I wanted to hear the CEO’s side of the story.  Our conversations were revealing:  after walking the CEO through John’s actual obligations under the contract, the CEO recognized that John had not actually breached the contract.  He also acknowledged that he and his senior management team had been intimately and enthusiastically involved in selecting the VP.   But the CEO felt that because the hire had not ”worked-out,” that John should bear “some” responsibility for the failure.  The problem was that to the CEO, “some” responsibility meant non-payment of all of John’s invoices.  John’s willingness to help find a replacement for the VP at only his cost would not be sufficient.  The CEO felt he no longer could have confidence in John and that total non-payment was the appropriate remedy.

The obvious answer was to sue Zeta for breach of contract.  But I knew the company could make any proceeding a protracted one and that John’s professional reputation would be in the crosshairs.  With access (however painful) to greater resources, Zeta also made clear it would use the legal process to “grind” my friend into submission and that the smart move by John would be simply to walk away.

Leverage to do the right thing would have to come from a different source.  I thought some form of reputational risk might be the key.  Zeta’s business model was to supplant a critical function of its clients’ business—the timely and accurate delivery of client products to their customers. Successful handoff to Zeta required a seamless interfacing with its clients’ operations and a deep understanding of their’ methods of doing business—from perfect integration of computer systems, to intimate knowledge of its clients’ products and SKUs, to determining necessary levels of inventory at each fulfillment center, to positive interaction with customer complaints and concerns.  All this took time to learn and was not easily transferrable.  Zeta, in a very real sense, had to become the trusted partner of its clients. And as trust was proven, many clients planned eventually to downsize their parallel functions, making them even more dependent on Zeta.

All this meant that Zeta could not afford to be seen in the market as struggling financially.  If word, even just rumors, were to get out that vendors, suppliers and contractors like John were not paid because the company was struggling financially, business would be severely affected.  The impact of Zeta’s declining performance on their customers’ experience would be too much for Zeta’s clients to bear; new potential clients would be unwilling to begin the long process of integrating their systems with Zeta; and existing customers would have to make preparations to mitigate such risk.

The CEO had personal reputational risk as well.  My research revealed that the CEO was actively involved in a local organization and that his status within this organization was very important to him personally and professionally.  Indeed, his membership had proven to be the source of most of the CEO’s new business contacts and referrals.

The CEO came to understand that John could pretty easily and inexpensively make his plight public and that John had enough information about others to whom payment was being denied to make the case that the problems with Zeta were systemic.

To clinch payment of John’s invoice, however, the private equity partner controlling the company’s purse strings also would have to be convinced.  My chance to do so came in a telephone conference with the CEO, the private equity partner and the head of HR.  In discussing the merits and fairness of paying John, I noted (truthfully) that John had undertaken the sales VP placement at a significant discount to his normal billing in a desire to help Zeta in its turn-around efforts and that he only was asking that he be paid for having fully performed his obligations under the contract.  The CEO angrily shouted that my friend had signed a contract, that he (the CEO) did not want to hear how the contract was a bargain, and that my client would just have to live by the contract.

I calmly noted that I fully agreed with the correctness and the morality of his statement.  And then noted that John was asking only that his Zeta live by its contract with him.

There was a very long silence on the other end of the line.  We immediately wrapped the call up and the next day, the private equity partner called me to tell me that they would pay the invoice, which they did.

Negotiating collaboratively enables each party to understand not only the other side’s position but also to better comprehend the full ramification of their own positions—especially those taken reflexively in response to immediate concerns.