Not-So-Small Talk

A successful deal may hinge on the ability to create trust — or uncover deception.
Alix StuartDecember 1, 2007

He rubs his chin, you rub your chin. She crosses her legs, you cross your legs. Does he have a Southern accent? Talk more slowly and drop the occasional “y’all.” While this might sound like one of those games children play to annoy one another, this adult version of “mirror mirror” is actually part of a sophisticated negotiation strategy that has helped close otherwise impossible deals — at least in the laboratory.

Skeptical? Consider the following experiment, in which a gas-station owner wants to sell his shop immediately, but won’t go below $553,000. One buyer is interested, but can’t pay above $500,000. If the owner trusts the buyer enough, though, he might take the lower price in exchange for a guarantee that the buyer will keep him on as store manager. How to build that rapport quickly? When buyers in this business-school experiment were instructed ahead of time to subtly mimic the sellers, 10 out of 15 buyers reached a deal. By comparison, only 2 of 16 buyers who played it straight were able to find a joint solution.

Mimicking your counterparty “creates the perception that we’re on the same page,” which makes trust — and a deal — more likely, explains William Maddux, a professor of organizational behavior at Insead. Maddux worked with Elizabeth Mullen of Stanford University and Adam Galinsky of Northwestern University to run the gas-station experiment and write a colorfully titled paper about it, “Chameleons Bake Bigger Pies and Take Bigger Pieces.”

There is a question of ethics — is it right to knowingly manipulate someone? — not to mention the fact that the strategy will surely backfire if the aping becomes too obvious. Maddux says neither concern has created problems yet in his research, however. Mimicking “is something we do all the time, even with people we don’t like,” he says, and is likely to lead to better outcomes for both parties involved, not just the mimicker. “In general, the more you can do to facilitate trust and rapport in a negotiation, the better both parties do,” he says.

The art — and increasingly, science — of negotiation frequently centers on how to build trust, and how to proceed in its absence. “Who are you more likely to reach an agreement with: someone you like and empathize with, or someone you don’t?” asks Stephen Goldberg, a professional mediator and professor of law at Northwestern University. Trust is the intangible ingredient that can make or break a deal — or make it better.

Tiny Gestures

As far back as 1936, when Dale Carnegie published How to Win Friends and Influence People, business gurus have recognized the power of tiny gestures in creating trust. For example, repeating a person’s name and getting him to talk about his interests are two of Carnegie’s nuggets for making people like you. Looking people in the eye, at least in Western cultures, and shaking hands firmly are other axiomatic indications of trustworthiness.

The value of small talk hasn’t changed, though the content varies with the times. Bantering about sports teams, college affiliations, or even the weather also creates common ground that “helps establish the idea that we’re similar,” says Goldberg. And research confirms that gestures and small talk count. In one 2000 study, Harvard Business School professor Kathleen McGinn found that half of all negotiations done by E-mail end in impasse, while only 19 percent of face-to-face negotiations do. People tend to share less information over E-mail, explains McGinn, and cannot use body language to help convey intentions.

Making time for small talk can pay off handsomely. Robert Chalfin, head of Chalfin Group Inc., says it was during a casual lunch that one of his clients, a tech-firm owner looking to sell the business, warmed up to a potential buyer. As the would-be buyer recounted how he had taken his son fishing, “you could see the lightbulbs going off in people’s heads, and all of a sudden the trappings of the meeting evaporated,” recalls Chalfin. It didn’t matter that the sellers didn’t fish; the key factor was a shared emphasis on family and hobbies, he says. Ultimately, the lunchtime buyer won the deal.

Engaging in a form of verbal mimicry, by understanding and speaking a counterpart’s lingo, can have the same effect as physical mimicking, says Deepak Malhotra, associate professor at Harvard Business School and co-author (with HBS colleague Max Bazerman) of the 2007 book Negotiation Genius. One consulting firm he knew of lost a bid to help an airline modernize its ticketing process when it revealed its ignorance of the term “lift,” common parlance in the industry for tickets. “It’s not an integrity issue, but it shows competence and caring,” comments Malhotra.

Ironically, some measures you might think would create more trust can, in fact, erode it. For example, using overly detailed contracts to seal a deal can lead to a less secure relationship over time, according to Malhotra’s research. “If we have a contract that’s very binding, every time you do something good, I’m more likely to attribute it to the contract, not to you being a nice person or caring about me,” he explains. When possible, Malhotra advises making contracts less specific or nonbinding at the beginning of a relationship, to avoid “crowding out the possibility of building trust, since you’re never going to have a contract that can predict every contingency that may arise, and you will need to rely on trust at some point.”

Lie Detectors

It’s one thing to show the other party that you can be trusted. But how do you know if you can trust the other party? Many people say they can size up a person’s trustworthiness in a few minutes. “There are certain people you just know you’re not going to do business with — sometimes it’s the eye contact, or their handshake, or the way they ask questions,” says Robert Kurtz, CFO of the Glazier Group. Indeed, much has been written over the years about behaviors that supposedly indicate dishonesty, such as fidgeting, avoiding eye contact, or speaking in a strained tone.

But Malhotra cautions against reading too much into body language. Research shows it is not consistently reliable, he points out. However, he says it is possible to uncover lies by asking very focused questions and looking for answers that sidestep them. “Most people don’t like to lie, but they don’t mind if you’re deceived,” explains Malhotra. That involves careful listening. For example, if you ask a supplier “Is that the lowest price you can offer on this item?” and he replies that it is the lowest price he’s ever sold the item at, he may be hiding the fact that he could indeed go lower, Malhotra says.

A deal can go sour whether another party to a negotiation deliberately lies or is merely overoptimistic. One way to protect yourself is to propose some contingencies in a contract that potentially benefit both sides. Last year, when E-commerce firm ATG was looking to acquire eStara, a privately held start-up, the two sides were still apart on price after several rounds of negotiations, says ATG finance chief Julie Bradley. At issue: eStara executives believed their firm would double revenues to $30 million in the year ahead, since they had doubled revenues the previous year. ATG executives thought they were being unrealistic, since “it’s a lot easier to go from $7 million to $15 million than $15 million to $30 million,” says Bradley.

To bridge that gap, ATG offered eStara a lower price up front, but $6 million if the company met its target, and $2 million if it hit $25 million. That was a win for both sides, says Bradley, since it protected ATG from overpaying, but gave eStara a chance to prove itself and another year of autonomy (to make tracking the earnout easier, ATG didn’t integrate its sales force). A year later, it turns out Bradley was right about $30 million being overly ambitious, but no one is worse off for that fact. “We expect them to hit the first tier of the earnout, and we’re thrilled,” says Bradley.

Whether it’s giving a wink and a nod, telling a story, or simply being philosophically flexible about how to get a deal done, CFOs would do well to pay attention to the niceties of negotiation. “Don’t let the numbers speak for themselves,” says Malhotra. Instead, “go the extra step and make sure you explain your intentions.”

Alix Stuart is a senior writer at CFO.