Negotiation

Good negotiators are made, not born (despite what many lawyers believe.) Let’s get better together.

My Take on Market Basket

 

From the Nashua Telegraph, Thursday, August 20, 2014

Is there any business more interesting than a family business? The relationships between family business owners make the relationships between owners of other privately owned companies look like child’s play. Regular business owners might have long-term relationships; family business relationships, on the other hand, are lifelong. Regular business owners have predecessors and successors; family business owners have mothers, fathers and heirs. Regular business owners have experience; family business owners have scars.

Many of us in New England are witnessing the downside of family ownership as we watch the ongoing Market Basket saga. Market Basket, one of the nation’s largest and most successful privately owned retailers, is being brought to its knees by two competing forces. Internally, the family is feuding. Externally, the employees and customers have banded together in a show of unity and support for one ownership faction that is rare – if not unprecedented.

The feuding piece is fairly easy to comprehend. Family businesses, especially ones owned by second- and third-generation owners, are inherently combustible. What is happening among the family factions at Market Basket is not uncommon. It happens all the time, albeit perhaps not on such a grandiose scale. In the family business world, what is happening at Market Basket is, in many ways, the same old fight.

For years, Arthur T. Demoulas had maintained operational control of the company because of one family member who had consistently supported him – despite the fact that he or she was related to the Arthur S. Demoulas group. For some reason, this person recently switched sides and voted to support the Arthur S. group. That was all it took to swing the balance of power at the board level in favor of Arthur S. Just like that, Arthur T. was converted to a minority voter, without management control. It may have been abrupt, but it was not shocking. In business, these things happen all the time.

What happened next, though, was shocking. It turned out that Arthur T. was so beloved by Market Basket employees that they walked off the job in protest of his ousting. Customers largely followed suit, shopping elsewhere. Was the Arthur S. group surprised by this? It might have been. Then again, the Arthur S. faction might have viewed this as a possible outcome and yet gone ahead anyway. It’s that kind of family, and that kind of feud.

While the family feud driving the Market Basket debacle is somewhat typical, the collective actions of the employees – and, to a lesser degree, customers – may be unprecedented. Almost unanimously, it seems, the employees picked their horse right out of the gate and seem committed to ride it all the way to the end of the race. They believe in Arthur T., and they believe the company should be his. But how will this race finish? It looks to me like it is going to be a very tough one for Arthur T. and the employees to win. They are a longshot.

The brave steps taken by Market Basket employees were the equivalent of a life ring for Arthur T. Their acts alone are all that have prevented him from sinking into the still waters of life as a minority owner. In that capacity, an owner can cry out, but nobody really cares. As I write this column, Arthur T. is still afloat, clinging to that life ring. His chance to regain control of the company and get it back on track is running out.

I say this for two reasons. First, the history between Arthur T. and Arthur S. demonstrates that the interests of employees and customers are not a priority for Arthur S. and company. Arthur T. believed the company’s long-term interests were best served by rewarding loyal employees and customers. Arthur S. placed a higher priority on maximizing the returns for ownership and getting cash into their hands. This, by the way, does not make the Artie S. faction evil or morally inferior. In fact, those two competing philosophies are a hot topic in business circles right now. Regardless, in all likelihood, if Arthur T. loses, the employees will lose too.

The second reason to be concerned about the outcome from the employees’ standpoint is ironic, but nonetheless compelling. The sheer profitability of the Market Basket chain over the last 50 years has been astounding. It has been one of America’s most profitable privately owned retail chains. The money its owners have made during that time is hard for most of us to even comprehend. They have become very, very rich. This is a problem for Arthur T., as the pockets of the owners may have been so thoroughly lined already that the financial pressure brought about by the employee walk-off causes Arthur S. and his group no meaningful financial pain. If that is the case, then Arthur T. simply has no leverage in these negotiations.

What about the Market Basket brand, you say? Family members must care about their legacy, don’t they? The truth is that probably some do. But for many of them, watching Arthur T. go down may be its own reward, powerful enough for them to throw the Market Basket baby out with the bathwater. Under these circumstances, Arthur T. will be hard-pressed to make any offer that is rich enough to get the Arthur S. faction to let him emerge as the hero.

I hope I am wrong. I hope that Artie T. wins the race, and I hope the employees and the Market Basket brand win this race. If they lose it, it is neither a reflection of their courage nor the validity of their actions. They have been brave, if perhaps somewhat naive. They deserve a better outcome then they are likely to get.

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Deja vu for Business Lawyers

From the Nashua Telegraph, Wednesday, November 21, 2012

I guess it’s a sign of lawyer old age when a new matter triggers a flood of images from some of your old cases.

Call it lawyer deja vu.

In any event, I mediated a case last week that caused a whole bunch of stuff from the past to bubble up from the subconscious into the conscious part of my brain.

The case involved three young men who had grown up together and been friends in high school. They had gone their separate ways after graduation, but came together years later to try their luck at forming a business and launching a product. They had been at it for a couple of years and had yet to taste financial success. One of the three was running out of steam. The other two wanted to continue the venture. Somebody told them mediation might help them solve their problem. They came to the mediation on their own, without counsel. Read More »

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At this company everybody’s a boss, and nobody’s a boss!

My column from the Nashua Telegraph, January 18, 2012 – At Morning Star, Everybody’s a Boss, and Nobody’s a Boss

I have never had the pleasure of working in a large organization with lots of managers. Now that I think of it, I have really never had a boss. But in my law practice I work with lots of companies and lots of company employees.  I hear their stories, and I sometimes wonder whether managers are good for business. Are they really necessary, or are they just the building blocks of bureaucracy?

When I look at companies that have a lot of managers, I usually see hierarchical organizations with a “top-down” management system. The power is vested in managers higher up the food chain. There may be talk of empowering the worker bees, but for the most part I don’t buy it. The power stays at the top. In companies with top-down management, key decisions tend to be made by one overly empowered individual who is often isolated from the workers. That sort of decision-making can lead to decisions that are impractical. What looks good from the top of the pyramid can look silly to those at the bottom.

So all of this begs an interesting question:  Could a company exist without managers? Would it be possible for a company to maintain the high level of coordination that success demands without the structure provided by managers? Believe it or not, there is at least one company out there that operates in that fashion, and it is thriving.

Gary Hamel is a professor at Harvard Business School. In the December issue of the Harvard Business Review, Hamel authored an article entitled, “First, Let’s Fire All the Managers.” In it he focuses on the Morning Star Company, a $700 million dollar tomato processing company located in California.  At the Morning Star Company, Hamel writes, all 400 employees “are ridiculously empowered yet work together like members of a carefully choreographed dance team.”  The company has no managers, and no bosses. In fact, employees are not even employees. At Morning Star, they are “colleagues.”

Unlike other companies, Morning Star’s culture is completely rooted in self-management. They have taken the bureaucratic structure of most companies, crushed it, and thrown it out the window. The key to operations at Morning Star is the personal mission statement. Every year, each colleague must write a personal mission statement that sets forth how he or she will contribute to the company’s overall objective of “producing tomato products and services which consistently achieve the quality and service expectations of our customers.”  The colleague is then responsible for accomplishing the mission. Workers at Morning Star are driven by their mission statements, not by their bosses.

In addition, each year every colleague negotiates a Colleague Letter of Understanding with other colleagues who will be most impacted by the objectives set forth in their personal mission statement. These CLOU’s, as they are called, are what govern the relationships between Morning Star’s employees. They provide Morning Star with structure. But by design, the CLOU’s change from year to year, reflecting the changing priorities and issues facing the company.  Chris Rufer, the founder and president of the company, analogizes the company’s structure, such as it is, as being similar to clouds, of all things. “Clouds form and go away because atmospheric conditions, temperatures, and humidity cause molecules of water to condense or vaporize. Organizations should be the same; structures need to appear and disappear based on the forces that are acting on the organization,” Rufer says.

That analogy is not only spot on, but evidences what are perhaps the greatest advantages provided by the Morning Star model: extreme flexibility and nimbleness.  At Morning Star, departments literally come and go, like clouds. This is a much needed and radical departure from what goes on at most companies. Who among us has not experienced organizations in both the for-profit and non-profit worlds that are hamstrung by standing committees and bureaucracies that are inflexible?  Standing committees and bureaucracies often have one reason for existing, and that reason is because they always have existed. The self-management structure at Morning Star would never tolerate such nonsense.

Even compensation at Morning Star is peer-based. Every year colleagues prepare written self-assessments of their performance based on their personal mission statement. Several compensation committees are then elected by colleagues from across the entire company. Those groups then evaluate the self-assessments and set compensation levels that endeavor to align pay with the value being added to the company by each colleague.

There is no doubt that for Morning Star, the self-management structure is working. But it is not without challenges and drawbacks. Hamel points out in his article that employees who have worked in traditional companies have a tough time adjusting to the model. It takes a long time for new employees to fit in. Because there is no corporate ladder to climb, employees can find it difficult to evaluate their performance relative to their peers. At Morning Star, more responsibility is the equivalent of a bigger title. That unusual metric makes it tough for those employees who might want to leave the company for another opportunity.

Growth is another concern. While the company has grown much faster than the industry average, for obvious reasons it does not want to abandon its culture. This makes growth through acquisitions a difficult path to follow. But the advantages of the Morning Star structure still seem to outweigh the disadvantages, particularly for companies in the small to medium-size category.

Hamel concludes that colleagues at Morning Star benefit from a simple recipe for initiative. Their roles are defined broadly, they have the authority to act, and they get lots of recognition when they help others. They drive the bus. Colleagues also develop better and broader skill sets. Because there are no senior managers, the colleagues all become experts. Because there are no bosses, there are no fall guys. Accountability tends not to be an issue. The organization is extraordinarily flexible. Because key decisions are not escalated to company bosses, they get made in context, and they get made after debate and input from a number of colleagues. That leads to better outcomes. Finally, the colleagues simply get along better than employees at most companies. Because colleagues are not competing for promotions, there is much less backstabbing. All of their energy is directed toward doing their best and helping their colleagues.

Hamel’s article is well worth the money you will have to pay to HBR to obtain a copy. It even contains tips for implementing the Morning Star culture in your organization. The good news is that to do so, you don’t need to fire all the managers. All you need to do is make sure that every employee understands that from now on everyone will be a manager. What could be simpler than that?

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Collaborative Law Approach Applies in Business Cases Too

From the Nashua Telegraph, December 21, 2012…..

I was fortunate to have great mentors in the early years of my legal career. One of them was Sherm Horton, a legendary Nashua lawyer who ultimately served as a New Hampshire Supreme Court Justice. Sherm was a brilliant business lawyer. He knew corporate and commercial law inside and out. He also understood how to handle people, and how to help them solve problems.

Sherm generally avoided doing divorce work. Nonetheless, when one of his friends found himself in the throes of a divorce, he would often call Sherm for guidance. On many occasions I sat in a conference room with Sherm and heard him offer his friends the same advice: “Ask her what she wants, and see if you can find a way to give it to her.” At first the recipient of the advice might resist. Eventually, and sometimes after spending a lot of time and money in court, they came around to Sherm’s way of thinking.

To me, as a young lawyer, that advice sounded awfully simplistic. Just give her what she wants? It seemed absurd. But as always seemed to be the case with Sherm, there was a lot more meaning in that statement than met the eye. I eventually figured out what he was really telling his friends in that simple statement. He was telling them that regardless of how hostile the situation had become, they would always have a relationship with their former spouses. This was especially true if, as in most cases, the couple had children. He was telling them to handle the divorce in a manner that would do the least damage to the relationship. He was telling them to get divorced in a way that minimized the damage to their children. He was telling them that divorce ought not to be a war between enemies that is fought to the death. Divorce, in Sherm’s view, was a problem that needed solving. He favored a more collaborative approach to the issue.

Thankfully, that sort of approach is becoming more prevalent in divorce cases today. It is embodied in the Collaborative Practice movement.  New Hampshire citizens are now fortunate to have access to the Collaborative Law Alliance, a group of New Hampshire lawyers who have been trained in Collaborative Practice, and who use Collaborative Practice as a tool to help clients solve legal problems without resorting to litigation.

How does Collaborative Practice work? It starts with an agreement between the parties that they will not go to court to resolve their dispute. That agreement is signed not only by the parties, but by their lawyers and other professionals that may be involved in the collaborative process. Together they take a “no court” pledge, of sorts. They commit to the process and back that commitment up by agreeing that should the process fail to produce an agreement, none of them will represent their clients if litigation ensues. This produces a powerful incentive for all parties to work together to negotiate an agreement. This incentive is completely different from the incentives typically present in litigation, where victory, sometimes at all costs, tends to drive the proceedings.

Another advantage of using Collaborative Practice to resolve a dispute is that the parties control the process. They, together with their lawyers and other advisors, can set the schedules and make the rules. In many cases handled in this fashion there is no need for even hearings. In divorce cases, for example, the parties can fashion an agreement that gets filed with the court and the divorce can be granted by the Judge without any need to even meet with the parties. That can save time and expense, and spares the parties the stress that accompanies court appearances.

Collaborative Practice has value beyond just divorce cases as well. It is being used with success in probate cases, in employment cases and in landlord tenant matters. It should begin to emerge in the business world as well. It can be a valuable dispute resolution tool in any case where there are relationships between the parties that ought to survive the dispute at hand.

Most business cases fall into this category. Companies most often have disputes with employees, suppliers, vendors and customers. In each of these categories, the parties might be best served by a process that gives the parties the best chance of salvaging the relationship at the end of the case. Mediation is acknowledged to be an effective dispute resolution process in this regard. Resolving a dispute using Collaborative Practice might work even better. Both are voluntary processes, but mediation lacks the leverage provided by the agreement among the parties and the “no court” pledge. In mediation there is always the risk that one party is not truly committed to the process or making an agreement to resolve the dispute.

To learn more about how you might use Collaborative Practice to resolve a dispute, you can begin on the Internet. There is wealth of information to be found at www.collaborativepractice.com. For information on the New Hampshire Collaborative Law Alliance and to view of a list of New Hampshire attorneys who are trained and qualified in Collaborative Practice see their website at www.collaborativelawnh.org. We should be seeing a lot more of it in the future.

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Certainty and Tyranny of the Majority

Today’s column from the Nashua Telegraph, May 18, 2011:

One of my favorite Albert Einstein quotes goes like this: “Anyone can know; the key is to understand.”

I was reminded of this quote on a couple of occasions last week. The first time was in a blog entry by business author Tony Schwartz in which he addressed the importance of uncertainty when it comes to making good business decisions. Schwartz really nailed it, writing that in business and in life, certainty can often kill curiosity, learning and growth.

Many of today’s brightest business leaders are uncertain by choice. They know that the best decisions come from a diverse process that incorporates multiple perspectives and encourages robust debate. They know that when it comes to solving problems, certainty simply inhibits diagnosis. Certainty short-circuits the effort to pinpoint cause and effect, and contributes to a continuing pattern of bad decisions and mistakes.

The second reminder of Einstein’s quotation came to me as I read some of the quotes from Donald Trump during his brief visit to Nashua. Trump had all sorts of interesting thoughts to share with us. I confess to never having been much of a Trump fan. But this time around some of his statements really got to me. He just seemed so certain about all of his opinions. The Donald’s certainty makes me glad he decided not to run for president.

I have no problem admitting that people who are certain about things tend to bug me. First of all, they tend to be know-it-alls. That makes them a drag at cocktail parties. They blather on about one thing or another with little or no interest in what anyone else has to say. People who are certain about things also tend to live in a black-and-white world, where right and wrong are as distinct and distinguishable as night and day. They tend to have trouble seeing shades of gray. Give me a person interested in exploring all sides of an issue any day. Give me someone with an appreciation for nuance. If nothing else, it makes for better conversation.

People who are certain are also blissfully unaware of their own cognitive biases. We all carry with us cognitive biases that impact how and what we think. One cognitive bias that seems particularly pervasive among politicians these days is called “confirmation bias.” Our confirmation bias causes us to search for and interpret information in a way that confirms our preconceptions. This explains why most certain Republicans I know watch Fox News exclusively, and why most certain Democrats I know watch CNN. They enjoy those programs, too. But to paraphrase Einstein, do they know, or do they understand?

Trump, of course, is far from the only politician who seems certain about things. In fact, lately I see certainty from our elected officials all the time. One easy way to detect the presence of certainty in a politician is to watch for them to express disdain for the art of compromise. They view themselves as principled, but in fact, they are just certain. When one is certain, one has no interest in exploring alternative perspectives or listening to the other side. Compromise is therefore out of the question.

It seems that disdain for compromise really is in vogue, particularly among our most politically engaged individuals. The Telegraph this week ran a column that discussed a recent survey of the American electorate conducted by the nonpartisan Pew Research Center. It concluded that our most politically engaged Americans are fundamentally opposed to compromise. A solid majority of those polled said they “prefer elected officials who stick to their positions over those who make compromises with people they disagree with.” That may help to explain much of the success that tea party activists experienced in the last election cycle. To me, many of those folks do not seem prone to compromise. In fact, most of them seem to be pretty certain about things.

Perhaps you can tell that I do not view all of this certainty and sticking to one’s guns as a good thing for American government. We have a long history of attaining good government through meaningful compromise spawned by active, substantive dialogue. Some of our greatest politicians made their greatest impact by working both sides of an issue and forging consensus among holders of differing views.

But now it seems we elect candidates who stand against compromise. For the moment, at least, the majority is going to continue to rule. I have no problem with healthy majoritarianism. But lurking out there is Alexis de Tocqueville’s tyranny of the majority. Tyranny of the majority is something we need to avoid.

It strikes me that the best way to do that would be to have a little less certainty from our political leaders, and a lot more willingness to explore meaningful compromise. That might not only keep the tyranny of the majority at bay. It might also lead to better legislative results.

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5 Ways to Screw Up Your Negotiation

Here are 5 things you or your lawyer can fail to do that are guaranteed to make it harder for you to get a good result from your negotiation:

1.  Fail to prepare.

For heaven’s sake, do your homework. In my experience the vast majority of parties fail to prepare properly to for negotiation. You need to know your BATNA cold, and you need to have a good handle on what the other party’s BATNA is too. You need to envision alternatives, and options that might meet some of the interests of both parties. If you don’t know what BATNA is, and many professionals don’t, then you’d better hope the folks on the other side of the table don’t know either.  http://www.scottflegal.com/preparation-is-all-about-batna/

2.   Fail to avoid the insult zone with your first demand or offer.

Any decent negotiator understands the importance of anchoring. In theory, by making a high demand, you “anchor” the other party with a high number, thereby making them more likely to overpay from a psychological standpoint. Conversely, lowball offers are often made to anchor the other party in the low zone. But if your demand is ridiculously high, or your offer ridiculously low, you can poison the negotiation. Rational, planned and meaningful anchoring is one thing. Immediately making the other side walk out and file suit is another.

3.  Fail to recognize that you’re not arguing your case to a judge in court.

The party on the other side of the table disagrees with you. That’s why you’re negotiating. The party on the other side of the table is not a judge, charged with the task of remaining neutral, listening to testimony and then making the right decision. He or she is not there to be convinced. If you or your lawyer thinks that arguing the strength of your case as zealously as possible is going to convince the other side to cave into your demands, you are sorely mistaken. You’re not in court. To negotiate well you must appreciate the value of listening carefully and actively; of empathizing with the other party; and of demonstrating that you are even capable of changing your mind under the right circumstances. You’ll get better results.

4.  Fail to respect the process.

Lawyers, in particular, love to cut to the chase. Why waste a lot of time talking about past history? Let’s keep the emotion out of this, because this is about business. If you hear these words coming from your lawyer’s mouth, find a new lawyer. Negotiation is always about emotion, and I don’t care what the dispute or situation might be about. Negotiation, to be successful, needs to be structured and respected by the parties. If all the parties do is exchange offers and demands, a lot of value gets left on the table. If the parties refuse to devote time and resources to the exercise, the exercise is undermined.

5.  Fail to remember that both you and your lawyer are human beings.

As human beings, we are all hard-wired to overestimate the strength of our case or argument, and to underestimate the strength of our opponent’s case or argument. Remember this as you head into the negotiation. You need to be realistic. If your lawyers tell you that ANY legal issue is a slam dunk, don’t believe them. A surprising number of slam dunks are missed, even in the NBA. Your expert is never as strong as you think. The expert for the other side is never as bad as your lawyers might portray them. And don’t blame the lawyers for this. They’re only human too.

 

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What’s Persuasive in Negotiations and Mediations?

Sometimes I’m amazed at how bad we lawyers are at managing and resolving conflict. Far too often it seems to me that when lawyers arrive on the scene of a disagreement, we make things worse, not better. We can be like EMT’s who drop the stretcher while loading the patient into the ambulance. Trained in the art of emergency medicine, but clumsy when it comes to handling the patient.

Why do you suppose this is? Why do some lawyers make things worse? I think it’s because some lawyers haven’t learned that being persuasive during negotiations or during a mediation requires a different skill set than trying a case in front of a judge. Read More »

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Preparation is All About BATNA

Most lawyers I know prepare extensively for court hearings. They realize the important role preparation plays in getting good results in court. But when it comes to preparing to negotiate, parties and their lawyers are more likely to fly by the seat of their pants. This seems odd, given that the objective in court and at the bargaining table is essentially the same: getting a good result. For whatever reason, parties tend to leave lots of stuff in a negotiation or mediation to chance.

Part of the problem is that many of us have simply not been trained to negotiate. At most law schools, negotiation training remains an afterthought. It may be touched on in courses like Labor Law, but it is generally not taught as a stand alone course. This is ironic, given that once we become lawyers we probably do more negotiating than anything else. Read More »

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Judicial Battle Over Health Care Grinds On

I was thrilled to read this week that a federal court in Florida had struck down President Obama’s health care legislation as being unconstitutional. That makes the score 2-2. Two federal court judges appointed by republican presidents have found at least portions of the law unconstitutional. Two judges appointed by democratic presidents have upheld the law. Welcome to justice in America.

Twenty six states – the majority governed by republican governors, of course – have now signed on to support the ongoing effort to use the judicial branch to thwart the actions of the legislative one.

What a ridiculous, pointless exercise. What an enormous waste of time and resources. But when the whole exercise is funded by the taxpayers, who cares? Read More »

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Emotion Matters!

If I had a dollar for every time I’ve heard someone involved in a business conflict say “let’s keep the emotion out of this” I would be a wealthy man indeed. To my amazement, there are plenty of people in the business world who still believe that emotion ought to be locked out of the room when parties sit down to settle a dispute. I’m not sure what’s more amusing: that people believe emotion ought to be kept out of the discussion, or that it can be kept out of the discussion.

In my experience lawyers can be among the most ardent believers in this notion. Most of us were taught early on in law school that the law had little room for emotion. Trial lawyers learn that clients get angry, and that the process flows most smoothly when they are kept insulated from one another. In some instances the first time the parties sit in the same room after the case begins is at trial. Business lawyers, on the other hand, tend to run from emotional negotiations as if the room is on fire.

But the evidence is mounting that what we learned in law school about the need to keep emotion out of decision-making was wrong. Modern neuroscience and related emerging fields like neuroeconomics and behavioral economics are  telling us exactly what many of us don’t want to hear: emotion is not only relevant to decision-making, it is an essential ingredient in the recipe for good decisions. When people in conflict attempt to exclude emotion or pretend it isn’t relevant, bad decisions can result.

What is the basis for this shocking conclusion? It’s the brain, stupid! Read More »

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