In the current issue of the Heilbronn city magazine “Hanix”, Prof. Dr. Stephanie Jung, Professor of Corporate Law at the Global Center for Family Enterprise on our campus in Heilbronn, talked about lies, bluffs and their consequences in business negotiations. Prof. Jung is the (co-)author of the book Contract Negotiations – Tactical, Strategic and Legal Elements (dt.: Die Vertragsverhandlung – taktische, strategische und rechtliche Elemente), as well as author of the article Acceptable Lies in Contract Negotiations.

White Lies and Black Lies

There is a clear distinction between lies and bluffs: “Generally, lies are deliberately false statements in which the intention of the deceiver is to mislead the other side. Bluffs are the same, but the term “bluff” is perceived as less negative. We usually use it for harmless little lies, known as “white lies”. In the case of white lies, it is more about harmonious cooperation, i.e. not hurting the other side. The opposite to this would be “black lies,” which are used solely for one’s own benefit,” explains Prof. Jung. In general, lies are only successful when information asymmetries are given. That is, one side has a better level of information than the other. “If you negotiate about the subject of the contract, for example, a machine, often you are able to collect good information about that subject. It is more difficult to get actionable information when negotiations involve internal aspects of a company such as: specifications, delivery inventories, delivery options, or alternative contract options. This situation can provide the opportunity for one party to deceive the other. Lies with a kernel of truth are often successful because the bluff is only about details that are difficult to ascertain.” Moreover, negotiators often find such lies easier because they don’t have to make them up completely and exaggerations are generally seen as less severe.

Lying in negotiations – an important soft skill?

Few reliable studies have been conducted on how often people actually lie in negotiations. However, there are many studies that comment on the circumstances under which people are more likely to lie. “As a result, it can be assumed that people lie more frequently about certain aspects in negotiations. This applies, for example, to bluffs about competitor offers or the price above which one side would refuse to conclude a contract.” Is lying an important soft skill for negotiators, then? “In literature, it is indeed often claimed that a good negotiator must possess this skill to a certain extent,” says Prof. Jung, “On the other hand, if you ask people in general whether you should deceive in negotiations or not, they will say that you should not. It’s very interesting to look at how individual, concrete bluffs are morally evaluated.” Indeed, the reality is that some bluffs seem to be morally acceptable. These include, for example, deceptions about the reservation price, personal preferences, or specific deadlines. Opinions differ on other aspects, in various international and cross-cultural contexts: “Students, for example, consider bluffs about internal company information to be immoral, while professional negotiators, lawyers, and judges do not.” One must distinguish morals and the desired legal consequences of lying. There is always the question of the extent to which one can challenge a contract if one has been lied to. What does the law tolerate and when does it intervene? “In practice, of course, you would not challenge a contract just because of any lie. To contest a contract means that it no longer exists, that it is null and void. And that is usually not what you want. Rather, other means are used, for example, social sanctions or compensation demands,” explains Prof. Jung.

Dealing with lies in a business context

So how does one deal with a lie in a professional manner? “We often observe the so-called deception dilemma, because while I don’t want to encourage the deceiver to commit further deceptions, uncovering the lie can also lead to the loss of the lucrative business relationship. In the corporate world, prudence is the order of the day. Important contracts are at stake here. One must assess: What does the contract mean for my company? Normally, in negotiations, we would analyze contract conclusions rationally. If both sides have no better alternative to entering into the contract, then the contract is rational and represents an advantage for both.” However, there are strategies to prevent lying: “In general, you should appear competent and informed in negotiations because that reduces the incentives to be lied to. In addition, relationships built on trust make severe lies less likely in the first place.”

Read the original interview published in the current issue of “Hanix” (Issue No. 74, August/September 2021, p. 18-19) here (in German): https://hanix-magazin.de/de