Having the leadership skills to identify shared interests and identify the best different leadership styles to build them into an agreement often gets both sides to deliver on the terms of a deal.
Burdened by years of nonstop acquisitions, an increasing number of tech companies are finding out that it can be better to do one thing well than to try to offer as many services as possible. Splitting up a company that has taken on too much, however, takes expert leadership skills. eBay CEO John Donahoe showed how it can be done when he negotiated eBay’s split from its subsidiary, the online payment service PayPal back in 2014.
The Challenges of Breaking Up a Company
Mergers happen all the time, but as reported in The Economist, successful corporate breakups are uncommon. The reasons are straightforward. Small problems pop up in any negotiation, but when two companies are merging, they can usually fix them over time. In a split, the parties are deeply intertwined from the start and separating them is both costly and complex. Once the deal is done, they go their separate ways whether problems persist or not. Most importantly, this kind of breakup presents unique challenges because it requires a company to negotiate a split from itself.
Leadership Styles in a One-Sided Negotiation
In many negotiations, people lose sight of the fact that some of the most important moves take place away from the table. For that reason, taking the steps to clean up your own side in any two-party negotiation requires strong leadership skills. For anyone in doubt, a negotiation that takes place completely in-house—like the eBay-PayPal divorce—shows just how important it is to manage your own team in a negotiation.
Any negotiator facing a deal where they want to thrive for years to come can evaluate this one-sided negotiation as way of understanding what leadership styles are needed to get your own side to support a good deal.
Good Ideas Need Good Timing
When eBay CEO John Donahoe first announced that eBay and PayPal would split, he shocked many in Silicon Valley. For much of the previous year, Donahoe had steadfastly resisted calls from billionaire investor and eBay shareholder Carl Icahn to split the two companies. The two ultimately reached a truce, but many believed that their agreement would keep the company whole. Instead, Donahoe announced the split just a few months later. Reflecting on his reversal in an interview with Fortune last month, Donahoe explained that the split was the result of a long-term planning process that eBay has undertaken for years.
Donahoe explained that the reasons for a decision of such magnitude have to be motivated by long-term interests. This holds true in nearly any negotiation. Appealing to long-term interests is a far more convincing way to retain and expand value than basing decisions based on short-term interests. By timing his decision to align with interests that resulted from a planning process, Donahoe was showed investors, employees, and business partners, that he possessed the leadership skills to make the right decision for the right reasons at the right time. He may not have had their support if he had arrived at the exact same decision just a few months earlier in response to calls from an angry investor.
Shared Interests Ensure Good Implementation
EBay is an online auction company. When it acquired PayPal for $1.5 billion in 2002, it seemed like a good idea for a company of its kind to own a company that made online transactions easier. Now, both companies are far larger. PayPal is worth an estimated $47 billion, and eBay is worth approximately $34 billion. When so much money is on the line, it can be easy to want to get a deal quickly in order to enhance your own position, but in the process negotiators often fail to value what they have and end up destabilizing their own side.
For eBay, the urge to split was tempered by the recognition that even though both companies should go their separate ways, they also continue to have shared interests where they can create future value for one another. PayPal can always use the processing fees that come from a partnership with a lucrative online marketplace, and eBay will continue to need someone to process those payments in a streamlined manner. Instead of rushing to make a clean break, Donahoe’s teams forged a multi-year agreement where over two-thirds of all eBay sales will be processed by PayPal. This long-term commercial agreement undoubtedly contributed to the orderly and successful separation of a vastly large corporate structure, when it could otherwise have gone quite badly.
Consult Your Own Side Widely With a Clear Message
Noticeably absent from the eBay-PayPal split is any significant rancor from powerful stakeholders. In his interview with Fortune, Donahoe explained why. Borne of long-term planning, the proposal to split the company was presented to the board of directors, and subject to the judgment of eBay founder and Board President Pierre Omidyar. Coming on the heels of the Icahn debacle, the proposal could have ended right there, but Donahoe felt clear consultation with the board was necessary and explained why it succeeded.
“We had a strong commitment to do the right thing for our company,” he said.
“You can’t worry about how others speculate about it from the sidelines,” It can seem daunting to consult all of the stakeholders on one’s own side before moving forward, but as Donahoe’s recollection suggests, doing so can help you convey a clear message. By doing both, Donahoe’s leadership skills got him a deal with the weight of his board behind him. Certain leadership styles create value.
What else would you like to know about leadership styles? Leave a comment.
Originally published in 2015.