Dealcraft, with Jim Sebenius – Episode 472 of The Action Catalyst Podcast

Jim Sebenius, a Harvard Business School professor, author, negotiation expert, and host of the new podcast Dealcraft: Insights from Great Negotiators, shares what group of people are instinctively the best negotiators, the steps to “3D negotiation”, how sometimes you can win by everyone losing, why internal negotiations are sometimes the hardest part, and the importance of being careful with your gift giving and keeping a deal diary.

About Jim:

James Sebenius specializes in analyzing and advising corporations and governments worldwide on their most challenging negotiations. He is the Gordon Donaldson Professor of Business Administration at Harvard Business School, where he founded the Negotiation unit and teaches advanced negotiation to students and senior executives. He also directs the Harvard Negotiation Project at Harvard Law School.

With co-author and business partner, David Lax, he originated 3D Negotiation^TM,a uniquely powerful approach for analyzing and advising on complex negotiations. He is a founder and partner in Lax Sebenius LLC, a 3D negotiation strategy firm with an extensive global client list.

Since 2001, he has chaired the annual Great Negotiator Award program, which has intensively engaged with negotiators such as Richard Holbrooke, James Baker, George Mitchell, and Bruce Wasserstein. He also co-directs a project that has conducted lengthy videotaped interviews seven former U.S. Secretaries of State, from Henry Kissinger through Hillary Clinton, about their most challenging negotiations. PBS/WGBH has committed to produce a three-part television series on this project. Jim often speaks to senior executive audiences about negotiating lessons from the Great Negotiators and Secretaries of State.

Sebenius’s private sector career included years with the Blackstone Group; he also served in the U.S. government’s Commerce and State Departments. He is the co-author or editor of five books including 3D Negotiation (Harvard Business School Press), The Manager as Negotiator (Free Press), and, most recently, Kissinger the Negotiator: Lessons from Dealmaking at the Highest Level (HarperCollins). Together with these books, his published output includes more than 250 items including articles, case studies, and negotiation simulations.

He holds a B.A., summa cum laude, from Vanderbilt, an M.S. from Stanford’s Engineering School, and a Ph.D. in business economics from Harvard. He is married to Nancy Buck; their children are Zander, Alyza, and Isaac.

Learn more at JimSebenius.com.

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(Transcribed using A.I. / May include errors):

Adam Outland
Welcome to the Action Catalyst podcast, and on today’s episode, we’re pleased to welcome Jim Sebenius, Harvard Business School professor, negotiation expert and host of the new podcast, Dealcraft: Insights from Great Negotiators. Jim, welcome.

Jim Sebenius
Adam, it’s nice to meet you and glad to have the chance to appear on your on your show.

Adam Outland
Yeah, thank you. And where are you zooming in from today?

Jim Sebenius
I’m in Cambridge, Massachusetts, actually Boston today, because I’m at the Harvard Business School campus, which is my where my day job is. For about 20 something years, I’ve chaired a program called Great negotiators, which is the program on negotiation is based at Harvard Law School. I’m not a lawyer, but I’m active over there. And you know, it’s the professional schools at Harvard, the business school, the School of Government, the Kennedy school, law school, and the at MIT, the Sloan School, and some other schools there. And at Tufts University, the Fletcher School of Law and Diplomacy and Brandeis. And there are about 60 faculty all told, who were associated with the program, on negotiation, some are on corporate deals, some environmental some family mediation, some really, pretty much across the board. And every year or so, we collectively nominate a man or a woman from around the world who’s done remarkable deals and achieved things that other people found really hard to do or impossible, and we write cases and we bring them to campus, and we record public and private interviews. And I just realized, after doing this and then using that material and teaching and so forth, it really deserves a wider audience. These are just remarkable conversations. So we went all the way back to Henry Kissinger, you know, on through George Shultz and Baker and Madeleine Albright and Colin Powell, Condi Rice, Hillary Clinton, when she was Secretary under Obama. John Kerry Rex Tillerson, who actually wasn’t so interesting as a secretary, but the fact that he’d been chairman and CEO of ExxonMobil and had done a ton of stuff, especially in Russia, where there’s some really interesting conversations there have this remarkable collection of sort of great negotiators from all sectors. And this sidebar with the US Secretaries of State and Dealcraft, results from my sort of looking at this and saying, you know, I think this would be interesting to a lot of people, you know. So it’s, I’m very much in the formative stages relative to a well established one like yours. But this stuff is interesting, and the response is really positive.

Adam Outland
That’s wonderful. Well, I was looking forward to this conversation on many levels. One is that I thought I had good practice negotiating as my role as an executive coach. But when we had our two children, I’ve never had to exercise negotiation nearly as much as a parent.

Jim Sebenius
And they are instinctively fabulous negotiators. And you know, if you take all the normal expectations, you’re much more experienced, you’re much smarter, you’ve got much more power and money, and yet they win. You sort of say some stuff which is pretty standard, you know, they go to one parent, can I do it? Mom said I could. Then you go to the other one, and neither one said you could. But each Don’t you know. And then they they closed the deal. I remember our daughter, when she was about three or four, was headed to a birthday party in a really far away suburb, and neither my wife, Nancy, nor I especially wanted to take her out there and back, but we kind of didn’t want to admit that. We didn’t want to take her, and so we’re kind of doing this back and forth. So we finally asked, we said, Elisa, who? Who would you like to take you out there? Figuring okay. And she said, whoever loves me the most, we both ended up taking her out there. The normal rules don’t always work. So, for example, there used to be a real a real competition between her and her, her older brother, and each one of them when, when there was something, ice cream or whatever they wanted it, each one wanted the biggest. And I remember at one point I said, Well, you could have the biggest and you could have the hugest. And it actually worked. And I thought, That’s interesting, because why, in my little mind did I think that there could only be one biggest?

Adam Outland
You know, that’s a brilliant example.

Jim Sebenius
I did find with my with my spouse. Someone told me there’s an iron law of marriage, which you should always remember when you’re negotiating with your spouse, you can never be happier than your spouse. Don’t try to win.

Adam Outland
That’s one I have not heard yet. That’s wonderful. Was it early on in your career where you began developing an interest along these lines?

Jim Sebenius
When I look back on it, I kind of realized that it was a much earlier thing, but not something I studied. Because, you know, like many families mine, had a lot of, I don’t call them feuds, but a lot of rivalries and difficult relationships, and I consistently was a person who was bridging those differences. I never thought of that as negotiating. Later, in retrospect, I realized my personality, which Okay, let me see if I can really get it from your point of view. Let’s see if I can get it from your point of view. Is there something that we can, you know, craft that sort of works and and then later. Were, you know, I majored in math and English in college and then, but actually the major thing I did was debating, because that’s what I really loved. And then I went on an internship in in Washington, which put me, you know, really by chance, with some very senior people who I learned a huge amount from. And I was put into a series of negotiations, and including one very complicated negotiation over the Law of the Sea. And it was everything having to do with, you know, hydrocarbons on the outer continental shelves, and fishing and shipping and deep seabed mining and the whole business. And I was, you know, I would go to Geneva, New York, and these negotiations, and there were hundreds, if not 1000s of people involved in this, and I just found it really interesting. And that kind of led me to I stayed longer in Washington, and then I switched programs. I came to Harvard and did a degree in Business Economics, which is basically finance and game theory, and with an economic background, an economic base, it just happened at that time at Harvard, there were several quite senior people who were really interested in negotiation, and myself and a good, good friend, Bill Urie, ended up kind of being graduate student gophers to, you know, start what was called the program on negotiations only, like 40 years ago, my grandfather said, Why do you want to work for Harvard? It’s nice place, but you can’t own it. Then the B school asked me to start a negotiation department, so I hired a bunch of people here.

Adam Outland
You know, when I hear your story, there’s part of me that’s always had this thought about negotiation, that there’s this real technical part of negotiation, because you got to be able to, you know, understand, in some cases, maybe financially, the table stakes and the statistics associated with it. But there’s this part that you grew up with that you mentioned that made you this peacemaker in your family that probably had a lot more to do with empathy and understanding. You know, those are two qualities that I feel are hard to marry in this world. For individuals, what’s more valuable? And what do you see out there?

Jim Sebenius
Yeah, it’s a really good question, and I think a spot on observation. And here’s, here’s how I think about it, a colleague, friend and business partner of mine who actually runs my outside advisory firm, trying to crystallize this in a, you know, in a method and in a book that’s pretty distinctive, and we call it 3d negotiation. What we mean by that is, the most familiar aspect of negotiation is really the people side of the process, that’s the tactics, the direct interpersonal interaction, and we think of that as, you know, the at the table, piece of the story. And then there’s the substantive part, you know, that’s the contents of the term sheet, or the contract, or the treaty, or the memo of understanding, or the informal, you know, informal understanding of what we’re going to do and so forth, but that’s a substance. It’s not separable from the people, but the art and science of crafting deals that unlock value and do so on a sustainable basis. We call that deal design, and that’s the second of the three dimensions. The third great negotiators do almost instinctively, but a lot of people don’t recognize that explicitly as part of negotiation, but that’s what you can think of as, as the setup of a negotiation. When you’re going into a deal, have you got the right parties brought into the process in the right sequence, under the right set of understandings and expectations, facing the right set of issues by the right process and critically facing the right consequences in the event of no deal. Because a lot of times, even though people don’t think about it that way, those are actually choice variables, and you can influence them quite a lot. Probably, you know, half to 90% of the outcome of a deal has to do with all the stuff you do before you’re actually in the room. You know when you when you ask, what makes a negotiation hard? You know, if you have a target deal in mind, you want to ask, what are the barriers to that? Is it trust and communication or cross cultural friction? Is that the problem? Is it that the deal doesn’t really work for one side or the other? Is it that one side has an option that’s better than the kind of deals that you’re talking about, or you might Are you dealing with an agent who doesn’t have any power, or somebody has weird incentives, or, you know, they’re so you kind of look at those, you say, what are the what makes this hard? What are the barriers that stand between me and the deal that I want? Then a strategy and tactics is a customized set of moves away from the table to set up the most promising situation. I only realized it actually when we were when we were spending a lot of time, kind of unexpectedly with Henry Kissinger and talking through a bunch of his deals. He’s an interesting guy, because a lot of people think of him as a war criminal, and other people think of him as a brilliant statesman. And there’s a kind of a battle over who the guy really was. But with Kissinger, we realized, what does he do? He does two things. First is he sort of zooms out to the big picture, the sort of analytic and strategic way that you figure out what you’re trying to do in a deal, and kind of how it’s going to work, how it fits in with your broader approach and your broader strategy. So you sort of zoom out. But then in the actual negotiation. Then you zoom in to the interpersonal and that’s where you really need to focus on the person and people with whom you’re directly dealing and be as persuasive as you can solve the problems that are there. You know, crafter, you know, agreements that make sense. And a lot of people think of it. You sort of zoom out and craft a strategy, and then you zoom in and execute it. But the way it tends to work is, you know, people zoom out, and then you zoom in, and you learn stuff, because negotiation is not static. People make moves, new information surfaces, and you often learn that at the table, and then you zoom back out and you need to recraft your strategy. A lot of people tend to be really good at one or the other. They’re great at zooming out, and they’re analytical and strategic, and, you know, kind of have a brilliant conception of what has to happen and why it should and so forth. But they may be absolutely inept interpersonally, and others are so good interpersonally, but they don’t have an analytic or strategic bone in their body. And you can become better at both, but most people can do it better if they’re aware of it.

Adam Outland
I love that. What were the moments that really made your palms sweat? What were some of those initial moments where you were getting your your feet wet in the application of what you’d been learning?

Jim Sebenius
I was fortunate in that when I was in the government and I was staffing challenging negotiations. I was working for people who, themselves, were pretty important and pretty prominent in the deals that they were doing. There used to be, there’s a, there’s a whaling convention with, you know, moratorium on taking whales and so forth. And I had a boss who was the US Commissioner for the whaling negotiations. And so I was there a lot, and I really watched a lot of it, and I’d get, you know, sent in to handles, you know, subsidiary sessions and so forth. And you realize, I remember having these two thoughts, one, I have no business being here. But then I look around me and I’d say, actually, these people don’t either, you know, but there have been many times when I’ve been in the presence of of people who were really tough, but I remember being involved fairly early on in a remarkable negotiation between Guinness and grand met that ultimately, that ultimately led to the creation of Diageo and one of the people involved in that is one of the now one of the wealthiest people in the world and an extraordinarily tough negotiator. And I just remember thinking, this guy is so smart and so tough and so rich, and I’m a pipsqueak. I mean, I could think, but I don’t have any of those assets when we do here. What do we know about this guy? And coming to understand it in many ways, his reputation for winning was critical to his self image and to his reputation. And is there any way that we could craft where he would not win? Now, we didn’t see any way that we could win, but we did see where he might not, he might lose, and we would lose, and that would be a big blow. Well, could we engineer a sort of a doomsday machine, which would lead to a loss on his side, it would to ours too. So in some sense, it was kind of crazy, but that kind of cracked things. And I just remember thinking, there usually are places that you can find. There are other things. I remember high tech Canadian headlamp manufacturer that wanted to sell the business to a private equity firm. And there are few private equity firms and industrial buyer and so forth. And it was really very, very tough, and the money that we were able to get for this was just okay, but not great, and it was kind of disappointing, and we finally just said yes to something that was, you know, well better than the alternatives, but pretty shy of what we had aspired to. I looked at the term sheet, and the term sheet was in US dollars, and we had been negotiating implicitly in Canadian dollars, which were 79 cents to US dollar. We said, okay, you know, I mean, okay, they were negotiating US dollars, Sure, no problem. And I just remember that told me a lot of things, you know. First of all, you know, no wonder they were fighting so hard, because they were like, 30% above what we thought they were in real terms. You know. The second thing, I think, was, it is not uncommon in negotiation for people to misinterpret aspects of the situation, and I’ve seen that time and again, and you it’s easy to sort of assume that the other side is hyper rational, that you’ve got everything squared away and much more frequently than you might expect. That is not the case.

Adam Outland
I think on the flip side, you know, how do you help people see their own blind spots when they maybe don’t want to?

Jim Sebenius
There was a very, very interesting negotiation that I wasn’t part of, but that I studied pretty carefully the acquisition of Rolls Royce by what was ultimately BMW. It was a really interesting process. And ultimately they bid. In fact, they dramatically over bid relative to BMW to acquire Rolls Royce, and yet I got. To this case, because it was a disaster. Afterwards, it turned out that they bought the company, but there was a clause that said, if Rolls Royce is ever bought directly or beneficially by a non UK Corporation, the name Rolls Royce reverts to and actually some of the distinct distinctive design elements like the the horizontal grill on the radiator and the winged victory on the top of the, you know, the front of the hood. And so they bought this thing without the rights to the IP. I thought that this was a case about due diligence. I thought, you know, okay, this is a really good cautionary case of how people does. Turned out, when we got into it, wasn’t anything of the sort. Well, it turned out that it was very public. They basically stonewalled. So they just went ahead and bid more and bought the thing. The actually the internal negotiations at Volkswagen, where the advisors were saying, You can’t do this. And in fact, had they said not that you’ll have an IP problem or you’ll lose money, but you’re going to look foolish to the world, so you’re kind of putting his ego on the line rather than and it was actually, I think, the internal negotiation that failed, rather than the external one. You know, a lot of people think of negotiation as the between entities, but if you’ve ever been involved in one, and I’m sure are you with executive coaching? You see this all the time, lots of times. The internal negotiation is as or more challenging than the external ones. I remember when I was in the government and the the the start talks, the Strategic Arms Reduction talks, which a long time ago, but we’re going to happen in Geneva, between the US and what was in the Soviet Union, there’s a huge interagency battle over, over years to what the US position and approach is going to be. And the admiral in charge of the nuclear submarine fleet was interviewed on his way to Geneva and asked about how they’re going to deal with the Russians. He said, the Russians, those are number five on my enemies list, after the Joint Chiefs, after OMB, after the Air Force after it was kind of like there’ll be a piece of cake. And I think, and I think, and I found that in corporate situations a lot and CEOs almost never recognize they say, but we’re aligned, and a lot of times you’re not.

Adam Outland
It made me think of two things. It made me think of also the cultural norms that play a role. I grew up in Germany for some time, and I remember the engineers of Germany are very much you can’t language instead of you shouldn’t. They’re they’re color inside the lines, which make them brilliant engineers, and sometimes culturally, they like to say you can’t when you could, but you shouldn’t, because it’s not part of the game or right, right, right? And the second thing that it made me think of is how business owners often do, I mean, I get legal counsel, and your thought immediately is like, they’re going to play it safe, they’re gonna take the most legally. And so they’re always telling you, no, you can’t. And so you get to a place in ownership sometimes where you take the council, but you dismiss a lot of it to move forward with entrepreneurial initiatives.

Jim Sebenius
Arrogance is a killer in negotiation, both the mistakes you’re likely to make and the way that you irritate other people, even for people who have reason to be arrogant, but most of the time, when you think of culture or cross cultural negotiations, it’s a very real consideration. But people tend to focus on the sort of most visible part, kind of like an iceberg, where you see the part that sticks up, and sometimes that’s disastrous. I do remember advising somebody who was competing to be a joint venture partner with a Chinese firm. But as you know, in China, you should it’s customary to bring nice gifts to the people you’re dealing with. They had, in New York, gone to Tiffany’s and bought a small but very beautiful and elegant crystal clock and had it wrapped in signature pale blue Tiffany’s wrapping with the white ribbon and so forth, and presented it, you know. And the response was really horrified, because in China, a clock is a symbol of death, and you know your mortality in the end of things. And so if you’re starting with a joint venture partner, die. Secondly, pale blue is a funeral color in China. So the whole thing was misbegotten, stuff like that. The kind of Kiss, Bow, shake hands, etiquette can screw you up or help you, although I think it’s important to get that stuff right, but I think it’s also important not to mistake that for what’s really going on.

Adam Outland
What’s your most proud moment in your journey, as when it comes to consulting on these these opportunities and these negotiations?

Jim Sebenius
I think one of them was that I mentioned, even though it was early in my career, figuring out how to get past this immensely powerful blocking individual, seeing that, thinking this, through doing the research and coming up with something creative, really worked in some of the public sector negotiations that I’ve been involved in. It’s, you know, been pretty helpful to find things. That genuinely were, were useful. I And when you think you are able to help people see a different way, and I must say, when you see people who are experienced and who’s just it’s really a life and death situation for how their country and their families and everything will work out. And they look at it, and they’ve seen it in a in a kind of a narrow way, you kind of open possibilities, and they sort of step back, even though they’re very experienced, they’re kind of grooved in their thinking and so forth. I think that has given me a lot of pleasure. There’s a real pleasure in in in helping people to see things so that they can achieve more of what they want, and particularly where it matters in a positive way. I mean, you know, sometimes just trying to get more than what they’ve got, and you better be good at that, because if you’re in negotiation, that’s often the case. You know you’re buying, they’re selling, and you know you’re it’s a contest over that. But even there, even there, it’s rarely price. You know, there’s often a lot of other stuff that’s going on. As you know, at HBS, we focus mostly on the quote, unquote case method. Cases are not just a few articles cut out of business week and stapled together and given to a class. I mean, typically you spend a lot of time in the field with the decision makers, and in my case, it’s often deals in which I’ve been deeply involved. And then you step back, and if people are willing to talk about it, sometimes, including where they’ve screwed up, which is, and you often learn the most from some of those, but, but there’s something about feeling like you kind of got it right intellectually, and it was valuable to people in practice, and that helped. I think that’s for me, probably the sort of a silent source of, you know, a satisfaction. I just feel lucky that I ended up kind of where I am, because it’s a great platform.

Adam Outland
Absolutely. With just the last few minutes here, what are you reading right now?

Jim Sebenius
Let’s see, what did I just read? I just read Nancy Pelosi, sort of autobiography. It’s called The Art of power, because she’s clearly a remarkable legislative negotiator, and I remember watching when Biden said, That’s it. I’m running. No question. Case closed. Only the almighty could cause me to change. Two days later, she’s on Morning Joe, and she says, we’re waiting for Joe to decide whether he’s going to run or not, and when he does, we will be 100% behind his decision. But that’s a really important decision to make. Decision to make. And I’m listening to this and saying this is interesting, you know, and it wasn’t long before it’s now Kamala, and not, you know, not Joe, you know. And he was operating at a time when it was roughly divided, and in the Congress could have been, you know, completely deadlocked, and they managed to do a lot of stuff. So I was really interested in kind of seeing what she did and but she didn’t really reveal too many of her secrets. I was we interesting to spend some time and see if we could draw her out on how do you do this? Not the not the Joseph, because she says she has nothing to do with it. But of course, obviously she did.

Adam Outland
Well Jim, if she’s listening. I think she’d be a great guest for your podcasts.

Jim Sebenius
I think she might be a good candidate for a great negotiator. We’ve never used to we’ve never had a legislator. I put it this way, I’m really impressed, but her secrets are still with her.

Adam Outland
That’s amazing. Yeah, that would be great to hear. But last question for you would be, what advice would you give to a young Jim who had been negotiating without knowing it was negotiating inside his own family. What thing do you think that Jim would need to hear from you?

Jim Sebenius
I guess the first thing I would say is to recognize what you’re doing and see if you enjoy it. Because I must say, even though negotiation, for many people, you get scared and, you know, you sweat, because there’s a lot of stakes and you don’t know how it’s going to work out, and so forth. Out and so forth. But if you find yourself kind of into it, that’s a useful internal signal, I would say, if you’re interested in negotiation, and I do have a lot of students, for example, who take the course and just find it almost life changing, they often say you can kind of go into it in a couple different ways. One is to just go into it as the field of negotiation. And there are people like Chris Voss, the hostage negotiator, or, you know, others, I have an outside small firm. There are others that do that, but those are small and they’re kind of hard to that’s a hard nut to crack. And people rarely say, I need a negotiator. That’s not the category that they reach for. Find an area that you really, that really interests you substantively, you know, whether it’s, you know, complicated sales, whether it’s a particular area of technology, whether it’s otherwise, and become an expert in that, while developing your capacity to negotiate in a broad sense, in the sense of, how do you get people with different interests and different perspectives to collaborate in a way that creates value? That’s a very general description of what I think negotiation is people who see the world differently, who have different interests, but nevertheless might well be able to agree to something that’s way better than what they. To do otherwise, and that’s really what you’re doing, if you develop the skill at that married to a substantive expertise that’s a lot rarer than, say, technical knowledge of programming or, you know, a lot of things which themselves are challenging. And you don’t get hired for that necessarily, but you’ll, you’ll progress as a result of that in an area that you care a lot about. That’s the other piece I might you know. When you ask me about advice, every time you do you deal with a challenging interaction, write down what you did in reflection, what you might have done differently. Keep a deal diary, because it you know, sometimes experience just means making the same mistake over and over and sometimes succeeding, sometimes not. But if you are self conscious and you do this over time, experience adds up to real increases in capability. You know, because, as you say, if you’re a parent, how often do you negotiate? You know, it’s take late. Thanks for having me on. I really I’ve enjoyed the conversation, and I hope it’s useful to your listeners.

Adam Outland
Absolutely Jim, it’s been a pleasure. Thank you so much for making the time.

Jim Sebenius
You’re more than welcome.