Pants on fire
I’m often asked “When is it ok to lie in negotiations?”. On the face of it, this might seem like a really complex question to answer. Where is the line between “playing the game” and “deception” in business negotiations? The answer, in my mind, is simple. Never.
This question was tested in court in the US this year, in a case reported on in the New York Times’ Dealbook blog on April 18th (as well as other publications). The article concerned the case of a certain banker who had been acting for his employers in the sale of a real estate asset to a developer. In the course of the negotiations he had implied to the developer that the success of the deal would be contingent on him taking a stake in it. Similarly he implied to his own superiors that the developers would not enter into the deal unless he took a stake in it. He successfully closed the deal, securing a minority stake in the development and around $300,000 in commission.
He misled both sides in the deal for his own benefit and, when the truth came to light, he was successfully convicted of five counts of Wire Fraud (a federal offense). He was imprisoned for 18 months (with 25 months of supervision to follow) and ordered to pay fines and restitution totalling almost $350,000. Based on the available information this looks to me like a clear cut case of fraud, so what followed is surprising to say the least.
The banker appealed his conviction and it was quashed, on the basis that the appeal judges voted 2:1 that his actions were consistent with legitimate negotiation tactics! To quote from the Wall Street Journal’s reporting of the story;
“Judge David Hamilton wrote that “it is not unusual,” nor criminal, for those in business negotiations to “conceal from others their true goals, values, priorities, or reserve prices”
On this basis the judge determined that the banker’s “….bluffing tactics…” represented “….capitalist acts among consenting adults”. Of other two judges, one agreed with Hamilton but the other (Judge Joel Flaum) dissented, stating his view that the banker;
“…committed wire fraud by deceiving his own company and taking a portion of the deal for himself.”
The banker’s appeal was upheld on a 2:1 majority and he’s a free man today. To my sensibilities this could not be more clear cut. That is one lucky banker. If it were up to me he’d still be in jail.
I don’t actually disagree with Judge Hamilton’s statement above; it isn’t unusual for parties in business negotiations to conceal from others their true goals, values, priorities or reserve prices. I’d go so far as to say that, to a limited extent, it is often advisable to hold some information back until it is appropriate to share it. But for me there are two clear aspects of this person’s actions that put him on the wrong side of the law and good practice in negotiation;
1. He concealed his interest in the negotiation. He was employed to represent the interests of one of the negotiating parties and he took value from the deal for himself.
2. He lied. Under the circumstances he had to (there’s no way he’d have succeeded if he hadn’t told a lot of lies) but there is no place for lying in negotiation.
It may seem that I’m contradicting myself if I say I agree with Judge Hamilton’s assertion that “concealing” material facts is part and parcel of “…capital acts among consenting adults” and follow up by saying there’s no place for lying in negotiation, but there is no contradiction.
Refusing to reveal information that might compromised your position is prudent. If I tell you my reserve price, I’m highly unlikely to achieve a better one. Worse still, you’re unlikely to believe that it’s really my reserve price (assuming it to be a tactical misrepresentation, because who would be so naïve as to truthfully reveal their reserve price) and you’ll try to push me beyond it. So paradoxically my candour and unwillingness to “do the dance” of the negotiation actually puts a successful outcome in peril. However, if I lie about my reserve price, I’m putting the deal in peril in other ways. If I once say “I’ll do £x, but that’s it; I can’t go any further” and it’s a lie, if the point comes where I do go further I’ll be caught in a lie. At that point, the credibility of everything else I’ve said in that negotiation comes into question.
By contrast, when I tell you “I will do this deal for £x”, even if I know that price is untenable for you (for example if it’s my extreme opening position, a position I have chosen for its shock value and ability to shift your expectations), it’s not a lie. I really would do the deal at that price, I just don’t believe you can. For that reason, making a proposal like this is uncomfortable. I expect it to have a negative effect on your emotional state. I want it to cause you a degree of stress so that, when I start making proposals that are in your range (but only just), you may feel a sense of relief that a deal can be done. I also know there’s a risk that it will anger you. Not many people relish making other people feel that way, hence the stress of doing it.
Because making proposals that are calculated to cause stress and risk anger is stressful, the way we feel when we behave this way isn’t that different from the way we feel when telling a lie. So it is useful to train yourself to manage that stress but it is important that when you invest time and effort in learning to be direct, unambiguous, assertive and unflinching you are training yourself to effectively deliver uncomfortable truths, not tell lies more effectively.
People often tell lies in negotiation when they are seeking to justify something uncomfortable they have said, or reinforce a position that they lack confidence in (for example “I’ll pay you £x and you’d better take it because if you don’t I know someone who will”). An experienced negotiator, when presented with justifications like that, rejoices. They offer unlimited opportunities to pry open the other party’s position and exploit the discomfort or weakness they are trying to hide. Lies of justification present other risks in negotiation. They undermine your credibility as a negotiator and if your negotiation counterparty is similarly undisciplined, they may start trying to justify their positions to you, or become so engrossed in trying to reveal the truth of your lies that they forget about the deal and focus on the argument.
So my answer to the question “When is it ok to lie in a Negotiation” is “Never”. The bottom line is, unless you’re acting in bad faith there’s never a need to lie in a negotiation. Tell uncomfortable truths. Do so unflinchingly and assertively, then focus on managing the other party’s emotional state and conditioning their actions through making positive proposals. But don’t feel the need to lie, you’ll only make matters worse for yourself.
