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 io negotiate for you. And there are a cluster of related issues to using agents. Over the years, I've 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 Webber who played for my university and then signed a pro contract represented by my former student who was 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 from college, and you're about ready to negotiate a contract with a pro team. If you hire an agent like Rob, the 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 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 your 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. 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 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 principals, companies, hire 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 he ever 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 realize that he was behind the purchases, property prices would skyrocket. So 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 the offices on Main Street. So this is a very specific business tactic. But there's a more general issue relating to the use of agents that's much more important. Let me ask you this question. Let's say that you are negotiating with the agent for a company, which is legally called the principal. 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, and 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. You might go into great details in the negotiation with the agent, but at the end of the day, the agent is 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 that the agent has authority. Now, to 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 principal 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 principal 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, Li, to negotiate with the manufacturer. And the company gave the manufacturer a letter of authority. The company said, Li is our authorized agent. Now privately, to Li, the company said, Mr, Li, 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 Li started negotiating with the manufacturer. 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 it's agent, Li? 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 contact made by Li even though they said privately to him, you cannot pay more than, let's say, 300. And the reason is apparent authority. Li had no real authority to pay more than 300, but by giving the manufacturer the letter of authority saying Li had authority to represent the company, the company created a situation where it appeared that Li 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 that I have 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 at 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 this case, by the way, the general manager did agree to sign the guarantee. He came in the next day and signed a guaranty, which read, this guaranty is signed by me, 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 is prosperous. Are you not 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 court decided that the company was not liable. Reason? General managers have no authority to guaranty 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 a 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. 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 int he 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, 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 fo 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 the 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 the authority to make a deal.
