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Hi, and welcome to the Safety Guru. Today, I’m very excited to have with me Keld Jensen, and he is a master negotiator. He’s on a long-term mission to improve negotiations. He’s author of 26 books. He’s an associate professor, definitely an expert in negotiations. We’re going to have a really interesting conversation on negotiations and safety. Keld, why don’t you introduce yourself in terms of how you got into negotiations and some of your expertise in this space?

Eric, first and foremost, thank you for having me. I think it’s going to be a great topic, not a topic that is being discussed that often. That’s interesting. Well, if we jump back very quickly. Originally, I was in the technology industry in Scandinavia. I was heading a public company in Stockholm. And what happened was a negotiation expert we hired came to help us out in the organization with negotiation. And in, to be exact, 2 hours, he moved me from being constantly incompetent in the world of negotiation to be constantly incompetent, which is a terrible wake-up call because you suddenly realize that you’re not good at something that you thought you were good at. So short version, Eric, what happened was that this was in 1998, I realized that that’s not only me. That happens to a lot of executives who They think they’re good at negotiating, but in reality, they’re not. And it’s not because they don’t want to. It’s not because they don’t focus on it. They just think that they have done it so many times. Automatic, they’re good at it. And I was suffering from the same understanding. So, in Anyway, I jumped ship.

I left the technology and then moved into advisory consulting on helping organizations and governments around the world on improving negotiation. So, I don’t call it a job, Eric. I call it a mission because it’s a call for me to help How people understand the importance of how we collaborate, how we negotiate, and how we work together. 

One thing when we first connected that was really apparent is that safety is often talked about as number one value, the most important thing here, but there’s a very strong disconnect when it comes to negotiations around safety. One of the things that really was my aha is when you start talking about the top themes that are in negotiation. Share a little bit about that background.

Yes, exactly. I’m working closely together with an international non-profit organization, World Commerce & Contracting, with 80,000 members globally. And their members are within contracting, commercial procurement, legal, what have you. And every year, they do a study where they are out asking their members on what the most negotiated variable is and what is the most important variable. And what is interesting is that what is considered the most negotiated variable is, first and foremost, very different to the most important ones. You would expect that those be very similar, those two lists, but they’re actually very different. And the most important ones or the most negotiated ones are often ones that create no value whatsoever. It’s not a tangible one. It’s liabilities, its limitations, it’s fines and warranties and stuff like that. Something that is basically more or less all down to the legal professionals to negotiate, something they can settle and hackle back and so forth. In my world, the reason organizations are negotiating is to create and distribute value. That’s basically the only reason two companies have ever negotiated for anything. So, to me, it’s always fun to see this most negotiated variable list because most of it is not creating any value whatsoever.

And the most important variables to negotiate, as I just said, are then very different to the negotiated one. So, the most important and the most negotiated are very different. And I just love when you brought up safety as a topic, because I think I made fun of it on our prep call, Erik, because when I walk into a major corporation’s HQ, in the reception, there’s always a poster on screen saying, Priorities in our organization is, Ta-da, safety. And then when you’re sitting in an actual negotiation, I rarely hear that word coming up. It’s not something that’s really being It’s negotiated. And one of the things, even though it is crucial and essential, we can all agree on that, is that it’s very hard to put a value on. When something becomes less tangible, what I call a subjective variable, we’re working with the concept of objective variables and subjective variables. Objective variables is something we can calculate. We can put in a spreadsheet, delivery time, warehousing, speeding up the terms of payment, blah, blah, something we can calculate. We can put some numbers on it. But safety, ESG, terms like that is really hard to quantify.

When it becomes hard to quantify, there’s a tendency that the priority of those variables is not that high because a lot of negotiation The creators don’t really know what we should do. It becomes a weird… I make a difference between what I call traditional negotiation and hackling, and then becomes more a hackling than actually negotiation, creating a value.

I think that’s a real. That’s an interesting one because it’s almost never coming up, but it should be because we know in instances the catastrophic impact that safety not being built in can have. The easiest one to come up with is Deepwater Horizon, where there’s a lot of subcontractors that were involved. A lot of elements probably are not familiar with their contracts, but probably a lot of liability clauses put in. But how do you design safety in at the forefront? The other one that’s coming in is just recently in the press has been a lot of coverage around Boeing and the subcontracting relationship that they’ve had with spirit AeroSystems. And how do you build in safety there when it critically needs to be?

Exactly. I think one of the problems, I don’t have the answer to everything, Eric, but I think one of the problems I see when I participate as an advisor with my clients, and I’m working, for instance, a lot in energy. And I see that the oil company, I’m not mentioning any names, but let’s just say an oil company. They are working with a subcontractor, and the legal professionals representing the oil company are doing whatever they can to push the responsibility, for instance, on safety onto the subcontractor. And when they’re successful doing that, they are thinking, hey, we are home free because the responsibility is now on the other side. What I don’t think they sometime understand is that if something goes bad, they are still responsible in the view of the population, right? Because we know the media. The media is not going for the subcontractor because obviously, very often, it’s a company nobody ever heard of, but they’re going for the big name because that’s the headline. So, from a legal point of view, the buyer might be right. But from a public relation point of view, they’re going to lose big time. And the cost of losing in the eye of the population and the media is, well, we’re talking millions and millions and millions of dollars.

It quickly. I think they sometimes completely forget that fact when they’re sitting negotiating with the subcontractor. It’s not just about pushing that responsibility to the other side but collaborate about how we actually make this one understood and agreeable.

I think that’s the key element, is how do you start building a relationship where safety is something that’s not legislated from a contractual term to push responsibility, but more how do we work together to create a framework work around safety? One thing that struck me from our initial conversation is from the work, the books you’ve done, you’ve talked about smartnerships. Tell me a little bit about smartnerships and some of the elements around qualifying counterparts and the other one I took note on was around relational contracting.

Yes. Well, what I’m basically saying, Eric, and this is slightly provoking, I know, but I basically claimed that we haven’t really changed the way we negotiate since 1776. I’m getting back to why, specifically, I’m mentioning that year. But I’m basically claiming that more or less, we are negotiating the same way today as we’ve done the last 200, 250 years. And that way, a lot of organizations are negotiating today is positional, zero-sum game. I win at your expense, or you win at my expense. So, if I want to save $100 on safety, you’re going to pay for that. And if you want to save $100 on safety, I have to pay for that. So, I can only make progress if you lose. Back to the oil company and their subcontractor, they’re negotiating back and forth about who should take on the cost. And one of them finally will win by the other one picking that cost up. That is not a very intelligent way to negotiate because nobody obviously just wants to pick up the bill of their own free will. So, they’ll be trying to do whatever they can to find that expense or reduce that cost somewhere else.

So, what we’re doing instead is we created back in the ’90s a concept called Smart We could also have called it partnership version 2.0. And the alternative to a positional negotiation is a collaborative negotiation. I’m not in favor of collaborative negotiation just because it sounds nice or be good to other people, but because it makes financial sense. Because what we’re doing in Smartnership is focusing a lot on quantifying variables, prioritizing variables, and identifying who got the lowest cost on a certain variable. For instance, just to give you an idea, if we were talking in terms of payment here, Eric, and instead of just hackling and going into a zero-sum game where I would perhaps have the buyer saying, well, I want a line of credit for 90 days. We would investigate, what is your cost of capital? What is my cost of capital? The One of the lowest costs of capital would pick up the financing part. Let’s say that you have an interest of 6%, I have an interest of 2%, the difference is 4%. That is what we call nicer economics, negotiation economics, the asymmetric value. Now, instead me just pushing you to do something, we will quantify and utilize those 4%.

So, for instance, if you had a high interest rate than me, I might say, well, you know what? I’ll be happy to cover the finance, but you have to reduce your price by 5%. By doing that, I could be saving you 1% and increasing my benefit by three. And we have more than 300 variables where we can actually put that model of economics on. It could be delivery time, warranty, safety, ESG, installation, services, education. The list goes on and on and on. But it requires transparency. It requires honesty. It’s nice words on a piece of paper, but in reality, it really requires real transparency and real honesty to sit down and discuss what is your actually cost, what is my actually cost. And then we have to understand, I’m willing to take on a certain cost if your benefit is higher and you’re willing to compensate for my cost. I don’t know whether that makes sense, but that’s basically the philosophy behind Its partnership in the agroeconomics.

But it could be, and obviously there’s labor law implications to consider, but it could be something saying the super major, the larger player, may have tools, capabilities, development programs that can help from a safety culture standpoint as an example, and that you may not be able to afford, or if you try to go get them, you’re going to go for the lowest cost option, which may not be the best one. How do we factor information sharing, if I’m hearing you correctly.

Yes, absolutely. Smartnership is very closely related to relational contracting. That is an up-and-coming thing. I see more and more huge global organizations that are figuring out that relational contracting and negotiating in smartness makes sense compared to the old school philosophy about winning at the expense of the counterpart. And just explaining 1776, by the way, the reason for that year is that was the year when the famous Scottish philosopher Adam Smith wrote the book The Wealth of Nations. And that is basically the Bible for the capitalistic system. And what he’s stating in that book is that you should only do what’s good for yourself in any trade relationship. You should basically be focusing on what’s good for me and not for the counterpart. That theory was actually shot down in the ’60s by the famous American Professor Dr. Nash, who won the Nobel Prize in economics, by coming up and say Adam Smith’s philosophy, from a mathematical point of view, is I’m absolutely wrong. You should do what’s good for yourself and the counterpart at the same time. That’s the only way that makes financial sense for everybody at the table when you are negotiating.

So that’s why I’m saying that the philosophy in the world of nations on how we should do trade is actually completely old and out of date.

But I think that also positionally changes you’re thinking around, how do I enter that negotiation when it comes to something like safety, where there is a joint benefit. It may be something where you need to take the lawyers out because lawyers will naturally go towards indemnities and things that is a gain for them in their area of expertise. But it’s co-creation of how we create the right environment. I remember seeing with one oil and gas player, I won’t name them, but they had created actually a very strong safety culture in a site with multiple contractors. They essentially came together and saying, we will create this environment. We will have a leadership program that we will invest in, where we’re going to agree to some joint norms on how we show up. We’re going to collaborate with each other. We’re going to give feedback between contractors even so that you may be improving somebody else’s safety, even if you’re a competitor, technically. It was a set of norms where they really invested at the front-end and not trying to get in a win-lose, but really trying to say, how do we create an environment where everybody wants to work at this job site?

 Absolutely. No, that absolutely makes sense. Because safety is not a win-lose thing, is it? Everybody can only lose if safety is not working. It makes absolutely sense what you mentioned right there.

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One of the things as well we talked about initially is the element of incentives in procurement organizations. A lot of our procurement organizations that I’ve seen or worked with, the chief procurement officer gets compensated based on how many millions of dollars that they’ve saved. In many cases, it’s funny money because the counterparties know exactly how much they need to come, so the price is inflated, and then they say, oh, I saved you a million dollars, but I was always going to settle at that price point, Pierre. Tell me a little bit about the role of incentives and how these plays into this type of negotiation.

Yes, no, you’re absolutely right. Now, first and foremost, I think we can all agree that humans are doing what we’re being measured on, right? So, if you, as a procurement officer, are being measured on reducing price, well, that’s what you do. And I have lots of clients and lots of students in our trainings who have come back to me and said, I completely get your philosophy about NEC economics and Smarter ship. I completely get your philosophy about approaching, collaboration, being transparent and sharing cost and benefits. However, I’m being measured on reducing price and only price. So, I can’t implement the tool that you are preaching because that’s not how I’m being measured. So, what I’m often saying here, Eric, is that negotiation is a executive strategy. It’s something that the top has to understand. And then they have to change the system how to measure success in the organization. And if you don’t do that, it’s a waste of time educated anybody, educated educating anybody in changing their view on how to negotiate, because the organization have to change their view on what is a successful negotiation. The fun part when you talk a change from zero sum into smartness, Eric, is that in smartness negotiation, The procurement officer might actually pay more for the service of the product than he or she did last year, but the total cost of ownership for his company may be way lower.

So, you have to measure on some completely different variables than just the price. And that makes sense when you and I sit here and talk about it, it makes sense in the laboratory, it makes sense in theory. But out in reality, as I just said, that requires that the organization completely is changing the mindset on how we want to measure and give a bonus to our employees. That’s not that easy.

It’s not easy, but it changes a lot of variables. One of the things that I see in the safety space from a contractual standpoint that causes a lot of issues can be even something as simple as to how I pay you. If I pay you, say, in construction, by the number of holes you dug, then it incents you to dig holes faster and potentially take shortcuts. In a lot of cases, what then the organization does is they transfer that incentive to their employees and say, you’re paid by the number of holes you dig. So, you dig faster, but you then take some shortcuts so you can get 20 holes done this day, as opposed to Maybe what’s reasonable is 15, 16, because now money is transferred to the employee. We’re not trying to create a disincentive for safety, but indirectly the terms are changing. But you could pay the same amount but structured in a different way. But you’re still driving productivity, but there are ways of doing it that have less impact. Too often I see these not even being contemplated in negotiations.

You’re absolutely right. What we all are preaching is that you shouldn’t do what we call a Salameh negotiation. Just negotiating, for instance, the number of holes. You have to negotiate everything as a package. Instead of just agreeing on that we should do 20 holes instead of 15, you should talk about the number of holes you’re supposed to be doing per hour. But at the same time include variables like safety and delivery and terms of the payment, everything. So, everything is being negotiated as a package. Because if you do this Salameh, then you would agree on 20 holes instead of 15. And then the next day, you would be negotiating safety issues that is not related to the 15 and 20 holes. And then you’re surprised two months later when you have an increased number of accidents, and nobody understands why. But that’s because everybody was measured on creating more holes and thereby potentially increasing the risk of safety going down the drain.

I think this is a very important topic. As you said, I have never seen somebody write about it. I’ve never seen somebody talk about some safety in negotiations. I think one of the things that I’ve tried to do with a lot of organizations is getting chief procurement officers, key people in the procurement organization, key people in the general counsel’s office, the lawyers, to go out in the field and actually understand how does safety show up? What’s the consequence? How are they impacted? Because too often they’re head office thousands and thousands of miles away from where the risk is, and they miss those connections. I think that’s a first step so that you then understand, how do I shift my negotiation?

I would compare safety today a little bit with ESG. ESG is a hot topic and something everybody talks about. But again, back to the negotiation table, it’s not really seriously being negotiated because you don’t know what to negotiate or how to negotiate it. Because it’s just a thing, it’s like a cloud up there in the sky that we know it’s something that is important and we should all talk about it, but how? How do we negotiate this thing? And things become so much easier to negotiate the second we can quantify. So, if there’s a cost or benefit associated to something, it becomes so much easier and suddenly important to negotiate. I think one of my recommendations, I know this is really hard, but one of my recommendations would actually try and quantify safety. What is the cost if things to go bad? And what is the investment that we have to take to avoid something going bad? Because if we can put those numbers in a spreadsheet, then everybody suddenly wakes up and say, oh, God, this is important, because the consequence is X. If we only invest this, we will blah, blah, blah, whatever.

I’m sure you got the point. So, the second we actually put it up there on the list of something that is tangible, things become easier to negotiate, and also everybody’s more aware of it.

One of the big challenges with it is the psychological distance you’ve got between the negotiation and an event happening. Even if we talk about Deepwater Horizon, we’re talking about contracts that were done years, years before, and it’s hard to see the connection between how I negotiated an outcome. If it did, we don’t know that for a fact. But it really becomes that event is low probability but high impact. If it does occur, and it’s a big balloon payment.

It was funny. I’ll just give you another example. I was sitting with a major construction company in the US in the last year, and I was sitting with the executive, and we were talking about actually some safety stuff. And there was a special tool, and I’m not going into details, that was supposed to be in every truck because that would just help safety in general. And the executive I talked to said, well, that tool is obviously in every truck because that’s a requirement. And then I was out on the building side, and I was asking some of the truck drivers, do you have that thing in your truck? And they said, no, no, because the cost is $17,000, and I will probably never use it. I’m being measured on my budget, so I just decided not to buy it. Again, I’m just getting inspired what you said, Eric. It’s really far from the executive floor out there to the building site. The executive was absolutely sure that every single truck had that piece of important equipment, but in reality, nobody really had it.

 Great topics. Phenomenal work that you in terms of negotiations. This is a topic that’s new, and I love that you were able to jump in and connect with a lot of these themes because it’s not a topic that’s talked about enough. I think you brought in some really good insights and ideas for executives, for leaders to really rethink about how do I shift thinking in the procurement organization? How do I shift thinking on the legal side in terms of negotiations? If I really want to put safety at the forefront and make sure that I’m building the right the right agreements, the right partnerships.

Sure. Absolutely. I think it’s essential.

If somebody wants to get in touch with you, what’s the best way to pick up your books or get in touch with you?

Yeah, I have My newest book is actually coming out August 27th, The Element of Negotiations, published by Wiley. It’s going to be everywhere where you buy your books, Amazon, Bands & Nobles, wherever you get it. It is basically 103 elements that is essential to be successful in negotiation based on more than 30 years of studies, looking at more than 30,000 negotiators, the way we basically just analyzed what is the typical things that the more successful negotiator is doing compared to the less successful. Besides that, you can go to YouTube and watch my channel. There’s a lot of free videos there about how we can inspire each other on becoming better at negotiation. And then you can visit our organization’s website, Smartnership.org, where there’s a lot of information as well.

Excellent. Well, thank you so much for joining me today and for exploring this really critical topic.

Thank you for having me.

Thank you for listening to The Safety Guru on C-suite Radio. Leave a legacy. Distinguish yourself from the past. Grow your success. Capture the hearts and minds of your teams. Elevate your safety. Like every successful athlete, top leaders continuously invest in their safety leadership with an expert coach to boost safety performance. Begin your journey at execsafetycoach.com. Come back in two weeks for the next episode with your host, Eric Michrowski. This podcast is powered by Propulo Consulting.