Category Archives: Business

Ultimatums and Bluffs

Ultimatums can have their place in any negotiation, but they are best used sparingly and with care. And while I’ve gotten the best results by being quite direct in negotiations, being too direct – throwing down an ultimatum – raises a significant risk that your discussions will come to an abrupt end.

Which means, of course, that you should be OK with that outcome if you make an ultimatum.  “My way or the highway,” as they say – and if the other side opts for “highway,” that’s fine.

The corollary to this principle is that it is a mistake to bluff when making ultimatums. The reason is simple: if you make an ultimatum, and then walk it back when the other side resists, you’ve cost yourself a massive amount of negotiating credibility.  It makes the other side wonder why they should believe anything you say, making it doubly hard to get what you need in the deal. 1

Unfortunately, I regularly experience firsthand attorneys violating this principle with their own particular brand of ultimatum: the lawsuit threat.

It’s kind of depressing that attorneys reach for this little trick so reflexively. But I suppose to some, if you’ve got that hammer, everything starts looking like a nail. And it must work at least some of the time, at least when dealing with power imbalances or inexperienced negotiators.

But the problem with the lawsuit threat is the same problem of any ultimatum: if you don’t intend to follow through with it, and the other side isn’t impressed with your threat, you’ve got nothing left to do but slink away.

Maybe that’s OK for some attorneys, but in a profession where reputation is so important, it feels awfully cheap to me to just throw one’s credibility around. And there’s a related problem as well, as lawyer (and Harvard business school professor) Ben Edelman just found out: that your threats will reveal, via the magic of social media, what an insufferable tool you really are.

All of this is why most savvy attorneys rarely make lawsuit threats – they just file.  Or they only make a threat when their client is ready to pull the trigger on a lawsuit.  2

So back to the question: why would an attorney threaten a lawsuit he or she had no intention of bringing? Maybe because they feel like they have leverage over a small business, which has heard the tale of the lawyer suing for $10 million over a dry cleaning mistake.  Or because they feel they can browbeat or intimidate a low-level employee pr small business owner into getting their way (Harvard prof Edelman is obviously big on this tactic).

Not that any of that is right, but at least I can understand the logic.

But why would a lawyer make a threat like this to me?  It takes less than minute to look my background up, see that I may know a few things about media law and negotiating, and realize that the ol’ lawsuit threat bluff isn’t going to work.

Why would they make it to a restaurant owner with a large social media following, who can effectively embarrass them on a national stage?

It should occur to them that their target may turn the tables on them, and make their demands look like the churlish “standing on rights” that they typically are.

Yet lawyers continue to do this, over and over again. 3 It’s just appalling how little work goes into thinking through the efficacy of rolling out the lawsuit threat.  Believe it or not, many businesses don’t quake in fear at the thought of being sued. Many of us will just tell you to get lost – or if you really piss us off, we will make you pay, both reputationally and in actual dollars.

So lawyers, trust me – the “tool” of clearly explaining your position and asking politely for something reasonable? That’s a hell of a lot more effective than threatening to sue.

And it’s certainly a lot less likely to end up with you at the center of an epic media shitstorm.

Notes:

  1. This is also why bluffs work when playing poker. You actually want your bluffs to be called occasionally precisely because you don’t want credibility – predictability – at the poker table.
  2. On exactly one occasion in my legal career did I threaten a lawsuit I didn’t intend to follow through with. I still cringe thinking of it. And no, of course my bluff didn’t work.
  3. OK, and non-lawyers, too – witness the buffoonery of clown-troll Charles Johnson’s many lawsuit threats.

Ethics in Negotiation

When I first started blogging, I was exclusively doing mergers and acquisitions work, and a frequent topic for my posts was the ins and outs of negotiations.

A recent kerfuffle in the legal marketing world has raised an issue I haven’t addressed before – what are the acceptable limits of veracity in negotiation?  Or to put a sharper point on it, to what extent is it acceptable to lie to counterparties when negotiating?

Mirriam-Webster defines a lie as to “make an untrue statement with intent to deceive” or “to create a false or misleading impression.” This covers both affirmative lies and lies of omission.

And here’s the thing: anyone with the least experience negotiating knows that there are plenty of lies that are acceptable in the negotiating process.  It’s routine for parties to attempt to create a false impression of their level of interest in a deal, their bottom-line terms, or their feelings about their counterparties.   Many are the occasions when I’ve overstated my leverage, feigned indifference, and laughed at jokes that fall flat.

But I’ve always drawn the line at making shit up.

The reason it’s acceptable to  misrepresent one’s underlying motivation or feelings is that, fundamentally, motivations and feelings aren’t facts. They are fluid conditions, subject to change. They can shift based on any number of internal or external factors – including the persuasive powers of the person on the other side of the negotiation.

For example: if you ask “how much EBITDA did your company earn last year?”  your question seeks data that is fixed, and you expect a straightforward answer.   But asking “what’s the lowest price you’d sell your company for?”  The answer to that question isn’t fixed – even if your counterparty gives you the most transparent answer they can at the time, the “real” answer can – and probably will – change.  But because it’s not fixed – and it may not even be properly definable, given the fluidity involved – negotiators know that it is neither helpful nor required that they try at every turn to be completely transparent about their motivations.

So this is where people get hung up: they conflate this acceptable obfuscation of feelings, motivations and positions with the unacceptable invention of things that aren’t true.

There is a big difference between feigning a lack of interest in an offer and materially misrepresenting your operating results or professional background. Letting these lines get blurry – letting the facts get blurry – can make for a quick trip to a negotiator’s reputational ruin.

Negotiating for Dummies (Ph.D Version)

This Slate story, about a candidate for a philosophy professorship who had her job offer rescinded, attempts to make the point that academic institutions are cavalierly running roughshod over job candidates. Or as the article’s lead-in states, to gain entry to the academy, “it’s not ‘lean in’ so much as ‘bend over.'”

It’s very likely the case that institutions wield disproportionate power over candidates; tenure-track jobs in philosophy departments have always been a buyer’s market.

But so what? The interesting thing about this story isn’t Nazareth College’s decision to rescind the offer as it is the ignorance of a highly-educated professional to understand how negotiations work.  Here are a few lessons other job-seeking academics can take from this sorry tale:

It’s All a Negotiation

The eponymous “W” made her first mistake in thinking negotiation is some separate part of the job seeking process. Apparently she told the school, upon getting the offer, that she was going into “negotiation mode.” Say what? The whole process of seeking a job is one big negotiation. Sure, the brass tacks come at the end. But it’s a package of relationship-building and dialogue. You can’t think that you can abruptly shift that all aside at the end.  Any list of asks communicates something about you to the other side.  In sensitive or emotional negotiations, the wrong asks – or asks at the wrong time – can blow the whole deal.

Did W have any understanding of this dynamic?  Nope:

“This is how I thought negotiating worked, how I learned to do it, and, for that matter, how I think it should work: You ask about a number of perks and maybe get some of them. I was expecting to get very few of the perks I asked about, if anything … I just thought there was no harm in asking.”

There are plenty of times where “there is no harm in asking.”  And there are plenty of things that you can ask for that won’t cause any harm.  But ask for big things, at the wrong time, and you may well bring the negotiation to a screeching halt.

Preparation

You can’t really get a sense for where the sensitivities lie unless you’ve taken the time to figure out and account for what’s important to your counterparty.  And here W’s fatal error is obvious.

Nazareth College is a small liberal arts school.  It is, as W’s rejection letter noted, “teaching and student focused.”  Yet 4 out of 5 of W’s asks were for things that would reduce her time in the classroom: special maternity leave, a guaranteed sabbatical, a delayed start date, and a reduced maximum course load for her first few years.  This set of asks sends a powerfully negative message about W’s commitment to teaching and student life.

What’s more, two of these asks also raise additional problems.  Asking in advance for a semester off for maternity leave comes off as naive and entitled (as institutions have existing policies for maternity leave).  And I suspect that asking to delay the start date for a year came off as “retrading” – the bringing up of an issue at the 11th hour that the other party thought settled.  Retrading has been death to many a negotiation, and experienced negotiators know to avoid it at all costs.  There had likely been discussions about the need to fill the role, the timing, etc.  If this was the first time the school had heard that W wanted to delay her start, that would be offputting indeed.

Know Your Leverage

Besides knowing what’s important to the other party, you’ve got to know how much negotiating leverage you’ve got. Leverage determines how much you can ask for, and how hard you can press for those things.  What a superstar, experienced professor can ask for is worlds apart from what a first-timer like W can expect.  About the only leverage a first-timer has is inertia – the fact that the candidate selection process is long and time-intensive, and the school may be reluctant to re-open it.  But this is a thin reed to rely on in a job search.  There may be another candidate who is a close second.  Or your selection may have been a narrow one, with factions of the department opposing it.  Objectivity about your attractiveness as a candidate is key; having friendly, collegial meetings and a job offer is not the same as being heavily in demand.

Don’t Overreach

Understanding the sensitivities of the other side and knowing your leverage will give you a good sense of what you can acceptably ask for.  Even the superstar professor can overreach and fatally offend the sensibilities of the institution; it’s just that such an individual has far more negotiating room than a newly-minted professor will.  It’s here that W got it so wrong – you can’t just assume that “there’s no harm in asking” for your wish list of perks.  With the prize so close to being in hand, she stumbled over this most basic of negotiating principles by badly overreaching.

So does this mean, as the Slate article suggests, that candidates for first-time academic positions are completely powerless and can’t negotiate?  Of course not; it just means they need to recognize the relative leverage of the parties and calibrate their negotiating strategy accordingly.

It’s almost never a good idea to “shoot for the moon” in any negotiation.  But it’s a particularly bad strategy when you’re in a low-leverage position.

h/t: Simple Justice

(Image: The Academy of Fine Arts (1578), from the J. Paul Getty Museum)

The Minimum Wage Experiment

It’s March 15, so we’ve had the March for a $15/hour Minimum Wage thing going on in Seattle today.

The discussion in the city seems to be divided between those who want to enact a $15/hour minimum RIGHT NOW and those who want to roll it in a little slower, or perhaps with some carveouts allowing for tips and benefits to count toward the minimum. There hasn’t been much discussion at all about NOT increasing the minimum wage – or even acknowledging that while it would be nice if entry level jobs paid more, the potential for all sorts of unforeseen consequences is very real when you suddenly raise the minimum wage by 60%.

The problem I have with the $15 Now campaign is that it doesn’t acknowledge this possibility. And maybe that’s to be expected from an activist movement; they’ve got to stake out an extreme, easy-to-understand position. But it worries me a lot.

I’ve been working since I was 14. My first few jobs paid minimum wage – $3.35 an hour. I was probably worth that as a teenage dishwasher or busboy, but just barely.

Adjusted for inflation, the minimum wage I made in the early ’80’s would be $7.87/hour in today’s dollars. That’s a little over half of what the $15 Now people say the minimum wage should be. And if someone had paid the 15 year-old me $6.39 an hour (that’s the inflation-adjusted equivalent of $15 in 1983), I would have thanked my lucky stars.

But the thing is, no one would have paid me that much. I wasn’t worth it – not remotely. And I have no reason to believe that today’s teenagers and first-time job holders are worth it either.

By “worth” I don’t mean to imply some normative moral judgment. It’s simply the reality that businesses are going to hire based on their needs, and they’re going to pay salaries based on market demand and contribution to the business. And if the government increases the minimum wage sharply upward, they’re going to need to extract that much more value out of those minimum wage jobs.

What does this look like? Many of the $15 Now people naively claim that it will simply mean less profits for the companies, or marginally higher prices. But that viewpoint fails to account for the reality that many businesses that hire a lot of minimum wage workers a) face relentless price competition and b) are highly protective of their margins. Those employers are far likelier to substitute some of that labor with automation, and significantly raise their hiring standards. The real-world impact of this will be a lot fewer jobs for teenagers and those with little-to-no experience.

And that’s a problem. The best thing for me about working restaurant jobs as a teenager wasn’t the money it made me, but the experience I gained. And not just the experience that enabled me to land better jobs later. The experience of working at tasks, and in conditions, that taught me surer than any other lesson that I needed to continue my education so I could do something else.

I worry that the drive to raise the minimum wage will end up making it a lot harder for a whole segment of people to get their foot in the labor market door in the first place, and have that chance to start moving forward.

* all calculations via the Bureau of Labor Statistics CPI Inflation Calculator

Dropbox – No Good Deed Goes Unpunished

As someone who pays more attention than most to website terms of use (TOU), I’m amused by the kerfuffle over the Dropbox announcement this week that it is adding an arbitration provision to its TOU.

Reading the comments on the Dropbox blog, you would think this was the most devious, anti-consumer thing the company could have done.  But while these arguments have facial appeal (“THEY’RE CUTTING OFF MY CHANCE TO BE HEARD IN COURT!!”), they don’t acknowledge the reality of the situation.

Consider: the vast majority of consumer Dropbox users don’t pay Dropbox ANYTHING.  They’re using a free service.  And the rest of them aren’t paying much; maybe a few hundred dollars a year, at most.

Why is this important?  Because it means that most consumers will have little-to-no damages in any suit against Dropbox.  Like, little enough that it wouldn’t justify paying the filing fee in small claims court (typically $100-$200), let alone dealing with the time and expense of a full-blown case.

Dropbox is offering a free, expedited means of getting such claims resolved.  While many argue that the arbitrators will be biased toward Dropbox as the company is paying the bills, in my (20+ years) experience this is not a real concern.  Or at most it’s an edge case, a minimal risk compared to the crap shoot you’ll get in small claims court.  But more importantly, it’s a very minor concern compared to the fact that the Dropbox arbitration procedure removes the cost and friction that would leave most small, legitimate claims stillborn.

And another point on that friction:  Dropbox allows users to bring the arbitration in whatever county the user lives or works.  The typical website TOU – which you almost never hear objections about – will contain a forum selection clause requiring that all claims against the company be brought wherever the company is headquartered.  Such provisions are routinely upheld (and make a world of sense from the company perspective).

Dropbox COULD have said, “fine – you got a claim?  You can have your day in court.  In San Francisco.”  Instead, they’ve set up a process that makes it far easier for the vast majority of consumers to have claims addressed.

Yet predictably, they’re getting abused for it.

Negotiating with Crazy People

On my first blog, I wrote extensively about negotiating – things I’d found effective and ineffective in a career spent negotiating business deals.  One of last posts on Corporate Tool was during the debt limit crisis in 2011; it had to do with the difficulties of negotiating with crazy or completely unreasonable counterparties.

President Obama finds himself in that situation now, and he’s doing what I (and many others) wrote he should have done two years ago: refuse to negotiate.  He didn’t follow that advice, which is why he finds himself dealing with an escalated variety of crazy this go-round.

But here’s the thing: the hardest about dealing with crazy counterparties is figuring out that they are, in fact, crazy.  It’s a long road, particularly if you are reasonable sane, smart and objective yourself, to get to the point where the “these guys are batshit” lightbulb goes off. You want to believe they are reasonable.  That they get how cause and effect works.  That they understand the respective leverage each party holds.  That they want to get a positive outcome for their side.

It may take repeated interactions to get past these assumptions and realize that fear, nuttiness, personal agendas, or a clinical lack of objectiveness is driving their behavior.  And the longer it takes to get there, the more empowered they become.  Their demands become more outrageous.  They retrade. And heaven help you if you finally wrestle a deal to the ground, and then have to deal with them again.

The good news is that once you’ve figured out that you’re dealing with nutters, the negotiating strategy is straightforward: you don’t negotiate.  Anything.  Until they change out the team or demonstrate a newfound and durable commitment to sanity.

If anyone wonders why President Obama doesn’t give up, say, the 2.3% tax on medical devices, or a delay of the ACA individual mandate, in exchange for keeping the government funded, it’s because he’s finally figured out that he’s dealing with crazies in the House.  People who are engaging in a form of economic terrorism in an effort to get their way.  The answer to such tactics isn’t to sigh and give in – it’s to keep saying “no” until they come to their senses or the team is changed out.

Photo: Lexington, KY Historical Society (josh king)

Talent vs. Attitude

“An organization filled with honest, motivated, connected, eager, learning, experimenting, ethical and driven people will always defeat the one that merely has talent. Every time.”

That’s from Seth Godin’s recent post “The Truth About the War for Talent.”  And it nicely reflects something I’ve thought about a lot as Avvo has grown crazily over the last few years.

Maybe when we say “talent” we really mean that killer blend of the right skills and the right approach.  But having worked in American business now for nearly two decades, I can report that we continue to give an outsized rating to markers of a more traditional definition of “talent:” educational attainment, certifications, ability to perform on tests, skills-based interviewing, etc.

Not to say these things aren’t important, but in almost any field there’s a wide mushy middle where everyone has cleared the “competence” bar.  From that point, exceptional performance is driven by attitude.  The fact that one candidate scored higher on an interview test or went to a better school matters far, far less than:

  • Who is willing to own the business outcomes and relentlessly drive them forward?
  • Who is going to actually deliver on what they say they’re going to do?
  • Who is going to focus on fixing problems rather than fixing blame?
  • Who is willing to take smart risks?
  • Who contributes positive energy to the group?

Possessing the skills to do the job – even advanced skills to do the job –  is now no more than table stakes.   Attitude is where it’s at.

(Image: An Azappo Archer with a Cheetah (about 1575), from the J. Paul Getty Museum)

The Getty Open-Accesses Images

As an (occasional) blogger and avid reader of blogs, I love the use of images.  You may have noticed that I’ve started using various images I’ve taken via Instagram to illustrate my blog.

I also regularly do seminars for lawyers on the law of blogging.  And I always, always get someone who thinks it’s OK to just clip images off the web without thinking about copyright.

And these are lawyers.

So I was delighted to see that the Getty Museum has freed up some 4600 images of works from its collection for nearly-unfettered use.  Delighted because it gives bloggers an easy source of images, and delighted because the images include many wonderful pieces from the classical and medieval eras.

Expect to see them start getting sprinkled in here.  Many ancient themes are timeless, capable of expressing both existential angst AND frustration over potholes in Seattle’s shitty bike lanes.

Or something like that.  Anyway, above is A Bird on A Dead Wolf (page from an illuminated manuscript, about 1270), from the J. Paul Getty Museum.

 

Compliance Exercises

Counter-apropos of my last post comes this article in Corporate Counsel magazine about the need for an independent Chief Compliance Officer in most corporations. The article presupposes general agreement that having such a position is critical to “elevate compliance and improve corporate governance.” And I suppose it is. But is it critical for what really important in a corporation?

You know, doing business?

And growing that business?

There’s no question that having a Chief Compliance Officer will help tick the boxes when it comes to corporate governance. But it runs the risk of glorifying the grocery clerk mentality, the lording of form over substance. Unlike every other C-level officer, this putative Chief Compliance Officer is focused on something wholly apart from the business and its goals: complying with the dictates of government. Compliance bears within its genes the potential for mission creep. Just as the regulator inevitably seeks to expand the scope of that which is regulated, the compliance officer lives with the danger of seeing ever-more ways that laws – and, critically, interpretations of laws – can be complied with. This is especially true if “compliance” is unmoored from legal, which should, at least in theory, be laying a claim to helping the business grow.

An example: My first General Counsel job was with a regional cellular company, shortly after the Telecom Act threw the mobile wireless industry into deregulation. A compliance officer would have told my board that we couldn’t possibly sell wireless phones and rate plans on a bundled basis. That was the conservative, “compliance-centric” interpretation of the regulations, which were in a state of flux at the time. It was the approach taken by our competitor. To me, young and unburdened with a career spent working for the telephone company, it was lunacy. Of course we could sell bundles, and if the regulators came around asking questions, we had a perfectly good explanation for them. An explanation that was supported by our good faith interpretation of the law and consumer interest. So we bundled away, and took a ton of market share. After nearly a year, our competitor followed suit.

I think about that often when considering the damage a compliance-first attitude can cause a company. There’s so much grey area, and so many ways to find a “compliance solution” that prevents business from happening. There’s also the very real danger that by focusing solely on ticking off the compliance officer’s checklist the company will miss bigger, more amorphous legal problems.

There may be industries where a robust – perhaps even independent – compliance program is called for. But those industries where abuses have been at their worst (financials, I’m looking at you) have never suffered from a lack of people focused on compliance. While having a lot of grocery lists will help prevent everyday lawbreaking, it’s not proof against more systemic problems. And in the meantime, it carries a very real cost in risk of loss to business focus. Far better, then, to have someone in the legal department who is focused on compliance, but whose prescriptions are ultimately filtered through the more practical hand of the GC.

Creative Commons and “Noncommercial” Use

One of the promises of Creative Commons is the idea that all sorts of works – writing, photography, other visual arts – can be made more accessible via a workaround to state-based copyright law (here in the US, copyright attaches automatically to virtually any independent work of expression – this blog post, your cat photos, my son’s CreepyPasta entries – you name it).

It’s a good idea; the uncertainty of copyright makes it harder to share things than it should be.  For example, let’s say I found a photo online that I wanted to use on my blog.  I could try and contact the photographer and get permission to use it, but that’s an uncertain process at best.  It will take an indeterminate amount of time, with no guarantee that I will get an OK – or even any response at all.  So I’ll move on to a less-ideal choice of photoillustration, or go with no photo at all.

Creative Commons is designed to solve that sort of problem.  If the photographer assigns a Creative Commons license to the photo, I should have all the information I need from the license to know whether I can freely share it on my blog and what conditions, if any, apply (for example, attribution, restrictions on derivative works, etc.).

In practice, however, Creative Commons doesn’t work as well as it could.  There are a number of different license types, with different conditions and limitations on use.  And as Glyn Moody at Techdirt points out, license types can be freely changed by the creator of the work, leaving a previously-permitted use twisting in the wind (although CC licenses are non-revocable, it can be difficult to prove that use was under a previous license).

The biggest problem, however, is the fact that many Creative Commons licenses have limitations to noncommercial uses.

Why is this a problem?  Because very, very people actually understand what this means.   Even most attorneys don’t understand what “noncommercial” means.  And this leads not only to hurt feelings (and more restrictive licenses) when a use is made that the creator doesn’t care for, but also a lot of uncertainty among those who would otherwise use the work.

Back to my example of clipping a Creative Commons-licensed photo for a blog.  Let’s say the license is “CC BY-NC” – a widely used license permitting sharing (with attribution) and derivative works but restricting commercial use.  Well, no problem – my blog is noncommercial, right?  But what if my blog has advertising? What if it has a Cafepress store, Amazon widget, or some other form of merchandising?

What if I’m writing for the New York Times?

The answer is that – in the U.S. at least – none of these examples represent commercial use.  The fact that a publisher has a commercial motive does not mean that everything published is likewise commercial.  “Commercial” means that the work itself is resold or incorporated into something that is for sale (although there are plenty of exceptions even then, starting with fair use).  This is a basic legal principle, and it’s been reinforced time and time again.  See, for example, the Dex Media v. City of Seattle case I wrote about earlier.  Or the Browne v. Avvo suit filed by an attorney upset over his rating right after Avvo launched in 2007.  Or the latest Lindsay Lohan lunacy, involving a suit (tossed yesterday) over a reference to the troubled actress in a Pitbull song (“locked up like Lindsay Lohan”).

The fact that this principle has to be so often reinforced shows how lacking in fluency many are when it comes to the distinction between the commercial interests of a publisher and the noncommercial nature of that which is published.  And based on my anecdotal reading around this issue (and talking with many, many attorneys confused about this point), more people than not believe that “noncommercial” means that the work in question will only be used by a noncommercial entity.

So the CC BY-NC license is a half-measure that probably leaves few really satisfied.  I suspect all would be better off choosing either to stick with full copyright protection (if the thought of having your work published in for-profit media offends) or go with a wide open CC BY license – or even renounce all copyright protection entirely with a CC0 license.  Creative Commons should also consider providing more guidance around exactly what “noncommercial” means – and what it doesn’t mean.