Tuesday, October 17, 2017

The World's Worst Negotiator


During the campaign last year, Trump continually bragged that he's the world's greatest negotiator, which was a joke to anyone who knew him or anyone who ever sat across the table from him. Trump was basically a laughing stock or a punch line among top level New York City businessmen. And now the clown is President Clown.

You probably remember the column Joe Nocera wrote for The Times, under "Sports Business," early last year about how Trump had a horrible reputation not as a consummate negotiator but as a bully and a crook. His deals have always tended to turn to shit, just like his legislative agenda has. Nocera's column was about a Trump-owned golf resort in Jupiter, Florida-- Trump National Jupiter. The members of the club say Trump "stiffed them out of their refundable deposits, many of which were in the range of $200,000. Some of the members had to swallow the loss (in return for some paltry benefits) because they had bought time shares or homes that were part of the resort development. Others negotiated settlements. Still others sued."
Although the home sales and time shares made money for Ritz-Carlton, the resort did not. According to a former member named Bernie Carballo, who’s in the golf course business himself and who saw the resort’s books, by 2011 the resort was generating some $13 million in revenue, and had an annual loss of around $1.2 million. It also had a huge liability: nearly $30 million in those refundable deposits. So in 2012, Marriott Vacations Worldwide decided to sell.

The buyer was Trump Golf. The company is probably the largest piece of the Trump portfolio-- though with Trump, one never really knows about such things-- with 17 golf resorts, including the National Doral in Miami and Turnberry in Scotland.

Trump Golf confines itself to resorts and golf courses, and eschews time shares. So his business model has no use for refundable deposits. On the contrary, a Trump Golf member usually pays a nonrefundable deposit-- one considerably less than $200,000-- plus annual dues.

The sale to Trump was completed on Dec. 4, 2012. Trump Golf paid $5 million-- and agreed, as part of the sale, to assume the $30 million in debt resulting from the members’ refundable deposits. (Marriott Vacations Worldwide held on to the time shares.) In fact, he had no intention of honoring that agreement.

Three days after the sale was completed, Trump held a meeting at his new resort. He told the assembled members that he was eager to make Trump National Jupiter “one of the finest clubs anywhere in the world!” as he put it in a Dec. 17 letter that reiterated what he had said in the meeting. But its membership rules were “antiquated,” preventing the resort from becoming “ultra-luxurious” and “ultra-prestigious.”

He told the members that if they wanted to remain in the resort, they would have to give up their refundable deposit; in return, he would freeze their dues for three years (saving them, at most, $20,000), and give them the right to play at other Trump golf courses (for a fee, of course). Members who stayed but didn’t accept that deal would be denied those benefits and see an immediate dues increase of $4,000. Stuck with the homes and time shares they had bought, many of the home-owning members accepted the deal.

But there was also one other category of members: those on the resignation list. By the time Trump took over the Jupiter resort, the resignation list had grown to an astonishing 150 members. That was more than half the club.

During the time the Ritz ran the resort, people who put themselves on the resignation list still had access to the resort and the golf course, and they still paid dues. And why wouldn’t they? Until new members joined, allowing them to recoup their deposit, they were still members of the resort. They hadn’t resigned, but simply announced their desire to resign.

Trump, however, wanted nothing to do with them. He immediately barred them from the club, and said he would no longer accept their dues. (According to a brief filed by the plaintiffs in the class-action suit, Trump later complained that the people on the resignation list were in arrears on their dues.) As he bluntly put it in his Dec. 17 letter, “If you choose to remain on the resignation list-- you’re out.”

According to one attendee, the members listened in stunned silence.

(Nearly everyone who spoke to me for this column requested anonymity. Some did so because they had nondisclosure agreements with the Trump organization, while others said they were fearful of Trump’s reaction if they criticized him publicly.)

What was taking place in Jupiter was an essential part of Trump’s modus operandi. In every deal, he has to win and you have to lose. He is notorious for refusing to pay full price to contractors and vendors after they’ve completed work for him. And he basically dares the people he has stiffed to sue him, knowing that his deep pockets and bevy of lawyers give him a big advantage over those who feel wronged by him.

...Many members reacted by suing Trump Golf. Given that the cost of a full-blown lawsuit was obviously going be higher than a $200,000 deposit, many of those on the resignation list sought to settle. The typical settlement was for 50 cents on the dollar, meaning that Trump was pocketing $100,000 of their deposit. Carballo says that the last time he checked, the debt had dropped below $18 million.

...There is one other thing about Trump National Jupiter that is worth pointing out. As I’ve noted, when the Ritz-Carlton ran the resort, it lost $1.2 million on $13 million in revenue. Last year, under Trump’s management, revenue dropped to $12.4 million, according to the financial disclosure forms he submitted last year as part of his presidential candidacy. It also has fewer members thanks to his counterproductive decision to bar all the people on the resignation list.

Which leads to a pretty obvious question: How much is Trump National Jupiter losing today?
Writing yesterday for the Washington Post, Daniel Drezner, referred back to a column of his a week before in which he made the point that "Ordinary toddlers eventually tire out after throwing a tantrum [but that] Trump is not really a toddler, but an overindulged plutocrat who has never had to cope with political failure. With each negative shock or story he faces, his behavior worsens, and that just leads to a new cycle of negative press and disaffected GOP officials. The political effects of this is to weaken his historically weak presidency, making it harder for him to do anything that would counteract this trend. This doom loop means that his behavior is only going to get worse."

Yesterday Drezner reminded his readers that Señor Trumpanzee's "behavior has gotten worse. By the end of the week, Trump had gone after Obamacare, the Clean Power Plan, UNESCO, and the Iranian nuclear deal."
The Trump administration’s style is gleefully aggressive enough to alienate countries that want closer ties with the United States. The data are already starting to come in on how loyal allies are reacting to Trump’s disruptive style, and that data is not encouraging. Politico’s Adam Beshudi chronicles how the Trump administration has successfully annoyed Japan:
Japanese officials are expressing growing frustration with the Trump administration’s economic policies, vowing to continue striking trade deals with other countries that undercut U.S. agricultural exports rather than seek a new trade agreement with the United States.

The frustration comes both from President Donald Trump’s harsh rhetoric on trade and from his pullout from the 12-nation Trans-Pacific Partnership, which Japan still hopes can provide a bulwark against China’s growing influence in the Asia-Pacific region...

In interviews with Politico, more than half a dozen senior Japanese officials said they were uneasy with a so-called bilateral-- two-nation-- deal to replace the TPP, arguing that the goal of the multinational agreement was to create a wide international playing field. They said they are dismayed by Trump’s seeming inability to understand the importance of a multinational pact to establish U.S. leadership in the region and set the trade rules for nations on both sides of the Pacific Ocean as a counterweight to China’s rising influence.
...Instead of leading, Trump’s “my way or the highway” approach has been a detour from the multilateral road the United States has traveled since World War II. And as Trump has left behind, or threatened to, the premier international agreements of this century, from the Paris climate accord to global trade alliances and now the Iran nuclear deal, he has not had many willing followers...

Even those who have proclaimed him as a leader have sometimes not felt bound by his demands.

Josh Marshall pointed to a post by Bill McBride at the real estate economics blog Calculated Risk, The Art of Negotiation. He spoke to a few Trump supporters who claim Trump "has extensive negotiating experience. They are wrong."
In general, there are two types of negotiations. There is the “win-lose” type (or Distributive negotiation) where one party receives more and the other party receives less. This is the common approach when buying a car or real estate, or haggling at a street market.

The other type of negotiation is “win-win” (or Integrative negotiation). This type is used when negotiating between a company and a worker’s union, with long term suppliers, negotiating agreements between international allies-- and even with adversaries.

The tactics for the two types of negotiations are very different. In the first type (win-lose), bluffing, threats (like threatening to walk away), even lying are commonly used.  (Sound familiar?)

The approach to an integrative negotiation includes building trust, understanding the other party’s concerns, and knowing the details of the agreement-- with the goal to reach a mutually beneficial agreement.

It is important to understand when each approach is appropriate. A used car buyer could use the Integrative negotiation approach, but they probably wouldn’t get a very good deal.

A company could use the “win-lose” tactics with a worker’s union, but they would probably face an extended strike followed by a long period of ill-will.

This brings me to Mr. Trump. He has experience in “win-lose” negotiations (buying and selling real estate), but apparently little or no experience in Integrative negotiations.

Mr. Trump keeps using the tactics of “win-lose” in negotiating with Congress, allies and adversaries. Not only has this been ineffective (members of Congress have repeatedly called his bluffs), but it is damaging to long term relationships. Mr. Trump’s use of “win-lose” techniques with North Korea have made him look weak and ineffective (a “dotard”), and have increased the risks of a major misunderstanding and possibly a war.

So, what can Mr. Trump do to be effective? First, he needs to realize he lacks the negotiating experience that is required for these types of negotiations. He needs to stop with the empty threats, bluffs, and lying. And he either needs to learn the integrative negotiation approach (and become a student of the details), or hire people with relevant negotiating experience (and remove himself from the process). All of this seems unlikely, and I expect Mr. Trump to continue using inappropriate tactics-- that betray his lack of negotiating experience.

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At 8:13 AM, Anonymous Anonymous said...

Lifelong Bullies don't negotiate.

Negotiators don't bully.


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