When negotiators discriminate based on race

By on / Leadership Skills

Both implicit and explicit bias can disadvantage racial minorities at the bargaining table. Here’s what to do about it.

On July 14, 2015, American Honda Finance Corporation (AHFC), the U.S. financing division of Japanese car manufacturer Honda, agreed to refund $24 million to minority borrowers to settle federal investigations. AHFC was alleged to have racially discriminated against the borrowers in negotiations over their auto loans, as reported by the Los Angeles Times. Due to pricing policies in place from 2011 through mid-2015, AHFC gave dealerships (where most AHFC loans are negotiated) permission to “mark up” the interest rates they received from banks and other lenders on individual loans by up to 2.25 percentage points. For example, a dealer could mark up a 2% interest-rate quote from a bank to 4.25% without telling the borrower about the markup. Relative to white borrowers with similar credit histories, African Americans, on average, paid more than $250 in additional borrowing costs over the duration of their loans, according to the U.S. Justice Department. Latinos paid more than $200 in added costs, and Asian and Pacific Islanders paid more than $150 extra.

Although it didn’t admit to wrongdoing, in addition to refunding the borrowers, AHFC agreed to limit dealer markups to 1.25 percentage points for loans of five years or less and 1 percentage point for longer-term loans.

The Honda story reflects what researchers have found in the lab: the discrimination that racial minorities sometimes face in society can extend to their negotiations. This discrimination can be blatant, in the case of outright bigotry and racist policies, but more often it is subtle and difficult to detect. In fact, negotiators who discriminate often do so unconsciously, with no awareness that their implicit biases are harming others, psychological research shows. In this article, we look at what we know about racial discrimination in negotiation and suggest ways to prevent it from affecting our own deals—whether we are in the minority or the majority.

Racial bias in buyer-seller negotiations

In business settings, negotiators have clear moral and legal incentives to treat people equally and avoid even the appearance of racism, yet research suggests that minorities face discrimination at the bargaining table nonetheless.

In a well-known 1995 study, Yale University professor Ian Ayres trained 36 participants—some African American, some Caucasian; some male, some female—to negotiate in a similar manner for a new car. The participants then made more than 400 visits to 200 car dealerships in the Chicago area and negotiated the purchase price of a new car, following (unbeknown to the salespeople) a predetermined script. The results showed that the car dealers made significantly higher offers to African American and female buyers at both the beginning and the end of these negotiations. Ayres speculated that dealers stereotyped African Americans and women as being less knowledgeable or skilled bargainers than white males, and thus more willing to accept higher prices and less likely to negotiate concessions.

In a 2015 study, racial minorities even faced discrimination in eBay auctions, Ayres, Christine Jolls of Yale Law School, and Mahzarin R. Banaji of Harvard University found. The researchers posted pictures of baseball cards being held by either a light-skinned hand or a dark-skinned hand. Cards held by a seller who appeared to be African American sold for about 20% less than cards held by a seller who appeared to be Caucasian—though the cards held by the African American actually were more valuable overall. Because bidders were competing against not only the seller but also other bidders for the best price, the results suggest that in addition to being biased themselves, bidders may have expected others to be racially biased.
Similarly, in a 2015 study, people renting their homes on the website Airbnb (“hosts”) discriminated against would-be “guests” they believed to be African American. Harvard Business School researchers Benjamin G. Edelman, Michael Luca, and Daniel Svirsky sent messages to 6,400 hosts in five U.S. cities under names that signaled that the guest was either African American or Caucasian; guests’ profiles were otherwise identical and did not include photos. Hosts were 8% more likely to accept queries from guests with Caucasian-seeming names than guests with African American–seeming names. With the exception of African American females, who did not discriminate against other African American females, both African American and Caucasian hosts discriminated against African Americans.

“Ordinary prejudice”

In some cases, members of racial minorities may suffer in negotiations because they are dealing with bigots who are hostile to them because of their race. But evidence suggests that subconscious and unintentional racism is a far more common source of discrimination. Psychologists call such bias ordinary prejudice because it is widespread and arises from the ordinary processes of thought and perception.

If you believe you are immune to ordinary prejudice, visit the website http://implicit.harvard.edu/implicit and take one of the Implicit Association Tests you will find there. IAT tests—designed by researchers Anthony G. Greenwald of the University of Washington, Banaji of Harvard, and Brian A. Nosek of the University of Virginia—require us to make split-second judgments that are believed to reveal our subconscious attitudes about different categories of people, such as black or white, Republican or Democrat, young or old, and so on. Test takers, including minorities to some degree, have consistently shown a preference toward whites and a bias against racial minorities. Most people, for example, have more difficulty categorizing the word good with a black face than with a white face.

In addition, virtually all human beings tend to favor people who remind them of themselves, in terms of race, gender, religion, and so on. Due to this in-group favoritism, we may find ourselves recommending friends for jobs, writing letters of reference for neighbors’ children, and so on.

Such favors may seem benign, yet we tend to overlook the fact that they disadvantage those who are not like us, write Harvard Business School professor Max H. Bazerman and University of Notre Dame professor Ann E. Tenbrunsel in their book Blind Spots: Why We Fail to Do What’s Right and What to Do about It (Princeton University Press, 2011). The upper ranks of organizations tend to be dominated by whites, who are more likely to request favors for other whites. Often without conscious intention, whites end up perpetuating inequality and excluding racial minorities.

Racial bias in hiring and pay

In the United States, it is illegal for employers to discriminate based on race, yet researchers have found evidence of racially biased hiring practices. In a 2004 study, researchers Marianne Bertrand (University of Chicago) and Sendhil Mullainathan (Harvard University) sent out nearly 5,000 résumés in response to 1,300 help-wanted ads in Chicago and Boston newspapers for sales, administrative support, clerical, and customer service jobs at different levels. Half of the applicants were given white-sounding names (such as Emily Walsh or Greg Baker); the other half had African American–sounding names (such as Lakisha Washington or Jamal Jones). Across the industries and occupations studied, résumés for those with white-sounding names received 50% more callbacks than identical résumés for those with African American–sounding names. Having a white-sounding name provided an advantage equivalent to having eight more years of experience.

When minorities do manage to get a job interview and an offer, evidence suggests that they are paid less than whites to do the same job. In a 2000 study, researchers Marc-David L. Seidel and Katherine J. Stewart of the University of Texas at Austin and Jeffrey T. Polzer of Harvard Business School analyzed the outcomes of more than 3,000 actual starting-salary negotiations at a U.S. high-tech company from 1985 to 1995. They found that, on average, members of racial minority groups negotiated significantly lower salary increases from the hiring managers’ initial offers than whites.

Debiasing negotiations in your organization

Overall, research and survey data suggest that racial discrimination remains pervasive, if largely unintentional, across various types of business and professional negotiations. Fortunately, there are steps we can take in our organizations to promote more egalitarian negotiations.

1. Support rational decision making. Our intuitions and snap judgments tend to be more reliant on stereotypes and more biased than our more reasoned thought processes, psychological research has found. For this reason, dealmakers in your organization need ample time to negotiate and clearly reason through their decisions. You might also require them to justify their decision-making processes before making significant commitments. Finally, educate negotiators in your organization about unconscious bias and how it may be affecting their judgment.

2. Audit negotiation policies. When Honda’s financing arm allowed dealers to negotiate high loan markups, it likely did not anticipate that the policy would lead to the type of racial discrimination alleged by the U.S. government. Similarly, you may find in your own organization that certain practices are unwittingly encouraging bias against certain groups. Trace backward from undesired negotiation results to identify potential flaws in the system.

3. Improve information access. In the salary-negotiation study by Seidel and colleagues described earlier, minorities who had been referred to the high-tech company by a friend who worked there (rather than hearing about the job from an ad, a recruiter, etc.) achieved salary increases similar to those of whites. In addition to predisposing hiring managers to view applicants favorably, strong social ties may have given the applicants valuable information about the parameters of their salary negotiations, the researchers theorize. Notably, however, minority applicants were less likely than white applicants to have connected with the organization through such social ties. The findings underscore the importance of giving job applicants equal access to information that could give them an edge—for example, by posting salary parameters online.

4. Encourage joint comparisons. In a 2015 study, Harvard University researchers Iris Bohnet, Alexandra van Geen, and Max Bazerman uncovered a specific way to “nudge” negotiators toward less-biased decisions. They found that study participants playing the role of an employer were less likely to fall back on gender stereotypes when comparing a female and a male employee for a job assignment than when evaluating female and male employees one by one. This type of joint comparison appeared to enable the employers to look beyond stereotypes and focus on the employees’ past performance. In a similar manner, encouraging managers to evaluate pairs or small numbers of candidates for promotion, rather than considering candidates individually, may result in decisions that are less racially biased.

5. Increase diversity. The more we interact with people who are different from us, the less we rely on stereotypes. Thus, by taking concrete steps to reduce hiring discrimination in your organization, you can achieve a more diverse workforce and consequently promote more egalitarian negotiating behavior. For example, you might anonymize applications to prevent decision makers from discriminating against minorities during the screening process.

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