Adapted from “Negotiation Coach: A Failure to Communicate,” first published in the August 2010 issue of Negotiation.
The following question was posed to negotiation coach and Program on Negotiation faculty member Max H. Bazerman in our August 2010 issue of Negotiation:
I’ve just finished reading the recent book No One Would Listen: A True Financial Thriller (Wiley, 2010) by Harry Markopolos, the whistle-blower in the Bernard Madoff
scandal. Why do you think Markopolos was so ineffective at persuading the Securities and Exchange Commission (SEC) that Madoff was a fraud? What does this story tell us about how to be persuasive in negotiation more generally?
I read Markopolos’s book, too, and I found it to be stunning. I’ve also read quite carefully the publicly available documentation of his investigation that he provided, and I agree with his core conclusions.
It’s crystal clear that Markopolos, an independent financial fraud investigator, recognized Madoff’s Ponzi scheme many years before it collapsed; that he provided damning evidence to the SEC on multiple occasions; and that if the SEC had paid attention to him, billions of investor dollars could have been saved.
The book exposed a great deal of incompetence at the SEC, the government agency that was set up to protect investors.
But you’re asking how someone could have been so effective at identifying the Ponzi scheme yet so ineffective at motivating others to act.
Markopolos ignored some key communications issues, and that may have kept him from succeeding.
First, the investment world of hedge funds and market timing is complex, and there were many people who wanted to believe that Madoff’s returns were real.
It’s easier for people to hold positive illusions in the presence of such complexity than to be skeptical.
Moreover, the SEC personnel Markopolos spoke to may have lacked the financial expertise needed to see through this complexity.
Unfortunately, Markopolos’s presentation to the SEC was also complex.
He should have opened his presentation to the SEC with an executive summary that emphasized the “smoking gun”—the simplest evidence available that Madoff’s returns were not possible.
This focus on simplicity likely would have motivated SEC personnel to enlist experts
to examine the more complicated pieces of the puzzle.
Instead, Markopolos embedded obvious data in an overwhelmingly confusing laundry list of evidence of Madoff’s fraud.
Second, Markopolos’s fascinating book makes it quite clear that he viewed his skills in a very positive light, felt contemptuous of SEC personnel, and failed to take their perspective.
When others didn’t understand or appreciate him, he denigrated them.
In any negotiation, thinking about the situation from the other side’s perspective is critical.
If Markopolos had considered the SEC staffers’ point of view more thoughtfully, he may have had the insight to craft his dealings with them in a more effective manner.
Finally, Markopolos’s book also reveals that he was focused on receiving financial benefits for his discovery.
There are good reasons for the U.S. government to consider rewarding whistle-blowers financially.
But consider how Markopolos came across to the SEC: in a condescending and complicated presentation, he claimed Madoff was a crook and asked for a reward for discovering the evidence.
It appears Markopolos was insensitive to how others would view his motives; indeed, he admits that key SEC actors didn’t like him.
In negotiation, we need to consider how our motives and others’ perceptions of them will affect our persuasion efforts.
Overall, we should celebrate those who have the insights needed to identify fraud.
On this front, Markopolos is a hero.
But if our ideas are only as powerful as our ability to communicate them to others, on this front, Markopolos was part of the problem.