We're now ready to look at the last

question you should address when preparing for a negotiation and

planning your negotiation strategy. And that's the question of whether you
should use an agent to negotiate for you and there are a cluster of
related issues to using agents. Over the years I have had a number of
students who have become agents. Two especially come to
mind two sports agents. One was the agent for a basketball
player by the name of Chris Weber. Who played for my university and then
signed a pro contract represented by my former student,
who is also my research assistant. One of my other students has been
especially successful as a sports agent, I think he's on everyone's list as one
of the top five agents in the world. His name is Rob Pelinka. Rob represents Kobe
Bryant and 17 other stars in
the National Basketball Association. Now let's try this hypothetical. Let's assume
that you
are a basketball superstar. You've just graduated form college and you're about
ready to negotiate
a contract with a pro team. If you hire an agent like Rob, your fee is
going to be probably 3% of your earnings. And so the question is should you
negotiate with an agent, or should you negotiate on your own with probably some
help from, from your friends or relatives? What are the factors you should
consider in deciding whether to negotiate on your own or using an agent? Please
press pause, and
write down the factors or the questions you should ask in trying to
decide whether to use an agent or not. I think that your list of factors
should include the following and you might keep this checklist for
future use. First of all,
is the agent a better negotiator than you. After taking this course, I think you're
negotiation skills are
going to be improved, at least I hope so. But still the agent might
be a better negotiator. Does the agent have more experience
in negotiating the kinds of issues that are going to arise? For example there are
going to be issues
specifically to your NBA contract that the sports agent like Rob Pelinka is
going to understand much better than you. Does the negotiation involve a technical
matter that requires the expertise of an agent; such as, a complex legal
negotiation that
requires a lawyer to negotiate? How much time do you have to invest in
a negotiation if you're in business, for example, got a busy career
you might not have the time to make the investment necessary to
be successful in the negotiation. And finally, what's your
relationship with the other side, especially if this is a dispute
resolution negotiation? If you are in battle with the other side,
perhaps it's better to negotiate with an agent who has some distance from the,
the details of the dispute. So, these are the kinds
of questions that you should address in deciding
whether to hire an agent. The reality is that in business almost all
negotiations are conducted through agents. In other words, the so-called
principles,
companies, higher agents, their employees and negotiation takes
place at the agent to agent level. One specific type of negotiation by agents
involves the use of a secret agent. Sometimes, companies for
various reasons, don't want, the other side to know that they
are in back of the deal and so agent A thinks that he or
she is negotiating with agent B and doesn’t realize that agent B is
secretly representing another side. This is a fairly common business tactic. For
example, there’s an American
businessman named Walt Disney. And Walt Disney early in his career, made what he
always felt was
the worst business mistake ever. He built an amusement park in
Los Angeles called Disneyland. And when he built the park,
he bought 80 acres of land in Los Angeles. Problem was the 80 acres quickly began
to be surrounded by other businesses, so he could never expand. And so, he vowed
that if every
built another amusement park, he would acquire considerably
more than 80 acres. When he moved to Florida; therefore, he acquired, instead of 80
acres,
27,000 acres. About twice the size of Manhattan. Same size as San Francisco. And,
to do this,
he had to use secret agents because he knew that if the people selling the land
realized that he was behind the purchases, property prices would skyrocket. So, it,
as this slide illustrates, after he acquired the 27,000 acres, once
word got out that he was behind the deal, prices jumped from $183
an acre to $1000 per acre. But by that point,
he had his 27,000 acres. So he hired,
again an army of secret agents. He hired real estate brokers,
bankers, lawyers. He set up dummy corporations. A whole array of secret agents
who infiltrated the Orlando area to acquire this land. I've been told, I'm not sure
if it's true
or not, that if you visit Disney World, and walk down main street, you'll see the
names of some of the dummy corporations that he created as secret agents on the
facades, of, of the offices on Mainstreet. So, this is a very specific
business tactic, but, but there's, a more general issue relating to the use
of agents that's much more important. And let me ask you this question. Let's say
that you are negotiating
with the agent for a company,
which is legally called the principle. What's the very first question,
you should always ask in a negotiation? Again in a business scenario
you're almost always going to be negotiating with an agent. What's the very first
question you
should nail down in that negotiation? Think about that a second,
write down your answer. I hope that you wrote
down the word Authority. Does the agent have authority from
the principal to do the deal. Because if the agent
doesn't have authority, then you're spinning your wheels. You're not going to be
able
to conclude the negotiation. The agent might, you might go into great
details in the negotiation with the agent, but at the end of the day
the agent's going to say well, sorry, but I don't have authority. I've gotta go
back and
get approval from somebody else. And you might have to restart. So always,
at the beginning of every negotiation, make sure that you know if
the agent has authority. Now if you dig a little deeper, there are three types of
authority
that an agent might have. The agent might have express authority,
where the principal says to the agent, you have authority to negotiate this deal.
The authority might be implied,
and that occurs when the principle hires the agent for
a particular position in the company. And under normal business practices
it is implied that somebody in that position does have authority
to negotiate certain deals. And then there's a more complicated type
of authority called apparent authority. And that is where the principle
does something to indicate to you that the agent has authority when
in fact there is no authority. So let's take a look at a couple
of case examples that show how these different types
of authority play out. Here's a case based on
a situation in China, based loosely on a situation in China,
that reached the courts in China. In this case, a company hired an agent
Lee to negotiate with a manufacturer. And the company gave the manufacturer
a letter of authority. The company said,
Lee is our authorized agent. Now, privately to Lee,
the company said, Mr. Lee, you can acquire equipment, but you are not authorized to
pay over 300 per unit. In other words,
that was the reservation price. You cannot pay over 300 per unit. So we started
negotiating with
the manufacturer, and as it turned out, he did pay over 300 per unit,
let's assume he paid 400 per unit. So now there's a contract. The company refused
to honor the contract. And the question is, is the company bound
by the contract made by its agent Lee? Think about that for a second. What's the
answer, yes or no? Company is bound or not? And then think why. What's the reason
for your answer? >> The correct analysis in my
opinion in this situation is that the company should be bound
by the contract made by Lee. Even though, they said privately to him
you can not pay more than let's say 300. And the reason is apparent authority. Lee
had no real authority
to pay more than 300, but by giving the manufacturer the letter
of authority saying Lee had authority to represent the company,
the company created a situation where it appeared that Lee did have authority and
the manufacturer should be able to rely on that letter of authority
in holding the company liable. Let's try another scenario. This is based on a case
that occurred
near where I live in Ann Arbor, Michigan. So, we have a person who
I've called borrower here, who goes to a bank and
wants to borrow some money. Now let's say that you're
the banker in this case, so what's your first question when somebody
comes in and wants to borrow money? Well, as a banker, you are insecure. And you
want some security for the loan. And so your first question to the borrower
is, look, do you have any collateral, any property that we can take in
case you do not repay the loan. And the borrower said, no,
I don't I virtually have nothing but I have a very good job and
a very prosperous company. And the bank agreed this
was a prosperous company. So the borrower says to
you the banker what if I ask my general manager if he will sign
a guarantee on behalf of the company. So the company will guarantee the loan. What
would you do as
the banker in this case? In, in this case by the way the general
manager did agree to sign the guarantee, came in the next day and signed. A
guaranty, which read, this guaranty is
signed by me, the, the general manager, having the legal right to bind the Company
as authorized by the Board of Directors. So. What's your decision as
the banker in this case? Are you now satisfied? The company's prosperous. Are you
now satisfied that if
the borrower doesn't repay the loan that you will be repaid as
a result of this guarantee? Answer yes or no, would you make the loan
yes, or would not make the loan no. In this case,
the bank did make the loan, the borrower defaulted on the loan, so the bank went
after the company under the guarantee. The clerk decided that the company
was not liable, reason, general managers have no authority to
guarantee loans made by employees. That's not part of the work
of a general manager. And the company did not give
the manager authority to do this. There was no express authority. And there was no
implied authority implied
from the work of the general manager. And therefore,
the bank was unable to collect the loan. Now, this case illustrates a very
important and often misunderstood point. And this is the way the point was stated
in the classic book, Getting to Yes. Do not assume the other side has
full authority just because they are negotiating with you. Before starting on any
give and take, find
out about the authority on the other side. It is perfectly legitimate to inquire,
just how much authority do you have
in this particular negotiation? Now think about this advice for a second. This, by
the way, I love this book. It's a great book, but question,
is this particular advice good advice? Yes or no? Think about it in terms of this
example. Let's say that I come to you and
I say to you, I am the agent of one of
the richest people in the world, Bill Gates and
I want to sell you Bill Gates' home. Would you follow the advice here? Would you,
before we start negotiating,
would you say, by the way, are you, do you have authority to act
on behalf of Bill Gates? I hope that the answer is no. I hope that you would not
ask me,
the agent, that question. You should ask Bill Gates that question. The principal.
back to this bank example. The bank instead of allowing the general
manager to establish authority through this guarantee where the manager said I
have authority to represent the company. The bank should have asked the company,
does the general manager have authority. So, the bottom line here is, determine
authority at the beginning
of a negotiation, that's good advice. But don't ask the other side. Don't ask the
agent. That's what they mean by the other side. Ask the principal. So in
conclusion, I recommend that
you use the factor list when you're deciding whether to use
an agent during negotiations. And at the beginning of every negotiation, find out
whether your counterpart
has authority to make a deal.