MIT Sloan Management Review

Business Ethics and Public Policy, Corporate Strategy

 

When Is It Legal to Lie in Negotiations?

By G. Richard Shell

April 15, 1991

IF YOU’RE NEGOTIATING to sell your business and you lie about its debts, that’s illegal, right? But what if you begin negotiations with everything squarely on the table. The new quarterly reports come in and they’re not as rosy as the previous ones. You don’t disclose them to the prospective buyer. Illegal or just unethical? Surprisingly, as this article reports, business negotiations law is increasingly infused with ethical considerations. Shell outlines the basic elements of legal fraud, illustrating the evolving concepts with numerous cases in which negotiators have been penalized for what some consider merely unethical behavior. He argues that when entering into negotiations, your conscience may be your best guide.

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COMMERCIAL NEGOTIATIONS seem to require a talent for deception. In simple, distributive bargaining, when someone asks, “What is your bottom line?” few negotiators tell the truth. They dodge, they change the subject, or they lie.1 In more complex, multi-issue negotiations, even relatively cooperative bargainers often inject straw issues or exaggerate the importance of minor problems in order to gain concessions on what really matters.2 In nearly all bargaining encounters, a key skill is the ability to communicate that you are relatively firm on positions when you are, in fact, flexible —in short, to bluff about your intentions.

The apparent necessity for misleading conduct in a process based on cooperation and co-ordination makes bargaining deception a prime target for ethical theorizing and empirical investigation. Given the high degree of academic interest, one would think that the investigation of deception would have included by now a detailed look at what one of our most powerful social institutions — the law — has to say on the subject. Curiously, academic students of negotiation have essentially ignored the law. Ethical discussions of deception either overlook it completely or assume that it proscribes only the most clear-cut types of fraud, leaving moralists to distinguish, and in some instances justify the finer points of deceptive conduct.3 Behavioral studies of bargaining deception, meanwhile,... To read the complete article, login or sign-up using the form below.

 
 

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