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Principal and Agents in Negotiation

principles-agents

Summary

In negotiations the principle parties are the decision makers, while the agents are the people who represent the interests of the principal decision makers.

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In negotiations, you have to know who’s sitting at the table. Some of these individuals can make binding decisions on the spot. In many other situations, the people involved represent the decision makers. They may have only limited authority. Or, they may have no authority at all. Let’s look at this in more detail.

Principals

In all negotiations, the principle parties are the decision makers. These are the people who ultimately make or break the deal. These are the ‘Top Dogs‘. Negotiation Principals are either a single person or a committee of people.

The single person principal is self explanatory. One person makes all the decisions.

Principals which consist of a committee refers to a group of people who are appointed, or nominated to make the decisions on behalf of the company or organisation they represent. A committee could be comprised of a variable mix of individuals. For example, a committee could consist of a board; a mixture of management personnel; or any other collection of individuals.

Why is this important to know? Because, by knowing who’s sitting at the negotiation table, this information allows us to clarify our counterpart’s level of authority in making decisions. If our counterpart has only limited authority, or has to defer all decisions or proposals to a higher authority, we are then able to clearly visualise how decisions will be made. This also allows us to uncover the identities of all the actual decision making principals.

Negotiations can be complex. Thorny issues might result in a bitter deadlock. Rather than make a mountain out of a molehill, the solution might be as simple as having the right people sit at the table.

This information can be crucial before you even begin your talks. If the right people aren’t sitting at the table, then the whole negotiation might become unnecessarily derailed before you even start.

Agents

Agents are people who represent the interests of the principal decision makers. They act on the principal’s behalf with varying degrees of authority. Negotiation Agents are employed in negotiations specifically because of their expertise, specialised knowledge, and experience.

There are two types of agents who represent principal parties and their interests. The first type is the independent representative. Some examples would include a real estate agent, or a broker who negotiates the buying and selling of goods and services on behalf of another party. The second type of agent is a non independent representative. This type of agent works directly for a company or oganization. An example would be a company’s purchasing department whose staff negotiates the lease or acquisition of supplies or equipment. Another example would be a union representative acting on behalf of a union.

The agent’s know-how is clearly the most constructive reason why they are employed by decision makers to best represent their interests. The other side of the coin reveals that agents may have other self-serving interests of their own. These contrary interests might be in conflict with the the aims of the people who engage their services. Let’s unravel this tangle. so that we are aware of potential contrary interests that agents might bring to the table.

Independent Agents – Be Cautious

Independent agents must be compensated for their services. Many of these independent agents earn their income through commissions. The more an agent sells, then the more they earn in commission. It is not uncommon for an independent agent to inflate the sale to increase their commission.

Independent agents are also interested in the enhancement of their professional reputation. Obviously these agents desire, to not only attract more clients, they want to get the best clients. Sports and entertainment agents for example, have occasionally been known to be flamboyantly creative during contract talks to inflate their reputations. Sometimes at the expense of their client.

Let’s take an overview of some of the more common problems we might encounter when contracting independent agents, and some simple remedies to best protect our own interests.

Problems

  • Information Sharing – Communication difficulties are going to arise, should either the agent or the principal fail to fully share all relevant information. On the one hand, if the client withholds crucial information from their agent, then the agent will not know how to best represent their client. Conversely, the agent may wit hold information from the client which will impact the client’s ability to make proper decisions. This lack of information exchange will most certainly affect the overall decision making process. That’s not good!

Remedy – Talk to each other! Clear communications between both the agent and principal is obviously the simplest solution to overcome this problem.

  • Divergent Interests – Not every organisation or business is of one mind in their own decision making process. Different parties from within the organisation may confound the agent’s ability to engage in trade-offs with their counterpart. One department manager for example, may prefer that some other department makes a negotiation concession now, in order to gain a self serving advantage at some later stage of the talks. These internal interest conflicts will surely cloud the agent’s ability to be effective.

Remedy – You have to have a game plan. All principals involved in the decision making, must properly communicate their own needs and interests. They have to agree amongst themselves, and make the agent aware of their priorities.

  • Conflicting Interests – We should also assume that every agent is bound to have their own personal agenda. A commissioned agent may very likely wish to enhance their commission. A specialised negotiating consultant may wish to enhance their reputation. Hidden agendas can affect how a negotiation will be conducted and may even influence the ultimate outcome.

Remedy – Dangle a more juicy bait. Incentives or some form of pay-for-performance enticement, will encourage the interests of both parties to be more in sync with each other. The agent will be more motivated to align their interests with your own.

Other Tips

  1. Shop around when you plan to hire an independent agent to represent your company or organisation. Ensure you understand their skills, and the strategies they employ. Talk to other members in your industry. Glean whatever information you can acquire to better know the agent you’re thinking of contracting.
  2. Don’t ever reveal your BATNA (Best Alternative To a Negotiated Agreement)to an independent agent. If the agent knows where the line is be drawn, then they may fall prey to settling quickly for a less than ideal resolution. Instead, always focus on your interests and fully communicate prioritised interests instead.
  3. Use the agent’s expertise and knowledge to your fullest advantage.
  4. Learn negotiation by taking a negotiation skills seminar. Ensure your course arms you not just with the theory, but gives you valuable time to practice and get feedback to sharpen your negotiation skills.

In Conclusion

To be forewarned is to be forearmed is an old saying that can never be emphasised enough. Agents who represent your company or organisation can offer many useful benefits, but it is best they be wisely used.

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