Mad Management: How business experience can help find common ground in Brexit

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One of the key lessons of negotiation is that both parties must want to negotiate. This will only happen if there is the possibility of mutual benefit. But Brexit can no longer be called a negotiation. It is an exercise in damage limitation, as one of the EU senior negotiators remarked, which will inevitably have elements of negotiation where parties realise they need to keep the ball rolling towards resolution as time runs out. But there will be no prize at the end of the process, as businesses who have had to de-merge have learned.

Take a classic business case, which I mentioned in a previous article, the famous Daimler Chrysler merger in 1998? It cost Daimler $37 billion to buy Chrysler. They paid a hedge fund $650 million just to take it off their hands after just nine years. Both companies suffered and two years later Chrysler went into bankruptcy. How much will it cost the UK to “demerge”? If Greece’s experience with the infamous Eurogroup Working Group of Finance ministers is anything to go by, don’t expect them to give us a soft Brexit. In fact, according to Yanis Varoufakis, the Greek negotiating lead, in his new book, Adults in the Room, the chief German and Dutch negotiators were particularly obdurate – bullying even the IMF.

The Japanese have been doing this successfully for decades

Just how much uncertainty will that create for businesses and the economy? A great deal, unless business and good economists engage now in the Brexit process. It starts with a strategy of common cause. Here is the kind of experience business can offer.

In 2000 the Harvard Business Review published a little book, Managing the Value Chain, a series of articles about cooperative strategies. All a little late in my view, because, since 1981 in the USA in particular, parts of the construction industry had been practising collaboration on major projects, as had Japanese manufacturing for years. Both Business Schools and the business press had completely overlooked this trend. The buzz words were instead all about the competition, short-term profit growth and shareholder value, generated by the likes of Milton Friedman and Harvard’s theory of the firm, so that up until a decade ago there was hardly any memory of a world in which corporations and their executives were mainly focused on generating value for customers and investing heavily in their firms and their employees, i.e. gaining cooperation, to achieve that goal.

That is now changing drastically.

Collaboration is taking the place of competition. It all begins with creating that good relationship, which is what Chrysler did with its suppliers, Caterpillar with its dealers, IKEA with its customers, and the Hong Kong MTRC did with its contractors. The Japanese have been doing this successfully for decades.

There is a good deal of tacit knowledge about collaboration in business which the political establishment has no experience or understanding of.

In my last article on business and political cultures, I wrote that politicians feel they cannot trust anyone, especially in their own parties, and so they do not “get” collaboration. Hence, the immature pronouncements about having a hard Brexit and being prepared to walk away, which dismays business. This month the Institute of Directors revealed that over half its membership is now pessimistic about the economic implications.

The government will get nowhere until it stops its posturing and adopts the rules of positive game theory. The most successful strategy is one that begins with making the first cooperative gesture, which encourages the other party to be less defensive and more flexible. In the Harvard case studies they did not see it as negotiating but as joint problem solving.

Now, why haven’t we offered the EU citizens in the UK unconditional residence status as the opener? Because Theresa May et al are stuck in the political win/lose power games mode. What the UK is doing is creating the conditions for a lose-lose interaction. This is daft. We are the weaker party. The EU does not have to make concessions; in fact they do not like making them, as the Greeks will tell you.

What the UK can do is establish the moral high ground and then see if the EU reciprocates. If not, then, like Varoufakis, persist once more, e.g. consider phased negotiations, and, if that fails then, and only then, withdraw cooperation. This is not the same as walking away; something you only do if you have somewhere to walk to!

The Harvard Negotiating Group calls this having a BATNA – Best Alternative to a Negotiated Agreement. In this case you would need to consider the USA (Trump!), China or India – I recommend India – or even going directly to the WTO to see what may be available there. If no better deal emerges from this probing then revisit your options and plan a more creative strategy.

There can be no successful strategy if there is no common ground. You simply have to find it. There are two obvious areas: security and the business economy. In the latter, the interdependence of the current EU businesses, with supply chains that run across the EU countries and customs rules that facilitate them could be a possible win/win. So, plan to work together to sustain the mutually dependent economies.

The corollary is that business leaders who exercise collaboration must be part of the Brexit planning team. The Institute of Directors has, of late, encouraged enlightened business practices. That would be my first choice. Next week we will look at the “how”.