Monthly Archives: October 2011

In any negotiation, people have to believe that you mean what you say. The enduring problem in the on-going “negotiation” between the Eurozone governments and the financial markets is that the markets do not believe that the Eurozone governments have the will or the capacity to address the sovereign debt crisis.

Prevarication and avoidance have marked the response of the Eurozone Governments so far which simply deepens market scepticism. The Markets now assume there will be a sovereign debt default in Greece and so attention has switched to the stability of the Banks which would suffer in any such default.

Unfortunately in this context it is almost irrelevant that President Sarkozy and Angela Merkel stand shoulder to shoulder and say that “everything necessary” will be done to recapitalise Banks in the Eurozone. This also does not provide any credibility that the issue will actually be addressed – in legal terms it has all the persuasiveness of “an agreement to agree”.

If one side in a negotiation feels the other side lacks credibility then they are likely to push harder for what they want. So it is that in these circumstances it’s no surprise that after initial mutterings of support, the markets decided that the message from Merkel and Sarkozy meant virtually nothing. Indeed Moody’s warned that “since any recapitalisation initiative will not address the underlying driver of Europe’s Bank crisis (mounting sovereign debt concerns) it is unlikely to achieve more than a temporary respite from Banks sovereign debt woes and we expect investor sentiment to remain fragile”….

This is a crisis arising out of poor negotiating technique as much as underlying economics. Until the Eurozone musters the negotiating skill to negotiate with the markets effectively, […]

One interesting side show in relation to the ongoing Euro negotiations concerns the attempts to “gag” the Ratings Agencies such as Moodys and Standard and Poor. Preventing the other side in any negotiation from having their say is normally a mistake in any deal, and this is indeed a negotiation, between the representatives of the financial markets, and the Institutions of the Eurozone.

There is no doubt that in ongoing negotiations over the Euro these agencies play a role, since they seem to lead market sentiment with their negative pronouncements. In some ways it is surprising therefore that the Eurozone Institutions have not previously engaged more proactively with these agencies – in any negotiation you need to embrace all stakeholders in the ultimate outcome. Michel Barnier, EU Internal market commissioner has now announced that Credit rating agencies could be banned from downgrading countries in the Eurozone’s bailout scheme and the ban could be extended to countries negotiating the bailout.

The pronouncements of the Agencies are certainly often very inconvenient. They frequently trigger market tensions. It is not surprising that the Eurozone institutions wish they could be muzzled. However, in any negotiation it is critical to allow all participants to have a voice. If you don’t they will not buy-in to the outcome. Regulating against the Agencies will not prevent them finding unofficial ways of letting their views be known. Moreover there are plenty of other analysts around who don’t work for Agencies and will be happy to continue to give their downbeat opinions to the market place. In addition, attempting to gag the Agencies makes it look like the Eurozone Institutions are running scared and that in itself would be enough to spook the markets.

The […]

Fascinating insight into the negotiating psyche of Steve Jobs in Friday’s Financial Times (article here). According to his biographer, Walter Isaacson, he was apparently so incensed by Google’s creation of the Android platform that he threatened he would “destroy” it. “I am willing to go to thermo-nuclear war'” he is reported to have said.

Jobs’ fanatical approach to preserving Apple’s “walled garden” of technology devices and platforms is well documented. The patent wars that commenced with suits against Samsung and HTC have their roots in this hostility.

This kind of omnipotent aggression can be detected even in relation to Steve Jobs attitude to his own difficult illness. He refused an operation for 9 months that might have saved his life. Apparently his view was “I didn’t want my body to be opened. I didn’t want my body to be violated in that way”. This stubborn refusal to co-operate, and to remain within the “walled garden” of his own body may have been costly indeed.

Apple’s habitually aggressive attitude to negotiations with competitors can be traced to this hostile approach to the outside world – “push” hard, no quarter given. It will be interesting to see whether this attitude continues in the days ahead as Apple comes to terms with Jobs’ demise. Will they continue to play negotiating hardball, or will a more collaborative approach develop in which Apple gets what it wants by considering the needs of others as well as its own expectations? Will it come to realise that it can get more of what it wants by being less protective of what it has?

The sequence of events surrounding the dismissal of CEO Michael Woodford at Olympus illustrates that when you negotiate you sometimes have to accept that incremental progress is the way to proceed rather than insisting on negotiating to your ideal outcome from the get-go.

In this case CEO may have pushed for his desired result too early in his tenure as newly installed CEO. The outcome was his dismissal and ensuing chaos for the company.

Woodford was an interesting appointment. He was surprisingly installed as worldwide President in February. A 30 year veteran of the company’s European operations he bypassed domestic senior candidates for the job, to become the first foreign boss in the 92 year history of Olympus. His reputation was as a cost cutter and the plan was that he would change the company. Olympus needed to become more competitive and its employees would benefit from his international outlook, to match the international reach of its products.

Woodford alleges he discovered huge irregularities in the company’s books. He identified what looked like massive overpayments for 3 small unrelated companies with no obvious connection to the Olympus business. Olympus subsequently wrote off 76% of the value of these businesses. Woodford was also concerned at the identity of the beneficiaries of these overpayments – shadowy offshore special purpose vehicles. He also raised concerns about the price paid for another company, Gyrus, a maker of surgical cameras. The price paid included a $687 million payment to an obscure financial advisor. That is equal to 7 times Olympus’ net profits last year.

In October Woodford wrote to the Board demanding that they resign over a “catalogue of calamitous errors and exceptionally poor judgement’. He was himself sacked 3 days […]

When you are negotiating as a team it’s imperative to have a united team. If you don’t then the other side will make the most of your disunity. This is one of the many enduring problems in negotiations concerning the Euro. Ranged on the institutional side of the negotiation are the Eurozone Governments – in particular France and Germany, the European Central Bank, and the IMF. On the other side are the financial markets.

The Eurozone institutions are grappling in a disunited way with two major headaches – the inability of Greece to repay its debts on schedule, and how to set up safety mechanisms to offset the impact of a Greek default on other vulnerable countries such as Portugal, Italy and Spain.

In relation to the Greek issue a schism has emerged between the IMF and the ECB, with the IMF arguing that the bailout needs are that a further “haircut” is needed from private owners of debt in Greece as the economy has deteriorated so badly that global lenders would otherwise need to find €252 billion in bail-out loans through to the end of the decade. This is more than twice the €109 billion agreed by the EU and the IMF only 3 months ago. Accordingly the IMF is suggesting a “voluntary” 60% reduction in debt for bondholders as opposed to the 21% previously agreed. The ECB on the other hand fears that this would cause market panic. This very difference of opinion itself promotes anxieties in the financial markets.

The second issue is that of increasing the firepower of the European Financial Stability Fund which would address any need to buy or guarantee bonds of Governments under pressure because of their exposure to sovereign […]

Interesting piece on Chinese public sentiment following a tragic accident during the week. It’s only a vignette, but could it be an indicator of how Chinese negotiating needs may change over time?

Yue Yue, A young girl of two was run over by a car in a hit and run accident. Nobody came to help and the driver drove off without stopping to assist. The child was left injured in the road. 18 passers-by walked on and didn’t stop. It was only after she had been hit by a second car that people came to her aid. This story has prompted a period of moral reflection in China, about whether the Chinese have become so fixated with money and material progress that they have no time for morals. Lawmakers are even meeting to discuss whether they need to introduce a ‘Good Samaritan’ legislation.

This is interesting. Individual’s needs in life (and in negotiation) often go through a progression, starting with survival needs, and moving through to a need for reassurance, then respect, then belonging, and then through to achievement. Each level of needs must be satisfied in turn.

China has been on a fast-track journey of economic growth, catapulting its population through these various stages of need. Negotiations with the Chinese are often characterised as being very hard-nosed; which is consistent with levels of need such as “respect”. It is also consistent with a negotiating need to “belong” – to be taken seriously as a leading economic super-power.

However, as China’s population becomes wealthier, a new imperative for “achievement” develops. It was interesting to see in the Sunday Times that China is pre-occupied with a desire to develop its own original internet businesses rather than copying western internet […]

The votes in the Slovakian Parliament this week show how even though you may be a small player, you may have a lot of “niche” bargaining power.

Slovakia was the last one of 17 nations to vote on the proposed Eurozone extension of the bailout fund, in a context where all 17 countries had to approve it. This, in spite of its size (the country produces just 1% of the Eurozone’s total output) gave it a lot of bargaining power as it was in a niche of “one” – no other government could give this approval and the approval itself was essential for progress to be made.

The initial vote was apparently opposed for local, tactical reasons, the result of which was to bring the existing coalition government down. With this government removed and a massive amount of “push” negotiating behaviour coming from other Eurozone Governments, it wasn’t surprising that on Thursday night a 2nd vote by the Slovakian parliament eventually passed the EFSF bill. It is not difficult to imagine how forcefully expectations were stated and pressures exerted on Slovakia – both of which are typical “push” negotiation tactics.

I wonder though, if the Slovakians realised just how much bargaining power they had? On the face of it, it is slightly absurd that one of the poorest countries in the EU should apparently be required to shoulder an extra €7.7 billion of debt just to bail out the Greeks. If I were them I would have been tempted to use my bargaining power to negotiate an amelioration of their share of the bail-out burden.

The benefits would need to have been subtle so it didn’t look like Slovakia was taking advantage of the situation. […]

Negotiation and deal making is much more complex than many people think. You might be surprised to learn that with any deal there are seven different stages that the negotiation goes through, twelve possible behaviours and nine different sources of bargaining power.

An effective negotiator needs to be able to understand and practice the 3 angles of successful negotiation: Attitude (or ‘state of mind’), Process and Behaviour. For each of these angles, I will now outline 4 key points to help you manage your negotiations effectively.

Have a Positive Attitude to Negotiating

1) Know what you want – it’s important to keep your ideal outcome (or outcomes) in mind throughout a negotiation.
2) Believe you can get what you want – confidence is everything in negotiation. If you go into a negotiation lacking self-belief that will leak to the other side and your anxieties will be self-fulfilling.
3) Be interested in the needs of the other party – if you do a deal where the other side’s needs are not taken into account at all, they will seek to disrupt the deal either explicitly or covertly, even if they felt obliged to agree to it in the first place
4) Acknowledge that the use of negotiating skills is more important than the exercise of power. Again, if you force people into deals through the use of power, they will have no commitment to the bargain.

Understand the Process of a Negotiation

1) What is going on in the negotiation? – Are the 6 key ingredients in place for a negotiation to happen? Which stage are we at? Are we exploring the needs on both sides? Are we setting the appropriate climate for the deal? Are we bidding? Bargaining? Or […]

Well, the negotiation adage says that “if you fail to prepare you prepare to fail” and the unfolding story surrounding Dexia Bank illustrates this.

The ongoing Eurozone crisis has now turned the spotlight on the capitalisation of European Banks and a “negotiation” is going on between Eurozone institutions and the financial markets as to whether the Banks are strong enough to withstand expected defaults on sovereign debt from Greece, and possibly other states.

This negotiation is not unexpected. It has been apparent for some time that Greece in particular could not hope to pay its debts. So, there has been plenty of time to “prepare”, for the resulting negotiation with the markets – preparation being the first stage of any negotiation.

So, in July the European Banking Authority conducted stress tests on some 90 European Banks. Good idea except that the tests used outdated metrics and were widely derided by the markets. Indeed so inadequate were the tests that the now-collapsing Dexia came 12th out of the 90 banks assessed. This was despite the fact that it used a dangerous method of securing short term lending from banking wholesale markets to underpin its long term funding requirements – exactly the technique which caused Northern Rock to collapse as its access to short term funding disappeared.

If you skimp on preparation you will not win most negotiations – preparation is an investment of time. Having not used that time wisely, Belgium, France and Luxembourg have had to move hurriedly to prop up Dexia. Despite the protestations of Francois Baroi, the French Finance Minister, that no more banks will need to be rescued, it seems inevitable that there will be more to come. The Eurozone governments have […]

One of the keys to any successful negotiation is confident bidding. If you are assertive and look like you believe what you are saying then the other party may believe that you mean what you say. If you are anxious, hesitant or evasive then the other side won’t believe you and are likely to exert pressure on you to get more of what they want.

This is the story of the Euro crisis in a nutshell, and the latest vote in the German Parliament to endorse a rescue package will not alter this dynamic in anything other than the short term.

The financial markets do not believe that the Eurozone governments and the ECB are really willing or able to ensure that struggling economies like Greece will honour their huge sovereign debts. This is particularly so with regard to Greece. Market sentiment seems much less concerned with Ireland now, Spain and Portugal are seen to be making headway in solving their problems, and Italy is not seen as quite such a basket case.

The doubts about Greece are partly caused by prevarication within the Eurozone itself. Every time the Eurozone Governments avoid dealing with the issue or pass the buck to the ECB these concerns are intensified and market panic ensues. It is fine that the German Bunderstag has endorsed the expansion of the EFSF rescue fund available for buying debt bonds from Eurozone governments including Greece. However, other countries still have to endorse the package, so the markets remain sceptical of the outcome, and will continue to demand sky-high yields from government bonds in the meantime, or avoid buying them – both of which enhance the prospects of a default.

The same thing happens every time […]