Daniel, a senior manager at a large consumer products firm, has been asked by a company vice president to submit a detailed budget request for his department. Daniel has an incentive to overstate anticipated costs: in the case of overruns, it’s nice to have a little cushion built into the budget, rather than having to beg for more money once the fiscal year is under way. The department’s projected costs are $14 million, but Daniel submits a report that outlines costs totaling $16 million.
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The problem, of course, is that Daniel isn’t the only senior manager to succumb to the temptation to lie. As a result, total departmental requests exceed the companywide budget. The vice president, struggling to divine how much each department really needs, inevitably gives some groups too much and others not enough. Daniel, who receives his requested $16 million, ends up spending the excess frivolously to justify his initial demand.
There are many reasons not to lie during a negotiation: lying is unethical, it may be illegal, and it’s often poor strategy. Nonetheless, when the stakes are sufficiently high, the temptation can be overwhelming. On one hand, lying creates an ethical dilemma—a choice between doing what is right and doing what might benefit you most. Lying is also a strategic dilemma: while you can reap benefits from a lie, if the lie is discovered, your reputation and profit are both in jeopardy.
Surveys reveal that the majority of managers have lied in negotiations, and virtually all believe that they have been lied to by others. Because purposeful lies are ethically distasteful and manifestly risky, it’s worth considering what choices are available to a manager who wants to act morally but doesn’t want to lose his shirt at the bargaining table.
Consider the case of Tina, a job hunter, who has sent applications to a large number of investment banking firms (her preferred employers) and to one strategy-consulting firm. Only the consulting firm calls to schedule an interview, which is now 10 days away. Tina doesn’t think she could refuse to answer a direct question about her other prospects during the interview, but with no other interviews or offers, she’s worried about appearing unimpressive. She solves the problem by immediately sending out 12 new job applications to top-notch consulting firms. At the interview, she can now truthfully state that she’s still waiting to hear from a dozen consulting firms.
Here’s another example: Bryan, an attorney, is preparing to represent a client in a mediation over a business dispute. Before the session, Bryan asks the client to limit his ability to make concessions on a few key issues. When he speaks with the mediator, Bryan can truthfully state that he has no authority to concede certain points. Finally, let’s return to the case of Daniel, who is tempted to provide an inflated budget request for his department. What might happen if, instead of overstating his department’s needs, Daniel asks the VP for an extra four weeks to submit his budget? During the extra time, Daniel would be able to gather more precise cost estimates from some of his contractors, data that eliminates the need for a budget cushion.
In each of these stories, the negotiator eliminates the temptation to lie by reshaping facts prior to the bargaining session. There’s a deeper point here: the temptation to lie often indicates that reality doesn’t match our desires. One course of action is to misrepresent reality to others (and even to ourselves). A better option—one that resolves both the ethical and strategic dilemmas of lying—is to adapt reality to our desires and make the truth easier to tell.
Adapted from “Smart Alternatives to Lying in Negotiation,” by Deepak Malhotra (associate professor, Harvard Business School), first published in the Negotiation newsletter.
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Based on my own 25 years as a CEO, Board member, and consultant, the fact set presented here is a good one, with one extremely important exception. The reality is that people rarely “lie” when they choose a budget number — instead, they attempt to guage their superior’s and others tolerance for risk, potential changes in the business environment for the plan period, their own likely ability to manage costs, and their past history with their superiors and others.
Thus, before one talks about whether an employee is “lying” they need to ask a set of questions that begins with, “What is the probability that the actual number will be lower/higher than the one you project, and why?
Later on, when reality demonstrates the relationship of the original estimate to the final result, is the time to explore if people were “lying” or need to learn how to make better estimates.