Working with clients to promote collaboration and overcome conflicts, I want to share three key elements of cooperation in a work environment. I am a simple guy, so I like to make things simple, and I have found that my clients do, too. Second, it is essential to align incentives. Third, it is about much more than how much money someone makes. I have seen this time and time again. I want to share some facts and insights to help you align these three concepts for better collaboration.
Remember, simplicity is key
Mediating complex business issues with a decision maker (varying levels of sophistication from little to highly competent), attorneys, and experts on both sides, it is quite possible to get lost in the detail, jargon, and intricacies involved. Consider accounting, math, formulas, subtle distinctions, intellectual property, various entities, and types of entities (corporations, S-Corps, partnerships, and Limited Liability Corporations (LLCs), to name a few factors. Then, bring in experts who know their expertise but cannot explain it so that the decision-makers can understand it and the assumptions, limiting conditions, and nuances involved. The experts are supposed to be unbiased. The attorneys are advocates for their clients. What is a mediator to do?
As a mediator, my role is to remain impartial, ask probing questions, and guide the decision-makers to understand that every case carries its own risks and uncertainties. I help the parties explore the situation from various angles and perspectives. By uncovering interests, whether known or unknown to the decision-makers, I can facilitate the parties reaching an agreement that both parties can accept and move forward with.
An example is a complex issue between the IRS and the taxpayer regarding transfer pricing issues with different approaches and wildly different outcomes. At first, there appeared to be no hope. However, with an understanding of facts, the reasonableness of assumptions, and willingness to compromise, one party could concede the method used but change assumptions used in the development so that both parties could live with the result and have a solution that will continue at least for the foreseeable future.
Align incentives
Depending on the situation, self-interest, team interest, department interest, and overall organization interests can vary widely. Think about this with our entities, too. Different interests can be related to markets, technology, customers, and competitors. Each may have an advantage in certain areas and be reluctant to give up those advantages. Think about wants versus needs. What elements cannot be compromised at all costs and wants that each party hopes to have as a result of the situation? Perhaps one party has more power than the other. My experience has taught me, as a negotiator on either side of this type of negotiation, to focus on the other party’s interests and to look at this from the perspective of how others may perceive the result. What might employees, different customers, vendors, shareholders, and other stakeholders think if the more powerful party bullied the lesser party and this became public? I ask, “Do you believe anything we are doing that is confidential will never make it to the light of day with the internet today?” I ask the question. If the agreement is unfair, it could return later and negatively impact the more powerful party.
If one party is genuinely outmatched and cannot see a way to partner, they may need to back off and stay in play, but for only a limited application like “fee-for-service,” possibly be acquired or invested in to make this work. A partner could become an investor or purchaser.
For example, I saw an agreement reached between the IRS and a major automobile manufacturer on examination that was in the company's best interest. However, if the case had gone unagreed to the Appeals level of the IRS and been sustained at the rate of a previous two-year cycle with the IRS, the VP of Tax would have made a $500,000 bonus—clearly, the VP of Tax was not happy. However, the CFO did not even realize that the VP of Tax was not aligned with the CFO due to the complexity of the incentives. This ties into the keep it simple commentary with the first point as well as align incentives.
It is about more than money
Trust is the cornerstone of successful collaboration. When there is genuine trust between the parties and each party respects the other, the potential for a successful partnership is high. Whether it's a fee-for-service arrangement, a structured transaction as a consultant, or a purchase agreement, trust is the glue that holds it all together. Even a buy-sell agreement, if followed properly, can be a boon for a closely held business when a partner leaves. Commercial agreements work best when both parties view the process as a true collaboration or partnership.
Acquiring a company is about a lot more than the purchase price. Having compatible cultures in the future will ultimately determine the success or failure of the transaction. Somewhere between 70% to 90% of acquisitions fail. The math made sense. The financials worked. What went wrong? Here are 11 reasons why they fail, but in my experience, culture is key.
Working with firms that help sellers sell their businesses, major business brokers often start with several hundred letters, reduce to 30 potential suitors, and a small group of letters of intent, with final offers from possibly three suitors. The selling company owners often have a strong sense of ownership (love for the firm like another family member) and a sense of continuity and concern for employees, management, customers, and vendors. With that in mind, the owners often do not sell to the highest bidder but instead sell to the buyer most in line with their values and long-term interests. It is about a lot more than just the money.
Check out these additional resources to learn more about collaboration, conflict resolution, or enhancing your servant manager skills.