Those Somali pirates are a wily bunch. While pirate attacks off the coast of East Africa are down, the average ransom is up. Most of the increase can be attributed to going after more modern ships and with better negotiating tactics. The Economics of Security research initiative looked at 179 hijackings and interviewed professional pirate negotiators to see what can be gleaned. The results were not only interesting; they hold the keys for bankers looking to negotiate bank acquisition, a branch purchase, product pricing or a loan workout. For instance, how long should negotiations go on for the best outcome?
The research data below shows a wide variation in both ransom amounts and length of talks. Amounts and time were correlated and analyzed and the results showed that low amounts occurred both early and late in the negotiations. The pattern that emerged was that ransom amounts start out low, build and then trail down. The cost of maintaining and protecting the ship and crew had an impact. Like real estate, inventory and other bank collateral, a pirate’s booty decreases as the ship sits in the water, the cargo deteriorates, the hostages have to be fed and the whole catch needs to be protected from rival gangs and law enforcement agencies. As a result, the law of diminishing returns takes over by about day 150 and pirates are softer to negotiate.
Understanding The Pressure of Time and Perception
The takeaway here is that bankers should understand that not all negotiations are the same. As the research supports, negotiations are about two items, one of which is strategy. Each party must understand if time is a friend or foe. If it is a friend, then the cadence of the negotiations should be slow giving your side the time to build a position. When negotiating against a pirate, for instance, the shipowners that took their time and presented a front that they were near bankruptcy and unorganized fared the best. Often professional negotiators were kept in the background as companies that could hire them most likely had deep pockets or insurance behind them.
Conversely, well-organized and experienced pirates with the backing to negotiate long-term fared better than opportunistic amateurs. Criminals that were new to the pirate business did not have the financial wherewithal for protracted negotiations and often settled early for a lower amount. Pirates, it turns out, also hire professional negotiators, but they often keep theirs out front in order to portray a level of sophistication and financial support. For bankers, the lesson here is they must not only have a time frame strategy but must also understand the true nature and skill of the opponent plus an understanding of how their position is perceived.
The second major item that bankers can learn from pirates is the importance of information. Pirates that negotiated the best did their homework on the financial capabilities of the target and knew the ransoms paid for similar ships. These pirates were connected and shared information from rival gangs. Social networks matter, even for pirates, and information is king. Having a basis to negotiate not only provided empirical support for their positions but also had the effect of motivating the pirate to do as well or better.
This is why we often recommend not only negotiation training for every banker, but also that every bank track the details of every loan deal they win or lose. Bankers that don’t track pricing information risk having asymmetric information and giving away their most valuable advantage.
If you want to negotiate like, or against a pirate, try some of the above strategies and tactics culled from empirical research. We wouldn’t recommend an eye patch, but if you let out a little “Argg..matey” during a tense part of negotiations, we would understand.
Submitted by Chris Nichols on September 17, 2019