AWT Business Supplement Spring 2016

Issue 5

9707 Key West Avenue, Suite 100 • Rockville, MD 20850

Spring 2016

Business Supplement How to Win a Price War What HR Needs to Know in 2016 Leadership Is a Conversation Reinventing Employee Onboarding Handing the Torch to the Next Generation Emotion and the Art of Negotiation Water Treatment Contracts from a Risk Management Perspective

Published by

Table of Contents

Business Supplement to the Spring 2016 Analyst

Departments 8 How to Win a Price War

By Patrick Reinmoeller, Cranfield School of Management Many companies compete on the basis of low prices. Price wars, however, represent a fundamentally different dynamic than simply trying to get an edge on price. In theory, as Meghan R. Busse of Northwestern University’s Kellogg School has shown, there are no winners in price wars: The losers are often forced out of business, and the survivors have been known to suffer a long-term squeeze in profitability.

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Calendar of Events

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President’s Message

50 Advertising Index

12 What HR Needs to Know in 2016 Ten top business and HR thought leaders to shed some light on HR trends. The essays highlight the most important events and trends that shaped the workplace and HR in 2015—from the proposed overtime rules to performance management innovation to the evolution of workflex—and provide advice on how to respond to them in 2016 and beyond.

24 Leadership Is a Conversation

By Boris Groysberg, Harvard Business School, and Michael Slind, Communications Consultant Globalization and new technologies have sharply reduced the efficacy of command-andcontrol management and its accompanying forms of corporate communication. In the course of a recent research project, the authors concluded that by talking with employees, rather than simply issuing orders, leaders can promote operational flexibility, employee engagement, and tight strategic alignment.

30 Reinventing Employee Onboarding

By Daniel Cable, London Business School, and Francesca Gino, Harvard Business School At many organizations, onboarding processes have a common theme: indoctrinating new employees into the organizational culture. Not surprisingly, human resources professionals begin the discussion about how to build and retain talent by stressing how important it is to get employees to understand and commit to the companies’ values starting on “day one.”

37 Water Treatment Contracts from a Risk Management Perspective

By Donald Cleveland and John Walsh, WaterColor Management We always urge our insureds and others in the water treatment and water handling business to do business through a written agreement. We have been asked repeatedly to provide some model language for use in such agreements.

41 Handing the Torch to the Next Generation Every family business must transition control to the next generation someday. But will the next leader be another family member—or is there a better choice outside the family circle?

Successful succession plans don’t happen overnight. They take years (or even decades) of preparation, mentoring, and training. This article addresses such issues as determining a successor, dividing up control and assets, and assembling an advisory team.

42 Emotion and the Art of Negotiation

By Alison Wood Brooks, Harvard Business School Until 20 years ago, few researchers paid much attention to the role of emotions in negotiating— how feelings can influence the way people overcome conflict, reach agreement, and create value when dealing with another party. Over the past decade, however, researchers have begun examining how specific emotions—anger, sadness, disappointment, anxiety, envy, excitement, and regret—can affect the behavior of negotiators.

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Calendar of Events 9707 Key West Avenue, Suite 100 Rockville, MD 20850 (301) 740-1421 • (301) 990-9771 (fax) www.awt.org

Association Events

2016 AWT Board of Directors

2016 Annual Convention and Exposition

President Bernadette Combs, CWT, LEED AP President-Elect Bruce T. Ketrick Jr., CWT Secretary Marc Vermeulen, CWT Treasurer David Wagenfuhr, LEED OPM Immediate Past President Brian Jutsy, CWT Directors Thomas Branvold, CWT Eric Fraser, CWT Peter Greenlimb, Ph.D., CWT Andrew Weas, CWT Ex-Officio Supplier Representative Kevin Cope Past Presidents Jack Altschuler Brian Jutzi, CWT John Baum, CWT Bruce T. Ketrick Sr., CWT R. Trace Blackmore, CWT, LEED AP Ron Knestaut D.C. “Chuck” Brandvold, CWT Robert D. Lee, CWT Brent W. Chettle, CWT Mark T. Lewis, CWT Dennis Clayton Steven MacCarthy, CWT Matt Copthorne, CWT Anthony J. McNamara, CWT James R. Datesh James Mulloy John E. Davies, CWT Alfred Nickels Jay Farmerie, CWT Scott W. Olson, CWT Gary Glenna William E. Pearson II, CWT Charles D. Hamrick Jr., CWT William C. Smith Joseph M. Hannigan Jr., CWT Casey Walton, B.Ch.E, CWT Mark R. Juhl Larry A. Webb

Staff Executive Director Heidi J. Zimmerman, CAE Senior Member Services Manager Angela Pike Member Services Manager Shannon Sperati Vice President, Meetings Grace L. Jan, CMP, CAE Meeting Planner Morgan Wisher Exhibits and Sponsorship Manager Barbara Bienkowski Senior Graphic Designer Jon Benjamin Marketing Director Julie Hill Director of Editorial Services Lynne Agoston Accountant Dawn Rosenfeld

September 7–10, 2016 Omni San Diego Hotel and San Diego Convention Center San Diego, California

2017 Annual Convention & Exposition

September 13–16, 2017 Amway Grand Hotel and Grand Rapids Convention Center Grand Rapids, Michigan

2018 Annual Convention & Exposition September 26–29, 2018 Omni Orlando Resort at ChampionsGate Orlando, Florida

Also, please note that the following AWT committees meet on a monthly basis.

All times shown are Eastern Time. To become active in one of these committees, please contact us at (301) 740-1421.

Second Tuesday of each month, 10:00 am – Marketing/Communications Committee Second Tuesday of each month, 11:00 am – Legislative/Regulatory Committee Second Tuesday of each month, 2:30 pm – Convention Committee Second Wednesday of each month, 11:00 am – Business Resources Committee Second Friday of each month, 9:00 am – Pretreatment Subcommittee Second Friday of each month, 10:00 am – Special Projects Subcommittee Second Friday of each month, 11:00 am – Cooling Subcommittee Third Monday of each month, 9:00 am – Certification Committee Third Monday of each month, 11:00 am – Education Committee Third Monday of each month, 3:30 pm – Young Professionals Task Force Third Friday of each month, 9:00 am – Boiler Subcommittee Third Friday of each month, 10:00 am – Technical Committee Fourth Monday of each month, 4:00 pm – Standards Task Force Fourth Tuesday of each month, 4:00 pm – Membership Committee Quarterly (call for meeting dates), 11:00 am – Wastewater Subcommittee

Other Industry Events AWWA Annual Conference & Expo, June 19–22, 2016, Chicago, Illinois A&WMA Annual Convention & Expo, June 21–24, 2016, New Orleans, Louisiana ASHRAE Annual Meeting, June 25–29, 2016, St. Louis, Missouri

The Analyst Staff Publisher Heidi J. Zimmerman, CAE Managing Editor Lynne Agoston Technical Editor Bennett Boffardi, Ph.D. Email: bennett@h2odoc.org • www.h2odoc.org Senior Graphic Designer Jon Benjamin Advertising Sales Heather Prichard • advertising@awt.org The Analyst is published quarterly as the official publication of the Association of Water Technologies. Copyright 2016 by the Association of Water Technologies. Materials may not be reproduced without written permission. Contents of the articles are the sole opinions of the author and do not necessarily express the policies and opinions of the publisher, editor or AWT. Authors are responsible for assuring that the articles are properly released for classification and proprietary information. All advertising will be subject to publisher’s approval, and advertisers will agree to indemnify and relieve publisher of loss or claims resulting from advertising contents.

Editorial material in The Analyst may be reproduced in whole or part with prior written permission. Request permission by writing to: Editor, The Analyst, 9707 Key West Avenue, Suite 100, Rockville, MD 20850, USA. Annual subscription rate is $100 per year in the U.S. (4 issues). Please add $25 for Canada and Mexico. International subscriptions are $200 in U.S. funds.

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President’s Message

By Bernadette Combs, CWT, LEED, AP

Providing business resources has been a goal of AWT’s for many years. In fact, AWT was originally founded for a very specific business reason—for companies to obtain liability insurance. Over the years, AWT’s focus has grown to include the technical aspects of the water treatment industry.

At the Leadership Meeting last November, AWT renewed our commitment to providing business resources by making it a key focus of our strategic plan. This supplement is one way we do this. You’ll find articles in this issue about human resources, leadership, employee orientation, succession planning, and negotiation.

We also have an incredible resource to unveil—a sample water treatment services agreement. This agreement includes model language to help limit your risk. You can find this, and many other business resources, on the Members Only section of the AWT website.

We hope you find this information helpful. As always, I welcome your feedback and can be reached at president@awt.org.

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How to Win a Price War

By Patrick Reinmoeller, Cranfield School of Management

Many companies compete on the basis of low prices.

In studying price wars that took place between 1980 and Price wars, however, represent a fundamentally different 2013 in industries including airlines, telecoms and finandynamic than simply trying to cial services, I saw that price wars were get an edge on price. They begin invariably linked with serious drops in There are usually no when competitors aggressively financial performance. Indeed, when winners in price wars. and repeatedly set prices below price wars erupted, most companies established levels. In some cases, found themselves in commodity traps: But it’s possible for a companies that initiate price Profits narrowed considerably, and company to win a price wars engage in self-destructive weak competitors had difficulty staying war by leveraging a behavior, which leads to downin business. ward pricing spirals that alter specific set of strategic industry structures. In theory, as The common view in economics and capabilities.

Meghan R. Busse of Northwestern strategy is that a company’s ability to University’s Kellogg School has win a price war hinges on having a shown, there are no winners in price wars: The losers are superior cost structure. However, my research demonoften forced out of business, and the survivors have been strates that this is not the only way to gain the upper known to suffer a long-term squeeze in profitability. hand. Contrary to most studies, I found that, under the

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right circumstances, it’s possible for a company to win a price war by leveraging a specific set of strategic capabilities. Specifically, these include the ability to read the business context and how things are changing, the skills to analyze the market data to identify trends and opportunities, and the pragmatic wherewithal to implement organizational changes both internally and across the value chain. Such was the case of Albert Heijn (AH), a Dutch company in the grocery industry, during a price war it initiated in the Netherlands between 2003 and 2005. AH showed that winning a price war can have as much to do with a company’s strategic capabilities and skills as its relative cost position. The case provokes new thinking on how companies can influence price war outcomes, suggesting that other companies might be able to achieve success by establishing five rules of engagement. The rules will help managers frame the contextual, analytical and pragmatic capabilities by helping them 1) affirm the need, 2) pick the battlefield, 3) pick the target, 4) stay under the radar and 5) align revenues with cost structures and rally support needed to succeed.

they need to pick their battlefields carefully. Retailers, for example, have to decide whether to cut prices geographically or target specific customer segments and products. Ideally, you want to avoid direct confrontations with cost leaders. And there’s also the question of timing: Should you cut prices when you think consumers are paying attention or to coincide with the launch of a competitor’s new product?

Market research showed AH’s market share had fallen by almost two percentage points in the second quarter of 2003, indicating that consumers were clearly interested in bargains. The company was under a lot of pressure to show that it was able to grow its business, Boer recalled, which meant that it needed to find a way to cut the price differential with competitors from about 10% to 5% or less. Fundamentally, he said, this meant making changes in the organization.

In October 2003, AH announced major price reductions, the most significant price cuts in its 116-year history.

But it was careful not to attack the discounters. Indeed, rather than positioning itself as the retailer with the lowest prices, AH wanted to be mid-priced and service-oriented.

In a sense, by defining the battlefield the way it did, AH chose a middle course in hopes of limiting the price war.

Affirm the need.

If your industry is mature, slow growing and relatively stable, then sooner or later you may face a price war.

Under these circumstances, the best thing you can do is to prepare yourself. In 2003, Dutch retailers including AH, a subsidiary of Royal Ahold N.V. (ranked 249 in Fortune’s Global 500 list in 2013), and Laurus (which operated three large supermarket chains, including Super de Boer) were losing market share to discounters such as Aldi and Lidl, both based in Germany. The competition was intense. By studying market data, AH was able to identify shifts in customer purchasing patterns.

Although AH was selling new and higher priced items, it was seeing fewer families among its clients and a sharp decline in high-volume products. Dick Boer, the AH CEO at the time, and other executives wanted AH to be “a supermarket for everyone” even though its leading competitors had cost structures that gave them a 6% advantage. What followed was a fierce price war.

Pick your target.

It’s difficult and expensive to take on everyone who has a business model similar to yours. It’s much easier to go after a single competitor who appears to be vulnerable.

Specifically, AH needed to decide whether to reduce prices directly or indirectly (for example, by adjusting its service levels). The data showed that AH’s market share was suffering in part because consumers saw it as high-priced. So rather than competing with discounters on prices of major brands like Coca Cola, management chose to emphasize private labels, including milk and other frequently purchased dairy products. In an effort to win back customers, it announced new pricing policies in TV and newspaper ads that proclaimed, “From now on, your daily groceries are much less expensive.”

Pick your battlefield.

Stay under the radar.

Staying alert and aware of trends in your industry is just the beginning. Companies in mature and commoditized industries also need to have analytical capabilities to develop new strategies and then be able to implement them in a timely manner. To conserve resources,

By targeting its own former customers as opposed to the established customers of rivals, AH hoped to boost market share without provoking a strong reaction. It worked. The initial reaction from competitors

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was muted, allowing AH to focus on what it saw as its weakest competitor: Super de Boer, Laurus’ flagship chain. Although Super de Boer was less service-oriented than AH, it was seen as less expensive. AH sensed vulnerability: Laurus, Super de Boer’s parent company, had had weak performance in recent years.

The price reductions that AH announced in October 2003 caught the industry by surprise. Internally, AH management had made a point of keeping discussions about its plans quiet, limiting the number of people who were part of them to fewer than a dozen for fear than the plans would leak. AH management waited until the very last moment before informing store managers of a 7 a.m. conference call the next morning.

In its eagerness to keep competitors guessing, AH refrained from disclosing its plans to major suppliers.

Only when it was clear that operational changes would allow AH to cut costs did management initiate discussions with manufacturers. A few days after the opening salvo of the price war, AH called a meeting with the company’s 10 most important suppliers to ask for support.

AH used its advertising dollars to rebuild its price image. The company tried to strike a tone of being steady and predictable; it wanted to be seen as helping customers shop for less, rather than being aggressive or threatening to competitors. Over the next two years, AH showed remarkable patience and discipline. In the face of doubts by some analysts about its ability to win the price war, which were reflected in a falling stock price, AH enacted several rounds of price reductions, proving to both consumers and industry experts that it was serious about its new pricing strategy. “[AH] constantly came with new waves of price reductions,” recalled a pricing strategist at a rival company, making it difficult for competitors to predict when or whether a new round was coming.

Each week, AH gave its pricing strategy a different focus. One week it targeted cheeses; the next week it was cosmetics or baby food. Within four months, the company managed to win back many customers it had lost between 2000 and 2003. In the face of AH’s assault, competitors had to decide how aggressively they should respond. Initially, for example, Laurus matched some of AH’s price reductions. But after a few months, 10

Laurus concluded it had to be more forceful; in January 2004, it announced price cuts on 40 popular products by 24 to 43% percent.

As the owner of three supermarket chains, Laurus had to develop different retailing strategies for the different retailing formats. When Laurus finally enacted broadbased price cuts in the spring and summer of 2004, the impact was far less powerful than the company hoped for. Soon thereafter, AH unleashed a major assault, cutting prices on 2,000 products by up to 35%.

Align revenues with cost structures and rally support.

Companies can’t pursue pricing policies in a vacuum.

Management needs to make sure that their pricing decisions are aligned with their cost structures and the broader value chain. In an effort to protect its gross margins, AH initiated steps early on to reduce headcount and improve operational effectiveness; in management’s view, rebuilding market share and winning back consumers had to go hand in hand with restrucOnce management turing the made decisions about business. This which policies to meant staff reductions at pursue, it constantly headquarters, monitored their consolidating operations of effectiveness. similar businesses and, as much as possible, streamlining (or, in some cases, automating) activities such as merchandise ordering and replenishment. For example, AH shifted its ordering process from its 600 individual stores to one central office. While revenues fell initially, reducing operating costs helped AH generate profits on lower revenue, which softened the blow. Yet even as AH became leaner, it didn’t give up pursuing ways to innovate and provide additional value to customers. For example, it added children’s play areas in stores and introduced new brands, such as “Choose & Cook,” which was aimed at making it more convenient for shoppers to find the ingredients they needed to prepare certain meals.

As the initiator of the price war, AH had begun making its plans before competitors knew what was coming.

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Then, after demonstrating resilience early on, AH was able to negotiate valuable price concessions from suppliers, much to the consternation of its main rivals.

Laurus was unable to leverage its bargaining power in the industry for several reasons. First, integrated purchasing and negotiating across multiple formats is difficult; each format has its own processes, procedures and bureaucracies. Second, Laurus was playing catchup to AH when trying to negotiate price concessions from suppliers. Finally, Laurus’ response was too little, too late; only after the price war was in full swing did it begin looking for ways to increase efficiency and reduce costs. While AH’s stock price declined by 2.3% in 2003, Laurus’ dropped 21%. By January 2005, industry analysts and even Laurus CEO Harry Bruijnuiks were well aware that the price war was going poorly for Laurus. Bruijnuiks admitted in an interview: “We are at a price level that is worrying. Costs cannot be covered, or only just.” He added, “I think the price war is not over yet.”

Laurus lost money in its 2004 and 2005 fiscal years, and its management decided to sell off the bulk of its operations to focus on its Super de Boer chain. By contrast, AH regained the market share it had lost prior to 2003 and assumed the number one position in the Dutch grocery retail market. Holding onto that position hasn’t been easy, however, particularly in light of the recent economic weakness in Europe. In fact, some analysts say the signs may be pointing to another prolonged price war in the Netherlands.

adhere to the established rules of engagement. With focused attention, fact-based decision making and strong execution, AH succeeded in changing public perceptions about its market position using well-timed price cuts, clear communications, operational integration and support from its supply chain. Once management made decisions about which policies to pursue, it constantly monitored their effectiveness.

Winning a price war may not be a major achievement when you are the industry cost leader. However, as AH’s experience demonstrates, you don’t need to have the best cost position to start and win a price war. In fact, having strategic capabilities such as market awareness, analytic skills and the ability to execute effectively can be more important. Although AH was disadvantaged on cost, it launched a price war and won — something other companies can learn from.

Patrick Reinmoeller is a professor of strategic management at Cranfield School of Management in Bedford, England, and a core member of the China Research Centre at Erasmus University’s Rotterdam School of Management.

Reprinted with permission (c) 2015 from MIT Sloan Management Review.

This Dutch supermarket case underlines how important it is for companies to have a clear, targeted agenda in a price war (for example, winning back former customers), and to understand and 11

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What HR Needs to Know in 2016 We asked ten top business and HR thought

One thing is clear: As the business world

leaders to shed some light on the answer

evolves to become more complex and

to that question. The essays that follow

global, HR will not be about just HR

highlight the most important events and

anymore. The next generation of leaders

trends that shaped the workplace and HR

will need skills in marketing and brand

in 2015—from the proposed overtime rules

management, information technology,

to performance management innovation

finance, corporate relations, and even

to the evolution of workflex—and provide

community activism. And so, as the

advice on how to respond to them in

calendar flips to another year, we wish you

2016 and beyond. Our experts map out

a very happy new HR.

everything you need to succeed in nine key competency areas.

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Leadership and Navigation: It’s All About Teams

In addition, as many organizations are discovering, performance assessment is in need of an overhaul. General Electric, Accenture and Deloitte joined a growing number of companies this year in abandoning traditional annual reviews. While there’s certainly a need for innovation, doing away with ratings altogether is not viable.

Organizations will always need a way to differentiate talent.

Marcus Buckingham, TMBC

In 2016, most CEOs will tell you that talent is their organization’s most precious asset and their culture is their best competitive advantage. Yet for many companies there remains a gaping hole between that rhetoric and reality.

Yet we know that rating people based on goals produces bad data. In fact, 61 percent of a performance assessment reflects the person assigning the rating rather than the one being evaluated.

This presents a tremendous leadership opportunity for HR, the one team that touches all parts of an organization. HR professionals are in a prime position to assess what our most productive and engaged teams are doing—and to build a culture around them. Here are four ways to do that in 2016: Serve the organization by serving the team leader.

Engagement is driven by team leaders. Yet in most organizations, HR measures engagement in an annual survey, with team leaders getting their data months later.

HR professionals must put the right tools in the right hands, which means developing strong relationships with team leaders.

Engage in dynamic teaming. Teaming today is shifting rapidly as new employment models emerge and more workers think of jobs as short-term gigs rather than lifelong journeys. Our tools should reflect this reality, rather than being deployed through static, hierarchical boxes on an org chart.

If we don’t have the agility to keep up with dynamic teams in real time, we’re acting on data that’s out-of-date or irrelevant.

Gather real-time, reliable metrics. Most engagement surveys ask a long series of questions that show no correlation to retention or improved performance.

To address this disconnect, we must identify the questions that drive the outcomes we want and put the data back in the hands of team leaders to deploy right now.

Mission Health and Hampton Hotels are great examples of companies getting this right.

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Fortunately, we can accurately assess people’s own intentions. To gather good performance data, regularly ask team leaders a few questions about their plans for every team member: Who deserves a promotion? Who needs more training? By aggregating the data, the organization will see, quarter by quarter, what to do with each person.

Employ machine-learning algorithms. Once we have the right methods in place, our systems should be smart enough to learn, over time, the rating patterns of each individual. That will help neutralize people’s inescapable biases.

“If we don’t have the agility to keep up with dynamic teams in real time, we’re acting on data that’s out-of-date or irrelevant.”—Marcus Buckingham We can even apply algorithms to measure individuals’ strengths, thereby ensuring that all training and coaching fit each person’s particular style and talents.

Facebook has adopted an approach like this and infused it through the company at the team leader level.

To build high-functioning organizations, we must identify the best teams and build more just like them.

If HR professionals can do that, they will lead their organizations to greatness in 2016.

Marcus Buckingham is founder of engagement and performance solution company TMBC, a best-selling author and a leadership thought leader.

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billion annually by following Vodafone’s lead. The company also is seeing improvements in engagement and applicant quality.

Relationship Management: Treating Employees as Whole People Ellen Galinsky, Families and Work Institute

Workplace flexibility is one of the defining issues of our day. To attract and retain the best talent, companies must think of employees as whole people. Doing so is also key to strengthening our relationships with and engaging our employees. In an era when job-hopping has become the norm, that’s critically important. Here are four trends HR professionals should consider heading into 2016: Flexibility is no longer seen as a perk but more as a solid business strategy. Today’s workers see flexibility as essential. According to data from the Families and Work Institute (FWI), 88 percent of employees report that having flexibility is “extremely” or “very” important in considering a job offer.

Employers are listening. In 2015, hardly a day passed when companies weren’t upping the ante for parental leave—from Accenture announcing that new parents won’t have to travel for a year after their child’s birth to Microsoft increasing its fully paid parental leave to 12 weeks.

And Netflix topped them all by announcing fully paid parental leave for a year.

Providing flexibility is not a check-the-box solution.

While some companies pay lip service to flexibility by providing a policy to “check the box,” our studies show that these practices will only improve engagement, job satisfaction and retention if they occur within a culture of flexibility. That means managers and HR must actively support flexible solutions, showcase examples of success and model the behavior they wish to see.

Flexibility is just one part of an effective workplace.

In studies of the U.S. workforce, FWI determined six factors that are critical to predicting engagement, retention, job satisfaction and health: 1) workplace flexibility and a culture that supports it; 2) opportunities for learning; 3) autonomy; 4) supervisor support for success; 5) a culture of trust; and 6) satisfaction with earnings, benefits and advancement. We call the employers with all six characteristics effective workplaces. That’s the type of environment HR must strive to create.

HR needs to provide real choices. Flexibility is not just a “women’s issue,” although it often arises during the debate over women’s roles. For example, the news that Yahoo CEO Marissa Mayer planned to take a very short leave after delivering twins spurred discussion this year about how female executives “should” manage work and home.

“Flexibility is not just a “women’s issue,” although it often arises during the debate over women’s roles.”—Ellen Gallinsky

There is a business payoff for providing these benefits. In March, mobile telecom company Vodafone announced that all 30 of its global companies would offer at least 16 weeks’ paid leave to new mothers and enable them to work 30 hours a week at full pay for six months after returning. According to research Vodafone commissioned from KPMG, global businesses could save up to $19

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However, most employees don’t have the financial resources that Marissa Mayer has—and that needs to be addressed. FWI research indicates that what all employees need are real choices. When low-income employees work in flexible and effective workplaces, the payoff for companies can be more powerful than it is for more-advantaged employees. As HR professionals know, when our employees win, we all do.

Ellen Galinsky is president and co-founder of the Families and Work Institute in New York City.

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Consultation: Preparing Your Company for the New Overtime Rules

To prepare for the coming changes, focus on these three priorities:

Paul DeCamp, Jackson Lewis, P.C.

When the U.S. Department of Labor (DOL) released its proposed overtime regulations in late June, it sent shock waves through the HR world.

Now it’s time to master the skill of consultation by guiding others on what to expect in 2016.

In short, the DOL plans to more than double the minimum annual salary for executive, administrative and professional overtime exemptions to $50,440 from $23,660. The threshold for highly compensated employees would rise to $122,148 from $100,000. Both amounts would be adjusted annually thereafter. The department plans to issue a final rule between sometime in 2016, with an effective date 60 to 120 days after publication.

If the final rule resembles the proposed one, these regulations will not affect all businesses evenly. If your company operates in lower-wage markets, such as the South, the Midwest and rural areas, you will likely bear a heavier burden. The same is true in industries with many managers who earn less than $50,000, such as retail, restaurants, health care and manufacturing.

In many companies, the reclassification may result only in operational changes—that is, modified job duties, schedules and staffing levels, for example. Employees reclassified from exempt to nonexempt will likely see their scheduled hours—and overall pay—decline as employers rearrange work schedules to avoid incurring high overtime costs. In the long run, the regulations will transfer working hours and pay from the workers who face reclassification to other employees or new hires. Make no mistake: This will lead to many unhappy people—which will in turn spur more employment litigation of all types, not merely wage and hour claims.

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Assess the scope of the issue for your organization.

Identify all exempt workers with a salary below $50,440.

Then, to the extent that your company relies on the highly compensated employee exemption, do the same for everyone earning between $100,000 and $122,148 per year.

Develop a strategy for managing conversions to nonexempt status. For workers who earn close to the new minimum salary, it may make sense to raise their salaries to $50,440. If that’s not feasible, work with your operations team to plan on paying them as nonexempts.

Start by asking these questions: • How many hours do these employees currently work? If you don’t know, consider tracking their time.

• Will post-conversion pay and working hours replicate an employee’s current situation, or will you need to restrict schedules at or near 40 hours?

• Will you base the new hourly rate on annual salary divided by 2,080 (40 hours a week × 52 weeks) and just eat the overtime expenses? Will the hourly rate assume an employee will work a certain amount of overtime?

• Will you need to reassign certain tasks to other workers?

Ensure that your approach is consistent across the organization. These decisions should not be one-off calls made by managers.

Communicate with employees. Your workforce is probably already abuzz about this issue. Those in the reclassification zone may feel anxious about what they perceive as a demotion. Reassure employees that no final rules are out yet and that you will continue to monitor these developments. That will go a long way toward alleviating their concerns and maintaining positive morale in 2016 and beyond.

Paul DeCamp is a shareholder in the Washington, D.C., region office of Jackson Lewis P.C. and previously served as administrator of the U.S. Department of Labor’s Wage and Hour Division.

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HR Expertise: Facing the Future of Work John Boudreau, People + Strategy

As this year’s headlines proved, there is no shortage of criticisms of HR. Whether the reproaches came from the popular or business press, it seemed everyone wanted to share why they think HR is hated, unnecessary or ill-equipped for the challenges ahead.

But wouldn’t you rather hear about the future of our profession from the people who are actually leading it?

That’s what Project CHREATE (The Global Consortium to Reimagine HR, Employment Alternatives, Talent, and the Enterprise) sought to do when it began in 2013. Through interviews, focus groups and research reviews, more than two dozen top HR executives revealed this year how they think HR should evolve over the next decade. The group included CHROs representing many industries in the public and private sectors, including Disney, Gap, LinkedIn, Shutterfly, the Society for Human Resource Management (SHRM), Starbucks and others.

“Ensure that your approach is consistent across the organization.”—Paul DeKamp As it turns out, HR’s toughest critics may be themselves.

Our leaders often rated HR’s effectiveness lower than those outside the field. Even some of the world’s most accomplished CHROs indicated an urgent need for HR to improve its ability to keep up with the demands of a rapidly changing world. The project team identified five forces shaping the future of work—and how HR leaders must address them.

Exponential technological change. The rapid adoption of sensors, autonomous vehicles and artificial intelligence will trigger a fundamental rethinking of work. HR leaders must be equipped to manage flexible and transient workforces that can adapt to continual change, including frequent job loss and obsolescence of skills.

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Social and organizational reconfiguration. The “democratization” of work will shift power away from traditional hierarchies toward more-balanced organizations. As work relationships become less employment-based and more project-based, HR will need to source and engage talent in diverse work arrangements that include more part-time, freelance and crowdsourced workers.

A truly connected world. The world will be increasingly linked through mobile devices and the cloud, allowing work to be done anywhere, anytime. It will be up to HR to manage newly defined talent systems that support a distributed global workforce.

An all-inclusive global talent market. Work will be seamlessly distributed around the globe, and women and nonwhite ethnicities will become talent majorities.

Moreover, as people live longer and healthier lives, their work lives will extend as well. In response, CHROs must lead organizations in segmenting their workforces and directing tasks to the best talent, whether inside or outside the company. They’ll also need to address cultural preferences in policies, work design, pay and benefits.

Human/machine collaboration. Advances in analytics, algorithms and automation will improve productivity and decision-making. The challenge for our leaders? To successfully migrate tasks from people to machines or robots and use “big data” to find the optimal human/machine balance.

These are not roles traditionally associated with HR, yet it’s critical that our leaders take them on by 2025.

The SHRM Competency Model represents substantial progress toward preparing HR leaders to succeed. At the same time, we must keep thinking beyond our conventional notions of HR’s goals and responsibilities. That’s the only way to ensure that our leaders are poised to tackle the demands of tomorrow’s world as well.

John Boudreau is a professor at the Marshall School of Business and a professor and research director at the Center for Effective Organizations at the University of Southern California.

This article was adapted from an essay that appeared in the Fall 2015 issue of People + Strategy, published by HR People + Strategy, titled “HR at the Tipping Point: The Paradoxical Future of Our Profession.”

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Critical Evaluation: Put Your Analytics into Action Jeanne G. Harris, Columbia University

Metrics and “big data” have transformed many business functions, from marketing to operations. As a result, business leaders have high (but thus far largely unmet) expectations for how analytics should revolutionize HR as well. In 2016 and beyond, rising to the challenge will require HR professionals to develop their own quantitative skills and to work collaboratively with data scientists, IT staff and technology vendors.

Indeed, forging strong partnerships will be key to adopting a data-driven approach to HR management.

Develop your company’s analytical literacy. Hiring for specialized skills can help bridge a short-term need. But HR practitioners and business decision-makers need training to become both data-literate—that is, able to find, manipulate, manage and interpret relevant data— and numerate, or conversant in a range of quantitative disciplines. These skills are the prerequisite to asking smart questions and evaluating possible answers.

Use diverse teams to solve major talent challenges.

Analysts love an audacious challenge, so charge them with attaining bold outcomes rather than posing narrow questions—and encourage them to work with others to realize those outcomes. Contrary to the stereotype of an analyst working alone, leaders at British Airways, Monster, Wal-Mart and other enterprises have found that teams with diverse skills and backgrounds tend to generate better, more-innovative solutions. Bringing together analysts from several quantitative disciplines with business decision-makers and HR “HR leaders must be equipped to manage practitioners has the added benefit of generating useful knowledge transfer for flexible and transient workforces.”—John Boudreau both analysts and HR.

Many HR departments have taken small steps in the right direction by buying more data, purchasing software, hiring quantitative analysts, incorporating social media into recruiting efforts, piloting big-data projects or sending a few people to seminars. While those actions can be a good start, they are just that—a beginning from which HR professionals must build in order to truly develop their analytic capability. “Analytics is a muscle we build,” says Elpida Ormanidou, vice president of global people analytics at Wal-Mart. “You cannot buy yourself into an analytics capability.”

Of course, the companies that lead in HR analytics, including Google and Wal-Mart, do make healthy investments in analytical technology and hire teams that have the specialized skills required to understand it. But they’ve also invested the time and effort required to craft sound long-term strategies around their data. Here’s what HR should do in 2016 to help their organizations get real value from HR analytics:

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Focus on big results, not analysis.

Reports and even new insights don’t solve problems. “HR needs to go more than halfway to bring insights, ideas and solutions to the business,” Ormanidou advises. “Getting the insights is the easy part. Our biggest challenges are how to communicate and operationalize those insights.” HR professionals must be accountable for outcomes, working alongside business managers to craft innovative strategies that put insights into action.

Buying a new software solution is easy, but it is time for HR to forget about quick fixes. Only by building a real analytic capability can HR professionals become the proactive, data-driven critical thinkers and business leaders that their organizations need.

Jeanne G. Harris is on the faculty of Columbia University and co-author of Analytics at Work (Harvard Business School Press, 2010) and Competing on Analytics (Harvard Business School Press, 2007). She is former global managing director of IT and analytics research at the Accenture Institute for High Performance.

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Global and Cultural Effectiveness: Recruiting Is Social and Talent Is Local

companies have been using this approach for hiring senior technologists for some time, and now India and China are marshaling their own troops in the war for talent—by aggressively recruiting Indian and Chinese returnees as well as foreign nationals.

Danielle Monaghan, Amazon

With this quote as a caveat, let’s look at what global people trends lie ahead in 2016—namely, the rise of social and mobile recruiting worldwide and the clarion call to build global talent pools for highly skilled labor. Understanding these developments is critical to cultivating one’s competency in global and cultural effectiveness.

“Analysts love an audacious challenge, so charge them with attaining bold outcomes rather than posing narrow questions.”

—Jeanne G. Harris Mobile recruiting is poised to become a primary global recruiting strategy. For years, we’ve been hearing about the importance of building recruiting tools that have full mobile capability, but this has not yet become mainstream. According to data from Jobsite, Beyond.com and others, roughly three-quarters of job seekers are now using smartphones and other devices to research companies, review career resources and apply to jobs. Moreover, Pricewaterhouse Coopers estimates that the tech-savvy Millennial generation will make up half the workforce by 2020, driving demand even higher.

Even setting aside the Millennial demographic explosion, the groundswell for mobile recruiting tools is here. For example, the use of such devices to research and apply for jobs is becoming popular among midcareer professionals in such emerging markets as India, China and Vietnam. Thus, 2016 may be the year when mobile job-apply capability evolves from nice-to-have to must-have around the world. Are you ready?

Continued globalization and a widening skills gap will require global talent acquisition strategies. U.S. 18

To compete, more companies are hiring skilled workers wherever the talent resides, even if it means dealing with complex immigration and taxation laws. I predict this practice will become even more critical in 2016, as tech innovations lead to more new job types and roles and as expertise may not be readily available in the country where a company is headquartered.

Social professional networks will become a significant source of hire. As candidates around the world become immensely more findable—and more comfortable being found—recruiters will begin deploying social-centric search strategies.

Meanwhile, job seekers are quickly learning that social monitoring can go two ways. Many are using social tools to learn more about the reputation of a company—or even a manager—by reaching out to their networks or perusing rating sites such as Glassdoor. The days when people blindly applied to open positions (the so-called spray and pray method) may be coming to an end.

Social recruiting is quickly taking hold in North America, Asia, India, the United Kingdom and Germany. More companies will create social recruiting teams within both their HR and marketing functions, and these teams will be focused on having timely, authentic and targeted interactions with potential candidates.

While many companies still shy away from creating a cohesive social recruiting strategy, mainly out of fear of the unknown, this is a trend with legs. If your company is not willing to engage with what job seekers of the future want, prepare to be left behind.

Danielle Monaghan is head of talent acquisition-consumer at Amazon in Seattle and a member of the Society for Human Resource Management’s Global Special Expertise Panel.

Originally from South Africa, she worked in China for many years in HR positions with Microsoft and Cisco Systems.

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• An ethical culture embodies a clear set of values that are embedded in the way business gets done and that are repeated, explicitly, as often as possible.

Ethical Practice: HR Must Champion a Principled Culture

• Ethical issues are always open for discussion.

Chris MacDonald, Ryerson University

As employers struggle to compete in a global economy, many are experiencing new pressures that make it harder to consistently do the right thing. An August New York Times exposé described a crushing work environment at Amazon, spurring controversy about how far a company could—and should—push its employees to meet its goals. And while some recent headlines have touted companies’ “unlimited vacation” policies, others have depicted an epidemic of overworked employees rarely in a position to take any time off at all, let alone unlimited time.

Meanwhile, straight-up corporate malfeasance is also alive and well, as demonstrated by the recent Volkswagen emissions scandal. Global CEO Martin Winterkorn resigned after the company’s employees were found to have deliberately installed software to give falsely low emissions readings on diesel cars.

Were these employees entirely devoid of any sense of right and wrong? How much can we blame individuals vs. a cutthroat business environment?

While there are no easy answers, it’s clear that HR can play a crucial role in creating and maintaining a culture that encourages people to do the right thing.

As HR professionals know, a culture is a shared set of beliefs, practices and traditions that gives employees a sense of “how things are done around here.” But what sets an ethical culture apart? There are four key characteristics:

“If your company is not willing to engage with what job seekers of the future want, prepare to be left behind.”—Danielle Monaghan

• Through training and open communication, an ethical culture prepares employees for making good decisions.

• It empowers employees to have the courage to act ethically.

HR teams often are already in charge of ethics training and writing key policies, including the organization’s code of ethics and conflict-of-interest policy. Even HR decisions and practices that don’t bear the label of “ethics” can set a tone for principled behavior.

Every HR decision is an opportunity for the company to do the right thing as well as to be seen doing the right thing. This starts, of course, with equity in hiring. When a senior manager’s son gets the job instead of the best-qualified candidate, it sends a powerful signal.

Ethics in HR also extends to the details of benefits programs, to the openness of employee communications, and ultimately to fairness in discipline and firing. It’s up to HR professionals to ensure that all employees are treated in a humane manner, whether that means protecting them from bullying supervisors or ensuring that they aren’t working around the clock. HR must balance organizational success with employee advocacy.

HR’s greatest impact may be in determining the ethical character of the individuals who are hired and retained.

Putting the right individuals on the team—that is, hiring those with the values we want—is crucial. So is getting rid of the bad apples, even if they happen to be star performers.

As scandal after scandal suggests—and don’t expect there to be fewer such episodes in 2016—ethical breaches can often evolve into legal troubles, resulting in lawsuits, loss of stock value and even jail time. Yet as executives engage in their short-term pursuit of quarterly profits, they often lose sight of the role culture can play in keeping the company out of hot water. It is up to HR professionals to remind them.

Chris MacDonald is an associate professor and director of the Jim Pattison Ethical Leadership Program at Ryerson University’s Ted Rogers School of Management in Toronto. He teaches courses on ethics and critical thinking.

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Business Acumen: Building a Better HR Peter Cappelli, The Wharton School

In the past year, we’ve seen articles proclaiming that it’s time to “blow up” HR in order to rebuild the field to be more focused on the bottom line. HR is in part unpopular because it makes people behave and enforces policies about how every employee, including executives, must interact with others.

Nevertheless, it’s hard to deny that HR is often perceived by corporate leaders as being out of step with the rest of the business. Indeed, according to an article in the Fall 2015 issue of People + Strategy, business leaders both inside and outside the field consistently rate HR as moderately satisfactory at best in terms of skills and effectiveness.

what to do when is the key—and that requires understanding business strategy. This is the first step to figuring out the different ways companies can compete and succeed.

Learn enough finance to understand the factors that drive shareholder value. It isn’t enough to understand how to calculate a rate of return on investment. You must be able to articulate arguments in terms of return on investment. Learn enough cost accounting to grasp how the metrics you collect—about engagement, retention, benefits, etc.—lead to improved organizational performance and a stronger bottom line. Become fluent in the language of numbers and balance sheets.

Choose your continuing education options wisely.

Many courses in HR don’t reflect the issues of today.

Some classes are based on 30-year-old texts. While books and curricula have all been updated, the old corporate model, in which employees were hired for life, remains at their core. Many are disproporThe most frequent and persistent criticism is that HR tionately focused on compliance, job analysis and can’t connect to the language of finance, which defines training programs. While those topics still have a place in HR, today’s professionals must also learn how to partner effectively with vendors, manage organizational change, shape “HR’s greatest impact may be in determining the corporate culture and navigate the ethical character of the individuals who are hired and conflicting demands around execuretained.”—Chris MacDonald tive compensation.

how business operates. Every HR professional can ensure that this doesn’t hold true for himself or herself by developing business acumen. What’s the best way to do that?

Here are three tips for sharpening your strategic skills in 2016: Recognize that good HR is about making choices.

There is no single best-practice model. Rather, your policies should be predicated on what works well for your particular business. It makes sense for some companies to outsource their hiring, for others to avoid the use of incentive pay and for still others to refrain from using employees at all for certain tasks. Knowing 20

So instead of detonating HR, let’s embrace the evolution of its mandate. It’s growing just like all the other functions of business in our rapidly changing world. And that can’t happen without a little pain along the way. But the invest-ment of time and effort will be well worth it in the long run.

Peter Cappelli is the George W. Taylor Professor of Management at The Wharton School and Director of Wharton’s Center for Human Resources.

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Communication: Spreading the Word About Benefits

Something must change. In 2016, it’s time to develop creative and even aspirational strategies for informing our workforces about their benefits.

Jennifer Benz, Benz Communications

It’s increasingly difficult for many organizations to retain their best and brightest employees as the economy strengthens and millions of new jobs are being created.

In fact, according to a recent Towers Watson survey, more than half of employers reported difficulty holding on to skilled workers. With low wage growth expected again in 2016—WorldatWork expects an average salary increase of 3.1 percent—smart employers are emphasizing the value of benefits as a means of getting their talent to stay put. By learning how to share information about benefits clearly and effectively, you can cultivate your competency as a strong communicator.

That’s not always easy. The past five years have brought perhaps our biggest challenge, the Affordable Care Act (ACA), which is possibly the most complex benefits legislation ever passed. As if that wasn’t enough, retirement plans are also evolving to build in automation and encourage lifetime participation.

Meanwhile, HR leaders are managing the most diverse workforce in U.S. history while considering new ideas about the nature of work. It’s understandable that benefits communication has not been at the top of HR’s priority list.

Yet now more than ever, your employees need that help. As an issue brief from the Employee Benefit Research Institute states, “There is strong evidence workers simply lack the ability to navigate the complex and technical nature of health care.” The data backs that up: Aflac finds that 54 percent of employees don’t want more control over their health insurance options because those decisions are too daunting.

At the same time, U.S. employees are in financial distress. The majority are living paycheck to paycheck, and the average retirement account balance won’t even cover a year’s expenses.

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Many savvy employers—particularly those in industries competing for top talent—are already making strides in creating plain-language, personalized, visually engaging messages. The result? Happy, informed workers; higher productivity; and a stronger bottom line.

I see a not-too-distant future where companies of all sizes make substantial investments in year-round multichannel benefits education that can help all of their workers build lifelong health and financial security.

Although this work won’t be easy, it can transform organizations and the people who drive them.

The great news is that we can all learn from the employers that are communicating effectively. The formula is remarkably simple: Build engaging channels that support frequent communication. For most, that means creating a dynamic, branded, user-friendly, mobile-optimized website outside the corporate firewall. My work in guiding organizations toward better benefits communication has shown time and again that this is the single most important investment organizations can make. It provides easy access to benefits information for employees and family members, 24/7, in the palms of their hands.

Once you have that in place, use all of the other channels available to you—e-mail, posters, print materials, webinars and meetings—to push people to that site and remind them about the valuable programs and resources available to them.

With HR leading the charge, we can realize a future that includes employee-focused communication that rivals consumer marketing.

Jennifer Benz is founder and CEO at Benz Communications in San Francisco.

“Build engaging channels that support frequent communication.”—Jennifer Benz

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HR Expertise: HR as Prophet as Well as Practitioner Tracy Layney, Shutterfly, Inc.

In today’s competitive talent marketplace, strong HR practices and expertise are critical.

As HR practitioners, we must respond to the challenges of today with creative and innovative solutions that provide a competitive advantage.

At Shutterfly, for instance, we compete for technology talent in the highly competitive Silicon Valley. How do we compete for talent against Google and Facebook? We do this by showcasing our compelling culture and our strong employment brand—“Making the world a better place by helping people share life’s joy.” We then try to make day-to-day decisions that support our brand and culture. This is our unique, competitive advantage in the war for talent, and we apply our HR expertise to fighting this battle every day.

This past year, more companies have revamped their traditional annual performance reviews to try to appeal to Millennials who desire more-immediate and morefrequent feedback. Other organizations are developing state-of-the-art learning and development strategies that use tools like gamification to keep employees up-to-date in this rapidly changing environment.

I recently had the privilege of working with a group of senior HR leaders on a project to envision what work will look like in the future and the implications for the HR profession. This group, CHREATE, which can be found at chreate.net, identified “trend forecasting” as a primary role of HR going forward. HR expertise will no longer just be about responding to the needs of today. It also must include the ability to identify future trends and analyze diverse sets of data to develop insights and recommendations in advance of a trend’s potential impact. In a world of rapid change, if we focus on today at the exclusion of tomorrow, we may win the battle, but we will surely lose the war.

In many ways, this has been the perennial challenge for HR—responding to the business needs of today while anticipating and planning for the imperatives of tomorrow. So, how do we do this? Futurist Mary O’Hara-Devereaux uses a framework that I believe is instructive as we navigate this brave new world: • Scout. HR professionals must seek out experience and expertise beyond the walls of their organizations. We must look for opportunities to invest in our own development and expand our thinking so that we are primed to spot trends as they begin to emerge.

• Scan. We should be constantly scanning the headlines, looking for data and other signs of new innovations and potential disruptors not only within our industry and the regions where we operate but also throughout the talent marketplace in general.

• Steer. It is then imperative that we design and implement a clear people strategy for our business, taking into account our company objectives as well as the trends that our external scan has illuminated.

“As HR leaders, we also must beome the prophets of our organizations.”— Tracy Layney

While these changes are necessary, this type of HR expertise is no longer sufficient. As HR leaders, we also must become the prophets of our organizations, looking out on the horizon to anticipate the trends and challenges that will be coming our way.

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If we do this effectively, we will become prophets as well as practitioners—helping our organizations navigate the uncertainties of tomorrow as well as the demands of today.

Tracy Layney is senior vice president and chief human resources officer at Shutterfly Inc. Reprinted with permission from the Society for Human Resource Management, 2016.

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Leadership Is a Conversation

By Boris Groysberg, Harvard Business School, and Michael Slind, Communications Consultant

The command-and-control approach to management has in recent years become less and less viable.

Globalization, new technologies, and changes in how companies create value and interact with customers have reduced the efficacy of a top-down model of leadership. What will take the place of that model?

Part of the answer lies in how leaders handle the flow of information to, from and among their employees.

Traditional corporate communication must give way to a process that is more dynamic. Most important, that process must be conversational.

Smart leaders today engage with employees in a way that resembles a person-to-person conversation more than it does a series of commands from on high. Furthermore, they foster cultural norms that instill a conversational sensibility throughout their organizations.

We arrived at that conclusion while conducting a recent research project that focused on the state of organizational communication in the 21st century. Over more than two years we interviewed professional communicators as well as top leaders at a variety of organizations—large and small, for-profit and nonprofit, U.S. and international. To date we have spoken with nearly 150 people at more than 100 companies. Building upon the insights gleaned from this research, we have developed a model of leadership that we call “organizational conversation.”

Organizational conversation requires leaders to minimize the distances – institutional, attitudinal and sometimes spatial – that typically separate them from their employees. Where conversational intimacy prevails, those with decision-making authority earn the trust of those who work under that authority. They do so by cultivating the art of listening to people at all levels and by learning to speak with employees authentically.

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In developing our model, we have identified four elements of organizational conversation that reflect the essential attributes of interpersonal conversation: intimacy, interactivity, inclusion and intentionality.

Intimacy: Getting Close

Conversational intimacy can become manifest in various ways—among them gaining trust, listening well and getting personal.

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Gaining Trust: No one will dive into a heartfelt exchange of views with someone who seems to have a hidden agenda, and any discussion that does unfold between two people will be substantive only to the extent that each person can take the other at face value.

But trust is hard to achieve. In organizations it has become especially difficult for employees to put trust in their leaders, who will earn it only if they are authentic and straightforward. That may mean addressing topics that feel off-limits, such as sensitive financial data.

Listening Well: Leaders who take organizational conversation seriously know when to stop talking and start listening. Few behaviors enhance conversational intimacy as much as attending to what people say.

Duke Energy’s president and CEO, James E. Rogers, instituted a series of what he called “listening sessions” when he was the CEO and chairman of Cinergy (which later merged with Duke). Meeting with groups of 90 to 100 managers in three-hour sessions, he invited participants to raise any pressing issues. Through these discussions he gleaned information that might otherwise have escaped his attention.

Getting Personal: Rogers not only invited people to raise concerns about the company but also solicited feedback on his own performance. He asked employees at one session to grade him on a scale of A to F. The results, recorded anonymously, immediately appeared on a screen for all to see. The grades were generally good, but less than half of employees were willing to give him an A. He took the feedback seriously and began to conduct the exercise regularly.

Interactivity: Promoting Dialogue A personal conversation involves an exchange of comments between two or more people. The same applies to organizational conversation, in which leaders talk with employees and not just to them. This interactivity makes the conversation open and fluid rather than closed and directive.

In part, a shift toward greater interactivity reflects a shift in the use of communication channels. For decades, technology made it difficult or impossible to support interaction within organizations of any appreciable size.

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The media that companies used to achieve efficiency in their communications operated in one direction only.

But new channels have disrupted that one-way structure.

Social technology gives leaders and their employees the ability to invest an organizational setting with the spirit of personal conversation.

Inclusion: Expanding Employees’ Roles Organizational conversation calls on employees to participate in generating the content that makes up a company’s story. Inclusive leaders, by counting employees among a company’s official or quasi-official communicators, turn those employees into conversation partners.

In the standard corporate communication model, top executives and professional communicators monopolize the creation of content. But when a spirit of inclusion takes hold, engaged employees can adopt important new roles, creating content themselves and acting as brand ambassadors, thought leaders and storytellers.

Brand Ambassadors: When employees feel passionate about their company’s products and services, they become living representatives of the brand. This can happen organically. But some companies actively promote that kind of behavior. Coca-Cola, for instance, has created a formal ambassadorship program, aimed at encouraging employees to promote the Coke image and product line in speech and in practice.

Thought Leaders: Often the most innovative thinking occurs deep within an organization, where people develop and test new products. Empowering those people to create and promote thought-leadership material can be a quick way to bolster a company’s reputation.

Storytellers: People are accustomed to hearing corporate communication professionals tell stories about a company, but there’s nothing like hearing a story direct from the front lines. When employees speak from their own experience, unedited, the message comes to life.

Intentionality: Pursuing An Agenda Intent confers order and meaning on even the most digressive forms of chatter. That principle applies to organizational conversation, too. Over time, the many voices that contribute to the process of communication must converge on a single vision of what that communication is for.

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Conversational intentionality requires leaders to convey strategic principles not just by asserting them but by explaining them— by generating consent rather than commanding assent. In this new model, leaders speak with employees about the vision and the logic that underlie executive decision-making. As a result, people at every level gain a big-picture view of where their company stands within its competitive environment.

Conversation goes on in every company. That has always been the case, but today the conversation has the potential to spread well beyond your walls, and it’s largely out of your control. Smart leaders find ways to use

conversation—to manage the flow of information in an honest, open fashion. One-way broadcast messaging is a relic. But people will listen to communication that is intimate, interactive, inclusive and intentional.

Boris Groysberg is a professor of business administration at Harvard Business School. Michael Slind is a writer, editor, and communication consultant. They are the co-authors of “Talk, Inc.: How Trusted Leaders Use Conversation to Power Their Organizations.’’

Reprinted with permission (c) 2015 from Harvard Business Review.

The New Realities of Leadership Communication Five long-term business trends are forcing the shift from corporate communication to organizational conversation.

Economic Change As service industries have become more economically significant than manufacturing industries, and as knowledge work has supplanted other kinds of labor, the need for sophisticated ways to process and share information has grown more acute.

Organizational Change As companies have become flatter and less hierarchical, and front-line employees more pivotally involved in value-creating work, lateral and bottom-up communication has achieved the importance of top-down communication.

Global Change As workforces have become more diverse and more widely dispersed, navigating across cultural and geographic lines has required interactions that are fluid and complex.

Generational Change As millennials and other younger workers have gained a foothold in organizations, they have expected peers and authority figures alike to communicate with them in a dynamic, two-way fashion.

Technological Change As digital networks have made instant connectivity a norm of business life, and as social media platforms have grown more powerful and more ubiquitous, a reliance on older, less conversational channels of communication has ceased to be tenable.

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Reinventing Employee Onboarding

By Daniel Cable, London Business School, and Francesca Gino, Harvard Business School

By encouraging new employees to apply their personal strengths to the job, companies can help their new hires become more connected with their colleagues, more engaged in their work and more likely to stay.

The first day on the job at a new organization is commonly structured around introducing employees to the work environment and company culture. In addition to the long list of human resources forms new employees are asked to fill out, they hear about why the organization they have joined is so special. They learn about the company’s founders, its values and why they should be proud to be a part of the organization. The overriding goal is to show new employees “how things are done around here� and to instill in them a sense of pride in their new affiliation.

At many organizations, onboarding processes have a common theme: indoctrinating new employees into

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the organizational culture. Not surprisingly, human resources professionals begin the discussion about how to build and retain talent by stressing how important it is to get employees to understand and commit to the companies’ values starting on “day one.” This represents the norm at many companies, and it is useful because it enables newcomers to fit in and conform to organizational norms — giving leaders some control over what they can expect from newcomers.

However, we have found that the traditional methods of onboarding have some serious weaknesses. They assume that organizational values are something to be taught to and adopted by newcomers. This creates a tension: When newcomers are “processed” to accept an organization’s identity, they are expected to downplay their own identities, at least while they are at work.

But subordinating one’s identity and unique perspectives may not be optimal in the long run for either the organization or the individual employee because suppressing one’s identity is upsetting and psychologically depleting.1 Moreover, newcomers actually may not internalize the organizational values even if they appear to comply through external behaviors; over and above

About the Research Since 2000, we have examined many companies in sectors including entertainment, software services, financial services, manufacturing, retail, government and business process outsourcing.

Our field research suggests that the standard onboarding approach used by many organizations may not be the best way to bring someone new onboard in an organization. While our fieldwork informed our understanding of the socialization practices companies use and the problems they experience in terms of work engagement and turnover, we tested those views in 2011 during a controlled experiment at Wipro BPO, a business process outsourcing company that provides telephone and chat support for global customers.i

compliance, leaders need employee engagement if they want employees to contribute on their own and in ways that are not programmed.2 Socialization practices that get newcomers to behave inauthentically might not be sustainable because they do not fully engage the employee and they do not address broader issues concerning emotional exhaustion and work dissatisfaction.

In giving newcomers the opportunity to express themselves at work, we found that the new approach bolstered employees’ self-esteem and allowed them to express a positive identity during a period that employees often find stressful.

In studying how organizations onboard new employees over the past several years, we have developed a different approach3 that has positive long-lasting effects for both companies and employees. The approach, which we call “personal-identity socialization,” involves encouraging newcomers to express their unique perspectives and strengths on the job from the very beginning and inviting them to frame their work as a platform for doing what they do best. For instance, a restaurant cook who is a natural social connector could apply this strength by visiting with restaurant guests and making them feel welcome. Similarly, a consultant with artistic talents could design eye-catching templates for presentations and develop more powerful ways to present data.

A salesperson who enjoys teaching others might share that enthusiasm with new hires, becoming a mentor.

Naturally, newcomers can’t act unilaterally — they need to coordinate their activities with their managers.

But, as we saw in our field research at Wipro BPO, a business process outsourcing company in Bangalore, India, managers often are happy to leverage the additional energy and value that newcomers are willing to contribute, in most cases over and above their required duties. (See “About the Research.”)

The Case for Personal-Identity Socialization For several decades psychologists have suggested that people have a deep desire to behave authentically and to have others acknowledge the true attributes of their identities. To be authentic, people must align their 31

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internal experiences (such as feelings, values and perspectives) with their external expressions. They want others to see them as they see themselves. There is an abundance of research showing that authentic selfexpression is the key component of high self-esteem.4 It is easy to see how the traditional approach to socialization, which focuses on enculturating newcomers, might lead to conflicts with authentic self-expression and sustainable onboarding. Wipro, which provides telephone and online chat support for global customers, was experiencing high turnover rates that were comparable to those of the industry (50% to 70% annually). In addition to having to interact with frustrated customers, employees of Indian call centers are often expected to “de-Indianize” many elements of their behavior, resulting in high levels of employee burnout.

Wipro’s onboarding process was tightly organized around transferring the company culture to new employees, as is typical in many other organizations.

Traditionally, employees at Wipro (known as “agents”) underwent training in 15- to 25-person teams. During the first days of orientation, new agents learned about the company and received human resources information, after which they received two weeks of voice training and were expected to exhibit competency in the English language. During the next phase (process training), agents spent six weeks learning about customers and how to handle different situations. Agents then received about six weeks of on-the-job training in customer service, during which they took actual calls (with supervision) and attended additional classroom sessions to learn how to address customer queries about common situations (such as how to book an airline ticket or how to configure a printer). Finally, they transitioned to line operations. By the time employees were assigned to their positions, they had a clear idea of the norms and behaviors that Wipro valued.

We conducted a field experiment with Wipro in 2011 to see if our alternative approach to onboarding made a difference in performance and retention. We found that when socialization focused on individual identity, employees were much less likely to quit their jobs in the first six months than employees in the two other onboarding approaches we studied at Wipro.

Specifically, employees who received onboarding 32

emphasizing individual identity were more than 32% less likely to quit than those employees who received Wipro’s traditional onboarding approach — and were 21% less likely to quit than a group of employees in the experiment who received an orientation focused on organizational identity. Moreover, the results showed that customers’ evaluations of the service they received were significantly more positive in the personal-identity socialization condition than in Wipro’s standard onboarding process.

We also conducted a laboratory experiment using a dataentry task to test whether individuals joining a new work environment feel that they are better able to authentically express their strengths when the company uses socialization practices that emphasize their personal identities rather than the organizational identity. We found that shaping onboarding processes around individual identity has beneficial effects on employees’ job attitudes and behaviors. Personal-identity socialization increased work engagement and job satisfaction, led to lower quit rates and resulted in greater levels of performance (both in terms of the amount of data entered and the number of errors). The experiment also allowed us to explore the drivers of such positive outcomes. In giving newcomers the opportunity to express themselves at work, we found that the new approach bolstered employees’ self-esteem and allowed them to express a positive identity during a period that employees often find stressful.

Thus, while promoting employee self-esteem and selfexpression can be valuable in its own right, research shows that there can be organizational benefits as well.

For example, people who alter or downplay their unique values or perspectives in order to fit into the organization’s dominant culture experience a sense of “alienation from oneself.”5 This forces them to divert cognitive resources to cope with identity conflict. Authentic selfexpression is associated with less emotional exhaustion and less anxiety.6 This is important because employees who are emotionally exhausted are less likely to perform effectively and please customers and are more likely to quit. Moreover, people who feel they are acting authentically are more likely to attribute their behavior to their own actions (as opposed to blaming the situation). They are more likely to invest energy in their work environments.

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Reinventing Employee Onboarding continued

Getting the Onboarding Process Right: Four Principles Joining a new company offers people a rare opportunity to make a fresh start in a new social setting. It provides individuals with an extraordinary opportunity to establish an identity with colleagues and to be seen as the person they are when they are at their authentic best.

Our research indicates that the best way for organizations to advance this goal is for managers to encourage employees to use their signature strengths from the very beginning, on a daily basis. But how does this happen on a practical level? Based on our research and fieldwork over the last several years, we have developed four principles that can help organizations and managers get their onboarding processes off to a good start. The principles require organizations to reshape the way they approach socialization while asking workers to cast their new roles and their relationships with colleagues and managers in a different light.

1. Break out of the traditional employment trap.

This is the most difficult step, because managers typically think about jobs as clusters of activities, in which they pay employees a market rate to complete prescripted activities. In the traditional manager mind-set,

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employees do not necessarily have to care about the activities; as the saying goes, “that’s why it’s called work!” Yet this may not be the most effective way to connect with today’s employees, particularly those in their 20s and 30s (sometimes referred to as Generation Y or Generation Me), who are starved for places to express their authentic identities.7 They will make up the majority of the workplace in the future.

Managers can break out of this traditional mind-set by remembering that an organization is made up of people, and that people have a desire to use their signature strengths — whether those strengths are connecting to others, being organized and prepared, or helping others understand technology. For example, Wipro leaders saw that when they framed the workplace as a setting where people can express their authentic best selves, work became a situation to which people wanted to bring more of themselves. This places organizations in a fundamentally different role: helping employees to achieve their basic human desires as opposed to providing paid employment that funds people’s “real lives.”8

2. Help newcomers identify their authentic strengths.

Before introducing newcomers to fellow team members or

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Reinventing Employee Onboarding continued

even describing a specific job, it’s helpful to provide them with dedicated time to pinpoint and describe their unique strengths and best selves. One way to achieve this is to encourage employees to answer personalized questions such as “What is unique about you that leads to your best performance and happiest times at work?” Employers can also help newcomers construct a “personal highlights reel” made up of two or three specific events or moments when they were at their best. At Wipro, for example, leaders asked newcomers to reflect on a specific time, at work or at home, when they were acting the way they were “born to act.” Similarly, employers can help new employees conduct a 360-degree review exercise in which they ask a variety of people who know them well — friends, family, mentors and coworkers — to share specific moments when they were at their personal best.

3. Facilitate introductions to other organizational members.

When introducing newcomers to each other and to their new colleagues, it’s important to structure those introductions so that the person has the opportunity to introduce himself or herself in a way that’s consistent with their authentic strengths. At Wipro, team members receiving personal-identity socialization initially met each other by introducing themselves along the lines of their best selves, giving an example of a specific moment that helps show who they are when they are at their best. Then, Wipro

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team members were encouraged to discuss the conditions that activate their “best self ” and the conditions that inhibit them from showing that side. By talking about what they are like when they are at their best, people affirm their selves in a new setting and construct their social identity around their authentic strengths. (See “Comparing Two Approaches to Onboarding at Wipro.”)

4. Ask newcomers to consider how their authentic strengths can be applied to the job.

When Wipro leaders used the personal-identity socialization approach to introduce the organization’s needs, specific tasks and job responsibilities, they invited newcomers to reflect on their signature strengths and how they could actively put them to use as part of the new job.

This allowed new hires to frame their new jobs as opportunities to use their best strengths and to integrate their own purpose and motivation into the job parameters.

When newcomers are encouraged to identify their signature strengths and apply them to the job, there can be several notable outcomes. (See “How Personal-Identity Socialization Works.”) Most employees respond positively, because at this early point in the relationship they welcome being encouraged to present themselves in a manner that’s consistent with their authentic best selves.

This often leads to greater feelings of connection with colleagues, more positive reactions to the employment

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Reinventing Employee Onboarding continued

relationship and greater employee retention. Moreover, when newcomers feel they are using their signature strengths at work, many experience higher satisfaction, lower stress and less emotional burnout. As a result, they are likely to invest more personal energy into their work in hopes of advancing personal goals.

How Personal-Identity Socialization Works Organizations stand to benefit in the longer term as well.

In addition to the immediate gains from reductions in turnover and improved performance, personal-identity socialization can help organizations remain adaptable and agile. This is because companies that attempt to transfer a fixed set of values and norms to new employees are less able to adapt as conditions change. Our approach anticipates this possibility by encouraging newcomers to retain some of their unique values, perspectives and strengths — and to use them to solve organizational problems. It is consistent with what several well-known companies, including Southwest Airlines Co. and Zappos.com, do.9, 10 They hire people based on their willingness to be themselves at work and solve problems using their unique perspectives and strengths.

By following our four principles for personalidentity socialization, companies can reshape the onboarding process to help workers recognize and use their unique identities from the very beginning of the employment relationship. The result is that employees bring more of themselves to work without additional financial rewards.

Socialization is serious business for organizational leaders. The process of recruiting, hiring and training new employees is expensive and time-consuming. High turnover is one of the most obvious consequences of unsuccessful socialization. However, by making relatively small investments in socialization practices, we have found that companies can make significant improvements in employee retention and engagement. Newcomers develop a more positive view toward the organization and inject greater quality and purpose into their work.

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References 1. A.A. Grandey, “When ‘The Show Must Go On’: Surface Acting and Deep Acting as Determinants of Emotional Exhaustion and Peer-Rated Service Delivery,” Academy of Management Journal 46, no.

1 (February 2003): 86–96.

2. C.A. O’Reilly and J. Chatman, ‘‘Organizational Commitment and Psychological Attachment: The Effects of Compliance, Identification, and Internalization on Prosocial Behavior,’’ Journal of Applied Psychology 71, no. 3 (August 1986): 492–499.

3. D.M. Cable, F. Gino and B. Staats, “Breaking Them In or Eliciting Their Best? Reframing Socialization Around Newcomers’ Authentic Self-Expression.” Administrative Science Quarterly 58, no. 1 (March 2013): 1–36.

4. M.H. Kernis, “Toward a Conceptualization of Optimal Self-Esteem,” Psychological Inquiry 14, no. 1 (January 2003), 1–26; and I.D. Yalom, “Existential Psychotherapy” (New York: Basic Books, 1980).

5. P.F. Hewlin, “And the Award for Best Actor Goes to…: Facades of Conformity in Organizational Settings,” Academy of Management Review 28, no. 4 (October 2003): 633-642.

6. E.T. Higgins, “Self-Discrepancy Theory: What Patterns of SelfBeliefs Cause People to Suffer?,” Advances in Experimental Social Psychology 22 (1989): 93–136.

7. J.M. Twenge, “Generation Me: Why Today’s Young Americans Are More Confident, Assertive, Entitled — and More Miserable Than Ever Before” (New York: Free Press, 2006).

8. D.M. Cable, “Change to Strange: Create a Great Organization by Building a Strange Workforce” (Upper Saddle River, New Jersey: Prentice Hall, 2007).

9. K. Freiberg and J. Freiberg, “Nuts! Southwest Airlines’ Crazy Recipe for Business and Personal Success” (New York: Broadway, 1998); and T. Hsieh, “Delivering Happiness: A Path to Profits, Passion, and Purpose” (New York: Business Plus, 2010).

10. Cable, Gino and Staats, “Breaking Them In.”

Daniel Cable is a professor of organizational behavior at London Business School. Francesca Gino is an associate professor of business administration at Harvard Business School. Bradley Staats is an assistant professor of operations at the University of North Carolina at Chapel Hill’s KenanFlagler Business School.

Reprinted with permission (c) 2015 from MIT Sloan Management Review.

the Analyst Business Supplement 2016

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Water Treatment Contracts from a Risk Management Perspective

By Donald Cleveland and John Walsh, WaterColor Management

We always urge our insureds and others in the water treatment and water handling business to do business through a written agreement. We have been asked repeatedly to provide some model language for use in such agreements. Model language for an agreement is part of this risk management article. It is not for everyone, because multiple exposures are included in the water treatment business. It is, however, designed for what we identify as the core business of treating water in cooling towers or boilers. Over the years, we have identified several areas of liability exposure for these core businesses. These areas are as follows: 1. There is an attempt to hold water treaters responsible for latent defects that were in the system prior to the treater undertaking service.

2. Customers who are participating in the water treatment program don’t follow the program and want to blame the water treater for the program’s failure.

3. Customers sometimes blame the water treater for failure of the program after changing operations or equipment related to the water being used, but not notifying the water treater of the changes.

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4. Customers or legal advisors try to shift the blame for failures after the water treater has lost the account for reasons other than performance (mainly due to price).

Failures or issues can result, and putting blame on the previous water treater for failure of its program is an easy out.

5. Water treaters often rely on information provided by the client when, many times, the clients are unsure of metallurgies or specifics about their own equipment.

This inaccurate information can lead to issues and failures and liability allegations against the water treater.

6. Water treaters also rely on chemical feed equipment suppliers and information provided about the capabilities of the feed equipment by the supplier, which may or may not be correct. If inaccurate, this information can lead to issues and potential water leaks and liability for the water treater.

7. Water treaters often rely on outside labs to determine the chemical, mineral, and bacteria level of customers’ water. The labs might (rarely) provide inaccurate results or conclusions causing the water treater to make adjustments that lead to failures in the treatment program and liability for the water treater.

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Risk Management Perspective continued

Now, with increased requirements and more regulations related to the control and prevention of Legionnaires’ disease, in particular, performance demands on water treaters will grow. While the fundamentals of treatment will remain the same, the tendency for finger-pointing and attempts to pass on liabilities may accelerate.

While the Model Service Agreement that accompanies this article is directed at the water treater/customer relationship, it is important to remember that the water treater may have other important relationships on which the treatment firm relies (e.g., outside labs, mixers and blenders, chemical feed equipment suppliers, raw material suppliers, and equipment installers). It’s crucial for the treatment companies to have written agreements with those firms assuming the defense and liabilities that arise from inaccurate information, improper blends or mixes, and supplier product failures. Also, make sure you provide these suppliers with the proper information about the systems for which you are asking them to provide products or services. Withholding information or providing false information can be detrimental to both of you.

Some other items of guidance: • Take pictures of the system(s) before you take over and after you have exited the account.

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• Make sure you conduct an audit of the system and write up an observations page or description of all the items you saw, and report this information back to the customer.

• Make sure you provide in that report all the background information you were provided, especially metallurgical information, model and serial numbers of all equipment that you observed, and any other information that you were provided by the customer.

• Keep all of your records for at least 10 years, especially service reports and special analysis reports.

This is important in the event of any claim.

• Make sure in your service reports you define everything that you observed, even if it is outside the direct area of water treatment.

The following Draft Model Agreement is only a starting point and is a simple sample contract; it may well be the subject of negotiation between you and your customer.

It is ultimately up to you and your legal advisors to determine the contractual relationship with your customers and what works best for you. Remember, however, that a written service agreement defining what you are providing and the responsibilities of the client is always the best way to protect you from liability.

John Walsh and Don Cleveland are directors of WaterColor Management, an AWT founding member and past recipient of the AWT Supplier of the Year Award. Don can be reached at (561) 338-7488 or donc@ mprfintra.com, and John can be reached at (441) 535-3320 or jwalsh@fintra.bm.

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“Simple” DRAFT MODEL

Water Treatment Service Agreement THIS WATER TREATMENT PROGRAM AGREEMENT, hereinafter referred to as the “Agreement,” is made and entered into as of the xx day of xxxxx, between (Your Company Name and address), from now on referred to as the “Supplier” and (Customer’s Name and address), from now on referred to as the “Customer.”

THE PURPOSE of this Agreement is to state the terms and conditions under which the Supplier will provide and Customer will receive Goods and Services related to water treatment programs for the Customer’s equipment located at (Address where equipment to be serviced is at), which shall be described specifically in relevant purchase orders and proposals made pursuant hereto.

Goods and Services Provided by Water Treater

Supplier agrees to provide the following goods and services to the Customer: List the specific Goods and Services you are going to provide. If there are limits, such as installing chemical feed equipment, specify that as well.

The services listed above will be accomplished by the Water Treater through: 1. (daily) (weekly) (monthly) sampling and testing of the water in the systems subject to this service agreement;

2. Informing the Customer of the test results on a timely basis;

3. Providing a treatment program designed to control any harmful bacteria or adverse chemical imbalance in the water, and the program is hereby incorporated and made part of this agreement; 4. Administering the biocides and/or chemicals to the cooling towers/boilers/heat exchanges in accordance with the treatment program;

5. Delivering or having delivered the quantities of biocides and other chemicals to the Customer’s premises in order to adequately administer the water treatment program.

Again, this should be expanded based on the service you are providing. Be specific and all-inclusive. If there is something the client says he does not want you to do, such as Legionella analyses, state that too.

Customer’s Duties or Responsibilities

1. Allow the water treater all reasonable access to the equipment to sample the water and to administer the water treatment program;

2. Report any change in the Customer’s operations or changes in equipment that could affect the quality or quantity of water used in the various pieces of equipment.

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This includes increased water usage or process leaks;

3. Comply with all portions of the water treatment program that requires the Customer’s participation, including recommendations provided by Supplier in its site visit or service reports.

Again, if there are other things you want the customer to do or that he has promised to do, state them specifically (i.e., any manual blowdown of the boilers or addition of dry biocides to a bromine feeder).

Standard of Performance

The Customer and Supplier agree that the ultimate success of any agreement and treatment program provided by the Supplier to the Customer is dependent on diligent application of the program in full accordance with the recommendations made by the Supplier. The Supplier shall not bear any liability or responsibility for any failure caused in whole or part by the Customer’s lack of diligence or failure to follow the Supplier’s recommendations. Neither shall the Supplier be liable for any failure or delay in providing its program as a result of any act or circumstance beyond its control. The treatment program recommended by the Supplier is based on the operating conditions at the time this agreement was entered into. The Customer acknowledges that it is obligated to provide accurate information to the Supplier and to third parties used by the Supplier.

List any specific observations and issues here, such as aluminum boilers and other specific pieces of equipment.

The Supplier realizes these observations, equipment, and conditions are subject to change if the Customer’s operating or equipment conditions are altered in any way; however, it is imperative that the Customer informs the Supplier of any changes in equipment or water usage. Any change to the treatment program for servicing new equipment or alternative sources of water must be agreed to in writing. Failure of the Customer to follow the water treatment program or cooperate with the Supplier constitutes a waiver of any warranty provided by the Supplier.

The Customer agrees not to hold the Supplier responsible for any hidden or latent ongoing damage to the equipment or systems caused by the work or treatment of unrelated water treaters who have provided water treatment or services prior to the commencement of this agreement or after this agreement concludes.

The Supplier agrees to protect the property of the Customer while performing the water treatment services described herein, and agrees to maintain liability insurance coverage and any other typical and reasonable insurance coverage required by the Customer. the Analyst Business Supplement 2016

If there are other specifics for the agreement, list them in here. This could include disposal of containers or any other regulatory or compliance issues.

Force Majeure

Neither party will be responsible to the other if uncontrollable events make it impracticable or commercially unreasonable for either party to perform under the terms of this agreement, provided that no force majeure shall apply to the Customer’s obligation to pay for Goods and Services rendered hereunder. No event of default shall be deemed to have occurred in the event that a force majeure prevented either party from fulfilling its obligations under this Agreement.

Confidentiality

Both parties agree to keep confidential the other party’s proprietary non-public information, if any, which may be acquired in connection with this Agreement. The Customer additionally agrees to refrain from testing, analyzing, or otherwise attempting to reverse engineer any products delivered under this agreement without the prior written consent of the Supplier.

Intellectual Property

The Supplier shall retain all intellectual property rights, including copyrights and patents, which it has in all drawings and data or other deliverables supplied or developed under this agreement, subject to the Customer’s right to use such drawings and data for its own use without additional cost.

No materials, documents, plans, articles, information, data, compilations of data, prototypes, reports, speeches, slides, videotapes, pictures, audio, artistic works, computer programs, all works of authorship, or other items prepared by the Supplier on behalf of the Customer shall be considered “works made for hire” as defined by the Copyright Act of 1976 (17 U.S.C. 100 et seq.).

Reliance on Others

During the course of performing its duties, the Supplier may rely on outside laboratories other than its own to test the Customer’s samples. The Supplier will recommend the laboratory for this testing and will provide the laboratory with all the pertinent information necessary for the laboratory to do its job properly. The Customer will be provided all the information that the Supplier provides to the laboratory, and the Customer will have the right of refusal to supply the laboratory with this information. However, be it known that the Supplier and the Customer have placed absolute reliance on the tests conducted by the outside laboratories for their accuracy.

• (Alternate Phrase #1) The Customer acknowledges this condition of reliance, • (Alternate Phrase #2) and agrees to cooperate with the Supplier in bringing any claim that may arise from inaccurate test results from a laboratory, unless owned by the Supplier.

• (Alternate Phrase #3) and agrees to cooperate with the Supplier and not bring any claim for damages against the Supplier that arises from inaccurate test results.

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• (Alternate Phrase #4) and agrees to binding arbitration as the sole form of redress for any claim for damages arising from inaccurate test results.

• (Alternative Phrase #5) and agrees not to hold the Supplier responsible for inaccurate test results from a third party.

Term of Agreement

This agreement shall have the term of (months) (year-s) after the acceptance date by both parties. The agreement may be extended by execution of an addendum to this agreement setting forth the length of the additional services to be provided.

Limitation of Liability and Indemnification

The Supplier shall have no liability for incompatibility of Goods with the Customer’s actual space or design limitations, except where the details of such space or design limitations were expressly communicated to the Supplier with sufficient written advance notice to avoid any such incompatibility.

The Supplier shall not be liable for damages or losses arising from any Services that are not required under this Agreement or any modification or amendment hereto, or for which the Supplier does not charge the Customer for.

Jurisdiction

Unless otherwise stated herein, this agreement is subject to the jurisdiction of the laws and the courts of the state of

Transfer

This agreement shall not be transferable without the signed consent of both parties to the agreement.

Acceptance and Approval

This agreement is accepted and approved by the following persons on behalf of their companies on this the day of

, 20

Signature

Title

Signature

Title

Attach any special clauses or other information or schedules and/or the original quotation and audit report with pictures.

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Handing the Torch to the Next Generation Every family business must transition control to the next generation someday. But will the next leader be another family member — or is there a better choice outside the family circle? Successful succession plans don’t happen overnight. They take years (or even decades) of preparation, mentoring and training. So if you have borrowers that are family businesses, encourage them to start the transition process sooner rather than later.

Naming the Successor The key operational issue addressed in any succession plan is: Who will one day lead the enterprise? For family-owned businesses, finding a successor can be difficult. Children or other relatives may be qualified but have no interest in taking the reins. Or they may want to be involved but not have sufficient experience.

To deal with issues such as these, a family business owner must take time to identify and nurture future leaders. Early on, the owner needs to select someone who he or she believes holds leadership potential and then expose the prospective successor to all aspects of running the business. When control formally transfers, this will allow the new leader to truly be seen as the “boss” and be fully capable of making big decisions. It will also minimize surprises and animosity among candidates who aren’t chosen to take the lead.

The current owner needs to provide a well-defined path for the successor and assurance that his or her hard work

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during the transition period will eventually be rewarded with the leadership role as well as ownership interests.

Ideally, the owner also will set a specific timeframe for the transfer of control and ownership to officially occur.

Dividing Up Control and Assets Most family business owners have more than one heir to factor into the succession planning equation. So, it’s important to involve the entire family, whether or not they’re all active in the business, in the planning process.

This enables everyone to understand their roles — and the financial and personal consequences of an unsuccessful succession plan.

A common issue is how to equitably divide assets among heirs when only some of them will have control of or receive ownership interests in the business. If there are sufficient liquid assets, the owner can purchase life insurance to provide for any children who won’t be involved in the business and give ownership interests only to those who will be involved. Or the owner might establish a family trust to own and operate the business, so that the entire family shares the risks and benefits.

Assembling an Advisory Team No matter who is the chosen successor, the family business owner will need to put together a team of professionals—including a lender, an accountant, a lawyer and an insurance advisor—to guide the succession planning process. These experts can help the

continued on page 50

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Emotion and the Art of Negotiation

By Alison Wood Brooks, Harvard Business School

It is, without question, my favorite day of the semester— the day when I teach my MBA students a negotiation exercise called “Honoring the Contract.”

I assign students to partners, and each reads a different account of a (fictitious) troubled relationship between a supplier (a manufacturer of computer components) and a client (a search engine start-up). They learn that the two parties signed a detailed contract eight months earlier, but now they’re at odds over several of the terms (sales volume, pricing, product reliability, and energy efficiency specs).

Each student assumes the role of either client or supplier and receives confidential information about company finances and politics. Then each pair is tasked with renegotiating—a process that could lead to an amended deal, termination of the contract, or expensive litigation.

What makes this simulation interesting, however, lies not in the details of the case but in the top-secret instructions given to one side of each pairing before the exercise begins: “Please start the negotiation with a display of anger. You must display anger for a minimum of 10 minutes at the beginning.” The instructions go on to give specific tips for showing anger: Interrupt the other party. Call her “unfair” or “unreasonable.” Blame her personally for the disagreement. Raise your voice.

Before the negotiations begin, I spread the pairs all over the building so that the students can’t see how others are behaving. Then, as the pairs negotiate, I walk around 42

and observe. Although some students struggle, many are spectacularly good at feigning anger. They wag a finger in their partner’s face. They pace around. I’ve never seen the exercise result in a physical confrontation—but it has come close. Some of the negotiators who did not get the secret instructions react by trying to defuse the other person’s anger. But some react angrily themselves— and it’s amazing how quickly the emotional responses escalate. When I bring everyone back into the classroom after 30 minutes, there are always students still yelling at each other or shaking their heads in disbelief.

During the debriefing, we survey the pairs to see how angry they felt and how they fared in resolving the problem. Often, the more anger the parties showed, the more likely it was that the negotiation ended poorly—for example, in litigation or an impasse (no deal). Once I’ve clued the entire class in on the setup, discussion invariably makes its way to this key insight: Bringing anger to a negotiation is like throwing a bomb into the process, and it’s apt to have a profound effect on the outcome.

Until 20 years ago, few researchers paid much attention to the role of emotions in negotiating—how feelings can influence the way people overcome conflict, reach agreement, and create value when dealing with another party.

Instead, negotiation scholars focused primarily on strategy and tactics—particularly the ways in which parties can identify and consider alternatives, use leverage, and execute the choreography of offers and counteroffers. Scientific

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Emotion and the Art of Negotiation continued

understanding of negotiation also tended to home in on the transactional nature of working out a deal: how to get the most money or profit from the process. Even when experts started looking at psychological influences on negotiations, they focused on diffuse and nonspecific moods—such as whether negotiators felt generally positive or negative, and how that affected their behavior.

Bringing anger to a negotiation is like throwing a bomb into the process.

Over the past decade, however, researchers have begun examining how specific emotions—anger, sadness, disappointment, anxiety, envy, excitement, and regret— can affect the behavior of negotiators. They’ve studied the differences between what happens when people simply feel these emotions and what happens when they also express them to the other party through words or actions. In negotiations that are less transactional and involve parties in long-term relationships, understanding the role of emotions is even more important than it is in transactional deal making.

This new branch of research is proving extremely useful.

We all have the ability to regulate how we experience emotions, and specific strategies can help us improve tremendously in that regard. We also have some control over the extent to which we express our feelings—and again, there are specific ways to cloak (or emphasize) an expression of emotion when doing so may be advantageous. For instance, research shows that feeling or looking anxious results in suboptimal negotiation outcomes. So individuals who are prone to anxiety when brokering a deal can take certain steps both to limit their nervousness and to make it less obvious to their negotiation opponent. The same is true for other emotions.

In the pages that follow, I discuss—and share coping strategies for—many of the emotions people typically feel over the course of a negotiation. Anxiety is most likely to crop up before the process begins or during its early stages. We’re prone to experience anger or excitement in the heat of the discussions. And we’re most likely to feel disappointment, sadness, or regret in the aftermath.

Avoiding Anxiety Anxiety is a state of distress in reaction to threatening stimuli, particularly novel situations that have the 43

potential for undesirable outcomes. In contrast to anger, which motivates people to escalate conflict (the “fight” part of the fight-or-flight response), anxiety trips the “flight” switch and makes people want to exit the scene.

Because patience and persistence are often desirable when negotiating, the urge to exit quickly is counterproductive. But the negative effects of feeling anxious while negotiating may go further. In my recent research, I wondered if anxious negotiators also develop low aspirations and expectations, which could lead them to make timid first offers—a behavior that directly predicts poor negotiating outcomes.

In work with Maurice Schweitzer in 2011, I explored how anxiety influences negotiations. First we surveyed 185 professionals about the emotions they expected to feel before negotiating with a stranger, negotiating to buy a car, and negotiating to increase their salary. When dealing with a stranger or asking for a higher salary, anxiety was the dominant emotional expectation; when negotiating for the car, anxiety was second only to excitement.

To understand how anxiety can affect negotiators, we then asked a separate group of 136 participants to negotiate a cell phone contract that required agreeing on a purchase price, a warranty period, and the length of the contract. We induced anxiety in half the participants by having them listen to continuous three-minute clips of the menacing theme music from the film Psycho, while the other half listened to pleasant music by Handel.

(Researchers call this “incidental” emotional manipulation, and it’s quite powerful. Listening to the Psycho music is genuinely uncomfortable: People’s palms get sweaty, and some listeners become jumpy.)

In this experiment and three others, we found that anxiety had a significant effect on how people negotiated. People experiencing anxiety made weaker first offers, responded more quickly to each move the counterpart made, and were more likely to exit negotiations early (even though their instructions clearly warned that exiting early would reduce the value they received from the negotiation). Anxious negotiators made deals that were 12% less financially attractive than those made by negotiators in the neutral group.

We did discover one caveat, however: People who gave themselves high ratings in a survey on negotiating aptitude were less affected by anxiety than others.

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Emotion and the Art of Negotiation continued

Those experiments examined what happens when people feel anxious. But what happens when they express that anxiety, making it clear to their counterparts that they’re nervous (and perhaps vulnerable)? In 2012, with Francesca Gino and Maurice Schweitzer, I conducted eight experiments to explore how anxious people behaved in situations in which they could seek advice from others. We found that relative to people who did not feel anxious, they were less confident, more likely to consult others when making decisions, and less able to discriminate between good and bad advice. In the most relevant of these experiments, we found that anxious participants did not discount advice from someone with a stated conflict of interest, whereas subjects feeling neutral emotions looked upon that advice skeptically. Although this research didn’t directly address how the subjects would negotiate, it suggests that people who express anxiety are more likely to be taken advantage of in a negotiation, especially if the other party senses their distress.

Excellent negotiators often make their counterparts feel anxious on purpose. For example, on the TV show Shark Tank, six wealthy investors (sharks) negotiate with entrepreneurs hoping for funding. The entrepreneurs must pitch their ideas in front of a huge television audience and face questions from the investors that are often aggressive and unnerving. As this is going on, stress-inducing music fills the TV studio. This setup does more than create drama and entertainment for viewers; it also intentionally puts pressure on the entrepreneurs. The sharks are professional negotiators who want to knock the entrepreneurs off balance so that it will be easier to take ownership of their good ideas at the lowest price possible. (When multiple sharks want to invest, they often drop comments that are intended to make opposing investors anxious too.)

If you watch the show closely, you’ll probably notice a pattern: The entrepreneurs who seem least rattled by the environmental stressors tend to negotiate the most carefully and deliberately—and often strike the best deals.

A useful strategy for reducing anxiety is to bring in a third-party negotiator.

The takeaway from both research and practice is clear: Try your utmost to avoid feeling anxious while negotiating.

How can you manage that? Train, practice, rehearse, and keep sharpening your negotiating skills. Anxiety is often a response to novel stimuli, so the more familiar the 44

stimuli, the more comfortable and the less anxious you will feel. (That’s why clinicians who treat anxiety disorders often rely on exposure therapy: People who are nervous about flying on airplanes, for instance, are progressively exposed to the experience, first getting used to the sights and sounds, then sitting in airliner seats, and ultimately taking flights.) Indeed, although many people enroll in negotiation classes to learn strategies and increase skills, one of the primary benefits is the comfort that comes from repeatedly practicing deal making in simulations and exercises. Negotiation eventually feels more routine, so it’s not such an anxiety-inducing experience.

Another useful strategy for reducing anxiety is to bring in an outside expert to handle the bargaining. Third-party negotiators will be less anxious because their skills are better honed, the process is routine for them, and they have a lower personal stake in the outcome. Outsourcing your negotiation may sound like a cop-out, but it’s a frequent practice in many industries. Home buyers and sellers use real estate brokers partly for their negotiating experience; athletes, authors, actors, and even some business executives rely on agents to hammer out contracts.

Although there are costs to this approach, they are often more than offset by the more favorable terms that can be achieved. And although anxious negotiators may have the most to gain from involving a third party (because anxiety can be a particularly difficult emotion to regulate in an uncomfortable setting), this strategy can also be useful when other negative emotions surface.

Managing Anger Like anxiety, anger is a negative emotion, but instead of being self-focused, it’s usually directed toward someone else. In most circumstances, we try to keep our tempers in check. When it comes to negotiating, however, many people believe that anger can be a productive emotion— one that will help them win a larger share of the pie.

This view stems from a tendency to view negotiations in competitive terms rather than collaborative ones.

Researchers call this the fixed-pie bias: People, particularly those with limited experience making deals, assume that a negotiation is a zero-sum game in which their own interests conflict directly with a counterpart’s. (Moreexperienced negotiators, in contrast, look for ways to expand the pie through collaboration, rather than nakedly trying to snatch a bigger slice.) Anger, the thinking goes,

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makes one seem stronger, more powerful, and better able to succeed in this grab for value.

In fact, there’s a body of research—much of it by Keith Allred, a former faculty member at Harvard’s Kennedy School of Government—that documents the consequences of feeling angry while negotiating. This research shows that anger often harms the process by escalating conflict, biasing perceptions, and making impasses more likely. It also reduces joint gains, decreases cooperation, intensifies competitive behavior, and increases the rate at which offers are rejected. Angry negotiators are less accurate than neutral negotiators both in recalling their own interests and in judging other parties’ interests. And angry negotiators may seek to harm or retaliate against their counterparts, even though a more cooperative approach might increase the value that both sides can claim from the negotiation.

In recent research with Elizabeth Baily Wolf, I have found that it’s possible to go even further in managing others’ emotions: You display an emotion, your counterpart sees it, and then you shape his interpretation of it. For example, imagine that you start crying at work.

(Crying is a difficult-to-control and often embarrassing behavior.) Saying “I’m in tears because I’m passionate” rather than “I’m sorry I’m so emotional” can completely change the way others react and the way they view your self-control and competence.

Despite these findings, many people continue to see advantages to feeling or appearing angry. Some even attempt to turn up the volume on their anger, because they think it will make them more effective in a negotiation. In my own research, I have found that given a choice between feeling angry and feeling happy while negotiating, more than half the participants want to be in an angry state and view it as significantly advantageous.

There are cases when feeling angry can lead to better outcomes. Research by Gerben van Kleef at the University of Amsterdam demonstrates that in a onetime, transactional negotiation with few opportunities to collaborate to create value, an angry negotiator can wind up with a better deal. There may even be situations in which a negotiator decides to feign anger, because the counterpart, in an attempt to defuse that anger, is likely to give ground on terms. This might work well if you are haggling with a stranger to buy a car, for example.

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But negotiators who play this card must be aware of the costs. Showing anger in a negotiation damages the long-term relationship between the parties. It reduces liking and trust. Research by Rachel Campagna at the University of New Hampshire shows that false representations of anger may generate small tactical benefits but also lead to considerable and persistent blowback. That is, faking anger can create authentic feelings of anger, which in turn diminish trust for both parties. Along the same lines, research by Jeremy Yip and Martin Schweinsberg demonstrates that people who encounter an angry negotiator are more likely to walk away, preferring to let the process end in a stalemate.

In many contexts, then, feeling or expressing anger as a negotiating tactic can backfire. So in most cases, tamping down any anger you feel—and limiting the anger you express—is a smarter strategy. This may be hard to do, but there are tactics that can help.

Preparing Your Emotional Strategy Preparation is key to success in negotiations. It’s vital to give advance thought to the objective factors involved (Who are the parties? What are the issues? What is my best outside option if we don’t reach a deal?), but it is perhaps even more important to prepare your emotional strategy. Use the following questions and tips to plan ahead for each stage of the negotiation.

Building rapport before, during, and after a negotiation can reduce the odds that the other party will become angry. If you seek to frame the negotiation cooperatively—to make it clear that you’re seeking a win-win solution instead of trying to get the lion’s share of a fixed pie—you may limit the other party’s perception that an angry grab for value will work well. If the other party does become angry, apologize. Seek to soothe. Even if you feel that his anger is unwarranted, recognize that you’re almost certainly better positioned tactically if you can reduce the hostility.

Perhaps the most effective way to deal with anger in negotiations is to recognize that many negotiations don’t unfold all at once but take place over multiple meetings.

So if tensions are flaring, ask for a break, cool off, and regroup. This isn’t easy when you’re angry, because your fight-or-flight response urges you to escalate, not pull back. Resist that urge and give the anger time to dissipate. In heated negotiations, hitting the pause button can be the smartest play. the Analyst Business Supplement 2016

Emotion and the Art of Negotiation continued

Finally, you might consider reframing anger as sadness.

Though reframing one negative emotion as another sounds illogical, shared feelings of sadness can lead to cooperative concession making, whereas oppositional anger often leads to an impasse.

Handling Disappointment and Regret It can be tempting to see negotiations in binary terms— you either win or lose. Of course, that is generally too simplistic: Most complex negotiations will end with each side having achieved some of its goals and not others— a mix of wins and losses. Still, as a negotiation winds down, it’s natural to look at the nascent agreement and feel, on balance, more positive or negative about it.

Disappointment can be a powerful force when it’s expressed to the other party near the end of the negotiation. There’s a relationship between anger and disappointment—both typically arise when an individual feels wronged—and it’s useful to understand how one can be used more constructively than the other. (Think back to how you reacted as a child if your parents said “I’m very disappointed in you” instead of “I’m very angry with you.”) Although expressing anger may create defensiveness or increase the odds of a standoff, expressing disappointment can serve a more tactical purpose by

encouraging the other party to look critically at her own actions and consider whether she wants to change her position to reduce the negative feelings she’s caused you.

Research shows that one cause of disappointment in a negotiation is the speed of the process. When a negotiation unfolds or concludes too quickly, participants tend to feel dissatisfied. They wonder if they could or should have done more or pushed harder. Negotiation teachers see this in class exercises: Often the first students to finish up are the most disappointed by the outcome. The obvious way to lessen the likelihood of disappointment is to proceed slowly and deliberately.

Regret is slightly different from disappointment. While the latter tends to involve sadness about an outcome, someone feeling regret is looking a little more upstream, at the course of actions that led to this unhappy outcome, and thinking about the missteps or mistakes that created the disappointment.

When a negotiation concludes too quickly, participants tend to feel dissatisfied.

Research shows that people are most likely to regret actions they didn’t take—the missed opportunities and

ASK YOURSELF

REMEMBER

THE BUILDUP

• How do I feel?

• Should I express my emotions?

• How might the people across the table feel?

• Are they likely to hide or express their emotions?

• Should I recruit a third party to negotiate on my behalf?

• It’s normal to feel anxious and excited.

• Try to avoid expressing anxiety.

• Expressing forward-looking excitement may help build rapport.

• In emotionally charged situations (such as a divorce), consider having a third party (such as a lawyer) negotiate on your behalf.

THE MAIN EVENT

• What things could happen that would make me feel angry?

• What things might I do that would trigger my counterparts to feel angry?

• What might they do or ask that would make me feel anxious?

• Be careful about expressing anger; it may extract concessions but harm the long-term relationship.

• Avoid angering your counterparts; they are likely to walk away.

• Preparing answers to tough questions is critical for staying calm in the moment.

• What are the possible outcomes of the negotiation? What do I hope to achieve? What do I expect to achieve?

• How would those outcomes make me feel?

• Should I express those feelings? To whom?

• How are my counterparts likely to feel about the possible outcomes?

• To reduce disappointment, outline clear aspirations and expectations and adjust them throughout the negotiation.

• When you feel pleased about an outcome, it may be wise to keep it to yourself.

• The best negotiators create value for everyone, claiming the lion’s share for themselves but making their counterparts feel that they, too, won.

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errors of omission, rather than errors of commission.

That can be a powerful insight for negotiators, whose primary actions should be asking questions, listening, proposing solutions, and brainstorming new alternatives if the parties can’t agree. Ironically, people often don’t ask questions while negotiating: They may forget to raise important matters or feel reluctant to probe too deeply, deeming it invasive or rude. Those fears are often misplaced. In fact, people who ask a lot of questions tend to be better liked, and they learn more things. In negotiations, information is king and learning should be a central goal. One way to reduce the potential for regret is to ask questions without hesitation. Aim to come away from the negotiation with the sense that every avenue was explored.

Skilled negotiators use another technique to minimize the odds of regret: the “post-settlement settlement.” This strategy recognizes that tension often dissipates when there’s a deal on the table that makes everyone happy, and sometimes the best negotiating happens after that tension is released. So instead of shaking hands and ending the deal making, one party might say, “We’re good. We have terms we can all live with. But now that we know we’ve reached an agreement, let’s spend a few more minutes chatting to see if we can find anything that sweetens it for both sides.” Done ineptly, this might seem as if one party is trying to renege or renegotiate.

However, when handled deftly, a post-settlement settlement can open a pathway for both sides to become even more satisfied with the outcome and stave off regrets.

Tempering Happiness and Excitement There isn’t much research on how happiness and excitement affect negotiations, but intuition and experience suggest that expressing these emotions can have significant consequences. The National Football League prohibits and penalizes “excessive celebrations” after a touchdown or big play because such conduct can generate ill will. For the same reason, the “winner” in a deal should not gloat as the negotiations wrap up.

Nonetheless, this happens all the time: In workshops I routinely see students unabashedly boast and brag (sometimes to the entire class) about how they really stuck it to their opponents in a negotiation exercise. Not only do these students risk looking like jerks, but in a real-world setting they might suffer more-dire consequences, such as the other party’s invoking a right of rescission, seeking 49

to renegotiate, or taking punitive action the next time the parties need to strike a deal.

Although it’s unpleasant to feel disappointed after a negotiation, it can be even worse to make your counterparts feel that way. And in certain situations, showing happiness or excitement triggers disappointment in others. The best negotiators achieve great deals for themselves but leave their opponents believing that they, too, did fabulously, even if the truth is different. In deals that involve a significant degree of future collaboration—say, when two companies agree to merge, or when an actor signs a contract with a producer to star in an upcoming movie—it can be appropriate to show excitement, but it’s important to focus on the opportunities ahead rather than the favorable terms one party just gained.

Be considerate: Don’t let your excitement make your counterpart feel that he lost.

Another danger of excitement is that it may increase your commitment to strategies or courses of action that you’d be better off abandoning. In my negotiation class, we do an exercise in which students must decide whether or not to send a race car driver into an important race with a faulty engine. Despite the risks, most students opt to go ahead with the race because they are excited and want to maximize their prize winnings. The exercise has parallels to a real-life example: the launch of the Challenger space shuttle. Though the engineers who designed the Challenger’s faulty O-ring had qualms about it, NASA managers were overly excited and determined to proceed with the launch. Their decision ultimately led to the craft’s explosion and the loss of its seven crew members.

There are two lessons for negotiators. First, be considerate: Do not let your excitement make your counterparts feel that they lost. Second, be skeptical: Do not let your excitement lead to overconfidence or an escalation of commitment with insufficient data.

Negotiating requires some of the same skills that playing poker does—a strategic focus, the imagination to see alternatives, and a knack for assessing odds, reading people, understanding others’ positions, and bluffing when necessary. However, whereas the parties in a negotiation must strive for agreement, poker players make decisions unilaterally. Poker also lacks win-win outcomes

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Emotion and the Art of Negotiation continued

Handing the Torch continued

or pie-sharing strategies: Any given hand is generally a zero-sum game, with one player’s gains coming directly from the other players’ pots.

owner create a plan that accomplishes a variety of important goals.

Nonetheless, negotiators can learn a crucial lesson from the card table: the value of controlling the emotions we feel and especially those we reveal. In other words, good negotiators need to develop a poker face—not one that remains expressionless, always hiding true feelings, but one that displays the right emotions at the right times.

And although all human beings experience emotions, the frequency and intensity with which we do so differs from person to person. To be a better deal maker, conduct a thorough assessment of which emotions you are particularly prone to feel before, during, and after negotiations, and use techniques to minimize (or maximize) the experience and suppress (or emphasize) the expression of emotions as needed.

In one of my favorite scenes from the TV show 30 Rock, the hard-driving CEO Jack Donaghy (Alec Baldwin), who fancies himself an expert negotiator, explains to a colleague why he struck a poor deal: “I lost because of emotion, which I always thought was a weakness, but now I have learned can also be a weapon.” Borrowing Jack’s insightful metaphor, I urge you to wield your emotions thoughtfully. Think carefully about when to draw these weapons, when to shoot, and when to keep them safely tucked away in a hidden holster. Try to avoid feeling anxious, be careful about expressing anger, ask questions to circumvent disappointment and regret, and remember that happiness and excitement can have adverse consequences.

Just as you prepare your tactical and strategic moves before a negotiation, you should invest effort in preparing your emotional approach. It will be time well spent.

For starters, the business will need to create a management structure that will survive the current owner’s departure. The business should also be on sound financial footing to ensure adequate liquidity to fund the owner’s retirement or a buyout. A buy-sell agreement is also critical in restricting transfers of ownership interests. Last, but certainly not least, the owner should consider income and estate tax issues.

Being Proactive Meeting these goals while maintaining a happy family life can be a juggling act. A clear succession plan requires patience, focus and ongoing family involvement. Although it’s challenging, succession planning is one of the most important tasks a family business owner will ever undertake.

Even if an owner has no plans of retiring or selling in the near future, unexpected events sometimes require the company to chart a new course. Encourage your borrowers to start planning for their companies’ future and key players.

Reprinted with permission, Thompson Reuters © 2015.

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Alison Wood Brooks is an assistant professor at Harvard Business School. She teaches negotiation in the MBA and executive education curricula and is affiliated with the Behavioral Insights Group.

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A version of this article appeared in the December 2015 issue (pp.56–64) of Harvard Business Review. Reprinted with permission (c) 2015 from Harvard Business Review.

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