Originally from Dispute Resolution Journal

The most effective negotiators are cooperative and cooperative negotiators strive to be ethical.1 Nevertheless, many commonly used negotiation tactics are fraught with ethical concerns. The types of tactics most often cited as being ethically ambiguous are those involving deception.2

When negotiators share material information, the opportunity to engage in value-producing trades increases. Withholding or manipulating information, however, may confer distributive advantages. Lying about the best alternative to reaching agreement or exaggerating an acceptance price influences what the other side will settle for. Likewise, asking for unimportant items creates bargaining chips for later trades.3 Finally, concealing one’s true position may allow one to consummate a deal that would otherwise not be possible.

Consider the following example. A large manufacturing company, incorporated and operated outside of the United States (the “Parent”), seeks to acquire a large U. S. corporation manufacturing the same type of product (the “Target”). For a variety of reasons, including the nature of the product and the small number of U.S. companies manufacturing it, it is highly unlikely that the Target will voluntarily agree to acquisition. Additionally, because a second bidder exists, the costs of involuntarily acquiring the Target are too great. As a result, the chief executive officer (the “CEO”) of the Parent begins negotiations by proposing not an acquisition, but a merger. Throughout the negotiations and the ultimate consummation of the deal, the CEO, as principal negotiator, portrays the deal as a “merger of equals.” Once the deal is completed, he advises the Target he always intended the deal to be an acquisition and the Target will henceforth be a division of the Parent. Members of the Target are distressed, they would never have agreed to the deal if they had known the true intentions of the CEO.4 Has the CEO acted legally? Has he acted ethically? Has he exhibited candor and good faith? Will his next negotiation be successful?

This article explores the ethical issues raised by misleading acts or omissions in commercial negotiations. First, it reviews acts or omissions constituting illegal fraud. Second, it examines the constraints imposed on professionals, such as lawyers, by rules of ethics. Third, it considers proposals for a judicially or professionally imposed requirement of candor and good faith in commercial negotiations. Fourth, it examines the difficulties and costs of requiring candor in negotiations. Fifth, it explores the benefits of candor in commercial negotiations. Finally, it concludes that the effective negotiator voluntarily employs candor to create value.