"What other options do we have?" Alan Carroll asked his team. He stood at a whiteboard that was covered with notes. The general counsel for Mariana Ash, a Los Angeles-based cosmetics company, Carroll was leading a brainstorming session ahead of a scheduled negotiation with Gerald Palacios, the governor of the Northern Mariana Islands.
A week earlier, in an effort to close his budget deficit, Palacios had proposed a substantial tax increase on ash extracted from the islands, which is used in facial masks and other beauty products. The threshold was so high that the increase would apply only to Mariana Ash, which had been doing business in the U.S. territory for 15 years.
(Editor's Note: This fictionalized case study will appear in a forthcoming issue of Harvard Business Review, along with commentary from experts and readers. If you'd like your comment to be considered for publication, please be sure to include your full name, company or university affiliation, and email address.)
"We've talked about just paying the tax and negotiating based on fairness. But we could also reduce the amount of ash we're extracting so that we're not subject to the tax," Gabriella said. She was a fellow in-house counsel and one of Alan's sharpest team members.
"Rachel's not going to want to cut down production," said Tom, another one of the lawyers. "She's focused on growing, not shrinking."
Rachel Wisotzky was the CEO of Mariana Ash, which had been founded by her father. She had taken the reins when he retired, in 2005. Since then the company's revenues had tripled, and it was now a leader in the natural luxury cosmetics industry.
Bennett, an operations manager, spoke up from the back of the room. "What if we moved to another island? We've done the research, and we know there are plenty of places where we could extract the same level of ash, probably at the same cost."
Alan wrote the idea on the board. He knew that if he wanted people to keep offering suggestions, it was best not to react even if he didn't agree with an idea. But Gabriella responded.
"That would require building an operation from the ground up — not to mention changing our name," she said. Alan shot her a look. She caught his eye and added, "But, as Alan said, nothing is outside the realm of possibility at this point."
"That's right. Let's capture all the ideas," Alan said. "There's another negotiating tactic we haven't talked about in detail. We could show up at the table with a strong argument about all the good we've brought the Islands — the jobs, the fair wages, the community service projects."
"Negotiation would be more appealing if we were dealing with a more reasonable government," Gabriella said. Everyone nodded. This wasn't the first time the governor had raised the tax on extractors; in fact, there had been four increases in the past decade. And it wasn't clear where the extra revenue was going. The territory was still struggling to maintain roads and meet other basic needs. The new proposal called for a 400% increase, and, unfortunately for Mariana, it seemed poised to pass.
"This might be one of those times we need to play hardball," Gabriella continued. "Threaten to shut down and see what they do." This had been suggested in past negotiations, but Alan had always managed to persuade the others that a cooperative stance was better than a confrontational one.
"I agree," Tom said. "We're in a good position. Palacios doesn't want us to shut down. He can't afford to lose jobs, especially in an election year. He'll look terrible if he runs us out."
Alan sat down at the table. It had been a long meeting. "I think that depends on how the press covers this," he said. "We don't want to look like another mainland company that screwed the Northern Marianas. All the media outlets are going to be following the issue closely. We need to come out looking good, not just winning."
Not a Bluff
The next morning Alan got to the office early. He wanted to review a report on the company's economic contributions to the Islands over the past decade. On his way to the printer, he saw that Rachel's office door was open and peeked in.
Rachel started at seeing him. "Oh, brother, you scared me," she exclaimed. "I thought I was the only one in." She spoke quickly, with a bit of a southern lilt — a holdover from her childhood in Texas. She had a reputation for taking risks and getting what she wanted, and she'd achieved more growth at Mariana than anyone had expected. Alan respected her, but he also feared her a bit; when she had a strong opinion, it was tough to push back. The company's previous CFO had been good at tempering her aggressive approach, but he'd recently left for a job on the East Coast and hadn't yet been replaced. There was talk around Mariana about who would step up and keep Rachel in check now that he was gone.
"You prepping for the Palacios meeting?" Rachel asked. "Is he going to keep it?" The governor liked to demonstrate his power by cancelling appointments.
"We're set for Tuesday."
"Actually, I don't care if he does reschedule," Rachel said. "We don't need to sit down at a table with him. I was thinking about it last night. We should threaten to shut down right away — show them that they're the ones against the wall, not us."
Alan nodded, trying to formulate the right response.
"They can't afford to lose us. Not now," Rachel added. "Not with the elections less than a year away. They need to look good. Besides, they went into that whole song and dance about working on behalf of the people, but are we sure the people are truly going to benefit from this? That the money will go toward improving the education system or building new roads, instead of just lining their pockets? We don't really know."
"True," Alan said slowly. "But 'Mariana' is in our name. All our branding is based on the purity and quality of the ash from these specific islands."
"Well, nothing is set in stone," Rachel said, getting up from behind her desk and walking around it. She often paced during meetings; people called her the Energizer Bunny. "And if we built this company once, we can do it again. I'm not one to shy away from a challenge."
Shutting down sounded ludicrous to Alan. Would they really just pick up the business and move it to Tonga? Rachel couldn't be serious. But she certainly looked it.
"I think we can negotiate this thing. We've got some good points on our side. We need to lay the groundwork for continued cooperation," he said.
"But if we give into this, what's to stop Palacios from doing the same thing again a few years down the road?" she asked. "He'll tax us out of business. Besides, you know as well as I do that this is going to be decided in the press, not in the negotiation room."
"That may not be ideal. We don't want to invite the land-rights protesters to get involved."
"We've been through that all before, and we survived," Rachel argued. "We know we have the appropriate rights."
"I'm just concerned about the shut-down option," Alan replied. "We can't be sure that Palacios won't call our bluff."
"It's not a bluff."
A Press Release
Alan put his briefcase down to search for his car keys and heard someone call his name. Roberta Simmons, the head of public relations, was running across the company parking lot.
"Don't ever run in heels," she said, out of breath as she got to his car. "It's excruciating. But I'm glad I caught you. Did you get my e-mail?"
Alan reached into his pocket for his Blackberry and found his keys.
"I wanted you to review this press release before you left. It's set to go." She handed him a piece of paper.
"But I didn't ask you for a draft release. We're not ready to make a statement. We're still preparing," Alan said.
"You-know-who asked me to write it," Roberta said, smiling. She explained that Rachel had stopped by her office earlier that afternoon and essentially dictated the release. "I'd assumed you had agreed on the messaging, but I'm guessing from the look on your face that that's not the case."
Alan's stomach lurched at the first line of the draft, which said that Mariana Ash would shut down the following week if the government didn't withdraw its tax proposal.
"She told me to get your sign-off before we send it out tomorrow morning," Roberta said.
"Tomorrow morning?" Alan asked.
Roberta nodded. "And you know I don't like to cross her if I can help it."
"None of us do," Alan said. He asked Roberta to hold off on the release. "I'll talk to Rachel tonight."
Gathering His Thoughts
After the kids were asleep, Alan went up to his third-floor office. He took the draft press release out of his briefcase and opened his e-mail to find the soft copy. Roberta had done a good job with it. After the first line, it sounded less threatening; it went on to say how dedicated the company was to the island community and that its executives had hoped for a less-drastic solution. Maybe he could save it with some editing.
His Blackberry rang, but he didn't recognize the number. Thinking it might be Rachel calling from someone else's phone, he picked up.
"Hey, Alan, it's Lorenzo." Alan immediately regretted taking the call. Lorenzo was a reporter for the Saipan Tribune. Alan had worked with him a lot over the years, and he liked him, but he knew that Lorenzo could be ruthless when it came to getting a story.
"I hear you're sitting on something. I'm wondering if we can see it first," Lorenzo said.
Alan was silent.
"So, what have you got?" Lorenzo prompted.
"We're really not ready to...I mean we're still analyzing the situation...taking a look at the numbers—"
Lorenzo cut him off. "Is that a 'no comment'?"
Alan tried to gather his thoughts. He knew what Rachel would say; he almost told Lorenzo to call her instead. But as general counsel, he was responsible for making sure that Rachel understood the risks of taking such a hard stance. He wanted more time to figure out their chances of calmly negotiating an agreement.
"Listen, Alan, let me level with you," Lorenzo said. "The paper would gladly lead tomorrow with whatever you all have to say. But if you have no comment, we're going to go with the governor's statement about companies paying their fair share." Lorenzo added that he knew that wasn't the full story, but the paper didn't have much else to go on.
Alan looked at the release on his screen.
"I don't want this decided in the press," he said.
"Where else would it be decided?" Lorenzo asked. "Palacios is ready to talk. You should be, too."
Question: Should Alan give Lorenzo the press release?
Please remember to include your full name, company or university affiliation, and email address.