Just because you work in an investment banking advisory position, doesn’t mean you’re a rain-maker. Clawing your way up the career ladder is one thing, but are you really a stellar deal-maker who can blow the competition away?
If you’re doubting your abilities, Horacio Falcao may be a good man to speak to. He’s affiliate professor of decision sciences at INSEAD and author of Value Negotiation: How to Get the Win-Win Right. In short, he’s worked with investment banks like JPMorgan, SocGen and Macquarie among others to help train their employees on negotiation techniques.
Falcao isn’t entirely focused on the financial sector, but we spoke to him to ascertain how investment bankers can go from merely good, to great deal-makers.
What are the three main traits in good investment banking deal-makers?
My experience and observations – having worked with hundreds, if not thousands, of investment bankers in the last decade – lead me to suggest that the three main traits in good investment banking deal-makers are:
Proactive learning – proactive learning is the joint ability of taking the initiative to ask genuine learning questions (as opposed to counter-arguments disguised as questions: “But don’t you think that my number is better than yours?") and knowing also when to go silent and listen/learn attentively.
Focus on value, not price – while price is of course important, it means nothing if the value is not right. If the price of an asset is too high, instead of just thinking about bringing the price down, think in terms of different payment terms, how to exclude some liabilities or risks, etc.
Successfully manage all the relationships involved, including the decision to walk away – Many investment bankers find their clients' expectations to be too unrealistic and are therefore left with a very difficult mandate. When facing the other side, parties may treat each other like enemies, which reduces the potential to learn and develop good solutions. And finally, getting too involved in making the deal happen within complex interactions may hinder the ability to understand when is the right time to walk away.
Are people in investment banking often lacking these traits? Can they be taught?
The number of senior bankers asking me to help their teams to develop such skills shows that they are not completely pervasive, even at a senior level. Many people grow into their careers negotiating in a certain way and recognise that they may need to change, but don't really know how to.
My experience is that these skills can be taught, but not just through a workshop. What is needed is a combination of workshop learning and coaching to first understand and then practice the skill with the aim of fine tuning it until it becomes second nature.
Where do most deals fall down?
Most deals fall down on relationship and communication issues. Misunderstandings, poor attention to relationship management, perceptions and attributions of bad intent, and high emotions generated by small mistakes are usually some common elements that kill deals. In objective analysis, it emerges that many deals that failed did not fail for lack of value, but rather because of poor communication processes and relationship management.
What advice could you offer to someone working in a mid-ranking advisory position, who wants to take the step up?
Working hard and showing commitment is and will always be important. The challenge is to walk the thin line of doing that while learning, growing and respecting yourself. Negotiation is a great skill to invest in because it helps you to learn how to best interact with others around you, which is what an advisory person is constantly doing. Negotiation is also about managing potential conflicts of interests and coming up with good solutions. Therefore, negotiation is one path to help you manage the seemingly conflicting priorities of dedication to your current role with learning, growing and respecting yourself in a way that makes sense to you, your company, your clients and finally your career.
How can investment bankers improve their negotiation and deal-closing skills?
Deal closing is a consequence of good negotiation. If you negotiate well, you are more likely to close a deal. Therefore you need to develop awareness and skills for strengthening relationships and the communication process; develop a solid understanding of what is value and come up with flexible structures that can make value possible; claim value not based on power or coercion, but rather for legitimate reasons; and, finally, being able to recognise when to stop developing offers that are worse than walking away.
Investment bankers are notorious for working long hours, being on call whenever the client requires it. Is this really necessary? Or can they be more effective more efficiently?
It is hard for me to talk specifically about the long hours and being on call as I am not a banker myself. However, as a former corporate lawyer and a consultant, I used to and still do make a point of negotiating my own relationship and terms with my client.
I try to understand how the client likes to operate and then develop working systems that will enhance our ability to work together well, including their working preferences and mine. This is a moment when, for example, I share my preferences for not working the long later hours unless extremely necessary and we try to come up with examples of what these necessary conditions would be. I also just establish some ground rules or boundaries such as no emails on Sundays, unless I am already at work. Although in some cases or with some clients this may be harder to do, my experience is that at the end of the day, pretty much every one of them agrees.
Usually what persuades my clients is a combination of: 1. There is a good reason behind my boundary (usually increased productivity). 2. They see that you are very confident on that boundary and 3. They have the confidence or trust in you to deliver the final result without having to invade your boundaries.