The Deal: Diligent Due

the deal

Diligent due diligence

by Matt Miller
Updated 02:38 PM EST, Sep-2-2005

The best negotiators, says academic and consultant Michael Benoliel, represent a breed apart. They combine intelligence with empathy, discipline with flexibility, creativity with pragmatism.

For diplomats or politicians, negotiation is a critical and well-developed art form. Yet in business, negotiating skills are often taken for granted. Or, they are dismissed as a kind of innate ability. That kind of shoot-from-the-hip attitude, Benoliel believes, often leads to bad deals. "Ultimately, negotiating a merger or an acquisition is not about the deal," he believes. "It is about the discipline to be guided by clear and not easily bendable criteria, and achieving your objectives."

In his recent book, "Done Deal," Benoliel pens a kind of best-practices for negotiators. He relies on the words, experience and advice of the masters of the trade, from diplomats such as Ambassador Dennis Ross, the former chief negotiator for the Middle East in the Clinton and first Bush administrations, to former U.S. Trade Representative Charlene Barshefsky, to legislators such as Robert Dole and Bill Bradley. An Israeli who was born just months after his country's independence, Benoliel, 57, is understandably focused in particular on the Middle East peace process and includes insights from chief Palestinian negotiator Sa'eb Erakat as well as former Israel Prime Minister Shimon Peres.

But Benoliel seems most interested in taking those experiences and applying them to business. A former professor at the University of Maryland and at Johns Hopkins University, Benoliel now focuses his energies on the Center for Negotiation, a Maryland-based conflict resolution and negotiation-training consultancy he founded two years back. He wants to preach to business leaders.

Benoliel recently sat down with The Deal's Matt Miller. Here are excerpts from their conversation.

The Deal: When creating a hierarchy of business skills, negotiation isn't usually high on the list, is it?

Benoliel: No. In the average company, they don't see negotiation as a core competency. On the other hand, private equity firms, which do deals for a living, are very good. They develop really outstanding negotiation skills. Take Bain Capital [LLC]: For them, it's a profession. That's why they spend so much time, resources and energy in due diligence, also collecting data from the field, primary data, not relying on secondary references.

A significant percentage of mergers go bad. Can you relate this to the negotiation process?

One of the critical elements in negotiation is information, the quality of the information and mastering the information. Good negotiators have to ask a number of questions: What information do I need? What do I have? What kind of information don't I have? How do I get the information? Where do I get the information in order to close the gap?

When we look at the field of mergers and acquisitions, most of them fail in the information gap, because there is always information asymmetry. Sellers know much more than buyers. In negotiation, you don't want to make information asymmetry a constant disadvantage. You have to overcome it. You have to find ways that you will know as much as the buyer.

Also, you must try to fully understand what the motivations are of the seller. In every negotiation, the other side is presenting a perfect, self-serving case. In mergers and acquisitions, we call it perfuming the pig.

Another problem is not involving line managers in the process. It's usually financial people and the legal experts that control the deal.

In every negotiation, one of the most important rules is diligent due diligence. [In many M&A negotiations], they basically fail in doing that. One of the reasons is that they fall in love with the deal. They invest so much in the deal, it's very difficult for them to walk away … to disengage. What institutions have to do is create certain mechanisms that will neutralize those tendencies. There is nothing more important for a negotiator than the ability to be disciplined and say, "Here are the things that I must have. And if I cannot get them, then the alternative of not doing the deal is better."

Can you talk about power dissymmetry in deals? It's analogous to diplomacy, right?

Yes. Eventually, deals will be cut based on the power that individuals or countries have. But good negotiators approaching deals strategically have to understand the power balance and the strategies by which they can equalize the field.

But sometimes companies in trouble don't have many options. You mention in your book the example of the now-defunct airline People Express, which was forced to accept a bad deal because there was only one buyer interested.

One of the most critical elements in negotiation, the party always, always should and must create and pursue alternatives. There is a wonderful case study in diplomacy where the British had military bases in Malta. In the 1970s, the British decided the bases had no strategic importance anymore. They wanted to reduce the rent on those bases and even dismantle them. The prime minister of Malta created an alternative. He approached the Russians and offered to let them use these bases for the navy. By creating the Soviet option, he quadrupled the rent from the Brits.

Power is very dynamic. You may be able to squeeze me today, and I will not have many choices, and I will agree to the terms you are dictating. The moment the power balance shifts, I may try to get out of the agreement. It's really not just about having an agreement but also the success of the implementation of the agreement in the long run.

We may see that in something like the Oracle [Corp.]/PeopleSoft [Inc.] deal, where so much bad blood prevailed.

The consequences may be quite serious because there could be an exodus of great talent from PeopleSoft. When the party being acquired isn't happy with the acquisition, typically what happens is that the talented senior management simply walks out. And you lose an incredible amount of managerial experience.

You don't think much of bluffing as a strategy, do you?

In talking to the master negotiators, [they will say that] bluffing is not a useful and an effective strategy in the long run. The danger is that the party calls your bluff — then what do you do? If you're not willing to carry out a bluff, the consequences are serious.

People that are interested in long-term credibility and reputation in their industry usually don't engage in those kinds of activities. However, there are others like Wayne Huizenga. He's known as someone who uses tough tactics and some bluffs. But overall, these are not very useful tactics. Overall, in the long run, threats and ultimatums usually fail.

You write about the need to negotiate from both sides of the table.

It's not about winner take all. It's not about taking every penny off the table. As Shimon Peres says, you have to let the other side win. [Sports agent] Lee Steinberg says he fully realizes he is working with a group of people that he will have to come back to and negotiate with over and over and over. So, it's not about the one-shot deal.

The mindset [of great negotiators] is to really understand the other side, the other side's interest and capabilities. In the final analysis, in negotiation, it's really not about what you want; it's really about what the other side can do. Only then, when you really understand the other side's interests, limitations, capabilities, can you develop some kind of tradeoff and proposal that can work for both sides of the table in the long run. I really believe that effective negotiations are about lasting agreements. It's not a big deal to get an agreement in the short run that will collapse in a month. You know, the Israelis and the Palestinians have so many agreements and understandings, and they end up collapsing. Israel has violated them. The Palestinians have violated them. The level of distrust is so huge that they did not keep their commitments. It's really important to negotiate from both sides of the table.

What are your thoughts on hostile takeover bids?

A hostile takeover bid begins as a war. In this case, there is a minimal interest in understanding the other side, because the mindset and the strategies are about winner take all, about win-lose. It's really not about working with the other side.

In business negotiations, is lack of time or lack of available information merely an excuse?

Yes, it is. Because for good acquirers, the idea is not to buy fast and not just to buy. It's not about buying companies. It's about buying the right company. It's about achieving your objectives. And if you don't have the necessary information to assure you that you can achieve your objectives, you should simply walk away from the table. The fact that someone says you have only two weeks to do due diligence may be a warning sign that things are really not that great. Maybe they're really perfuming the pig.

Could you give an example of a company that does it right?

Nestlé [SA] is known as a very good acquirer, for many reasons. They don't buy just to buy. They invest a great deal in preparation, in due diligence, in making sure they are buying the right target. They are aware of the tendency of commitment to escalation, falling in love with the deal, so they always bring in a third party to evaluate and approve the deal. Nestlé has a corporate core competency in negotiation. Unlike many in the United States that rely heavily on financial analysis and legal analysis, Nestlé involves line-operation managers throughout the acquisition process.

You believe the composition of a negotiating team is often underemphasized, don't you?

The deal team composition is critical because a lot of the issues that will come up in the integration process can be uncovered in the due diligence. A deal team must have the content experts, the legal experts, the financial experts, and also include the operation management. [Most] really tend to ignore the soft side of the organization, and that's where most mergers and acquisitions run into problems. The soft side is not the financial spreadsheet. It's not the legal structure of the company. It's not about who will be the chairman of the board. The soft side has to do with the values and the culture of the organization, with the quality of the management, what the motivation of the management is, what are the competencies of the management. What you're really doing is taking Organization A, with a given personality, culture and history, and trying to merge it with Organization B, which probably has a different personality, culture and history. To mesh the two is extremely difficult. A number of case studies show that when [the soft side] is ignored, companies run into difficulties. In my interviews, I ask [business negotiators] if they have soft experts on the team and they say, "Not really, because there's no value."

Who's your favorite negotiator?

In diplomacy, I think it would be Dennis Ross. He's so smart, and he's effective, and he's analytical, and he's willing to admit mistakes. He's not trapped in his own ego.

How about business?

Somebody who has a good track record is Scott Smith, the president and publisher of the Chicago Tribune. … He is one who is willing to walk away from the table if he doesn't get the deal he thinks he should get, but he's very flexible. For him, it's not about personalities; it's about getting a good deal. In one case, he had an understanding about a particular deal for a certain amount of time and money. And then the party came back and renegotiated and reduced [its buying price] by 20%. He still did the deal, and I asked him why. And he simply said because it was still good, even at 20% less.

Does a pressure to grow lead to bad deals?

In most cases, yes. It is difficult to grow fast by organic growth. And Wall Street puts a premium on fast growth. Executives are often trapped in the need to do something. The American culture is one that has enormous bias to grow and grow fast.

The best negotiators, says academic and consultant Michael Benoliel, represent a breed apart. They combine intelligence with empathy, discipline with flexibility, creativity with pragmatism.

For diplomats or politicians, negotiation is a critical and well-developed art form. Yet in business, negotiating skills are often taken for granted. Or, they are dismissed as a kind of innate ability. That kind of shoot-from-the-hip attitude, Benoliel believes, often leads to bad deals. "Ultimately, negotiating a merger or an acquisition is not about the deal," he believes. "It is about the discipline to be guided by clear and not easily bendable criteria, and achieving your objectives."

In his recent book, "Done Deal," Benoliel pens a kind of best-practices for negotiators. He relies on the words, experience and advice of the masters of the trade, from diplomats such as Ambassador Dennis Ross, the former chief negotiator for the Middle East in the Clinton and first Bush administrations, to former U.S. Trade Representative Charlene Barshefsky, to legislators such as Robert Dole and Bill Bradley. An Israeli who was born just months after his country's independence, Benoliel, 57, is understandably focused in particular on the Middle East peace process and includes insights from chief Palestinian negotiator Sa'eb Erakat as well as former Israel Prime Minister Shimon Peres.

But Benoliel seems most interested in taking those experiences and applying them to business. A former professor at the University of Maryland and at Johns Hopkins University, Benoliel now focuses his energies on the Center for Negotiation, a Maryland-based conflict resolution and negotiation-training consultancy he founded two years back. He wants to preach to business leaders.

Benoliel recently sat down with The Deal's Matt Miller. Here are excerpts from their conversation.

The Deal: When creating a hierarchy of business skills, negotiation isn't usually high on the list, is it?

Benoliel: No. In the average company, they don't see negotiation as a core competency. On the other hand, private equity firms, which do deals for a living, are very good. They develop really outstanding negotiation skills. Take Bain Capital [LLC]: For them, it's a profession. That's why they spend so much time, resources and energy in due diligence, also collecting data from the field, primary data, not relying on secondary references.

A significant percentage of mergers go bad. Can you relate this to the negotiation process?

One of the critical elements in negotiation is information, the quality of the information and mastering the information. Good negotiators have to ask a number of questions: What information do I need? What do I have? What kind of information don't I have? How do I get the information? Where do I get the information in order to close the gap?

When we look at the field of mergers and acquisitions, most of them fail in the information gap, because there is always information asymmetry. Sellers know much more than buyers. In negotiation, you don't want to make information asymmetry a constant disadvantage. You have to overcome it. You have to find ways that you will know as much as the buyer.

Also, you must try to fully understand what the motivations are of the seller. In every negotiation, the other side is presenting a perfect, self-serving case. In mergers and acquisitions, we call it perfuming the pig.

Another problem is not involving line managers in the process. It's usually financial people and the legal experts that control the deal.

In every negotiation, one of the most important rules is diligent due diligence. [In many M&A negotiations], they basically fail in doing that. One of the reasons is that they fall in love with the deal. They invest so much in the deal, it's very difficult for them to walk away … to disengage. What institutions have to do is create certain mechanisms that will neutralize those tendencies. There is nothing more important for a negotiator than the ability to be disciplined and say, "Here are the things that I must have. And if I cannot get them, then the alternative of not doing the deal is better."

Can you talk about power dissymmetry in deals? It's analogous to diplomacy, right?

Yes. Eventually, deals will be cut based on the power that individuals or countries have. But good negotiators approaching deals strategically have to understand the power balance and the strategies by which they can equalize the field.

 

But sometimes companies in trouble don't have many options. You mention in your book the example of the now-defunct airline People Express, which was forced to accept a bad deal because there was only one buyer interested.

One of the most critical elements in negotiation, the party always, always should and must create and pursue alternatives. There is a wonderful case study in diplomacy where the British had military bases in Malta. In the 1970s, the British decided the bases had no strategic importance anymore. They wanted to reduce the rent on those bases and even dismantle them. The prime minister of Malta created an alternative. He approached the Russians and offered to let them use these bases for the navy. By creating the Soviet option, he quadrupled the rent from the Brits.

Power is very dynamic. You may be able to squeeze me today, and I will not have many choices, and I will agree to the terms you are dictating. The moment the power balance shifts, I may try to get out of the agreement. It's really not just about having an agreement but also the success of the implementation of the agreement in the long run.

We may see that in something like the Oracle [Corp.]/PeopleSoft [Inc.] deal, where so much bad blood prevailed.

The consequences may be quite serious because there could be an exodus of great talent from PeopleSoft. When the party being acquired isn't happy with the acquisition, typically what happens is that the talented senior management simply walks out. And you lose an incredible amount of managerial experience.

You don't think much of bluffing as a strategy, do you?

In talking to the master negotiators, [they will say that] bluffing is not a useful and an effective strategy in the long run. The danger is that the party calls your bluff — then what do you do? If you're not willing to carry out a bluff, the consequences are serious.

People that are interested in long-term credibility and reputation in their industry usually don't engage in those kinds of activities. However, there are others like Wayne Huizenga. He's known as someone who uses tough tactics and some bluffs. But overall, these are not very useful tactics. Overall, in the long run, threats and ultimatums usually fail.

You write about the need to negotiate from both sides of the table.

It's not about winner take all. It's not about taking every penny off the table. As Shimon Peres says, you have to let the other side win. [Sports agent] Lee Steinberg says he fully realizes he is working with a group of people that he will have to come back to and negotiate with over and over and over. So, it's not about the one-shot deal.

The mindset [of great negotiators] is to really understand the other side, the other side's interest and capabilities. In the final analysis, in negotiation, it's really not about what you want; it's really about what the other side can do. Only then, when you really understand the other side's interests, limitations, capabilities, can you develop some kind of tradeoff and proposal that can work for both sides of the table in the long run. I really believe that effective negotiations are about lasting agreements. It's not a big deal to get an agreement in the short run that will collapse in a month. You know, the Israelis and the Palestinians have so many agreements and understandings, and they end up collapsing. Israel has violated them. The Palestinians have violated them. The level of distrust is so huge that they did not keep their commitments. It's really important to negotiate from both sides of the table.

What are your thoughts on hostile takeover bids?

A hostile takeover bid begins as a war. In this case, there is a minimal interest in understanding the other side, because the mindset and the strategies are about winner take all, about win-lose. It's really not about working with the other side.

In business negotiations, is lack of time or lack of available information merely an excuse?

Yes, it is. Because for good acquirers, the idea is not to buy fast and not just to buy. It's not about buying companies. It's about buying the right company. It's about achieving your objectives. And if you don't have the necessary information to assure you that you can achieve your objectives, you should simply walk away from the table. The fact that someone says you have only two weeks to do due diligence may be a warning sign that things are really not that great. Maybe they're really perfuming the pig.

Could you give an example of a company that does it right?

Nestlé [SA] is known as a very good acquirer, for many reasons. They don't buy just to buy. They invest a great deal in preparation, in due diligence, in making sure they are buying the right target. They are aware of the tendency of commitment to escalation, falling in love with the deal, so they always bring in a third party to evaluate and approve the deal. Nestlé has a corporate core competency in negotiation. Unlike many in the United States that rely heavily on financial analysis and legal analysis, Nestlé involves line-operation managers throughout the acquisition process.

 

You believe the composition of a negotiating team is often underemphasized, don't you?

The deal team composition is critical because a lot of the issues that will come up in the integration process can be uncovered in the due diligence. A deal team must have the content experts, the legal experts, the financial experts, and also include the operation management. [Most] really tend to ignore the soft side of the organization, and that's where most mergers and acquisitions run into problems. The soft side is not the financial spreadsheet. It's not the legal structure of the company. It's not about who will be the chairman of the board. The soft side has to do with the values and the culture of the organization, with the quality of the management, what the motivation of the management is, what are the competencies of the management. What you're really doing is taking Organization A, with a given personality, culture and history, and trying to merge it with Organization B, which probably has a different personality, culture and history. To mesh the two is extremely difficult. A number of case studies show that when [the soft side] is ignored, companies run into difficulties. In my interviews, I ask [business negotiators] if they have soft experts on the team and they say, "Not really, because there's no value."

Who's your favorite negotiator?

In diplomacy, I think it would be Dennis Ross. He's so smart, and he's effective, and he's analytical, and he's willing to admit mistakes. He's not trapped in his own ego.

How about business?

Somebody who has a good track record is Scott Smith, the president and publisher of the Chicago Tribune. … He is one who is willing to walk away from the table if he doesn't get the deal he thinks he should get, but he's very flexible. For him, it's not about personalities; it's about getting a good deal. In one case, he had an understanding about a particular deal for a certain amount of time and money. And then the party came back and renegotiated and reduced [its buying price] by 20%. He still did the deal, and I asked him why. And he simply said because it was still good, even at 20% less.

Does a pressure to grow lead to bad deals?

In most cases, yes. It is difficult to grow fast by organic growth. And Wall Street puts a premium on fast growth. Executives are often trapped in the need to do something. The American culture is one that has enormous bias to grow and grow fast.

The best negotiators, says academic and consultant Michael Benoliel, represent a breed apart. They combine intelligence with empathy, discipline with flexibility, creativity with pragmatism.

For diplomats or politicians, negotiation is a critical and well-developed art form. Yet in business, negotiating skills are often taken for granted. Or, they are dismissed as a kind of innate ability. That kind of shoot-from-the-hip attitude, Benoliel believes, often leads to bad deals. "Ultimately, negotiating a merger or an acquisition is not about the deal," he believes. "It is about the discipline to be guided by clear and not easily bendable criteria, and achieving your objectives."

In his recent book, "Done Deal," Benoliel pens a kind of best-practices for negotiators. He relies on the words, experience and advice of the masters of the trade, from diplomats such as Ambassador Dennis Ross, the former chief negotiator for the Middle East in the Clinton and first Bush administrations, to former U.S. Trade Representative Charlene Barshefsky, to legislators such as Robert Dole and Bill Bradley. An Israeli who was born just months after his country's independence, Benoliel, 57, is understandably focused in particular on the Middle East peace process and includes insights from chief Palestinian negotiator Sa'eb Erakat as well as former Israel Prime Minister Shimon Peres.

But Benoliel seems most interested in taking those experiences and applying them to business. A former professor at the University of Maryland and at Johns Hopkins University, Benoliel now focuses his energies on the Center for Negotiation, a Maryland-based conflict resolution and negotiation-training consultancy he founded two years back. He wants to preach to business leaders.

Benoliel recently sat down with The Deal's Matt Miller. Here are excerpts from their conversation.

The Deal: When creating a hierarchy of business skills, negotiation isn't usually high on the list, is it?

Benoliel: No. In the average company, they don't see negotiation as a core competency. On the other hand, private equity firms, which do deals for a living, are very good. They develop really outstanding negotiation skills. Take Bain Capital [LLC]: For them, it's a profession. That's why they spend so much time, resources and energy in due diligence, also collecting data from the field, primary data, not relying on secondary references.

A significant percentage of mergers go bad. Can you relate this to the negotiation process?

One of the critical elements in negotiation is information, the quality of the information and mastering the information. Good negotiators have to ask a number of questions: What information do I need? What do I have? What kind of information don't I have? How do I get the information? Where do I get the information in order to close the gap?

When we look at the field of mergers and acquisitions, most of them fail in the information gap, because there is always information asymmetry. Sellers know much more than buyers. In negotiation, you don't want to make information asymmetry a constant disadvantage. You have to overcome it. You have to find ways that you will know as much as the buyer.

Also, you must try to fully understand what the motivations are of the seller. In every negotiation, the other side is presenting a perfect, self-serving case. In mergers and acquisitions, we call it perfuming the pig.

Another problem is not involving line managers in the process. It's usually financial people and the legal experts that control the deal.

In every negotiation, one of the most important rules is diligent due diligence. [In many M&A negotiations], they basically fail in doing that. One of the reasons is that they fall in love with the deal. They invest so much in the deal, it's very difficult for them to walk away … to disengage. What institutions have to do is create certain mechanisms that will neutralize those tendencies. There is nothing more important for a negotiator than the ability to be disciplined and say, "Here are the things that I must have. And if I cannot get them, then the alternative of not doing the deal is better."

Can you talk about power dissymmetry in deals? It's analogous to diplomacy, right?

Yes. Eventually, deals will be cut based on the power that individuals or countries have. But good negotiators approaching deals strategically have to understand the power balance and the strategies by which they can equalize the field.

But sometimes companies in trouble don't have many options. You mention in your book the example of the now-defunct airline People Express, which was forced to accept a bad deal because there was only one buyer interested.

One of the most critical elements in negotiation, the party always, always should and must create and pursue alternatives. There is a wonderful case study in diplomacy where the British had military bases in Malta. In the 1970s, the British decided the bases had no strategic importance anymore. They wanted to reduce the rent on those bases and even dismantle them. The prime minister of Malta created an alternative. He approached the Russians and offered to let them use these bases for the navy. By creating the Soviet option, he quadrupled the rent from the Brits.

Power is very dynamic. You may be able to squeeze me today, and I will not have many choices, and I will agree to the terms you are dictating. The moment the power balance shifts, I may try to get out of the agreement. It's really not just about having an agreement but also the success of the implementation of the agreement in the long run.

We may see that in something like the Oracle [Corp.]/PeopleSoft [Inc.] deal, where so much bad blood prevailed.

The consequences may be quite serious because there could be an exodus of great talent from PeopleSoft. When the party being acquired isn't happy with the acquisition, typically what happens is that the talented senior management simply walks out. And you lose an incredible amount of managerial experience.

You don't think much of bluffing as a strategy, do you?

In talking to the master negotiators, [they will say that] bluffing is not a useful and an effective strategy in the long run. The danger is that the party calls your bluff — then what do you do? If you're not willing to carry out a bluff, the consequences are serious.

People that are interested in long-term credibility and reputation in their industry usually don't engage in those kinds of activities. However, there are others like Wayne Huizenga. He's known as someone who uses tough tactics and some bluffs. But overall, these are not very useful tactics. Overall, in the long run, threats and ultimatums usually fail.

You write about the need to negotiate from both sides of the table.

It's not about winner take all. It's not about taking every penny off the table. As Shimon Peres says, you have to let the other side win. [Sports agent] Lee Steinberg says he fully realizes he is working with a group of people that he will have to come back to and negotiate with over and over and over. So, it's not about the one-shot deal.

The mindset [of great negotiators] is to really understand the other side, the other side's interest and capabilities. In the final analysis, in negotiation, it's really not about what you want; it's really about what the other side can do. Only then, when you really understand the other side's interests, limitations, capabilities, can you develop some kind of tradeoff and proposal that can work for both sides of the table in the long run. I really believe that effective negotiations are about lasting agreements. It's not a big deal to get an agreement in the short run that will collapse in a month. You know, the Israelis and the Palestinians have so many agreements and understandings, and they end up collapsing. Israel has violated them. The Palestinians have violated them. The level of distrust is so huge that they did not keep their commitments. It's really important to negotiate from both sides of the table.

What are your thoughts on hostile takeover bids?

A hostile takeover bid begins as a war. In this case, there is a minimal interest in understanding the other side, because the mindset and the strategies are about winner take all, about win-lose. It's really not about working with the other side.

In business negotiations, is lack of time or lack of available information merely an excuse?

Yes, it is. Because for good acquirers, the idea is not to buy fast and not just to buy. It's not about buying companies. It's about buying the right company. It's about achieving your objectives. And if you don't have the necessary information to assure you that you can achieve your objectives, you should simply walk away from the table. The fact that someone says you have only two weeks to do due diligence may be a warning sign that things are really not that great. Maybe they're really perfuming the pig.

Could you give an example of a company that does it right?

Nestlé [SA] is known as a very good acquirer, for many reasons. They don't buy just to buy. They invest a great deal in preparation, in due diligence, in making sure they are buying the right target. They are aware of the tendency of commitment to escalation, falling in love with the deal, so they always bring in a third party to evaluate and approve the deal. Nestlé has a corporate core competency in negotiation. Unlike many in the United States that rely heavily on financial analysis and legal analysis, Nestlé involves line-operation managers throughout the acquisition process.

You believe the composition of a negotiating team is often underemphasized, don't you?

The deal team composition is critical because a lot of the issues that will come up in the integration process can be uncovered in the due diligence. A deal team must have the content experts, the legal experts, the financial experts, and also include the operation management. [Most] really tend to ignore the soft side of the organization, and that's where most mergers and acquisitions run into problems. The soft side is not the financial spreadsheet. It's not the legal structure of the company. It's not about who will be the chairman of the board. The soft side has to do with the values and the culture of the organization, with the quality of the management, what the motivation of the management is, what are the competencies of the management. What you're really doing is taking Organization A, with a given personality, culture and history, and trying to merge it with Organization B, which probably has a different personality, culture and history. To mesh the two is extremely difficult. A number of case studies show that when [the soft side] is ignored, companies run into difficulties. In my interviews, I ask [business negotiators] if they have soft experts on the team and they say, "Not really, because there's no value."

Who's your favorite negotiator?

In diplomacy, I think it would be Dennis Ross. He's so smart, and he's effective, and he's analytical, and he's willing to admit mistakes. He's not trapped in his own ego.

How about business?

Somebody who has a good track record is Scott Smith, the president and publisher of the Chicago Tribune. … He is one who is willing to walk away from the table if he doesn't get the deal he thinks he should get, but he's very flexible. For him, it's not about personalities; it's about getting a good deal. In one case, he had an understanding about a particular deal for a certain amount of time and money. And then the party came back and renegotiated and reduced [its buying price] by 20%. He still did the deal, and I asked him why. And he simply said because it was still good, even at 20% less.

Does a pressure to grow lead to bad deals?

In most cases, yes. It is difficult to grow fast by organic growth. And Wall Street puts a premium on fast growth. Executives are often trapped in the need to do something. The American culture is one that has enormous bias to grow and grow fast.

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