BUSO 711: Executive Power & Negotiations

Session 4: Getting Creative & Exploring

Power, Gender, Race & Ethics
Dr. Liz Berney
April 1- 2, 2019

© 2019 Robert H. Smith School of Business, University of Maryland

Agenda, April 1-2
● Announcements &
upcoming deliverables
● Negotiation under pressure
Debriefing: Noncompete
agreement
● Power, gender, race &
ethics
Power dynamics & BATNA
Luna Pen exercise

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 Upcoming BUSO 711 Deliverables
Week Due Date Deliverable
4 4/1 Live Session 4: Luna Pen exercise
4/5-7 Mid-term feedback + Fresh Air role-play & Towers Market preparation
5 4/8 Live Session 5: Towers Market exercise
4/13-14 BestBooks/Paige Turner role-play, Multisumma preparation + Quiz 3
6 4/15 Live Session 6: Multisumma exercise
4/19-21 Classmate participation survey + Weblink role-play
7 4/22 Live Session 7: Debrief Weblink
4/27-28 Negotiation exercise analysis + Quiz 4

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Debriefing: Noncompete
Agreement
What happened in this conflict—what’s the
background from each party’s perspective?
Who started it?
What is each party’s BATNA? How
attractive is this BATNA?

How easy was it to reach an

agreement? How easy would it
have been in real life?

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We log the conflict onset at different times
based the other person’s behavior

Chris sees A.J. as starting “Now insult is added to

the conflict here injury…”

Chris gets a
A.J. asks Chris to Chris laughs A.J. delays &
lawyer &
sign noncompete & refuses to then insists
agreement sign Chris sign
demands
compensation

A.J. sees Chris as starting “Whoa, now that reaction

the conflict here was COMPLETELY out of
bounds..”
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 Lessons Learned: Noncompete
Agreement
When we prefer to walk away to a BATNA worse than any possible
agreement, emotions are clouding assessment
It is critical to defuse the situation & rebuild trust:
• Set ground rules for discussion (no inflammatory language)
• Expressing emotions is valuable, acting them out is not
• Focus on relationship repair first—no substantive agreements are
possible until the relationship begins to mend
Core issues in scenario:
• Clear rationale regarding need for noncompete agreement
• Chris’s removal from Management Committee & salary adjustment
• Lingering tension between Chris and A.J.
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What is power and how do we use
it in negotiations?
Poweris a function of the resources we hold.
Common resources
Our resources
that bestow power:
• Rewards or money increase our
• Punishments & power when:
sanctions • They are scarce or
• Hierarchical position limited in
• Expertise availability
• Social network • There are no easy
contacts substitutions for
• Information them

Others’ dependence on our resources gives us power.

http://abcnews.go.com/GMA/video/young-man-poses-fake-celebrity-times-square-17066090 7
What is power and how do we use
it in negotiations?
Poweris a function of the resources we hold.
Common resources
Our resources Ultimately, power is
that bestow power: rooted in perceptions.
• Rewards or money increase our
power when: • If other people thinkwe
• Punishments &
• They are scarce or have power (resources they
sanctions
limited in want), they will respond to
• Hierarchical position
availability us as if we do.
• Expertise
• There are no easy • If we perceive ourselves as
• Social network
substitutions for having power, we will
contacts
them behave as if we do.
• Information

Others’ dependence on our resources gives us power.

http://abcnews.go.com/GMA/video/young-man-poses-fake-celebrity-times-square-17066090 8
 How do BATNAs give us
power?
Example: Moneyball
Strategy Reduce San Francisco Giants’ interest in
 Goal: obtain Ricardo Rincón
Rincón from Cleveland Obtain money needed to purchase
Indians Rincón

 Problems Approach 1. Offer SF Giants someone else (Mike

Venafro) to reduce their interest in
• Rincón has $1.5M Rincón
contract & Oakland A’s
2. Approach NY Mets to increase
don’t have much money
interest in Venafro and/or obtain
• San Francisco Giants needed cash for Rincón’s price
also want Rincón,
3. Approach owner Steve Schott for
which could quickly bid
additional cash needed for Rincón’s
up his price contract

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 Luna Pen Exercise
Give us a quick overview: what’s your analysis of the situation? What
do you think is happening here and why?
Vote for the best alternative you think Erika should take & note the worst alternative:

Fax Feng, request a meeting, outline your understanding that GSC has built business without DGG’s permission
A & raise issue of back payments for past misuse of name & possible license or sale for future use.

Write Feng that his firm must cease unauthorized use of Luna name, that DGG is prepared to file lawsuits if
B necessary. Assert your rights to give Feng a reason to negotiate.

Contact other companies in SE Asian that might want to buy the Luna name; write to Feng to say that DGG is
C planning to sell the Luna name. Request that he come to Frankfurt to discuss a possible settlement.

Fax an introduction to Feng, indicate you will be in Taipei soon. Ask if there is a convenient time to discuss the
D sales of Luna in SE Asia under his company’s marketing. Indicate that DGG would like to form a partnership.

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Luna Pen Exercise: Erika’s Choice
Erika chose alternative D.
She faxed Feng regarding what she had learned about Luna pens in SE
Asia, indicated her surprise & requested the opportunity to discuss the
matter with him during her upcoming visit to Taipei. Her tone was neutral;
she closed by saying that while she recognized the situation was
complicated, she was sure they could work out a mutually beneficial
agreement.

Then, shortly before her departure, Erika received the following fax:
Dear Miss Graeper,
Your fax was received at Mr. Feng’s office at Global Service Company. I am responding for
him in his absence. I regret that he will not be able to meet with you during your visit to
Taipei. Mr. Feng is not in the country and will not be returning for several weeks.
Sincerely,
Mei Chang

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 Luna Pen Exercise: Now what?
What’s your analysis of the situation as it has unfolded? Why do you
think Feng had this response?
Vote for the best alternative you think Erika should take & note the worst alternative:

Send a registered letter to Feng, notifying him of DGG’s intent to file suits in the Republic of China and
A elsewhere for trademark infringement. You will wait a reasonable time before following through.

Fax Feng, via Chang, that you are sorry that Feng is not available but that it is necessary to resolve Global
B Service’s use of the Luna name. Ask to meet with a senior executive who is available to discuss licensing.

Respond by sending a draft agreement and request to meet with Feng later, preferably in Frankfurt. Your draft
C proposes a lump sum for past sales and profit-sharing provision for future sales.

D It is too late to do anything before your Taipei visit. Put this in your file to be done when you return from Asia.

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Luna Pen Exercise: Erika’s choice #2
Erika chose alternative A.
She was irritated at the fax, it seemed inappropriate that the response came from Feng’s
secretary and obvious that Global Service wanted to maintain the status quo. She concluded
that she had to invoke legal action & DGG’s counsel advised that it would not be expensive to
file trademark infringement suits. However, he cautioned that the best DGG could get would
likely be a court order prohibiting Global from using the Luna name.
While in Taipei, she met with Art Quon, president of a small company that distributed European
products. Quon was interested in a formal relationship, but lacked manufacturing capability.

1 week after her return, Erika got this copy of a letter Feng sent to DGG’s president:
Dear Sir,
I was displeased to receive notice from your employee, Erika Graeper, that DGG plans to bring suit against Global Service. Since
your company long ago discontinued the manufacture and sale of all Luna products, I find it surprising that you are now attempting
to bring legal action.
Global Service has been quite successful producing and selling products under the Luna name. We wish to continue using the
name and are willing to pay you a nominal fee for that use, as long as we are assured that you will release to us all rights. Please
advise me as to when you would be available in Taipei to discuss this matter with me.
Sincerely,
AlvenFeng

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 Luna Pen Exercise: Round #3
What’s your analysis of the situation as it has unfolded? Why do you
think Feng had this response?
Vote for the best alternative you think Erika should take & note the worst alternative:

A Let Feng wait for awhile. You are in no rush now that Feng knows of the possibility of lawsuits.

Send a polite letter to Feng acknowledging the benefits of a licensing agreement. Also state that you are ready
B to make a deal with another firm if he does not offer a fair share of profits. Propose a phone call to discuss.

Write a letter explaining your position and authority in DGG and interest in coming to a settlement that will meet
C Global’s needs. Acknowledge that you’re off to a poor start but would be willing to go to Taipei to resolve this.

Respond to Feng’s offer of a nominal fee by insisting on a 20% royalty for past and future sales, plus a lump
D sum of €400,000. (Privately, you would be thrilled to split the differences & take half as much.)

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Luna Pen Exercise: Erika’s choice #3
Erika let Feng make the next move.
She sent Feng a short letter, noting that DGG’s president had given her Feng’s letter as well
as complete responsibility for resolving the matter. She asked that Feng send a complete
proposal, covering past and future use of the Luna name.
Erika also spoke with Art Quon, who was still willing to buy rights to sell Luna products.
However, she had no luck locating a low-price, high-quality manufacturer for the pens and
inks.
Two weeks later, DGG’s president received another letter from Feng and passed it along to
Erika. It provided a detailed proposal for settlement in which Feng offered 2% royalty fees for
all future sales. He argued that this was generous given that DGG had abandoned the Luna
name. He asserted that if it were not for Global Service Company, Luna pens would no longer
exist at all.

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 Luna Pen Exercise: Round #4
What’s your analysis of the situation now? Why do you think Feng had
this response—what is he trying to accomplish?
Vote for the best alternative you think Erika should take & note the worst alternative:

It seems like you will not get very much from Feng without a fight and your chances of finding another
A distributor are poor. You accept his 2% royalty proposal but apply it to the past as well as future sales.

Write back to Feng, countering his offer with a 20% future royalty and a flat €250,000 payment for past use of
B the Luna name. Request that he respond to you personally and soon to avoid litigation.

Write to Feng, noting that his offer was unacceptable. You would be willing to arrange a Frankfurt meeting if he
C wishes to make a more reasonable proposal. Meanwhile, he will be notified as litigation progresses.

Feng seems uncomfortable dealing with a woman. Draft a courteous letter offering 10% royalty on past &
D future sales, signed by the president & delegating to Erika Graeper. Call to arrange a meeting in Taipei.

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Luna Pen Exercise: Erika’s resolution
Erika selected alternative D.
Feng’s second letter irritated Erika personally, although she kept the situation in perspective.
After all, any profits she could gain would be a windfall, since DGG had never expected to see a
Luna pen again. So she considered why negotiating with Feng had been so difficult.
First, she concluded that customs for negotiations were quite different across the two cultures.
Perhaps Feng had found her earlier request to visit surprising? Also, she recognized that she is a
woman fairly low in the organizational hierarchy, and Feng may have found it to be insulting that
the request came from her rather than from her superiors. Finally, all the negotiations had
occurred in writing, which may have added to their difficulties.
So she drafted a response letter to Feng for DGG’s president’s signature, making a counteroffer to
his proposal. The letter emphasized that Erika was now fully in charge of the situation and
indicated that she would call Feng to arrange a visit to Taipei to discuss the Luna matter, at Feng’s
convenience.
A week later, Erika called Feng and successfully arranged a meeting in Taipei later that month.

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Luna Pen Exercise: Scoring Matrix
Score yourself using the matrix below, first using your preferred
response and then using your least preferred response.
Low concern for other High concern for other
party’s interests party’s interests
High concern for Asserting Integrating
own interests Round 1: B Round 1: A
Round 2: A Round 2: C
Round 3: D Round 3: B
Round 4: B Round 4: D
Low concern for Avoiding Accommodating
own interests Round 1: C Round 1: D
Round 2: D Round 2: B
Round 3: A Round 3: C
Round 4: C Round 4: A

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Luna Pen Exercise: Discussion

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For our next live session…
● Review materials for Week 5
● Provide mid-term feedback on
course
● Complete & submit individual
assignments
 Fresh Air/City of Boston role-play
exercise
 Towers Market exercise preparation
(we’ll do the exercise in class)
 Begin WebLink negotiation via
email only

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