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.

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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.

Adam, it's nice to meet you and glad to have the

chance to appear on your on your show.

Yeah, thank you. And where are you zooming in

from today?

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.

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.

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?

You know, that's a brilliant example.

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.

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?

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.

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?

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.

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?

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.

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?

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.

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.

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.

What's your most proud moment in your journey, as

when it comes to consulting on these these opportunities and

these negotiations?

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.

Absolutely. With just the last few minutes here,

what are you reading right now?

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.

Well Jim, if she's listening. I think she'd be a

great guest for your podcasts.

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.

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?

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.

Absolutely Jim, it's been a pleasure. Thank you

so much for making the time.

You're more than welcome.