negotiators are likely to experience a clash between these two sets of norms when doing business with loved ones.
On the plus side, close bonds between negotiators seem to reduce dysfunctional competition and improve the exchange of information. Yet some research has found that we reach less satisfying and creative deals with friends than we do with strangers because we’re too willing to compromise with our friends.
In addition, rather than dividing a pie of resources based on merit, friends tend to allocate equal shares to everyone involved – often an illogical solution (see also, Integrative Bargaining Examples: Expanding the Pie – Integrative versus Distributive Bargaining Negotiation Strategies). The desire to avoid impasse and any sort of conflict that could harm the relationship can result in a subpar negotiated agreement.
In a 2006 study, David R. Mandel, a scholar with Defence Research and Development Canada, found that participants tasked with selling a music CD to a friend asked for less than what the friend was willing to offer. Yet when negotiating to make a purchase from a friend, participants did not try to overpay. It seems that “giving” things to friends (even if we’re being paid) triggers a generosity norm that isn’t present when we’re buying things from them.
What do these findings tell us? To improve the objective quality of your deal when negotiating with a friend, agree in advance that you will rely on the fair market value of an item or service rather than trying to grant each other special favors. Discuss the pitfalls of negotiating together up front. Finally, accept that you might get a better deal by negotiating with a stranger instead.
Negotiation Situation 2: Special Favors
It’s only natural to want to lend a helping hand to friends and family when we have the opportunity to do so. But consider what can happen when the line blurs between kindness and unethical behavior.
Between 2005 and 2009, 800 unqualified applicants were granted admission to the University of Illinois on the basis of their connections to power individuals in the state. In the most notorious case, the university’s president intervened to help secure the admission of an unqualified relative of Antoin “Tony” Rezko, a political fundraiser, on behalf of Illinois’s then governor, Rod Blagojevich. (Both Rezko and Blagojevich have since been convicted on unrelated corruption charges.) The scandal led to high-level resignations and an overhaul of the university’s admissions process. Yet some lawmakers who advocated for these individuals appeared to sincerely believe that they had done nothing wrong.
The University of Illinois scandal illuminates the harm we can cause others when we privilege those close to us in our negotiations and other business dealings. Obviously, for each unqualified applicant who pulled strings to get into the university, there was a qualified applicant who received a rejection letter.
In their book, Blind Spots: Why We Fail to Do What’s Right and What to Do About It (Princeton University Press, 2011), Max H. Bazerman and Ann E. Tenbrunsel present the University of Illinois story as an example of in-group favoritism – the common tendency to give special treatment to those who are similar or close to us, including family members and friends. When we negotiate to help someone close to us gain access to a scarce resource or a select group (such as a job, a bank loan, or a spot on an admissions list), we typically focus on how helpful and nice we are being. Meanwhile, we overlook the fact that our actions could disadvantage less-connected individuals, including underrepresented minorities.
This type of behavior, which Bazerman and Tenbrunsel categorize as unethical, can be flagrant or unintentional. The next time you are tempted to negotiate for special treatment of someone close to you, take a moment to think about whether others, such as members of minority groups, could be harmed by your actions. This type of reflection will help you ensure that your negotiating behavior is in sync with your high ethical standards (see also, 5 Principles of Negotiation to Boost Your Bargaining Skills in Business Situations).
Negotiation Situation 3: Business Breakups
You’ve been doing business with a friend (or spouse, sibling, or child), but now you want out. How can you negotiate the dissolution of your working relationship without ruining your personal relationship?
Here’s a negotiation example drawn from real life:
In 2008, after more than 25 years in business with two of his brothers, Henry Elghanayan decided it was time to dissolve their multibillion-dollar New York City real estate development business and strike out on his own.
Fortunately, the brothers had a blueprint to follow: back in 1989, after negotiating the departure of a fourth brother from the family business, they had devised a plan to handle splits more efficiently.
They put their plan into action in January 2009, and Brother Fred, after winning a mini-auction, earned their right to divide the piles fairly, as he would choose last from among them. Henry won a coin toss that gave him the right to choose first; Tom and Fred followed. Henry continue to swap development sites his brothers until they were all satisfied with the outcome.
The keys to the Elghanayans’ peaceful, financially satisfying resolution? Foresight and careful planning. When starting a business relationship with someone close to you, take the time to discuss the norms, standards, and processes you will use to settle any disputes or significant changes to the business that may arise, advise Harvard Law School professors Frank E.A. Sander and Robert C. Bordone. It can be difficult to raise the possibility of conflict when an exciting new venture is getting off the ground. However, doing so will greatly improve your odds of maintaining a strong personal relationship in the event that you scale back your business dealings.
Adapted from “Friends and family: How close ties affect negotiations,” first published in the March 2012 issue of Negotiation Briefings.