Bargaining with the Devil Page 2

  On the basis of this cost-benefit analysis, I concluded that Bush would be wise not to negotiate with the Taliban.

  Like most Americans, I saw the September 11 attacks as evil: grievous harm had been intentionally inflicted on innocent victims without adequate justification. I thought the guilty parties should be punished and that further attacks should be deterred. Fortunately for me, my pragmatic analysis led to the same conclusion that my moral intuition did. Both said, “No negotiation,” albeit for different reasons. So my decision about the Taliban was a relatively easy one. The fact that the Taliban regime had condoned an evil act was relevant to me, but not dispositive.

  The harder case is when pragmatic and moral demands conflict. What if your analysis says, “Negotiate,” and your principles suggest it would be wrong? What do you do? How should you go about thinking it through?

  Consider, for example, a business dispute based on real events that could happen to any one of us.7

  You are the founder of a small, privately owned research and development company in Silicon Valley. You recently learned that your joint venture partner, the giant Bikuta Corporation of Japan, has secretly developed a competing product which it is now selling under its own name in the Chinese market. This “new” product is essentially a knockoff of the design you licensed to Bikuta (along with essential know-how) two years ago. There is no doubt in your mind that Bikuta has violated your contract, which provides that Bikuta will manufacture and distribute only your product “worldwide” for five years—and pay you a license fee of 15 percent of sales.

  When you confront Bikuta’s president, he is unremorseful. He says your original design does not “fit” the Chinese market and that Bikuta owes you nothing for Chinese sales. He also wants to renegotiate your 15 percent royalty rate, which he suddenly claims is too high.

  You feel stunned and betrayed. Bikuta thinks nothing of stealing your know-how, ignoring its contractual obligations, and trying to bully you into accepting less than you are due. You are also angry with yourself for being so trusting.

  Any businessperson can identify with this case. The gut says “Do battle!” and “It would be unworthy to negotiate.” But what’s the wise thing to do—financially, morally, rationally? In the face of a bully, do you fight or negotiate?

  The tension between conflicting moral and pragmatic demands is central to each one of the real-life dilemmas I present in this book. By the time you finish reading it, I hope my framework will give you a new and useful way to think not only about Bikuta, but about all those situations in which you will have to decide whether to bargain with the Devil.

  PART I

  Understanding the Challenge

  ONE

  Avoiding Common Traps

  The news about Bikuta is alarming. You have sacrificed the last five years of your life as CEO of ResearchCo., the start-up that you founded. The company is now profitable, but just barely. And you are in a terrible bind. You have licensed your design and know-how for the “FreeFlow,” an implantable arterial stent, to the Bikuta Corporation of Japan. The deal gives that company exclusive rights to manufacture and sell the FreeFlow everywhere in Asia—except China. In exchange, Bikuta was to pay you a license fee of 15 percent of sales. Now you’ve discovered that your so-called partner has essentially cloned your product, renamed it the “EasyFlow” (hardly even changing the name, you note with disgust), and started selling it in China. When you challenged Mr. Bikuta—the founder and CEO—he denied using your intellectual property in making the EasyFlow. You don’t believe it for a moment, and you’re worried about the future of your company. Bikuta Corporation is your most important joint venture partner. What should you do?

  You call the Kramers, your sister and brother-in-law. Evelyn and Fred have a stake: they were the first investors in ResearchCo. and the sixty thousand dollars they put in, combined with your own savings, launched the company and kept it going while you developed a business plan and secured the first rounds of venture financing. Without their help, you’d still be an engineer at Johnson & Johnson. You trust them; they are energetic, loyal, and blunt. And they are a study in contrasts.

  Your older sister Evelyn is warm, optimistic, and savvy about people. After college, she volunteered for the Peace Corps in Guatemala, later earned a Ph.D. in Spanish literature, and now chairs the Spanish department at San Jose State. She is comfortable in her own skin, and a calming presence. She practices yoga and meditates every day. Women find her looks attractive but nonthreatening, and men find her appealing. People are naturally drawn to Evelyn—perhaps because she tends to see the best in them.

  Most people are drawn to Fred, too, but for different reasons. Adventurous and enthusiastic, Fred is a take-charge kind of guy who enjoys being a partisan and relishes competition. A former Marine, he charged through business school and rose through the ranks at Oracle, a large Silicon Valley software company, to become a vice president of sales. He is also a fitness fanatic. He runs daily, tracking his mileage and times as precisely as he tracks the software sales of his team. His passion is rugby—an English form of football, played without pads. Fifteen years ago he started the Silicon Valley Rugby League. Every Saturday morning during the season, with the drive of a Marine drill sergeant leading his men on a twenty-mile run through a swamp, Fred takes his Oracle team into battle, apparently oblivious to the fact that he is now about twenty years older than everyone else on the field. Evelyn thinks he’s crazy—he comes home stiff, sore, and bruised. In their marriage and in his life, he lives by the Corps’ code: Semper Fi. Their marriage works.

  “Bikuta is ripping us off,” you tell Fred and Evelyn as they arrive at your office. “They’re using our technology to manufacture and sell stents in China. When I confronted Mr. Bikuta, he gave me a load of B.S. He claimed that our design wouldn’t work in the Chinese market and that they had developed their product independently, with their own R&D. But we got hold of one of their stents. It’s not identical to the FreeFlow, but our engineers confirmed that it’s based on our know-how. Did they think I wouldn’t find out? That I wouldn’t mind? What kind of sucker does Bikuta think I am?”

  You stand up and begin pacing around the room. “Mr. Bikuta wouldn’t disclose their sales figures in China, and he flatly refused to discuss paying royalties on those sales. Then the bastard had the gall to invite me to come to Japan to negotiate a lower royalty rate on sales of FreeFlow in the rest of Asia! He actually threatened me, saying that if we don’t lower the licensing fee, they will simply sell their ‘own’ product worldwide!”

  Fred’s response is immediate. “I hate to say I told you so,” he exclaims, “but this is exactly what I was afraid of. Once the Japanese have mastered your technology, they steal it or invent around it and toss you aside.”

  “I know, I know,” you grimly acknowledge. “You warned me. I’m angry with myself.” You recall the hundreds of hours you spent courting this company. The long, saki-soaked dinners. The rounds of golf developing a relationship with Bikuta-san. For three years the joint venture seemed to work so well. Bikuta’s quality control and manufacturing efficiency are superb. Their distribution was fantastic. For eleven straight quarters, sales of the FreeFlow went up. Bikuta fully accounted for the sales and paid you your fee the day it was due. Maybe you got lulled into dropping your guard. In fact, during the past year you and Bikuta started discussions about expanding your agreement to include sales in China. Now it seems this was all part of the con.

  “While he and I were cordially negotiating, he was already stabbing me in the back,” you say.

  “Oh yeah, they do that—use negotiations as a cover for a sneak attack,” observes Fred, who fancies himself something of a history buff. “It’s the story of Pearl Harbor.”

  “Fred, I can’t stand it when you talk like this,” Evelyn interrupts. “You sound like even more of a bigot than you actually are. People are people. Any businessman wants to make money for his company. Remember you, too, were impressed
with Bikuta and liked him. Remember the weekend you hosted him to a round of golf at Pebble Beach? You told me afterward that, unlike some of your American golfing buddies, Bikuta was scrupulously honest about keeping his score—that he had actually counted every one of his strokes. You’re the one who always says, ‘Character is revealed on the golf course.’ ”

  Fred ignores this rebuke. “I’ve done many deals with the Japanese. They don’t think the way we do. They nod and say ‘yes,’ and half the time it means no. And they can be bullies. The whole culture runs on status and hierarchy—those on top exploit those below.”1 Fred turns to you. “You’ve got no choice. To negotiate now would be to reward bad behavior. Tell them that if they don’t stop selling in China, you’ll terminate the joint venture and sue their ass off.”

  Fred doesn’t need to convince you; this is exactly what you want to do. You feel humiliated and you want revenge.

  You say, “I doubt we will get far filing a lawsuit in China or Japan.”

  “No, obviously the Chinese and Japanese courts are worthless,” says Fred. “Sue them here in California. Take your case to an American jury. Teach Bikuta a lesson.”

  You frown and think to yourself: If only it were that easy.

  Evelyn, showing increasing signs of exasperation, finally cannot contain herself. “What macho nonsense!” she exclaims. “Let’s not get carried away. Suing Bikuta will destroy what’s been a profitable relationship so far. It will make your lawyers rich and distract you from the business. Go to Japan. Sit down with Bikuta. See what he has to say. What do you have to lose? And besides, have you considered Bikuta’s perspective?”

  You give Evelyn an incredulous look.

  “Bikuta asked you to include China in the license agreement originally,” she reminds you. “And you refused. Because you wanted to preserve your options. And haven’t you been talking lately with some Chinese firm about making stents for the Chinese market? You know how seriously the Japanese take their business relationships. Maybe Bikuta heard about this and thought you were going to cut them out.”

  “But that was our right! We can enter the Chinese market with anyone we want. We have no obligation to Bikuta,” you scoff.

  “Don’t listen to Evelyn,” Fred interjects. “Bikuta was represented by international counsel. I’m sure his lawyer explained to him what the corporation’s obligations were. Evelyn is such a bleeding heart. Every time some seventeen-year-old assaults an old lady and grabs her purse, she talks about what a difficult home life the kid’s had.”

  Evelyn ignores this comment. “Of course you have the legal right to find a new partner for the Chinese market,” she tells you. “I’m not saying that Bikuta isn’t at fault. I’m just saying, give Mr. Bikuta a chance to do the right thing. Maybe you can negotiate a lower fee but extend the contract to the Chinese sales.”

  Fred explodes. “Evelyn, whose side are you on? There’s a principle at stake here. You cannot do business with people who intentionally violate their agreements. Once they’ve screwed you, you can’t just go back to business as usual. It sends the wrong message—not just to Bikuta, but to anyone else you might do business with. You might as well put a big sign on your head saying, ‘Please, exploit me and I’ll come back to the table! I’ll accept any kind of behavior, right or wrong!’ Is that how we want to be perceived? No! Besides, from a purely financial standpoint, Bikuta has no incentive to give us a dollar more than they absolutely have to. Every dollar they pay in royalties to us is a dollar less profit for them. And vice versa. That’s the reality.”

  Evelyn rolls her eyes. “Fred loves to rant about the harsh ‘realities’ of business, but frankly I’m the one who’s being realistic. Bikuta’s a lot bigger than we are. They can afford the costs of litigation a lot more than we can. If we sue, they will probably stop selling our product entirely. If we negotiate—extend the joint venture to China—and if total sales go up, we could make more money even with a lower royalty rate.”

  The dilemma described above is quite realistic. The question is: Should you negotiate with the enemy or not? Fred and Evelyn are both making some sense. Each offers a point of view that has emotional and intellectual appeal. But you also see flaws in both arguments, and you are pretty riled up yourself. You want to make a wise decision, not one based solely on emotion. How do you sort through these arguments? Where do you begin?

  After helping to resolve many business and family disputes over the years, I have come to believe that for most of us, confronting an enemy poses exceptional negotiation challenges. When I say “enemy,” I do not mean just an ordinary competitor; I mean someone who has deeply wronged us and poses a serious threat to our well-being—someone we may even see as evil.

  In the introduction, without elaboration, I proposed a definition: An act is evil when it involves the intentional infliction of grievous harm on another human being in circumstances where there is no adequate justification.2 This definition has three essential elements. First, for an act to be evil, the perpetrator must intend to inflict harm. Carelessness is not enough. Second, the harm must be very serious. I use the word grievous to connote harms that are severe. Third, the infliction of harm must lack an adequate justification or excuse. Of course, the judgment about whether a justification is adequate may in some cases be reasonably debatable, and may depend on one’s moral perspective.

  Does every person who commits an evil act by definition become an evil person? I think not. Instead, I would call someone an evil person only if by disposition he or she repeatedly commits evil acts. This distinction is important. Too often we may condemn someone on the basis of a single action. Psychologists have shown that otherwise decent people may, because of obedience to authority or peer pressure, commit evil acts in particular contexts.3 A centrally important finding of social psychology is that in evaluating the behavior of others, we tend to exaggerate the importance of a person’s dispositions or traits and underestimate the influence of context. This tendency is well documented; social psychologists call it the “fundamental attribution error.”4 But when it comes to justifying our own behavior, our tendency is the exact opposite—we are quick to use contextual pressures to excuse behavior of which we are not proud.5 “I did something bad,” we may tell ourselves, “not because I am a bad person, but because the situation put me under so much pressure.”

  Bikuta’s actions were certainly intentional. They might cause your company serious economic injury. And from your perspective they seem utterly unjustifiable, although Bikuta might see things differently. If Bikuta has violated the contract by using your intellectual property, that would be wrong, but I doubt the economic injury to your com-pany represents harm that is substantial enough to justify the characterization of this act as evil. I think it would be even more of a stretch to conclude that Bikuta is an evil person, or that his corporation is evil.

  But that doesn’t lessen or invalidate how any of us might feel in such a situation: betrayed, humiliated, disrespected, dishonored. To the question, Should I bargain with this Devil? we feel the answer should be a resounding no. (Sometimes expressed as “That’ll be a cold day in hell” or “Over my dead body!”)

  In helping clients work through such conflicts, I have found that wise decision-making poses three different challenges. The first is to avoid emotional traps that can lead to hasty and knee-jerk decisions. This chapter identifies and explores these traps. The second challenge is to analyze the costs and benefits of alternative courses of action. That is the focus of the next chapter. The third challenge is to address the ethical and moral issues that often arise when one is trying to decide whether to negotiate with an enemy. That will be our focus in chapter 3 and the case studies that follow.

  But first let’s focus on why these situations are so challenging. Psychologists and neuroscientists have discovered that people perceive reality and make judgments in two fundamentally different ways.6 One, which I’ll call intuitive reasoning, is automatic, effortless, and affective (rela
ted to emotions and feelings). It triggers instant responses and influences the meaning we attach to facts by linking the current situation to past experiences and stories we know. It will often motivate our behavior.7 The other mode, which I’ll call analytical reasoning, is conscious, deliberative, systematic, and logical: what we usually call “rational.”

  All human beings apprehend reality using both the intuitive and analytical modes, and our evolutionary survival depended on both kinds of reasoning. This “dual processing” system also guides our decision-making. Not surprisingly, both cognitive modes have advantages and drawbacks. The intuitive system picks up nonverbal cues and makes rapid appraisals.8 But it’s quirky and selective about the data it receives, which can lead to mistaken conclusions and poor decision-making. The analytical system, on the other hand, is disciplined and more systematic. It explicitly evaluates information in making a decision. But it may not always yield a clear answer. Finally, it may miss the forest for the trees.

  Individuals vary to the extent that one or other mode of reasoning is dominant.9 Each mode, alone, is incomplete, and there is, as we will discuss later, often an interaction between the two.

  Another difference between the two modes—particularly relevant when we’re locked in conflict with an enemy—is their operating speed. The intuitive system responds instantly, while the analytical system, which requires real effort and is ponderous and time consuming, plods far behind.10 Indeed, the intuitive system may have evolved to protect us from imminent physical threats. However, it is not very discriminating when it comes to threats. It works pretty much the same whether the threat is to our physical safety or to something more conceptual: a relationship, a business, a self-image, anything that’s important to us. It floods us with adrenaline so we can fight or flee. This is terrific when we’re dealing with a saber-toothed tiger, but not so useful when we’re sitting in our office with Fred and Evelyn dealing with questions like, Should I negotiate with Bikuta? Once our emotional alarms and “hot cognition” buttons are triggered, it may take time—minutes, hours, or even days—before we are truly capable of thinking logically. And even then, intuition may continue to run the show.