May 1, 2017

Key lessons on business negotiation from the Obamacare debate

Posted in Negotiation by Eugene Killian, Jr. |

As all of us who are subjected to an unrelenting barrage of political news know, during the 2016 Presidential campaign, Donald Trump repeatedly pledged to repeal and replace the Affordable Care Act, or “Obamacare,” a program that attempted to reform the American healthcare system.  The ACA had been passed in 2010 with no Republican support.  After Trump was elected with control of both houses, and after much wrangling, the Republicans assembled an alternative bill called the “Patient Protection and Affordable Care Act.” There were rumblings that many Republicans were unhappy with the alternative bill, for a variety of reasons, but President Trump demanded that the bill be voted upon.  Shortly before the vote was to happen, the Speaker of the House, Paul Ryan, informed the President that there weren’t enough votes for passage, and the President requested that the bill be pulled, which it was.  So, reforming the ACA is, for the foreseeable future, off the table.

It’s always difficult to analyze negotiations from a distance, because we don’t know what happened behind closed doors.  This particular negotiation, also, is fraught with politics, which means the truth is hidden beneath layers and layers of BS, freely slathered on by both sides.  But are there any lessons we can draw about negotiation generally from the whole episode?  I think (hope) the answer is yes.

First, let’s talk about the concept of moving too quickly in negotiation.  Let me preface this by again saying that many things were probably going on beneath the surface here.  It’s possible, for example, that President Trump never truly wanted to repeal the ACA, and he knew that pushing it to a vote would cause the matter to implode and go away.  But I’ve served as a professional mediator and negotiated many deals myself over the years, and I’ve seen many negotiations fail because one side, wanting to “cut to the chase,” moved too quickly.  Negotiation is a ritual.  Ignore the steps of the ritual at your own peril.  (Which is not to say that ultimatums are always a bad strategy. Timing in life is everything, though.)

Trump’s ultimatum reminded me of an interesting story about Ted Turner, discussed in Dr. Michael Benoliel’s excellent 2005 book about negotiation, “Done Deal.” In the 1980s, Turner predicted – accurately – that the broadcasting industry was on the verge of consolidating and would soon be controlled by a few giant corporations. Anxious to control more programming (like movies), Turner began talking to the major networks about mergers and possible partnerships. In 1985, Turner tried to buy CBS, but failed. The loss infuriated him and increased his determination to find a suitable partner. Turner’s fellow business mogul Kirk Kerkorian, the owner of MGM/United Artists, then told Turner he was going to put MGM/United Artists up for auction in two weeks, but would give Turner right of first refusal. Turner could have the company for $1.5 billion if he were to close the deal within those two weeks.

Desperate for the buy, Turner sent an army of lawyers and accountants to MGM/UA to examine the books, and told his board that Turner Broadcasting Systems had to have MGM/UA’s programming to survive. On August 6, 1985 – two days before the deadline and without any negotiation whatsoever over the price – Turner signed a purchase agreement to buy MGM/UA. In his rush to close the deal, Turner paid $200-$300 million more than industry analysts thought the company was worth. Also, MGM was in a bit of a financial freefall at the time, having released a series of unpopular, money-losing films. Worse, under extreme time pressure, Turner’s attorneys had failed to ask what legal commitments MGM had recently made, and Turner therefore didn’t know that MGM/UA had just signed a contract with a third party locking up all cable rights, and that HBO had already contracted to buy several MGM movies at a very advantageous rate. As Dr. Benoliel noted, Turner had violated the Rule of the 5 P’s of negotiation: “Prior Preparation Prevents Poor Performance.”

Nobody likes to waste time.  But the bottom line is, be careful about moving too quickly in a negotiation. 

A second aspect of the ACA negotiation is particularly relevant to those of us who provide professional services, and that is:  The negotiation with your client is often more difficult than the negotiation with your adversary.  Look, if you have substantial experience in negotiating transactions or the resolution of disputes, and you do your research, you generally have a good idea of what your client’s position is worth. But I can’t tell you how many times good deals, negotiated by the professionals, have been tanked by clients who thought they knew better. Here, at least from what we can see, Trump made a promise but didn’t have complete buy-in from his “client” (the Republican Party). As a result, the “negotiation” collapsed. In any negotiation in which you’re representing a client, make absolutely sure that you understand the client’s interests and goals before you start committing to a term sheet. (Side note: I had a trial a couple of years ago in which my adversary agreed to a settlement on the record and represented that he had client authority to do so. After the terms were entered into the record, the client, who was not present for the hearing, got cold feet. You can imagine the unpleasant situation that followed.)

One final lesson. Negotiation is poker. The other side may be bluffing, or it may have “the nuts,” as poker players say.  You may never know for sure. Was Trump serious about repealing the ACA? Or was he just trying to keep his constituents happy by making a superficial effort, even though his heart wasn’t really in it? We don’t know. What we do know is that in a business negotiation, you should constantly be asking probing questions to try to uncover the other side’s true interests.  That will improve your chances of a successful outcome.