Negotiating, often denigrated as a field for those with more attitude than aptitude, is often the place where very smart executives make glaringly dumb decisions. A good example of this surfaced when ABC attempted to woo David Letterman away from CBS.
ABC made a strong if ultimately unsuccessful sales pitch, throwing a fright into the incumbent network. It seems clear, however, that ABC wouldn’t have gotten to second base if CBS hadn’t blundered repeatedly, including apparently not reading its own contract with Letterman.
But that’s not the point I want to make. Instead, my interest was piqued by quotes (from the usual uncredited sources) that said the only reason the barn door was open in the first place was that CBS bungled its exclusive 45-day renegotiation period. “If only they’d put a serious offer on the table to start with, things never would have gotten to this point,” was the general tenor of remark by the various executives interviewed.
This interpretation was correct, as far as it went — which wasn’t very far. CBS made its initial error not by a margin of 45 days, or even 90 days. No, they blew it by nine years, going back to the date in 1993 when they signed Letterman to his last contract.
I’ve always felt that there is a perfect time to renegotiate any form of long-term contract, and that is almost immediately after it has been signed. This of course flies in the face of management’s macho love of playing hardball, but the fact is, if at the end of the first year you decide to renegotiate, you have the following advantages:
1. The person with whom you did the original negotiation is still there. Human nature being what it is, this person is going to be eager to justify the contract, whatever it is, to his employers. He’s already done it once, so the odds are in his favor that he will be able to do it again.
2. People are usually the happiest about a contract when it is very early on. An obvious point? Yes, but when you consider how many people have the perceptiveness and courage to act upon it, it’s a point that may as well be written in secret code.
3. If you wait until the end of a contractural period, the odds increase that there will be new people in the negotiating roles on the other side. When that happens you run the risk of being ignored out of hand by the new regime’s negotiating team. You can’t really blame them — it’s only human nature to want to do your own thing and to erase what everybody else has done before — but you can blame yourself for waiting so long.
Rigid thinking costs opportunities
In the end, it seems worse than shortsighted of CBS to have waited nine years to get to the table with Letterman. It wasn’t as if there were any question of his value or his ability to continue performing as before. It seemed that CBS was in thrall to a simplistic understanding of the concept of contracts. I can only speculate as to why this was so, but an astonishing number of people in business do allow their thinking to be controlled by a few rigid concepts. Often these concepts are ones that have been handed down to an executive early in his career and have gone unexamined since.
For an example of how an innovative and flexible executive will deal with the issue of contract renegotiations, I would point out the case of John DeLorean. In John’s hey day with Chevrolet as general manager, and needless to say before the famous debacle with the car that bears his name, we did a contract with him on behalf of Jack Nicklaus. When John decided to take a leave of absence from GM, he called and said, “Let’s renegotiate Jack’s contract before I go. It’s really good for Chevy, and the new guys who come in will try to redo it just because they didn’t have a hand in it in the first place.”
Here was someone who understood the renegotiating dynamic. John knew that locking Jack into a new contract would be in Chevrolet’s best interests in the long run, and this proved to be true. I’m sure his successor never thanked him publicly, but he certainly reaped the rewards of John’s decision. As for John, he continued to show his creativity in his quixotic experiment in the automobile business. People today only remember John, if at all, for some sort of scandal over money laundering; they should be remembering that the DeLorean was a car designed both to be stylish and to last, reversing Detroit’s fixation with planned obsolescence.
Thus this final word to those of you who would stand pat waiting for the warm and fuzzy feelings to chill so you can go in with a proper pit bull mentality: Negotiating isn’t about who fights the hardest, it’s about doing what’s best for your company. If the contract is working out now, why not make sure it stays that way?
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