Friday, March 01, 2024

Thoughts #33: Negotiating Power

Events in 2023 have prompted some initial thoughts about negotiation and how it affects the situations, our lives and the world. Life is indeed a game of chess, and we need good strategies and there is also timing, environment and our fellow community to help. Or in Chinese, 天时,地力,人和.

The Russia-Ukraine war comes to mind. It was reckless to start the war and reasons back then are no longer relevant today. This is very much like life. The person we were just a few years ago, is actually not us today. Events that has happened just last year may no longer be relevant today. The Russia-Ukraine situation has evolved so much that everything can be now at stake. The following factors provide worrisome boost to a bleak future which may further escalate:

  • If Trump becomes President, US may stop its aid to Ukraine and Russia can win. This was unthinkable just a year ago.
  • The second war in Israel is putting further pressure on US and its allies on resources and political will to fight internal battles.
  • China, its allies and North Korea are run by dictators and can move much faster than the US can.
To not escalate this further, US and Ukraine may need to go to the negotiating table faster and from a position of weakness. Without this, there is a real risk things unravel for the worse and pave the way for WWIII. 

In a similar life situations, one must always understand the dynamics so as to move advantageously.

Position of strengths

  • The situation does not warrant any third party negotiator
  • Options to move in different directions in position of strength (strong offensive power, strong internal defense, strong bargaining chip or chips)
Position of weakness
  • The situation requires a strong third party negotiator especially at a critical juncture
  • Optionality is restricted, there are no catalysts on the horizon (e.g. Biden continues to be President)
  • Nuclear options (literally pressing nuclear button, or more soft approaches like media influence or use of international laws against the enemy)
Shareholders have some negotiating power. Especially in recent years, activists have turned the tables against companies and their management. With just a few percent stake, they can:
  • Demand changes in the board of directors, which can decide the fate of the company's C-suite
  • Use media to drum up support for their cause, rally other shareholders to vote with them
  • Use lawsuits against companies who may do things can give activists the leeway to sue
  • Make public strategic campaigns and propose that management execute them to generate higher returns for shareholders
These are strong tactics that have good track record of successes. Sadly, as a minority retail shareholder, we are always in a position of weakness. We have nothing to fight against management. We can go AGM and make noise but it will not change anything. As such we must always remember, there is only one option which is to sell when things are not looking good. Yet, we tend to hold on to losses for too long.

Therefore it is very important to always look for good businesses and good compounders. Check on the quality of management and simply avoid situations that stack the odds even more against us.

Huat Ah!

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