Does the cut and thrust of deal-making offend your professional sensibilities? Don't fret, ethical negotiation isn't a contradiction in terms.
Some people, particularly those trained in quantitative disciplines, are suspicious of negotiation. This is especially true in professions that espouse high standards of ethical behaviour and in organisations where the ethos is unsympathetic to compromise and flexibility. Some people find haggling over money or other outcomes distasteful, while others see the need to conceal their true objectives as deception. This belief that successful negotiation requires you to operate on the edge of dishonesty has sometimes given the art a bad name.
But it is both possible and preferable to conduct negotiations of all types within an acceptable ethical framework and without compromising the principles of the most scrupulous organisation. Of course there are plenty of scoundrels who will do or say anything to get the result they want, but a few bad examples should not be allowed to undermine faith in a valuable and useful skill.
Let's look at the first issue of deception. In negotiations, there are two types: legitimate and illegitimate. As long as the parties to a negotiation understand that they are negotiating and are not, for example, being offered professional advice, they will also know that they are neither obliged nor indeed expected to disclose their preferred outcome at the start of the process. This is the legitimate type of deception. They will also probably believe that there's a result that will benefit both parties - the potential deal that's unknown for the time being but will be revealed during the negotiation process. Illegitimate deceptions include making false claims, telling lies and failing to respond fully and accurately to enquiries.
The problem lies in the potential grey area between these two clear points of reference. Is it legitimate, for example, to conceal an issue that might weaken your position if the other party hasn't asked you a direct question about it? Does your obligation to deal decently with all parties extend to those with whom there will be only one transaction? And where does the obligation to the principal stakeholders in an organisation sit with all these issues?
The usual way to handling this is to set out clear terms of engagement for the negotiation.
Among other things, the terms of engagement should state clearly:
- The various rules covering the conduct of the talks and the recording of what has been agreed and what issues remain outstanding.
- That both sides are entitled to keep their negotiating strategies secret.
- The extent to which the information exchanged is confidential.
- That both sides will have the chance to inspect relevant documents and other information under the terms of a data-room protocol.
- That whatever is said in formal negotiation sessions may be recorded.
- That all enquiries will be answered honestly or not at all.
- That any failure to comply with the terms of engagement will be legitimate grounds for the suspension or cancellation of talks.
If both sides agree to these beforehand, it will allow the negotiation to proceed on an ethical basis as long as everyone observes them. It is often appropriate to have the terms signed off by someone at least one level higher than the lead negotiators in each organisation. These two people can then act as arbitrators in the event of a deadlock or complaint.
Both negotiating teams need to understand clearly what their obligations are under these terms of engagement and it should be an explicit responsibility of the lead negotiator to ensure that all team members understand and apply them. Sufficient time should be allocated early in the process to allow any problems with the terms of engagement to be discussed. It is often useful to enact some role-playing situations in which these rules are likely to come under pressure.
Other aspects of team preparation are also important. One issue is to decide how the team will operate - for example, who will participate in the main talks and who will be held in reserve when specific topics arise. The solution chosen will depend on the team members' personalities and how they interact. While a specialist may find it frustrating to sit through a number of sessions for which his expertise isn't relevant, it may be important for him to be there in order to put his eventual contribution into context. Equally, there are those whose specialist knowledge is essential to the process but who cannot be trusted to sit quietly and wait for the lead negotiator to invite their contribution. This can be a problem if they don't really subscribe to the ethical framework or cannot resist punishing perceived weaknesses on the other side. The team leader needs to know these people well and should decide whether they attend or not on a pragmatic basis.
Some teams find it helpful to have a non-participating observer present at all sessions. The observer can play a number of useful roles apart from note-taking, including watching the other side for non-verbal signals and ensuring that his own team sticks to its brief and the terms of engagement. He should be encouraged to be frank about what he sees, even if it means criticising the team leader's negotiation style. For example, if the leader is abrupt and impatient, it can result either in unnecessary concessions or in a failure to let the other side agree something by interrupting them. One potential problem to note with observers is their tendency to think that negotiating is easier than it really is, given that they watch it rather than participating in it.
Although the finance representative on the team should be an active participant and not the observer, the responsibility for the governance of the negotiation will often fall to that person. Even where this duty is not made explicit, it may well be understood that this is an extension of the more general governance role of finance. In this way, the senior finance professional in the team, whether formally bound by a professional code or not, should ensure that the team operates ethically and behaves appropriately. Such a role requires softer skills that haven't always been associated with the accounting profession, so it may be a considerable challenge to acquire and maintain these abilities.
In many companies negotiations are occurring all the time and not only at the traditional customer-supplier interface - for example, collective pay bargaining with trade unions. Since they may not always occur in a formal setting and with adequate notice, it is important that an organisation has an ethically sound framework for this activity that's ready for use when the need arises.
This article is contributed by CIMA (The Chartered Institute of Management Accountants) and it first appeared in Financial Management, CIMA's monthly magazine for its members.
