Why your negotiating behavior may be

ethically challengedand how to x it

Negotiators sometimes make decisions that clash with their ethical standards.
Identify pitfalls that could endanger your organization and your reputation.
Deadlines
A useful tool for breaking
through impasse . . . . . . . . . . . 4
Are you overly committed?
How to level the playing eld . .6
Dear Negotiation Coach
How can I judge my performance
objectively? . . . . . . . . . . . . . . 8
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Negotiation
Volume 11 Number 4 | April 2008
A new look at gender in
negotiation
How much choice is too much?
In future issues
In this issue
F
inancial improprieties destroy energy-
trading rm Enron and accounting
rm Arthur Andersen. A steroids scandal
is exposed in Major League Baseball. Two
pharma ceutical companies quietly negoti-
ate a deal that causes the prices of certain
cancer drugs to skyrocket.
News stories such as these suggest that
a few bad apples are capable of taint-
ing entire industries with their greed and
twisted motives. But recent psychological
research by Harvard Business School pro-
fessor Max H. Bazerman and his colleagues
paints a more nuanced portrait of ethics
violationsboth those that make headlines
and those that do not.
You may think your ethics are beyond
reproach, but new research oers evidence
that the most well-intentioned negotiators
routinely and unconsciously commit
ethical lapses and tolerate such lapses in
others. Few professionals consciously set
out to violate the law or their own moral
standards, according to Bazerman. Rather,
in the context of negotiation, a range of
common cognitive patterns can lead us to
engage in or condone ordinary unethical
behaviors that we would otherwise
condemn.
Identify your own ethical lapses
Here are three types of ordinary unethical
behavior that you might be tempted to
engage in during a negotiation:
1. Creating value at the expense of outsiders.
In the late 1990s, pharmaceutical company
Schering-Plough led a patent-infringe-
ment lawsuit to prevent rival Upsher-Smith
from introducing a generic version of one
of Schering-Ploughs products. e two
companies reached an out-of-court settle-
ment: Upsher-Smith agreed to delay its
generic drug, and Schering-Plough agreed
to pay Upsher-Smith $60 million for ve
unrelated products.
e U.S. Federal Trade Commission
(FTC) led a complaint against the two
companies, arguing that Schering-Plough
made the payment to keep Upsher-Smiths
generic product o the market. Bazerman,
an expert witness for the FTC in the case,
viewed the agreement as an attempt by the
companies to create value at the expense
of consumers. e administrative law judge
in the case ruled in favor of the rms, argu-
ing that the FTC had not oered evidence
linking the market delay to the $60 million
payment. Ultimately, the FTC commission-
ers overruled the judge, insisting that the
rms would not have arrived at the two
agreements independently.
Scholars at the Program on Negotiation
at Harvard Law School encourage nego-
tiators to work together to create value.
Whether it leads to higher sales, better
products, or more ecient services, value
creation typically benets not only the par-
ties involved but also society at large.
Visit the Program on Negotiation
at www.pon.harvard.edu
2 Negotiation | www.pon.harvard.edu April 2008
Unfortunately, we sometimes
focus so narrowly on creating value
for those at the bargaining table
that we overlook the eects of our
agreements on our customers, our
community, and our society. Such
parasitic value creation is most
likely in small markets with only
two or three major players, accord-
ing to Bazerman. Future gen-
erations also can be the victims of
parasitic value creation. (See Start
inking About Tomorrow, right,
for examples.)
Rather than scrapping any agree-
ment that might have a negative
impact on some, Bazerman advises
you and your counterpart to con-
sider how the value youre creating
for yourselves compares to the im-
pact of your agreement on parties
not at the table. If the agreement
would achieve a net increase in
value to society, you should be able
to proceed with a clean conscience.
2. Stereotyping some, favoring others.
Have you ever felt annoyed at a
female negotiator who was acting
assertively? Have you ever jumped
to conclusions about a counterpart
aer hearing his accent or learning
of his religious beliefs?
We like to think we treat every-
one we encounter equally and
fairly. Yet most people who take
a simple online test are surprised
to discover that their underlying
attitudes toward race, gender, and
other traits are more biased than
they thought. If you believe youre
immune to pernicious stereotypes,
try the Implicit Association Test
(IAT) for yourself at http://implicit.
harvard.edu/implicit. e test, de-
veloped by researchers Anthony
Greenwald of the University of
Washington, Mahzarin R. Banaji
of Harvard University, and Brian
Nosek of the University of Virginia,
reveals deeply rooted attitudes that
can inuence our judgments. For
example, test takers who think they
are free of racial bias nonetheless
oen have more diculty associat-
ing the word good with Black
than with White.
In negotiation, such unconscious
stereotypes can be compounded by
in-group favoritism, or the tendency
to evaluate positively and give
preference to those who belong to
the same groups you do. When you
have favors to award, such as a job
or a construction contract, it can
feel good to grant a neighbor or a
relative special access. Unfortunate-
ly, members of privileged groups
tend to benet from such perks at
the expense of the less privileged.
Being mindful of the potential to
be biased toward some and against
Negotiation
EDITORIAL STAFF
Managing Director Susan Hackley
Assistant Director James Kerwin
Academic Editor Guhan Subramanian
Editor Katherine Shonk
Art Director Heather Derocher
Graphic Designer Mary Allen
EDITORIAL BOARD
Board members are leading negotiation faculty,
researchers, and consultants afliated with the
Program on Negotiation at Harvard Law School.

Max H. Bazerman Harvard Business School
Iris Bohnet Kennedy School of Government,
Harvard University
Robert C. Bordone Harvard Law School
John S. Hammond John S. Hammond & Associates
Deborah M. Kolb Simmons School of
Management
David Lax Lax Sebenius, LLC
Robert Mnookin Harvard Law School
Bruce Patton Vantage Partners, LLC
Jeswald Salacuse The Fletcher School of Law
and Diplomacy, Tufts University
James Sebenius Harvard Business School
Guhan Subramanian Harvard Law School and
Harvard Business School
Lawrence Susskind Massachusetts Institute of
Technology
Michael Wheeler Harvard Business School
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Further reading on ethics and negotiation:
Negot|at|ng on Be|a|f of Ot|e|s: Adv|ce to /awye|s, B0s|ness Exec0t|ves,
Soo|ts Agents, D|o|omats, Po||t|c|ans, and Eve|yoody E|se, edited by
Robert H. Mnookin and Lawrence E. Susskind. Sage, 1999.
"See No Evil: When We Overlook Other People's Unethical Behavior,"
by Francesca Gino, Don A. Moore, and Max H. Bazerman. Harvard
Business School Working Paper No. 08-045, January 2008. Available at
http://www.people.hbs.edu/mbazerman.
W|at's Fa||: Et||cs fo| Negot|ato|s, edited by Carrie Menkel-Meadow
and Michael Wheeler. Jossey-Bass, 2004.
April 2008 www.pon.harvard.edu | Program on Negotiation 3
others is an important step toward
negotiating more ethically. You can
guide your organization toward
more ethical policies as well.
(See We Dont Want Nobody
Nobody Sent, page 5.)
3. Ignoring a conict of interest.
What led to the downfall of Enron
auditor Arthur Andersen in 2002?
A desire to keep the client happy,
says Bazerman. In 2000, Enron
paid Andersen $25 million in
auditing fees and $27 million in
consulting fees. A clear conict of
interest existed between Andersens
responsibility to conduct unbiased,
impartial audits and its motivation
to gain increasingly lucrative con-
sulting contracts from Enron.
Psychological research shows
that when decision makers have a
motivation to interpret data in a cer-
tain way, they are incapable of being
truly objective. Yet years aer the
fall of Enron and Arthur Andersen,
a conict of interest persists in the
auditing industry.
Because its impossible to perfectly
align an agents interests with those
of the client, conicts of interest are
particularly common in industries
where agents play a role, such as real
estate, law, and banking. Whenever
youre negotiating on another partys
behalf, recognize that it will be dif-
cult for you to oer unbiased advice.
Work with your client to structure
incentives that will meet her goals,
back up your advice with objec-
tive analyses, and allow the client
to monitor your decisions. ough
such measures may sacrice a bit of
short-term prot, theyll pay o in
the form of repeat business and a
reputation for honesty.
Identify the ethical lapses
of others
By overlooking or forgiving unethi-
cal behavior that other people com-
mit, we become complicit in their
actions. Here are three ways in which
observers contribute to unethical
practices, as described in a new
paper, entitled See No Evil: When
We Overlook Other Peoples Unethi-
cal Behavior, by Francesca Gino and
Don A. Moore of Carnegie Mellon
University and Bazerman:
1. Overlooking behavior that would
harm us if exposed. is past De-
cember, a report issued by former
senator George Mitchell revealed
the names of 80 baseball players,
representing all 30 major league
teams, who allegedly used steroids
and growth hormones. e ram-
pant use of performance-enhancing
drugs was an open secret in base-
ball for years, yet when negotiating
players contracts, Major League
Baseball (MLB) and the players
union apparently never questioned
dramatic changes in certain players
physique and power.
Why did ocials look the other
way? According to Gino, Moore,
and Bazerman, MLB leaders suc-
cumbed to motivated blindness, or
the common tendency to overlook
others ethical lapses when con-
fronting the behavior would harm
us. Articially pumped-up players
were breaking performance records,
boosting ticket sales and TV view-
ership. Addressing their steroid use
would have jeopardized revenues.
As noted earlier, its virtually
impossible for people to view
information without bias when
they have a stake in the outcome.
ats why broad policy changes
are generally the only solution to
motivated blindness. Once MLB
instituted a strict policy of random
drug testing, steroid use fell among
players.

2. Excusing those who delegate uneth-
ical behavior. When powerful people
and organizations cause harm, they
sometimes do so indirectly through
negotiations with others. Com-
panies outsource production to
Start thinking about tomorrow
henever you sign a deal that will have a long-term
impact, you risk engaging in parasitic value creation at the
expense of future generations.
ln her research, professor Kimberly A. Wade-Benzoni of Duke
University's Fuqua School of Business has found that negotiators
often overlook the long-term consequences of their contracts, a ten-
dency that can contribute to economic and environmental damage.
Short-sighted negotiations over forestry and fshing rights can per-
manently deplete natural resources, for example. Lacking advocates
at the table, future generations may suffer from our self-interested
behavior.
How can you negotiate more responsible agreements? Brainstorm
opportunities to create long-term solutions to looming problems,
not just short-term value. That's what Japanese automaker Toyota
did, according to Wade-Benzoni, when it began developing a low-
emission vehicle in 1992. By 2000, the Toyota Prius had become the
leading hybrid car on the U.S. auto market. Organizations can pro-
mote such innovative thinking by awarding bonuses to teams whose
contracts anticipate long-term economic and environmental effects.
W
4 Negotiation | www.pon.harvard.edu April 2008
countries where environmental and
labor standards are lax. Managers
tell their subordinates to do what-
ever it takes to close a deal.
Heres one possible real-world
example of a company delegating
unethical behavior. In 2005, phar-
maceutical giant Merck sold the
rights to two slow-selling cancer
drugs, Mustargen and Cosmegen,
to lesser-known Ovation Pharma-
ceuticals. To the shock of doctors
and patients, Ovation then raised
the wholesale price of Mustargen
roughly tenfold and the price of
Cosmegen even higher. Meanwhile,
Merck continued to manufacture
the drugs and supply them to Ova-
tion, according to Alex Berenson of
the New York Times.
If producing the drugs was a dis-
traction, why did Merck continue
to manufacture them aer the sale?
Why not retain ownership and
simply raise prices?
By selling the rights to the drugs
to Ovation, Merck was able to
increase prots without incurring
the negative publicity of signi-
cantly raising the prices of cancer
drugs, write Gino, Moore, and
Bazerman. Ovation has a history of
buying small-market drugs from
large rms and dramatically raising
the drugs prices. Merck may have
anticipated Ovations price increase
and shared indirectly in the result-
ing prots.
In a recent experimental study
that attempted to mirror the
Merck-Ovation case, Harvard
researchers Neeru Paharia, Karim
S. Kassam, Joshua D. Green, and
Bazerman found that participants
did indeed view indirect harm-
ful actions more favorably than
equivalent harmful actions carried
out directly. When you see negotia-
tors delegating unethical behaviors
to others, hold them accountable.
The problem: You're locked in a battle of wills with
seemingly no end in sight, whether over proposed
changes to a sales contract, a labor-management
disagreement, or any other contentious negotia-
tion. Though eager for resolution, you're reluctant
to impose a deadline for fear it will cause you to
concede too much. Alternatively, suppose you face
a very real deadline, as in the case of a quarterly
sales target. You're hesitant to let your counterpart
know about it, lest she use it against you.
The tool: Many negotiators worry that setting a
deadline will put them at a competitive disadvan-
tage. Yet research by professor Don A. Moore of
Carnegie Mellon University's Tepper School of
Business fnds that setting a deadline, even an ar-
bitrary one, can actually give you a strategic edge.
Consider that a deadline puts pressure to reach
agreement on everyone involved, not just you.
What about when you're facing a deadline but your
counterpart isn't? Moore's research shows that
negotiators who reveal their own deadlines to their
counterparts achieve better outcomes than those
who keep their deadlines secret. By disclosing
your deadline, you motivate your counterpart to
make quick concessions with the goal of reaching
a deal.
Operating instructions: Suppose you suspect
that your counterpart might deliberately extend a
negotiation to increase your commitment to do-
ing a deal. (Car salespeople are notorious for this
ploy.j As talks begin, inform the other side that you
have only a set amount of time to make a deal-an
hour in the case of a car negotiation, for instance.
As long as you fully commit to the deadline, your
counterpart is likely to cooperate, assuming he
truly wants to work with you.
What it can do: The recognition that deadlines af-
fect all parties equally allows you to use them to
avoid costly stalling tactics and conduct business
more effciently. Moore has noted that the National
Basketball Association team owners resolved the
1998 players' strike to their advantage by setting an
arbitrary yet frm fnal deadline.
Safety warning: Be careful not to confuse deadlines
with time costs, cautions Moore. ln a legal-settle-
ment negotiation, for instance, your mounting at-
torney fees are your problem, not your opponent's.
Rather than informing your counterpart about
penalties you alone will incur, try to impose a fnal
deadline that will affect both of you, such as trying
to move up your court date.
Similarly, if you have a weak outside alternative to
agreement, don't assume you have to reveal it just
because you're disclosing your deadline. lf you're
eager to sell your car because you're about to
move out of the country, make a "one day only" of-
fer to a prospective buyer, suggests Moore, rather
than advertising that you'd otherwise put the car
into storage. Lack of time doesn't need to signal
lack of alternatives.
Break through impasse with a deadline
Negotiator Toolbox
3. Judging outcomes rather than
processes. Consider these two
scenarios:
A. A toy company contracts
with a rm in another country to
manufacture some of its products.
e toy company does not test the
products for lead before selling
them, as the expensive testing is
not required by U.S. law. A number
of children become gravely ill aer
playing with the toys, which are
found to contain lead.
B. A toy company contracts with
a rm in another country to manu-
facture some of its products. Before
selling the products, the company
discovers that they contain lead.
e company sells the products
anyway and makes a prot. No
children are injured by the lead.
How would you judge the ethics
of the toy company in each sce-
nario? In a recent experiment, Gino,
Moore, and Bazerman presented
some participants with a scenario
resembling A and others with a
scenario resembling B. Participants
were more critical of the companys
actions when children were harmed
by the toys than when no children
were harmedalthough the com-
panys behavior clearly was more
unethical in the latter case.
When we focus on outcomes
rather than processes in this man-
ner, we allow problematic deci-
sions to slide until they produce
predictable bad outcomes. On the
ip side, we may condemn ne-
gotiators too harshly for making
careful decisions that have unlucky
outcomes. Organizations can curb
this bias by holding negotiators
accountable not only for results
but also for decisions made along
the way.
Addressing ethical lapses
Learning that all negotiators are
susceptible to the unconscious
biases weve discussed should spur
you to examine your own decisions
more critically. In addition, aware-
ness of these errors should motivate
you to probe other negotiators
decisions and behaviors.
Because cognitive biases are so
deeply ingrained, however, aware-
ness is not a cure-all. When a
conict of interest exists, we can
never completely cleanse our deci-
sions of self-interest. When some-
one delegates unethical behavior,
the behavior may go undetected.
To reduce the harmful eects of
individual decisions, Bazerman and
his colleagues argue, leaders must
make structural changes within
their organizations and industries
to reduce opportunities to behave
unethicallyor else be held re-
sponsible for the ethical lapses that
occur on their watch.
April 2008 www.pon.harvard.edu | Program on Negotiation 5
Weigh benefts achieved at the table against harms inficted on outsiders.
Accept that we're all susceptible to stereotypes, and don't give favors to
insiders.
Speak up against policies that implicitly promote or condone unethical
behavior.
When negotiating as an agent, try to align your incentives with your client's.
Don't excuse unethical behavior that's been delegated to another party.
Hold negotiators accountable for their decisions, not just their results.
6 guidelines for more ethical negotiations:
1
2
3
4
5
Many organizations have policies that
encourage or even mandate in-group
favoritism-making it all the more diffcult
for individuals to correct their own biases.
In a 2007 Boston G|ooe op-ed, Peter
Schmidt, a deputy editor of the C||on|-
c|e of H|g|e| Ed0cat|on, condemned the
policy of many selective U.S. colleges of
reserving slots in their incoming classes
for the children of alumni, wealthy do-
nors, professors, and politicians. A 2002
study found that about 15% of freshmen
enrolled in elite U.S. colleges were white
teens who did not meet their schools'
minimum admissions standards. A great
number of these teens were admitted
based on their ties to people the schools
wanted to "keep happy," according to
Schmidt. Meanwhile, these colleges turn
away thousands of highly qualifed (but
less-connectedj candidates each year.
Such institutional favoritism dies hard.
From the 1950s into the 1970s, Chi-
cago mayor Richard J. Daley and his
Democratic "machine" maintained
power through a system of patronage
hiring, which one ward committeeman
famously summed up when he told a
low-clout applicant, "We don't want
nobody nobody sent."
ln 1990, a Chicago ordinance requiring
that a percentage of city contracts be
awarded to minority- and women-owned
frms was passed. ln 2003, members of
a family with close ties to current Chi-
cago mayor Richard M. Daley, Richard
J. Daley's son, were indicted for having
their matriarch and an African American
associate pose as heads of businesses,
a fraud that generated more than
$100 million in city contracts.
lf senior offcials and executives truly
want their negotiators to make less-
biased decisions, they must begin by
auditing their own ethical behavior and
modeling best practices.
We dont want nobody
nobody sent
6