In Focus:

Vilhena Funds AGM
"Assets under management in the Vilhena Funds SICAV plc. have increased by an impressive 42% from Lm36.19 million as at 30 June 1999 to Lm5l.58 million as at 30 June 2000. The number of shareholders has tipped the 3,500 mark." Chairman Dr Remigio Zammit Pace announced during Vilhena Funds’ Annual General Meeting.

FEXCO Investment Services launched amid expanding industry
FEXCO Investment Services (Malta) Limited was recently launched. The company has been licensed to conduct Investment Services business by the Malta Financial Services Centre. At a reception Finance Minister John Dalli welcomed this new initiative by FEXCO Investment Services (Malta) Limited.

Behind the headlines that trumpet the mega-deals, internal and external negotiation has become a way of life for managers.

Whenever interests or perceptions differ and parties depend on one another for results, the need for negotiation arises. Yet what is its essence? Haggling? Building relationships? Carving up an economic pie? Expanding it? There is truth in each of these, but, in essence, I am an effective negotiator if I can persuade you to say yes, and mean it, to a proposal that also meets I all my real interests. And why should you say yes? Because the deal meets your real interests better than your best no-deal option. So my problem is to shape your perceived choice, of deal versus non-deal, so that what you choose in your own interest is also what I want. Paraphrasing Italian diplomat Daniele Vare, negotiation is "the art of letting them have your way (for their reasons)".

This principle can be read as a recipe for manipulation. Understood more deeply, it offers the key to jointly creating and claiming value in a sustainable way. To do this most effectively, you should: map the full set of involved parties; assess the full set of your and their real interests; appraise each side's no-deal options; and, finally, solve the joint problem of crafting a deal for all which is better than any of the no-deal options.

Step one: draw a deal diagram
This may seem obvious: in the simplest negotiation, two principals negotiate. Yet your deal diagram should include potentially complicating parties such as lawyers, bankers and other agents. While there may be a single negotiator for the other side, you should be alert for internal factions with different interests; they may be deal-blockers or internal champions of your proposal. Anglo-Saxon companies attempting acquisitions in Germany, for example, have often been stymied by the unexpected importance of the management board (Vorstand) as well as the supervisory board (Aufaichatrat) and unions under the potent policy of "co-determination". The crucial first step is to map all parties in the context of their decision process and don't forget to include influential players in your own internal negotiations.
When pharmaceutical giants Glaxo and Smithkline Beecham announced a merger in 1998, investors increased the combined firm's market capitalisation by $20bn. Yet despite early agreement on executive positions in the combined company, internal dis-agreement about management control and position sank the deal and the $20bn evaporated. (Logic ultimately drove the two back together, but only after nearly two years.) This episode confirms two related lessons. First, while the overall economics of a deal are generally necessary, they are often not sufficient. Second, map potentially influential internal play-ers; don't lose sight of their interests or capacity to affect the deal. What is "rational" for the whole may not be so for the parts.

Step two: assess interests
Your interests in a negotiation are whatever you care about that is at stake in the process. The best negotiators are clear on their ultimate interests and those of the other side. They also know their trade-offs among lesser interests and are remarkably flexible and creative on the means.

Assess the full set of interests at stake - yours and theirs - including relationships, the process itself and the "social contract". Negotiations gener-ally address tangible factors such as price, timing and specifications. Yet as Felix Rohatyn, former managing partner of Lazard Freres, and a veteran of including deals, observed: "Most deals are 50 per cent emotion and 50 per cent economics." Crucial interests are often intangible and subjective: the character of the negotiating process, the effect on trust and your reputation, and so on.

When working out longer-term arrangements, relationships, rather than transactions, can be the predom-inant negotiating interests in much of Latin America, southern Europe and southern Asia. Deal-oriented North Americans, northern Europeans, and Australians often come to grief by underestimating the strength of this relational interest in such cross-border encounters.

Similarly, in setting up a new ventures, for example, negotiations tend to focus on the economic contract: equity splits, governance and So on. Yet, often implicitly and often poorly, the Parties also negotiate a "social contract", or the "spirit of a deal". Beyond trust and a good working relationship, the social contract includes expectations about the nature, extent and duration of the venture, about process, about the way unforeseen events win be handled, and so on. Some negotiators fail to develop positive social contracts that reinforce valuable economic contracts; as with other interests, the "hard" can drive out the "soft". Scurrying to check the founding documents when conflicts occur can signal a badly negotiated social contract.

Probe negotiating positions to understand deeper interests. Issues are on the table for explicit agreement. Positions are your stands on the issues. Interests are underlying concerns that would be affected by resolution. Positions on issues affect underlying interests, but need not be identical. For example, an issue in taking a job may be salary, on which your position may be a demand for £60,000. Yet while your interests reflected in that salary demand include purchasing power, they may also involve status, or needs that could be met in ways other than money.

Positional bargaining envisions a dance of positions, which ideally converges to agreement. Interest-driven bargain sees the process primarily as a reconciliation of underlying interests: you have one set of interests, I have another, and through joint problem-solving we should be able to agree. For example, environmentalists and farmers endlessly bat-tled a US power company over whether to build a dam (the issue). Their positions: "absolutely yes" and "no way". Yet incompatible positions masked compatible interests: The farmers were worried about reduced water flow below the dam, the environmentalists were focused on the downstream habitat of the endan-gered whooping crane, and the power company needed results and a greener image. They devised a better agreement than continuing court war-fare: a smaller dam built on a fast track, stream flow guarantees, downstream habitat protection end a trust fund to enhance whooping crane habitats elsewhere.

Too much emphasis on positions - What's your position? Here's mine! often drives negotiation toward a risky, ritual dance that does not meet the parties' fundamental concerns. Learning about and reconciling the full set of interests requires patience, researching the other side, many questions, and real listening.

Step three: assess your Batnas
Our Harvard colleagues Roger Fisher and Bill Ury coined the acronym Batna, or "best alternative to negoti-ated agreement" to describe the course of action you would take if the proposed deal were not possible. Your Batna may involve anything from walking away, to approaching another supplier, to bombing Serbia. The value of your Batna to you sets the threshold of the full set of your interests that any acceptable agreement must exceed. This is also true for the other side. As such, Batnas imply the existence or absence of a zone of possible agreement, and determine its location.

Not only should you assess your own Batna, you should carefully analyse that of the other side. In one instance, a British company hoped to sell a poorly performing division for a bit more than its depreciated asset value of $7m to one of two potential buyers known to be fierce rivals. Each might be induced to see its Batna not as failing to buy a rela-tively unprofitable business, but as a hated rival snatching a prize away. So their advisors designed a strategy to ensure that each suitor knew the other was looking, and never to let either buyer say they were not interested. Following this, the division was sold for $45m.

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