When agreements fall apart

Three recent news stories illustrate how mistakes made during negotiations can compound during the implementation stage— and how you can reach more sustainable deals.

By on / Negotiation Skills

In early June, the New York Times reported that since at least 2010, Facebook has negotiated more than 60 data-sharing partnerships with hardware manufacturers such as Apple and Samsung, as well as four Chinese companies. One of the deals gave access to data on Facebook users to Huawei, a Chinese telecommunications company that U.S. intelligence officials consider to be a national security threat. The user information Facebook shared with its partners includes religious and political views, work and education history, and relationship status.

The news broke just months after the revelation that Facebook exposed data on up to 87 million of its users to Cambridge Analytica, a research firm tied to Donald Trump’s presidential campaign. Appearing before Congress, Facebook CEO Mark Zuckerberg apologized and vowed to do better. He now faces new scrutiny from Congress for failing to disclose the data-sharing deals during his testimony. “Sure looks like Zuckerberg lied to Congress about whether users have ‘complete control’ over who sees our data on Facebook,” David Cicilline, the ranking member of the House Judiciary antitrust subcommittee, tweeted in response to the Times story.

Facebook’s failure to anticipate the criticism its data-sharing deals would attract may seem like an unusual negotiation oversight, as it overlooks important stakeholders, namely Facebook users and Congress. In fact, it’s common for negotiators to miss warning signs that point to bad deals or to make choices that keep agreements from living up to their potential. Taking a closer look at Facebook’s missteps, as well as two other agreements that generated controversy during the implementation stage, we draw broader lessons for negotiators seeking to launch deals that will thrive in the long term.

Ethical fading

Facebook’s deals with device makers involved two of Facebook’s well-specified business goals: generating more mobile users and making inroads in China, where Facebook has been banned since 2009. Facebook negotiators likely were paying less attention to other critical issues, such as the potential for the agreements to compromise user privacy, as well as any negative publicity or punishment that could result from such data sharing.

In his book The Power of Noticing: What the Best Leaders See (Simon & Schuster, 2014), Harvard Business School professor Max H. Bazerman writes that negotiators and other decision makers often focus so narrowly on their immediate goals and tasks that they miss important information that falls outside their field of vision. Bazerman and New York University professor Dolly Chugh call this common tendency bounded awareness.

More specifically, our tendency to focus on narrow financial and business goals in negotiation can contribute to ethical fading, or the tendency for the ethical dimensions of a decision to fade from consideration. Organizational practices can lead us to classify a decision as a “business decision” rather than as an “ethical decision,” according to Notre Dame University professor Ann Tenbrunsel and Kellogg School of Management professor emeritus David Messick. When we fail to recognize the ethical dimensions of our negotiations, we may end up behaving unethically—perhaps without even realizing it.

In particular, business negotiators face the risk of engaging in parasitic value creation, a term Bazerman uses to describe the tendency of negotiators to focus so narrowly on how the parties at the negotiating table would benefit from a deal that they overlook the potential harm the agreement could impose on outsiders.

We don’t know whether the data- sharing built into Facebook’s deals with device makers raised ethical red flags during the negotiations. But given what has emerged recently, it seems quite possible that negotiators minimized or overlooked the ill effects of data sharing on Facebook users, as well as the scrutiny and potential sanctions Facebook could face for sharing the data.

How can business negotiators ensure they include ethical considerations in their decision making? Organizations need to hold their negotiators accountable for weighing ethical considerations as well as financial factors. Our quick, intuitive judgments tend to be both less ethical and less rational than slower, more analytical decision making. For this reason, all parties in a negotiation need time and space to sift through the many implications of a deal—and their organizations must ensure that they do so. In this manner, organizations can avoid unpleasant surprises and accusations once the deal is in effect.

A motivation not to notice

In 2008, Alain Dreyfus, an art dealer in Switzerland, was the winning bidder for an 1889 painting by the landscape impressionist Alfred Sisley in an auction held by Christie’s in New York.

Ten years later, Dreyfus has asked the venerable auction house to return the $338,500 he paid for the painting, titled First Day of Spring in Moret, plus an annual interest rate of 8%, as reported by the New York Times. Why the buyer’s remorse? Dreyfus had come to believe that the painting was stolen from its owner by the Nazis during World War II.

We are far less likely to notice others’ unethical behavior when we have incentives to ignore it.

According to the Toronto-based art recovery company Mondex, a Jewish art collector named Alfred Lindon put the Sisley painting and the rest of his collection in a bank safe before fleeing Paris when the Nazis invaded the city. At one point, Mondex says, the painting was held by Hermann Goering, a Nazi leader involved in art seizures. Mondex tracks down looted artworks and matches them with their heirs in return for a portion of the work’s value, according to the Times. One of Lindon’s heirs recently filed a claim related to the painting in a Paris court. Dreyfus said he was willing to return the painting to Lindon’s heirs after being refunded by Christie’s.

Christie’s says that when it auctioned off the painting in 2008, only four databases that collected information on artworks’ provenance were “available and routinely checked.” The auction house identified a long time period during which the painting’s whereabouts were unknown, 1923 to 1972, but said it had no reason to believe the gap in provenance indicated the painting had been looted. Christie’s has refused to refund Dreyfus for the money spent on the painting and says the matter is now “in a legal process.” Dreyfus and Mondex have argued that Christie’s erred in not consulting directories of looted items that were available at the time.

Whether Christie’s did sufficient due diligence in 2008 is a question for the courts. But the dispute points to another ethical pitfall in negotiation: motivated blindness. Specifically, we are far less likely to notice others’ unethical behavior when we have incentives to ignore it, according to Bazerman, Chugh, and Harvard University professor Mahzarin Banaji. If your counterpart in a negotiation suggests deal terms that would require her to cut ethical corners, for example, you may find yourself downplaying that possibility and focusing only on your potential upside. Similarly, a broker who stands to gain financially from the sale of an item would have a motivation not to dig too deeply if questions of unethical shortcuts or even illegal concealment arise.

Here again, we can make more responsible decisions—and avoid accusations later on—by minimizing distractions that could prevent us from noticing wrongdoing, such as time pressure and fatigue. In addition, organizations need to give their employees incentives to speak up when they encounter suspicious information or behavior.

The perils of close ties

In 2014, the state of New York committed itself to building a state-of-the-art film studio outside the city of Syracuse. The Central New York Film Hub, spearheaded by New York Governor Andrew M. Cuomo and funded by some of his most generous campaign donors, was supposed to create at least 350 technology jobs and attract major filmmaking projects.

But just four years later, the state had given up on the film hub and sold it to a corporation set up by Onondaga County, where it’s located, for just $1, the Times reports. What went wrong? The site failed to attract any high-caliber projects or offer good-paying jobs; instead, it hosted only sporadic film shoots. The facility’s builder, COR Development, scored a lucrative construction contract but eventually sued the state over back rent. COR executives were charged with federal bid rigging, while the producers chosen by the Cuomo administration to anchor the project were wrapped up in legal troubles of their own, the Times found in an investigation.

Ultimately, the state concluded that the hub didn’t fit in well with the state’s other high-tech projects. So why did it invest in an out-of-the-way film hub in the first place? Overconfidence about a project’s long-term success is common in the business world. Unwarranted optimism is compounded when negotiators do business with their close associates, friends, and families. When we choose to do business with those we know well, we have a strong motivation to downplay or ignore their flaws and past transgressions—another example of motivated blindness. In the process, we may overlook business partners who are more qualified or who have a better ethical reputation.

What’s the remedy for these common errors? First, before making a major investment, solicit estimates from unbiased experts of its likelihood of success. Second, cast a wide net when scouting potential investment partners rather than settling for those you know best. Third, when choosing to partner with those close to you, delegate your negotiations to a neutral party who won’t be swayed by personal ties.

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