After enlisting in the Marines Ken Marlin worked his way up to become a captain and infantry commander. After the Marines, Ken has led a technology company and finally an investment bank on Wall Street.
What I really appreciate about Ken is that he has taken his variety of experiences from the battlefield to the corporate boardroom and distilled his leadership principles in a way that can help all of us. His new book, The Marine Corps Way to Win on Wall Street: 11 Key Principles from Battlefield to Boardroom, is full of his candid advice on leadership.
And I highly recommend the read.
There was one section of the book that focused on an aspect of leadership that I wanted to ask him more about. That was the section on negotiation, on deal-making, on getting to agreement.
I had the opportunity to ask Ken about his 9 rules of negotiations.
Be Ready to Walk
Be prepared to walk away from the table. This is a great place to start. Do you have an example of when someone wasn’t willing to walk away and how that hurt them?
I have many examples both positive and negative. That’s because negotiating is much more about psychology than logic – and it has very little to do with finance. The negative examples aren’t fun to talk about. But we have had clients who simply weren’t willing to walk away from a prospective deal. Inevitably the other side took advantage. One that comes to mind resulted in a sale that I strongly advised against. Our client was a seller. The price offered seemed quite strong, on the surface. It was significantly higher in total value than those we received from other bidders – but a significant portion of the price was to be paid over three years based on the company’s future earnings. We’ve worked with so-called “earn-out” structures before and often they are fine. But, in this particular case, I believed that the upfront portion of the purchase price was much too low and the protections for my client post-deal were too weak. We pushed back of course, but the buyer touted the total value of the potential deal and was unwilling to move. I advised my client to walk away and negotiate with one of the other bidders – leaving the door open for the first one to get more reasonable. But my client was also focused on the total theoretical value and – perhaps – a bit too sure of himself and his own abilities. He was not willing to negotiate hard – and take the risk of losing this deal. He took the deal. The results were predictable. Within a year the senior management of my client’s company were out – and the sellers never received most of the earn-out. There were lawsuits. But the lawyers are about the only ones who came out ahead.
There must be less depressing examples of the where the approach did work.
Sure, there are lots. For example, a few years ago, we had a VC-controlled client that had been negotiating the sale of their company for months with a very qualified buyer before they came to us for help. The offer was all-cash at a fair price by any measure. At the same time, it was clear that the buyer would merge the organizations and fire at least half of my client’s personnel. The VCs were mostly interested in the money, but they were sympathetic to the CEO’s desire to protect his people. The CEO had tried to negotiate, but the buyer said that their offer was “best and final” and would expire in 3 weeks. Further, the buyer said that if there were any solicitation of other bidders, they would walk from the table. The buyer was using their leverage better than my client. They assumed that the VCs would not risk losing a high all-cash offer.
I told my client that they could not negotiate if the other side perceived that they were unwilling to walk from the table. Otherwise we would just be begging. We knew that if we solicited other bids we might lose the first buyer, but that was a risk we had to take to improve the terms. My client agreed to take the risk. Once we had other bids coming in and the first buyer saw that they might lose the deal, they materially improved the cash portion of their offer. But they put even more emphasis on cost reductions. Fortunately, we had identified another interested bidder, and we were able to use our leverage – including the specter of sale to the original buyer – to obtain an offer for more money and protections for the employees. That was win-win.
About a year ago we had a similar experience internally, as the lease on our office space was expiring. We were the sole occupant of the top floor of a prestigious New York office tower. It had terraces, great light and views, and it was all built to our specifications. We were willing to stay. But the landlord asked for a rent increase that was clearly above market. He may have assumed that we would not walk away. We pushed back. We showed him that rent for comparable spaces was lower. But logic did not work. He declined to offer more than a pittance. So we went out and found another great space and used the specter of staying in the original space as leverage to negotiate great terms with the new building. When the first landlord saw that we were willing to walk from the table, he finally got reasonable. But it was too late. We moved to the new space. We love it.
Tell the Truth
Tell the truth. I love this one as part of your rules. What’s the Marine definition of lying?
I’m not saying that you can’t lie to an enemy who is trying to kill you or your friends. This is about negotiating in normal business environments – or in Marine environments when you are negotiating with so-called “friendlies” (such as local villagers). In this context, the Marine definition of lying goes beyond the standard definition of asserting something as fact that you know to be otherwise. It includes making statements – or failing to make statements – as part of an express intent to deceive. It’s an extension of the concept that my word is my bond – with a focus on being honest with those who expect that of you. Reputations are built over time and will outlast the negotiations at hand. A reputation as a liar will eventually catch up to you.
Negotiation Tip: don’t make promises that will be challenging to keep.
So in that context, how do you bluff in negotiating? Doesn’t everyone bluff?
It’s true that, in my business, many people bluff. And more than a few lie. Lying is always bad. Bluffing usually is. It is also dangerous if your bluff is called. It can cost the loss of major negotiating points – and sometimes kill the deal. That’s why I prefer the truth.
Recognize when you have leverage-and when you don’t. How do you know what the leverage each side has? How does this impact your deal making?
In the Marines, leverage comes from a combination of superior force combined with moral certainty. Moral certainty was one of the key ingredients in how Americans won the Revolution against the superior forces of the British Empire. It was key to winning World War II, and it was also key to the US losing the War in Vietnam. Sure, there are many exceptions where superior force trumped all. See the Russians in Chechnya. But 150 years later, that war isn’t completely over yet. In deal making, the best leverage comes from a combination of being on the moral high ground and being willing to walk from the table. That leverage increases the more the other side wants to get the deal done. It’s usually not hard to recognize. In the book I relay a vignette about the CEO of a very large firm that had made an offer to acquire our client’s company. After we shook hands on what appeared to be a very fair purchase price, he began to dictate deal terms – and even to change some that had previously been agreed. The CEO acted as if he had all the leverage, when actually, by his bullying tactics, he had squandered the moral high ground. He was then left with the assumption that my client was desperate to complete the deal. They weren’t that desperate. The CEO was surprised when we walked from the table.
“If you know the enemy and know yourself, you need not fear the result of a hundred battles.” –Sun Tzu
Remember the Peace
Remember the peace. Most non-military experts will pause on this one. What does it mean and why is it so important?
Most statesman learned long ago that after most wars end, there is wisdom in finding a way for the formerly warring parties to live with each other. After the Civil War came what was supposed to be reconstruction. After WWII came the Marshall plan. When people forget that basic rule of remembering the peace, it can be bad. That’s what the allies did after World War I, forcing impossible reparations on the Germans. The result was resentment that fermented and eventually boiled over. And then we got World War II. The consequences of scorched earth policies in business negotiations may not be quite as dire. But still, the smart move is to recognize that the completion of a transaction is usually not the end of anything. It is a phase point, after which it is better if the formerly battling parties (buyer and seller) can continue to work and live with each other in peace and harmony. Otherwise, life is long, resentment ferments, and bad things may happen.
9 Negotiation Rules from Ken Marlin
Rule 1: Be prepared to walk away from the table.
Rule 2: Know where you are going.
Rule 3: Recognize when you have leverage—and when you don’t.
Rule 4: Tell the truth.
Rule 5: Remember the peace.
Rule 6: Negotiate big things before little things.
Rule 7: Don’t bully.
Rule 8: It is personal.
Rule 9: Take reasonable, defensible positions.
Negotiate Big Things First
Negotiate big things before little things. If the other side is pushing to do this, how do you handle it?
Sometimes negotiating small things is a stalling technique. We saw this in the Paris Peace Accords, where the parties that were supposed to be negotiating the end of the Vietnam War wrangled for months over the shape of the negotiating table and who would sit there. It was clear that neither side was really ready to negotiate. That’s a hard one to deal with; it’s not easy to force the other side to be reasonable – unless and until you have leverage. Kissinger and Nixon helped the negotiations along by stepping up the bombing of Hanoi. And we have seen clients or those on the other side that are just stalling. We push them hard when that happens – using leverage –as we just discussed. But in my business, often when you see someone fixated on small things before large things are agreed, it’s a sign of an amateur negotiator. We had a client one time who was very interested in buying a subsidiary of a larger company. The parent was being advised by an investment banker, but they let the CEO of the subsidiary do much of the negotiating. He was an amateur. He focused so much on small things that eventually my client became exasperated and quit the deal. The CEO was shocked. That wasn’t the outcome he had in mind.
Negotiation Tip: Be dispassionate and keep your strategic objectives in mind.
Don’t bully. This one seems to be the most obvious, yet you called it out. What’s your recommendation on dealing with a bully in a negotiation?
You would think it’s obvious, wouldn’t you? But we see it all the time. Probably because, for some people, it has worked. I relayed one instance a few minutes ago when we were talking about leverage. But I see bullying behavior a lot – especially among some partners at some private equity and VC firms whose negotiating technique includes taking the attitude that no deal is a must-have. If they can force their terms on the other side, then fine; if not they say that they are willing to use brute force – or to walk from the table. I’m a Marine. I don’t bully easily. And I have told my staff and my clients that if you don’t push back on bullies they will just do it more. Most of these people do want to get a deal done. They don’t like to fail. And my advice is to push back – hard. And if that doesn’t work, then walk away. Life is too short to put up with bullies.
Take reasonable, defensible positions. Do some people take the unreasonable position as a starting point simply as a tactic? How does this relate to the “high ground” you cover in your book?
People stake out unreasonable positions all the time in my world. In 2002 Daniel Kahneman won the Nobel Prize for his work in behavioral finance. He wrote about a negotiating technique he calls “anchoring.” It’s what a rug merchant does in a bazaar – setting forward an initial “asking price” which he knows will be negotiated downwards. That first price becomes the anchor – the basis for all subsequent negotiations. That technique can work, when everyone involved knows what the true cost of a rug should be – and enjoys the game. But in my world, setting unreasonable and unrealistic anchors often makes people mad. The better technique, whether bargaining with a local villager or in a mergers & acquisitions transaction, is to call out unreasonable positions for what they are – to stake out reasonable and defensible positions and challenge the other side to refute your logic and come back with something that is defensible, not arbitrary. It’s called seizing the high ground – and it works.
If it is “personal,” as you say in your book, why is “it’s just business” such a common excuse?
That phrase, “It’s just business,” is one that makes me nuts. It’s some kind of excuse. If Marines need to search a village, it is business for them. That’s true. But still, they can recognize that it’s very personal for those in the village. They can show a modicum of respect and empathy for those in that village (while being very thorough, vigilant and professional), or they can say, “It’s just business,” and raze the place. If they take the latter approach, they can count on creating more enemies. For those villagers, the invasion of their privacy is more than business; it’s personal. I know well that this approach is not easy in time of war. But it is important. If your business is losing money, and you must fire some people to save the firm, I get it. It’s business. But it’s not “just business.” Don’t lose sight of the fact that, for those people being fired, it’s very personal. In my world, mergers & acquisitions negotiations have the very direct potential to affect people’s careers, compensation, livelihoods. There have been cases of people committing suicide after failed deals. For them, it may be your business, but it can be very personal.
The Marine Corps Way to Win on Wall Street: 11 Key Principles from Battlefield to Boardroom