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Lying in Business Negotiations is Widespread. Is it Effective?

"This… is my final offer..." 
According to a study by the Kellogg School of Management at Northwestern University, "this is my final offer..." is the most commonly uttered phrase in any business negotiation.  90 percent of the time, the statement is completely untrue. 
 To Lie, or Not to Lie, That is the Question
  • Is it ok to lie during business negotiations?  
  • Isn’t negotiating a zero sum game, with winners and losers, with points scored by out-maneuvering your opponent?
  • How about a "white" lie, or exaggeration? Is it ok to stretch the truth?
  • And, since most parties seem to lie to some extent during negotiations, isn’t lying required to keep a level playing field?
This post originally appeared on LinkedIn, June 1, 2015.  Lying in Business Negotiations

In my negotiating experience, which is fairly extensive, I would state no” to all of the above.  Most of my peers, and comprehensive studies, support that position.

  • It’s not ok to lie in business, or elsewhere.  By lying you may, or may not, be able to favorably bias the outcome of some agreements; however the negative consequences will usually outweigh any benefit.  Your credibility may be challenged. Your misrepresentations may be discovered.  Your moral compass will, hopefully, be damaged. And, you may wind up damaging your future ability to negotiate successfully, hurting your career, losing your job, or in prison. 
  • Most negotiations are not a zero-sum game; where one party’s gain comes at another party’s loss (think poker).  Truly winning outcomes are negotiated agreements where both parties succeed, compromise fairly, or, on some occasions, are equally dissatisfied. And, sometimes, the best outcome is no negotiated agreement, at all.
  • If you know it's not true... it's a lie. Period. And, if you are caught lying about one thing, even something "small," it is assumed that you have lied, or will lie, about other things. 
  • Being truthful is not only is morally superior, it usually yields the most successful business outcome; even when the other party is dishonest. I would argue that unless it’s the final deal of your career, and you plan on moving to Bolivia… you’re negotiating in a long-term multi-deal environment where many parties will have knowledge of your deal-making acumen, and honesty.

Is lying during business negotiations illegal?

American law disclaims any general rule of “good faith” in the negotiation of commercial agreements. 
The United States Court of Appeals for the Seventh Circuit recently stated:
In a business transaction both sides presumably try to get the best deal. That is the essence of bargaining and the free market. . . . No legal rule bounds the run of business interest. So one cannot characterize self-interest as bad faith. No particular demand in negotiations could be termed dishonest, even if it seemed outrageous to the other party. The proper recourse is to walk away from the bargaining table, not sue for “bad faith” in negotiations.
However, and this is significant, the above statement assumes that no one has committed fraud. As pointed out by the MIT Sloan Business School: The elements of common law fraud are deceptively simple. A statement is fraudulent when
the speaker makes a knowing misrepresentation of a material fact on which the victim reasonably relies and which causes damages.
Damages can result from unfavorable financial terms due to misrepresentation.  Therefore, lying during business negotiations, if fraudelent, may be deemed illegal. 

The Pinocchio Syndrome; why do managers lie?

Even managers who consider themselves highly moral, ethical and honest routinely engage in dishonest statements while negotiating. Professor Francesca Gino, of the Harvard Business School, believes these misrepresentations occur because managers...
“1. Do not realize they are behaving dishonestly; 2. They can't resist the temptation to act unethically; or, 3. Because they find effective ways to overlook or rationalize their choices.”
Professor Gino and her collaborators leverage insights from the growing fields of moral psychology and behavioral ethics to present a 3-principle framework they call REVISE. The framework classifies forces that affect dishonesty into three main categories and then redirects those forces to encourage moral behavior:
  1. The first principle, Reminding emphasizes the effectiveness of subtle cues that increase the salience of morality, and decrease people’s ability to justify dishonesty. 
  2. The second principle, Visibility, aims to restrict anonymity, prompt monitoring and elicit responsible norms. 
  3. And, the third principle, Self-Engagement, increases motivation to maintain a positive self-perception as a moral person and bridge the gap between moral values and actual behavior. 

Final thoughts.

I am not a philosopher, or an ethicist.  I am a businessman and success is my metric of choice.  Lying is not a tactic that yields sustainable success.
Beware of "lies of omission," the intentional failure to tell the truth in a situation requiring disclosure.  This does not mean you must shine a light on every wart... If selling a used car, you must disclose that the air-conditioning doesn't work, but not that you spilled coffee on the back seat (unless asked).
This post focuses on truthfulness in negotiation.  However, lying and misrepresentation are prevalent in other business applications, as well.  From resumes to exit interviews, sales presentations to press releases, lying has become so common in business that it is often considered the norm.  
Most companies have a "code of conduct" requiring truthfulness: Most employees don't read it, they just sign it. We must inspire, create and maintain a culture where lying is unacceptable and unnecessary.  Lead by example.
Lying, whether on online dating sites, resumes or during business negotiations, is inauthentic; and, whether remembered as "fraudulent" or simply a "white lie" it diminishes our perception of self-worth, it eats away at our sense of our own character.
Primarily a character with good intentions, Pinocchio's lies resulted in his turning into a donkey, being forced to join a circus, and then swallowed by a whale - a fairly high cost to learn his honesty lesson.  Hopefully your tuition will be less expensive.
(c) David J. Katz, June, 2015 - San Francisco
As always, your opinions and feedback are welcomed... DJK

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