Steve Schwarzman, Co-founder and CEO of Blackstone, shares his hardball negotiation insights from his illustrious career. He discusses navigating tough negotiations, including a railroad acquisition where psychological strategies played a key role. Schwarzman reflects on high-stakes situations like the economic turmoil post-Iraq and Blackstone's investment challenges. He emphasizes adapting tactics, understanding dynamics, and asserting authority to achieve successful outcomes. The conversation reveals the delicate balance between strategy and relationship-building in high-pressure deals.
Steve Schwarzman's innovative tactic of imposing costs on a resistant counterpart illustrates the importance of strategic problem-solving in tough negotiations.
Understanding the context and motivations of the opposing party is crucial, especially when negotiating under challenging or high-pressure circumstances.
Shifting negotiation styles, such as balancing authority with strategic framing, can significantly influence outcomes and facilitate agreement in complex deals.
Deep dives
Steve Schwarzman's Negotiation Strategies
Steve Schwarzman emphasizes the necessity of innovative problem-solving in negotiations, as evidenced by his approach to a difficult deal with Harold Simmons. When faced with Simmons's refusal to sell his stock to CSX, Schwarzman pivoted from simply trying to entice Simmons with a lucrative offer to devising a strategy that would make holding onto the stock a burden for him. He cleverly proposed to create an illiquid security that would trigger tax liabilities without providing any cash dividends, effectively increasing Simmons's costs for holding out. This tactical shift illustrates how intractable negotiations can sometimes require imposing a cost to encourage a favorable agreement.
Understanding Power Dynamics
In the high-stakes deal concerning Hospitality Franchise Systems, Schwarzman faced a situation where the opposing party, New World Development, held considerable leverage due to Blackstone's difficult financial circumstances. New World threatened to revoke the Ramada license if payments were not met, which drove Schwartzman and his team to Hong Kong for negotiations. Schwarzman learned that understanding the full context and motivations of his counterpart was crucial when negotiating under duress. By recognizing that New World had bigger priorities elsewhere, Schwarzman could have adjusted his approach to offer solutions instead of pleading for concessions, demonstrating the importance of contextual awareness in negotiations.
The Equity Office Properties Acquisition
The acquisition of Equity Office Properties (EOP) posed significant challenges, particularly regarding terms that prevented Blackstone from pre-selling assets. Despite Sam Zell’s firm stance against pre-sale agreements, Schwarzman recognized the market dynamics and leveraged Blackstone’s competitive advantage as a cash buyer. By proposing to raise their bid only if pre-sales could be arranged to mitigate financial risk, he turned Zell’s demands into a mutually beneficial proposition. This strategic negotiation style not only secured critical concessions but also highlights the effectiveness of aligning interests to facilitate agreement in complex deals.
Creative Tactics in Desperate Situations
In negotiating the sale of Edgecombe, a struggling steel company, Schwarzman encountered a position of extreme weakness with no fallback options. He managed to identify a potential buyer who perceived strategic value in the acquisition, allowing him to frame the deal as a unique opportunity for growth in the U.S. market. By emphasizing the risk versus reward for the French steel company and portraying a compelling vision, Schwartzman cleverly redirected the narrative in his favor. This negotiation demonstrated how focusing on the counterpart's aspirations can create leverage, even when the negotiating position appears dire.
Leveraging Urgency and Authority
When faced with construction delays for the Schwarzman Scholars program, Schwarzman resorted to a more aggressive negotiation tactic to spur action from contractors in China. Recognizing the project's national significance, he emphatically communicated the urgency and potential consequences of continued delays, including invoking the authority of higher governmental powers. This approach underscores how demonstrating authority and urgency can elicit faster compliance in negotiations. While it involved a significant stylistic shift, Schwarzman balanced power dynamics effectively, showcasing the importance of adapting negotiation styles to the situation at hand.
While the hallmark of the first episode with Steve Schwarzman involved his probing deeper interests and forging creative solutions, this episode draws lessons from several negotiations in which Schwarzman either played hardball or was the target of hardball tactics. Broader lessons on handling such moves derive from how Steve dealt with these challenges.
This week's episode is based on four Harvard Business School Case studies by Dealcraft host Jim Sebenius which can be found here:
James K. Sebenius, and Alex Green. "Steve Schwarzman on Dealmaking I: “Becoming a ‘Friend of the Situation’” (A)." Harvard Business School Case 922-005, November 2021. View Details; (B) Case Harvard Business School Supplement 922-006, November 2021. View Details
"Steve Schwarzman on Dealmaking II: When They Hold All the Cards (A)." Harvard Business School Case 922-007, November 2021. View Details; (B)." Harvard Business School Supplement 922-008, November 2021. View Details
About Dealcraft:
With an ear for memorable deal stories, Harvard Business School professor and renowned negotiation expert Jim Sebenius interviews many of the world’s greatest dealmakers and diplomats about their most challenging negotiations. From each episode, Jim extracts useful insights and lessons to help listeners with their toughest deals and disputes.
