By RAY ADLER
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My father taught me that there are several ways to buy and sell corn: (1) The arm’s length transaction, where each person negotiates from their own interest; (2) reverse negotiation, where each person looks out for their own interests as well as the interests of the other party; or (3) the power method, where the parties don’t really negotiate and one person acts as the bully while the other party folds to every demand.
The power method, the foulest of business transactions, elicits images of Ebenezer Scrooge or back-alley loan sharks. This scheme represents a zero-sum game because there are clear winners and losers. The party in power uses its leverage to manipulate and exploit the weaker party.
The arm’s length transaction represents nearly all our daily transactions and is generally thought to be a positive method of negotiation. This is the principle behind Adam Smith’s “invisible hand” doctrine whereby mutually beneficial exchanges arise out of individuals seeking their own self-interest. The arm’s length transaction is the free market system at its best.
Lastly, reverse negotiation. The concept of reverse negotiation may appear foreign to many of my readers, but it is actually a concept found in the Bible. Not only does reverse negotiation create mutually beneficial exchanges, but it also provides greater personal satisfaction and trust among the transacting parties. It is best explained by an illustration.
An Amish neighbor came to buy 10 bushels of corn from my father worth $2 a bushel. An arm’s length transaction would likely result in a $20 purchase. My father, however, took a different approach. He advised his neighbor that it was only 10 bushels of corn, and that the neighbor should just take it. Dad was glad to be helpful to a close neighbor. The Amish neighbor responded by saying, “No, you saved me a trip to the grain elevator and it’s worth $4 a bushel for my time and trouble. I would not think of paying you less than $40.” After several intermediary back-and-forths, they split the difference at $2 a bushel or $20. Both left knowing that if they were in real need, the neighbor would help. However, since neither my father nor the neighbor were in such a situation, the market outcome was achieved but with a better feeling about the other person.
Of course, reverse negotiation only works when both parties are willing to participate. A variation of reverse negotiation is the widow and orphan track. Dad sent me to the agent to buy hogs when I was 14. I advised the factor was much more knowledgeable and he would take advantage of me. Dad replied that he negotiated by the widow and orphan rules, looking out for the weaker negotiator more than yourself and there were widows or orphans or unsophisticated opposing parties.
I have a few reverse negotiation friends. My partner, Seth, and real estate business friend, Jeff, negotiate in this manner. Jeff and I have so invested in reverse negotiation that we don’t even keep books on the amounts we may owe each other because he always thinks he owes me and I always think I owe him, which makes our person-to-person accounting seem irrelevant. We both have greatly benefited from reverse negotiation.
In my law practice, I have witnessed all three forms of negotiation. It boils down to God’s way of negotiating (reverse negotiation); man’s way of negotiating (arm’s length negotiation), and the gutter negotiation (power negotiation). May we all seek to care for one another and develop trusting relationships with our neighbors, both near and far.
Educational material and not legal advice, written by the team at Adler attorneys. Email andrea@noblesvilleattorney.com with questions or comments.