Negotiate
Naked
The
Naked Truth about Full Disclosure in Negotiations
By Jeffrey Hansler,
CSP
It’s a
dog-eat-dog world out there negotiating in the business
world. One important lesson is that if you want to survive,
you’ve got to protect your underbelly – according to
some people.
Regarding
the recent events at Enron and WorldCom, there are
multitudes of corporate executives and Wall Street brokers
that believe – if they’d only been able to keep the
information private, they might have been able to do some
damage control. These individuals could even cite the
financial troubles of Orange County a few years back – if
the public hadn’t found out about risky investments and
the county had held their financial positions they’d have
made money instead of declaring bankruptcy.
So
what is the truth about full disclosure and it’s impact on
business situations, legal matters, and negotiations. Should
you protect your underbelly or fully disclose your position
when negotiating in business situations?
What
we’re referring to here is the value of information
(disclosed and undisclosed) and it’s impact on the
decisions organizations and individuals make. Coming
to an agreement ultimately requires a decision between two
parties – a decision that each feels is the best decision
they can attain at that moment. These decisions are
based on melding information into a plan that affects the
health of the individual or organization.
Despite
today’s plethora of information, the bottom-line hasn’t
changed; we always suspect that individuals and
organizations have information they are not sharing. So what
impact does this have on the decision-making process?
While
parties may be willing to accept responsibility for a lack
of understanding and ability, they are unwilling to accept
responsibility for a lack of disclosure. According to Robert
B. Wilson, Adams Distinguished Professor of Management at
the Stanford Business School, full disclosure is a key
ingredient to bringing about agreement and establishing a
bond of trust.
Mr.
Wilson states that a resolution to a dispute will not be
reached until both parties have enough credible information
to make a decision that supports their position,
“Informational disparities must be reduced to reach this
point.” To build trust in the world, full disclosure must
become part of your plan.
The
problem, Mr. Wilson explains, is that full disclosure is not
enough. People have come to suspect that it is natural to
withhold information. Mr. Wilson cites as an example of the
limitations in full disclosure by the statement “these are
copies of all the documents in my files relevant to this
suit”. This statement raises the issue of credibility
because only an exhaustive search of the files can verify
(if verification is possible within economic reality) the
truth of such a claim.
Mr.
Wilson’s position is that actions that signal credibly
have an equally important role in reaching a decision.
“Credible signaling of information that cannot be verified
is required to avoid negotiations taking a more costly
course on their journey to settlement – if settlement is
ever reached”, states Mr. Wilson.
As
part of his research, Mr. Wilson states that two actions
that signal credibly in a wage dispute are patience for a
settlement, and a willingness to bear short-term costs for
long-term gains. Long intervals between offers during
negotiations signal patience. Enduring financial hardship in
the near-term during these intervals signal a willingness to
bear short-term costs. Compounding these two actions with
significant penalties for rejecting an offer provides a
strong negotiating position based on credible signaling.
It
is in your best interest to use both full disclosure and
signal credibility to dispel any possibility that you are
faking a position for your own gain – especially in
today’s environment. Do actions taken support the stated
position beyond possible doubt the position is imitated for
a strategic advantage?
Historical
data (documents, financials, testimonials, installations,
customer experiences) provides the information used to
create predicative models. The interpretation of the data is
a gray area subject to discussion, inference, and
disagreement, which leads to the uncertainty of the
decision. This is where signaling comes in: Is the
story being told and the way it is being told something that
can be relied on as assessment of the risk is considered.
Conclusion:
Providing a reliable picture through full disclosure and
signaling of the opportunity cost of doing business under
the terms of the agreement is the best situation for all.
Reference: Robert
Wilson, "Signaling in Negotiations," in: Richard
Zeckhauser, Ralph Keeney, and James Sebenius (eds.), Wise
Choices: Games, Decisions, and Negotiations, 1996,
Chapter 22, pp. 400-413. Boston MA: Harvard Business School
Press.
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Jeffrey
Hansler is a professional speaker, author, and consultant.
He is a frequent speaker at association events and is the
author of Sell Little Red Hen! Sell! He can be reached at jhansler@oxfordco.com.
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©
2004 Jeffrey Hansler All rights reserved
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