Red Lines

Published: Sep 22 , 2012
Author: Stephen White

Within the last few days the Obama administration have made it clear that they consider the use of chemical weapons by the Syrian Assad regime on their own civilians to be a red line. What they mean is that if the Syrian government uses chemical weapons, they will have crossed the red line, diplomacy will have come to an end, and military action will follow. Similarly, in neighbouring Israel, Benjamin Netanyahu has chided the US administration for not setting a red line on the subject of the Iranian development of nuclear weapons; implying that as a result there is no real threat which might curb Iran's ambitions. Peculiarly, Hilary Clinton said last week that the US does not have a red line diplomatic policy; shortly after that the red line statement about Syria and chemical weapons was issued. Doh!

Red lines are nothing new. In August 1939 the UK government signed a pact with the Polish government and made it clear to the German government that their invasion of Poland would be a red line and would trigger a state of war; the German invasion of Poland on September 1st 1939 signalled the start of World War 2.

In these examples red lines relate to the boundary of diplomacy and sanction behaviour. But they are also a useful feature of negotiating strategy. Don't confuse them with 'bottom lines', or 'must avoid' positions, which describe walk away positions. Normally a negotiator will not reveal his bottom line position to the counterparty because  revelation can change the perception of the balance of power. If buyers know that the bottom line for a seller is a discount of x%, and no more, then their power to get that discount is increased. Similarly, if they know that the seller 'must avoid' losing the order, their position is strengthened.

But there are advantages to revealing red lines. Negotiating red lines relate to future actions by one or other party which will destroy the basis of a negotiated settlement. In Merger and Aquisition negotiations, due diligence work is necessary before a deal is completed to ensure that claims made by either party are substantiated; during the deal-making the parties agree which issues will be examined and where the red lines are, beyond which the deal is off. In the popular TV programme Dragons Den (http://www.bbc.co.uk/programmes/b006vq92 ) where budding entrepreneurs pitch their business ideas to millionaires willing to invest their own cash, many of the deals shown on screen never happen because the claims made by the entrepreneur in their pitch are found to be defective when due diligence is conducted. The most common failures are claims of sales orders which turn out to be only letters of interest, and rock-solid patents which actually don't exist.

I recently advertised a car online - a 7 year old Kia with an exceptionally low mileage. A dealer enquired, and naturally wanted to know lots of details, including the exterior condition. I told him the car had the 'normal marks and scuffs' a 7 year old car would have. He made me an offer, subject to seeing the car. But he was 100 miles away, and neither of us could face a potential argument about the definition of 'normal' after a 100 mile journey. 'OK' he said, 'my red line is this. If it needs the paint shop, the price stands. If it needs the body shop, the deal is off'.

As it happens, the car had plenty of lines (none of them red) but no dents, so the deal was done.

Stephen White


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