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The Art of Balancing Fear and Trust in Dealmaking

As a corporate lawyer, I spend a large part of my time writing and reviewing contracts and advising clients on opportunities, risks and on their legal rights, responsibilities, and obligations related to their business dealings. However, what I often find most fascinating are the emotions that impact business deals and the resulting group dynamics that often go unnoticed by the participants. While most participants consciously focus on price, timing, problems and other terms, their actions and decisions are often driven by emotion — fear, anger, expectation, hope, disappointment, and so on.

Two emotions that commonly impact business deals are fear and trust. Frankly, I don’t know which is scarier, because either emotion can make people act irrationally.

Acting out of fear, a participant is likely to overreact to a perceived threat in the negotiation or overanalyze an agreement to the point of losing out on a potentially good deal. On the other hand, participants who are overly trusting may enter into an agreement without carefully thinking it through and later regret their decision.

A healthy balance of fear and trust leads to better outcomes.

Using Fear to Your Advantage

A business deal, such as a merger or acquisition, is a major decision, and it needs to be approached with some degree of fear or, perhaps more precisely, vigilance. The deal will change your life in some way, the future is uncertain, and by the very nature of negotiation, you will lose something (at a minimum you will exchange an asset for more liquid funds or vice versa). However, a reasonable amount of fear will healthily motivate action. It can sharpen both your focus and critical thinking to identify issues that need to be addressed.

Problems arise when fear results in tunnel vision and triggers emotional reactions that eclipse rational thought. As I point out in a previous post, “Fight, Flight, or Freeze: Are Those the Only Options?,” as part of our body’s fear response, the brain’s amygdala triggers a release of stress hormones, including adrenaline and cortisol, which can inhibit complex decision-making and memory, as well as our ability to communicate effectively — the very qualities you want to have in full functional mode when looking at an important business decision. When confronted by fear, we tend to see issues in black and white and may be unable to grasp the big picture and nuance in a situation. For example, in a business deal, we may focus almost exclusively on a single issue (e.g., a closing date) that presses one of our buttons, while losing sight of other issues that have a potentially greater impact (positive or negative).

In short, consider using fear as an important signal — the canary in the mine — that something may not be right, but then shifting from emotional response to rational thought by analyzing whatever triggered your initial “gut” or “primitive” reaction.

Exploring Trust Issues

In business, trust is a currency. As Stephen Covey points out in his book The Speed of Trust, trust reduces friction in business, increasing speed while reducing costs. Covey uses the analogy of airport security after 9/11 to illustrate his point. After the terrorist attacks on the World Trade Center in Lower Manhattan, trust at airports in the U.S. was at an all-time low. As a result, increased security at checkpoints resulted in longer waits and higher costs. I see the same pattern in business deals. When I help clients who have a well-established, trusting relationship navigate a business transaction, the deal proceeds much faster and at a lower cost than do transactions between individuals who barely know or care to know one another.

While I would never advocate entering a business deal with blind trust, understanding trust and the lack of trust can give us a healthier perspective and perhaps even prevent instances in which trust issues derail what otherwise would be a good deal for everyone.

Understanding the Decision to Trust

Robert F. Hurley’s 2006 article entitled “The Decision to Trust,” published in the Harvard Business Review is an excellent study on trust in business. Hurley, a professor of Organizational Behavior at Fordham University’s Gabelli School of Business, points out that trust is not merely an emotional reaction but is a product of a decision-making process; people consciously choose whether to trust someone. Hurley developed a model “to predict whether an individual will choose to trust or distrust another in a given situation.”

Hurley’s model identifies ten factors that influence the decision to trust someone. Hurley breaks these factors into two groups: three decision-maker factors that apply to the person who is deciding whether to trust someone and seven situational factors.

The three decision-maker factors are these:

  • Risk tolerance: People with a high-risk tolerance are more trusting.
  • Level of adjustment: Well-adjusted people, who are comfortable in their own skin and have a positive worldview, are more trusting.
  • Relative power: A person who has the means to compel right behavior in another is more likely to trust that person; for example, business owners can generally trust their employees, because if the employee fails to perform as expected, the owner can fire that person.

The remaining seven factors are situational:

  • Security: Our trust level varies depending on how much we have to lose (how secure we feel).
  • Number of similarities: We tend to trust people who are like us.
  • Alignment of interests: Trust is reasonable among people who share a common interest in the outcome.
  • Benevolent concern: We generally consider people who have demonstrated a concern for our well-being more trustworthy.
  • Capability: Competence breeds trust.
  • Predictability and integrity: We trust people more when we can reasonably predict their behavior; for example, people who have a track record of keeping their promises.
  • Level of communication: Transparency creates trust, while lack of transparency increases suspicion.

While Hurley’s article focuses on building trust among an organization’s leadership and its employees, his insights are applicable in the world of business mergers and acquisitions, as well.

Contributing to a Shared Trust Account

Remember that trust is a currency. When two parties begin a negotiation, they have a shared trust account that contains a small amount of this currency. (Unless we have reason to distrust a person, we generally trust most people initially.) As both parties proceed in the negotiation, they contribute or withdraw from that shared trust account.

A good approach in negotiation is to keep an eye on the “balance” in the shared trust account and conduct yourself in a way that contributes to the account while monitoring other factors that contribute or withdraw from that account. Review Hurley’s situational trust factors (above) to discover ways to improve overall levels of trust with the business group. For example, you may be able to point out how your interests align, work toward improving transparency, or simply ask questions to root out the source of the other party’s apparent distrust or deal reticence.

If you feel uneasy during a negotiation, examine Hurley’s three decision-maker factors (above) to determine the degree of influence they have over your decision of whether and to what degree you trust the other party. Some of your distrust may be rooted in your own predispositions and self-reflecting on these could be valuable.

What is most important is that you realize that negotiation is about much more than price and terms. Ideally, decisions are mostly rational, but in the real world, they are often driven and influenced by emotion. Approaching business deals with emotional competency results in far better outcomes that save both time and money.

Disclaimer: The information in this blog post is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Stephen Dietrich, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

About the Author: Stephen Dietrich is an attorney and author who has a passionate interest in the human side of business. His distinctive combination of legal and business knowledge, human insight, and dedication to clients makes him uniquely qualified to help corporate leaders and other C-level executives navigate high-value mergers and acquisitions, restructure transactions, and manage day-to-day operations. Through this blog, Stephen shares his extensive experience and unique personal and professional insights in the hope of stirring thought and dialogue that leads to ever deepening insights and understanding. For more information, please visit

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