Adapted from “Great Deal—But How Will It Play at the Office?” by Jeswald W. Salacuse (professor, Tufts University), first published in the Negotiation newsletter, October 2006.
To close any deal, you not only have to reach agreement with the other side but also convince your own organization of the deal’s value. In fact, you may need to conduct several distinct negotiations within your organization to persuade various departments—such as the finance division, the general counsel’s office, and the product development unit—to sign off on your negotiated transactions.
To negotiate on behalf of others, you need a mandate from them—an authorization to act on their behalf. That mandate might include the legal authority to sign a contract. More often, however, it will take the form of instructions about the kinds of deals you may explore and perhaps tentatively agree to at the bargaining table.
In most major deals, such as mergers, joint ventures, or direct foreign investments, both sides understand at the outset that their agreements will not be binding until approved by their respective companies. Yet a broad mandate may nonetheless empower the negotiators to assure each other that their agreement has a strong likelihood of acceptance back home.
Your mandate is crucial to your ability to negotiate for two important reasons. First, knowledge of your mandate leads the other side to deal with you seriously as a representative of your organization—someone who can deliver the goods. Second, the existence of a mandate gives you confidence that you can persuade your own organization to accept your negotiated deal.
Just because your CEO told you to negotiate a deal doesn’t mean that your mandate is automatically strong. You’ll secure such a mandate only after conducting internal negotiations with all necessary company departments. For example, to develop a mandate for its executives to negotiate the construction of a power plant in India, a U.S. energy company needed to conduct negotiations with various internal departments—finance, engineering, and legal, among others—to arrive at a common position on factors such as the minimum acceptable rate of return, the nature of required legal guarantees, and the types of technology to be transferred.
When you are shaping a mandate, your own expertise can help you guide the formulation of your authority and instructions. “How much do you think we can get?” your finance officer might ask you. You may have to deflate his stated demands by referring to prevailing industry standards. Suppose the energy company’s CEO instructed a negotiator to obtain a minimum rate of return of 30% on the Indian power plant. Citing precedents, the negotiator might warn that this extreme demand not only would be rejected quickly but also permanently sour the company’s relations with the Indian government.