The art of negotiation
For the reinsurance industry 2015 has been, and will continue to be, defined by the art of negotiation.
It is, arguably, an industry built around this skillset in many ways as the numbers of intermediaries perhaps proves. But whether you are sidling through the coffee tables of the Café de Paris in search of your next appointment or indulging in one of the smoking rooms of the Brenners in Baden-Baden, if you listen carefully you will hear one common type of conversation: negotiation.
This year has seen that skillset emerge on to centre stage—and not always in the most flattering of ways. The merger and acquisition (M&A) frenzy in the industry this year has resulted in some very public spats between companies as they wrestle for control of a deal.
And beyond that, with rates continuing to soften in many lines, some tough discussions can again be expected in this renewals season.
Can an understanding of the nature of negotiation benefit executives? Can they really get better deals—be it on the terms and conditions and price on a treaty or when buying another company—simply because they are better negotiators?
James Thomas, managing director at negotiation consultants Seren Partnership, argues that they can. But he is balanced in his approach, stressing that it is also important to remember that, post-negotiation, the two parties will need to work together.
Research is vital
One of the big keys to negotiation, Thomas says, starts well before any meeting takes place.
“Before you even get to the table for negotiations, do your homework,” he says. “It’s all about researching the other business; researching the market. It’s also about researching the potential stakeholders who are going to have an impact on the negotiations. Who’s going to be on my team and who’s likely to be on their team?
“Is there going to be a regulatory impact? What’s going to be the impact on your sector if, say, you merged with your biggest competitor?”
Another aspect is one that might be overlooked by many executives: the human factor. When two teams of people come together and start to negotiate a great deal will depend on who they are and what exactly they’re negotiating about.
There are always going to be aspects of those talks that are confidential, as one team vies for advantage over the other.
“You’ve got to be very careful what you reveal, because some people like to talk, to divulge information,” Thomas says. “Make sure that your team are very clear about which commercially sensitive information they’re going to withhold.”
Thomas also stresses that, in the context of M&A in particular, as negotiations continue deals can take some unexpected turns, based on what emerges during these talks.
“In any negotiation you’ve got to be aware that there’s a balance of power, but that balance of power is transient,” he says.
“Power shifts as circumstances change, as new information is revealed and goes onto the table. Don’t always assume that the big guy has more power than the small guy.
“A great example is when Facebook bought Instagram a few years ago. Facebook, a $100 billion business, bought Instagram for $1 billion. Instagram had 12 people working for it and no turnover, so you have to wonder who had the power in that negotiation?
“Negotiation is not what you want, it’s what the other party is prepared to give you. If someone’s really desperate to buy your business then they’re going to pay over the odds for it, so whatever you’ve valued your business at, you’ve got to think about how much power you have in terms of how much they’re willing to pay.
“Who should put their cards down on the table first? Do you say ‘I want this much for my business’ or do you wait for them to make you an offer?
“What they’re willing to pay depends on how much pressure they’re under. If they have absolutely no pressure, they’ve got all the time in the world, lots of choices, lots of alternatives, they’re probably not going to move that quickly towards your price.
“If you’re the sole company in one sector of the market, or you’re so key that they have to buy your company, then all the pressure’s on them to come up with a price that you like.”
Mistakes and slip-ups
Thomas concludes by looking at the most common mistakes that people make in merger negotiations—and returns to his first point to emphasise its importance.
“The most common pitfalls are not having the right people around you and not having done your homework. You also need your team to have a common language in terms of knowing exactly what’s going to be asked or said in negotiations.
“There are so many negotiating strategies—there is no right or wrong. What an effective negotiator needs to understand is that you should keep your cards close to your chest. You should be pretty silent, as the more you say the more you give away, especially at the start,” he says.
That should be food for thought, both ahead of the conference season and as several companies continue to battle for control of each other in the public eye.
