In the Journals: Don’t Always Play Hardball

A new study lends support to the credo that tougher negotiating may yield short-term results at the expense of long-term relationships.
Lisa YoonOctober 15, 2004

Congratulations: You’ve negotiated the deal of the century. But if you bargained too hard, don’t expect the other party to do you any favors in the future.

That commonsense understanding, which many senior finance executives may appreciate intuitively, now has the support of research by Hannah Riley Bowles of Harvard’s Kennedy School of Government and Linda Babcock and Lei Lai of Carnegie Mellon’s Heinz School of Public Policy and Management.

In their study, 134 participants were paired as buyers and sellers in a price negotiation. Sellers paired with more-deal-hungry buyers were left with a bad taste: They were less satisfied with the negotiation outcome, found their buyers to be less likeable, expressed less willingness to work with those buyers in the future, and were less generous with the buyers in allocating money in a follow-up exercise to the negotiation experiment. The buyer may have gotten a good deal in that one negotiation, but if he or she hopes to build a relationship with the seller, that short-term result may not be very helpful to long-term interactions.

According to the authors, we tend to think of negotiation in terms of isolated situations, but “the social outcomes of negotiations may have more far-reaching implications than one’s individual payoff from a single negotiation.” That’s especially significant for senior finance executives, who are so dependent on continuing relationships with auditors, bankers, vendors, fellow senior executives, and other parties.

Do You a Favor? Social Implications of High Aspirations in Negotiation

working paper from the John F. Kennedy School of Government at Harvard University

More articles:

Building the Advantaged Supply Network

from the Fall 2004 issue of Strategy + Business

Continuing on the topic of relationships, Booz Allen consultants Bill Jackson and Conrad Winkler write that when buyers and suppliers work in tandem, both parties can find better ways to cut costs and boost innovation. Advantaged supply networks, say the authors, move away from single-transaction interactions with suppliers and work toward competitive advantage by sharing knowledge, coordinating business strategies, and managing resources together.

Cash and Corporate Control

from the October 2004 issue of the Journal of Finance

The takeover market is often seen as the best way to manage excessive corporate cash, but Olubunmi Faleye of Northeastern University suggests that proxy contests are a better alternative. The author finds that proxy-fight targets hold 23 percent more cash than other firms. Further, after a proxy contest, special cash distributions to shareholders increase, while the cash position decreases.

Better Regulation: Is It Better for Business?

from the London School of Economics

It’s generally accepted that smaller businesses are disproportionately affected by regulatory requirements — such as compliance with the Sarbanes-Oxley Act — when compared with their larger corporate peers. In a report commissioned by the Federation of Small Businesses, a U.K. lobbying group, Professor Robert Baldwin of the London School of Economics proposes that the past 20 years of regulatory reform in the United Kingdom have yet to deliver the better regulation that small businesses need.

Corporate Contributions Continue to Rise

from the Conference Board

A new study by the Conference Board shows that contributions to worthy causes by large U.S. companies increased 24 percent in 2003 compared with 2002. Contributions by corporations and corporate foundations totaled $5.73 billion, representing 42.5 percent of the $13.46 billion in overall corporate charitable giving last year.