Gina Rinehart’s pitch for Fairfax board: Why it’s going wrong
Wednesday, May 16, 2012/
The effort by Australia’s richest businesswoman, Gina Rinehart, to break into the boardroom of Fairfax Media, is a textbook study in how not to conduct a negotiation, experts told LeadingCompany today.
Objectively, Rinehart has an excellent case in pressing for a board position. She bought shares in Fairfax at a time when other key investors were bailing out and the share price struggling. Rinehart is now the single biggest shareholder, with around 14%. Her interests are strongly aligned, in principle, with those of other shareholders.
She has proved to be more than an heiress to the fortune of her father, Lang Hancock, and is now lauded as a successful businesswoman in her own right, who has multiplied her inheritance many times.
In addition, at a time when directors are under pressure to improve the gender balance on boards, Rinehart simply has her gender on her side.
So why hasn’t the Fairfax chair, Roger Corbett, jumped at the opportunity to harness Rinehart’s considerable skills?
Every step Rinehart has taken has weakened her case for a board seat.
Her first bungle was making her tilt for the directorship public, according to Mara Olekalns, professor of management (negotiation), at Melbourne Business School. “Making a public statement once you have reached an agreement is a good idea, because it locks both people into it, but making a public statement beforehand just backs the other person into a corner,” Olekalns says.
Rinehart’s first move should have been an informal communications process, says Yunxia Zhu, senior lecturer in strategy and business communications at the UQ Business School. “This is a process driven negotiation,” she says. “You need to prepare for a long time, not rush for an outcome straight away.”
Rinehart’s current pitch – for two board seats – might be a psychological strategy, Olekalns says.
“Once you have asked someone for something and they have said no, it creates a little tension in the relationship,” she explains. “So the next time you ask, they want to say yes.”
However, Rinehart reportedly outlined the strategy not to the chair or CEO of Fairfax, but to another significant shareholder, Simon Marais, of Allan Gray.
The public have a stake in the future of any media company, and are a stakeholder in the current negotiations, Olekalns says. Rinehart’s public pitch may be an attempt to win community support for her idea, and pressure the board into acceptance to please readers.
However, Rinehart’s very public battle with her own children over control of a multi-million dollar trust that belongs to them is a complicating factor.
“People often forget about the social capital dimension that is more important to negotiations than skills and experience,” she says. “It is a newish idea emerging about the reputation effects of you trustworthiness, likeability and confidence about your behaviour.”
“For that to work you need to be perceived positively by the public and have a good reputation. The public family brawling is tarnishing her reputation. The board would worry about the spill over effect.”
Olekalns, who has specifically studied women’s negotiations skills, says Rinehart is not falling into any female-specific traps, such as undervaluing their work and setting too low a target.
However, social capital is more easily eroded for women, who can be perceived negatively for negotiating at all, adding to the complexity of Rinehart’s task.
“If I bring ‘negative social capital’, there is the issue of guilt by association,” Olekalns says. “People might ask, if this the kind of person the board appoints, what does it say about them?”
Rinehart’s attempts to invoke her status as wealthy and successful are more likely to be held against her because she is a woman, unfairly.
Can the situation be redeemed? Olekalns says Rinehart’s best course would be to put a halt to her bid for a time, take it out of the public arena and start again. Key to her success will be her ability to portray the change of mind she requires from the Fairfax board and management as palatable.
Once Rinehart judges the time is right to have another go, Zhu suggests several clear steps.
Step one: Communications
The focus on a process of informal communications is to identify the interests of the other party, and where the problems might lie.
“Fairfax is a media company and a big business, so where are your strengths, the alignment of your interests. It is done through repeated dialogue, not just with one person, but with the CEO and the board members,” Zhu says.
Step two: Personal clarity
Write down all the discoveries in a document – as a mind map or in columns – to provide clarity of all the issues: the interests of all the stakeholders, the strengths and potential pitfalls of the deal. This might trigger further informal communications.
“It is important to do this before you say anything,” Zhu says. “If you say anything that is outside their interests it can throw out the whole process. They will probably still negotiate, but they will be less interested.”
Step three: Issue a formal proposal
This is the basis for formal, private negotiations to begin.
Step four: Follow up the proposal
Once formalised, conflicts of interest might emerge, as is the case with Rinehart’s media profile.
“These are very sensitive areas she needs to work on,” Zhu says. “In the newspaper, when her name appears, how can readers have an unbiased view of the paper. If I was the CEO, I would ask this question. She need to think reflectively, what has happened in the past, and what impact would it bring to the news. This is a big challenge of the reader. She needs to provide something convincing about how potential bias and that perception of it can be managed.”
Zhu believes such issues can be managed, and Rinehart can also leverage her advantages.
“Being a woman is an advantage in this situation, but the question is how to leverage that in a complex situation. For any complex negotiation, people should be prepared for this process and conflict. If it turns out you didn’t define the issues properly at the start, you have to go back to the issues stage and adapt your proposal.”
Both experts agree that talking to investors and other stakeholders is an important part of the negotiation, if conducted in private.
Zhu says: “Lobbying can complement this process. You are the person to decide what strategy you use but if you make it too political, it can become driven by emotion.”