Why your negotiating behavior may be ethically challenged—and how to fix itNegotiators sometimes make decisions that clash with their ethical standards.

Identify pitfalls that could endanger your organization and your reputation.

DeadlinesA useful tool for breaking through impasse . . . . . . . . . . . 4

Are you overly committed? How to level the playing field . .6

Dear Negotiation Coach“How can I judge my performance objectively?” . . . . . . . . . . . . . . 8

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What’s new

Helping you build successful agreements and partnerships

Program on Negotiation

at Harvard Law School

NegotiationVolume 11 Number 4 | April 2008

A new look at gender in negotiation

How much choice is too much?

In future issues

In this issue

Financial improprieties destroy energy-

trading !rm Enron and accounting

!rm Arthur Andersen. A steroids scandal

is exposed in Major League Baseball. Two

pharma ceutical companies quietly negoti-

ate a deal that causes the prices of certain

cancer drugs to skyrocket.

News stories such as these suggest that

a few “bad apples” are capable of taint-

ing entire industries with their greed and

twisted motives. But recent psychological

research by Harvard Business School pro-

fessor Max H. Bazerman and his colleagues

paints a more nuanced portrait of ethics

violations—both those that make headlines

and those that do not.

You may think your ethics are beyond

reproach, but new research o#ers evidence

that the most well-intentioned negotiators

routinely and unconsciously commit

ethical lapses and tolerate such lapses in

others. Few professionals consciously set

out to violate the law or their own moral

standards, according to Bazerman. Rather,

in the context of negotiation, a range of

common cognitive patterns can lead us to

engage in or condone “ordinary unethical

behaviors” that we would otherwise

condemn.

Identify your own ethical lapses Here are three types of ordinary unethical

behavior that you might be tempted to

engage in during a negotiation:

1. Creating value at the expense of outsiders.

In the late 1990s, pharmaceutical company

Schering-Plough !led a patent-infringe-

ment lawsuit to prevent rival Upsher-Smith

from introducing a generic version of one

of Schering-Plough’s products. $e two

companies reached an out-of-court settle-

ment: Upsher-Smith agreed to delay its

generic drug, and Schering-Plough agreed

to pay Upsher-Smith $60 million for !ve

unrelated products.

$e U.S. Federal Trade Commission

(FTC) !led a complaint against the two

companies, arguing that Schering-Plough

made the payment to keep Upsher-Smith’s

generic product o# the market. Bazerman,

an expert witness for the FTC in the case,

viewed the agreement as an attempt by the

companies to create value at the expense

of consumers. $e administrative law judge

in the case ruled in favor of the !rms, argu-

ing that the FTC had not o#ered evidence

linking the market delay to the $60 million

payment. Ultimately, the FTC commission-

ers overruled the judge, insisting that the

!rms would not have arrived at the two

agreements independently.

Scholars at the Program on Negotiation

at Harvard Law School encourage nego-

tiators to work together to create value.

Whether it leads to higher sales, better

products, or more e&cient services, value

creation typically bene!ts not only the par-

ties involved but also society at large.

Visit the Program on Negotiation at www.pon.harvard.edu

2 Negotiation | www.pon.harvard.edu April 2008

Unfortunately, we sometimes

focus so narrowly on creating value

for those at the bargaining table

that we overlook the e#ects of our

agreements on our customers, our

community, and our society. Such

“parasitic value creation” is most

likely in small markets with only

two or three major players, accord-

ing to Bazerman. Future gen-

erations also can be the victims of

parasitic value creation. (See “Start

$inking About Tomorrow,” right,

for examples.)

Rather than scrapping any agree-

ment that might have a negative

impact on some, Bazerman advises

you and your counterpart to con-

sider how the value you’re creating

for yourselves compares to the im-

pact of your agreement on parties

not at the table. If the agreement

would achieve a net increase in

value to society, you should be able

to proceed with a clean conscience.

2. Stereotyping some, favoring others.

Have you ever felt annoyed at a

female negotiator who was acting

assertively? Have you ever jumped

to conclusions about a counterpart

a*er hearing his accent or learning

of his religious beliefs?

We like to think we treat every-

one we encounter equally and

fairly. Yet most people who take

a simple online test are surprised

to discover that their underlying

attitudes toward race, gender, and

other traits are more biased than

they thought. If you believe you’re

immune to pernicious stereotypes,

try the Implicit Association Test

(IAT) for yourself at http://implicit.

harvard.edu/implicit. $e test, de-

veloped by researchers Anthony

Greenwald of the University of

Washington, Mahzarin R. Banaji

of Harvard University, and Brian

Nosek of the University of Virginia,

reveals deeply rooted attitudes that

can in+uence our judgments. For

example, test takers who think they

are free of racial bias nonetheless

o*en have more di&culty associat-

ing the word “good” with “Black”

than with “White.”

In negotiation, such unconscious

stereotypes can be compounded by

in-group favoritism, or the tendency

to evaluate positively and give

preference to those who belong to

the same groups you do. When you

have favors to award, such as a job

or a construction contract, it can

feel good to grant a neighbor or a

relative special access. Unfortunate-

ly, members of privileged groups

tend to bene!t from such perks at

the expense of the less privileged.

Being mindful of the potential to

be biased toward some and against

NegotiationEDITORIAL STAFF

Managing Director Susan Hackley

Assistant Director James Kerwin

Academic Editor Guhan Subramanian

Editor Katherine Shonk

Art Director Heather Derocher

Graphic Designer Mary Allen

EDITORIAL BOARD

Board members are leading negotiation faculty, researchers, and consultants affiliated with the Program on Negotiation at Harvard Law School. Max H. Bazerman Harvard Business School

Iris Bohnet Kennedy School of Government, Harvard University

Robert C. Bordone Harvard Law School

John S. Hammond John S. Hammond & Associates

Deborah M. Kolb Simmons School of Management

David Lax Lax Sebenius, LLC

Robert Mnookin Harvard Law School

Bruce Patton Vantage Partners, LLC

Jeswald Salacuse The Fletcher School of Law and Diplomacy, Tufts University

James Sebenius Harvard Business School

Guhan Subramanian Harvard Law School and Harvard Business School

Lawrence Susskind Massachusetts Institute of Technology

Michael Wheeler Harvard Business School

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Quotation of up to 50 words per article is permitted with attribution to Negotiation. Otherwise, material may not be republished, quoted, or reproduced in any form without permission from the Program on Negotiation. For permissions, call 800-391-8629 or 301-528-2676, or write to negotiation@law.harvard.edu.

Negotiation is published monthly by the Program on Negotiation at Harvard Law School, an inter-disciplinary university consortium

that works to connect rigorous research and scholarship on negotiation and dispute resolution with a deep under-standing of practice. Articles draw on a variety of sources, including published reports, interviews, and scholarly research.

© 2008 President and Fellows of Harvard College

(ISSN 1546-9522).

POSTMASTER: Send address changes to Negotiation, Program on Negotiation, P.O. Box 230, Boyds, MD

20841-0230.

Further reading on ethics and negotiation:

, edited by

Robert H. Mnookin and Lawrence E. Susskind. Sage, 1999.

April 2008 www.pon.harvard.edu | Program on Negotiation 3

others is an important step toward

negotiating more ethically. You can

guide your organization toward

more ethical policies as well.

(See “ ‘We Don’t Want Nobody

Nobody Sent,’ ” page 5.)

3. Ignoring a conflict of interest.

What led to the downfall of Enron

auditor Arthur Andersen in 2002?

A desire to keep the client happy,

says Bazerman. In 2000, Enron

paid Andersen $25 million in

auditing fees and $27 million in

consulting fees. A clear con+ict of

interest existed between Andersen’s

responsibility to conduct unbiased,

impartial audits and its motivation

to gain increasingly lucrative con-

sulting contracts from Enron.

Psychological research shows

that when decision makers have a

motivation to interpret data in a cer-

tain way, they are incapable of being

truly objective. Yet years a*er the

fall of Enron and Arthur Andersen,

a con+ict of interest persists in the

auditing industry.

Because it’s impossible to perfectly

align an agent’s interests with those

of the client, con+icts of interest are

particularly common in industries

where agents play a role, such as real

estate, law, and banking. Whenever

you’re negotiating on another party’s

behalf, recognize that it will be dif-

!cult for you to o#er unbiased advice.

Work with your client to structure

incentives that will meet her goals,

back up your advice with objec-

tive analyses, and allow the client

to monitor your decisions. $ough

such measures may sacri!ce a bit of

short-term pro!t, they’ll pay o# in

the form of repeat business and a

reputation for honesty.

Identify the ethical lapses of othersBy overlooking or forgiving unethi-

cal behavior that other people com-

mit, we become complicit in their

actions. Here are three ways in which

observers contribute to unethical

practices, as described in a new

paper, entitled “See No Evil: When

We Overlook Other People’s Unethi-

cal Behavior,” by Francesca Gino and

Don A. Moore of Carnegie Mellon

University and Bazerman:

1. Overlooking behavior that would

harm us if exposed. $is past De-

cember, a report issued by former

senator George Mitchell revealed

the names of 80 baseball players,

representing all 30 major league

teams, who allegedly used steroids

and growth hormones. $e ram-

pant use of performance-enhancing

drugs was an open secret in base-

ball for years, yet when negotiating

players’ contracts, Major League

Baseball (MLB) and the players’

union apparently never questioned

dramatic changes in certain players’

physique and power.

Why did o&cials look the other

way? According to Gino, Moore,

and Bazerman, MLB leaders suc-

cumbed to motivated blindness, or

the common tendency to overlook

others’ ethical lapses when con-

fronting the behavior would harm

us. Arti!cially pumped-up players

were breaking performance records,

boosting ticket sales and TV view-

ership. Addressing their steroid use

would have jeopardized revenues.

As noted earlier, it’s virtually

impossible for people to view

information without bias when

they have a stake in the outcome.

$at’s why broad policy changes

are generally the only solution to

motivated blindness. Once MLB

instituted a strict policy of random

drug testing, steroid use fell among

players.

2. Excusing those who delegate uneth-

ical behavior. When powerful people

and organizations cause harm, they

sometimes do so indirectly through

negotiations with others. Com-

panies outsource production to

Start thinking about tomorrow

expense of future generations.

4 Negotiation | www.pon.harvard.edu April 2008

countries where environmental and

labor standards are lax. Managers

tell their subordinates to “do what-

ever it takes” to close a deal.

Here’s one possible real-world

example of a company delegating

unethical behavior. In 2005, phar-

maceutical giant Merck sold the

rights to two slow-selling cancer

drugs, Mustargen and Cosmegen,

to lesser-known Ovation Pharma-

ceuticals. To the shock of doctors

and patients, Ovation then raised

the wholesale price of Mustargen

roughly tenfold and the price of

Cosmegen even higher. Meanwhile,

Merck continued to manufacture

the drugs and supply them to Ova-

tion, according to Alex Berenson of

the New York Times.

If producing the drugs was a dis-

traction, why did Merck continue

to manufacture them a*er the sale?

Why not retain ownership and

simply raise prices?

By selling the rights to the drugs

to Ovation, Merck was able to

increase pro!ts without incurring

the negative publicity of signi!-

cantly raising the prices of cancer

drugs, write Gino, Moore, and

Bazerman. Ovation has a history of

buying small-market drugs from

large !rms and dramatically raising

the drugs’ prices. Merck may have

anticipated Ovation’s price increase

and shared indirectly in the result-

ing pro!ts.

In a recent experimental study

that attempted to mirror the

Merck-Ovation case, Harvard

researchers Neeru Paharia, Karim

S. Kassam, Joshua D. Green, and

Bazerman found that participants

did indeed view indirect harm-

ful actions more favorably than

equivalent harmful actions carried

out directly. When you see negotia-

tors delegating unethical behaviors

to others, hold them accountable.

The problem:

to impose a deadline for fear it will cause you to

The tool:

a deal.

Operating instructions: Suppose you suspect

negotiation to increase your commitment to do

What it can do:

Safety warning:

ment negotiation, for instance, your mounting at

Break through impasse with a deadline

Negotiator Toolbox

3. Judging outcomes rather than

processes. Consider these two

scenarios:

A. A toy company contracts

with a !rm in another country to

manufacture some of its products.

$e toy company does not test the

products for lead before selling

them, as the expensive testing is

not required by U.S. law. A number

of children become gravely ill a*er

playing with the toys, which are

found to contain lead.

B. A toy company contracts with

a !rm in another country to manu-

facture some of its products. Before

selling the products, the company

discovers that they contain lead.

$e company sells the products

anyway and makes a pro!t. No

children are injured by the lead.

How would you judge the ethics

of the toy company in each sce-

nario? In a recent experiment, Gino,

Moore, and Bazerman presented

some participants with a scenario

resembling A and others with a

scenario resembling B. Participants

were more critical of the company’s

actions when children were harmed

by the toys than when no children

were harmed—although the com-

pany’s behavior clearly was more

unethical in the latter case.

When we focus on outcomes

rather than processes in this man-

ner, we allow problematic deci-

sions to slide until they produce

predictable bad outcomes. On the

+ip side, we may condemn ne-

gotiators too harshly for making

careful decisions that have unlucky

outcomes. Organizations can curb

this bias by holding negotiators

accountable not only for results

but also for decisions made along

the way.

Addressing ethical lapsesLearning that all negotiators are

susceptible to the unconscious

biases we’ve discussed should spur

you to examine your own decisions

more critically. In addition, aware-

ness of these errors should motivate

you to probe other negotiators’

decisions and behaviors.

Because cognitive biases are so

deeply ingrained, however, aware-

ness is not a cure-all. When a

con+ict of interest exists, we can

never completely cleanse our deci-

sions of self-interest. When some-

one delegates unethical behavior,

the behavior may go undetected.

To reduce the harmful e#ects of

individual decisions, Bazerman and

his colleagues argue, leaders must

make structural changes within

their organizations and industries

to reduce opportunities to behave

unethically—or else be held re-

sponsible for the ethical lapses that

occur on their watch.

April 2008 www.pon.harvard.edu | Program on Negotiation 5

insiders.

6 guidelines for more ethical negotiations:1

2

3

4

5

In a 2007

-

nors, professors, and politicians. A 2002

minimum admissions standards. A great

$100 million in city contracts.

modeling best practices.

“ We don’t want nobody

nobody sent”

6