MARKET LIFE: Why Companies Don’t Go Nuclear

By Dr. Don Capener

As World War II was winding down in Europe, President Harry Truman had a difficult decision to make: would the nuclear option ultimately equal Japan’s surrender?

While a visiting professor at Waseda University in Tokyo in 2006-2007, I met many older people willing to express what they considered the real fear of the Japanese in 1945—Russia occupying Japan and the probable destruction of traditional Japanese culture in the process. Scholarly debate persists today about the United States’ use of atomic weapons to bring an end to World War II. In fact, several advisors to Truman argued that Japan would fight to the last man with their bushido (samurai) spirit—bomb or no bomb.

An Option Without Options

In business, we use the phrase “nuclear option” when no alternative seems agreeable, despite rigorous negotiations. This option is typically deployed when one party decides it is worth destroying any possibility of a future relationship with the other party. With the nuclear option, there is always the possibility of mutual destruction.

Companies possessing the market muscle to pull off the nuclear option with their key competitor have a powerful tool, but I would argue that, with the possibility of mutual destruction, should never be used as a threat. Let’s look back at history again, this time in August of 1945.

Revisionists assert that by the end of that summer, Japan’s situation had grown hopeless, the nation destitute and starving. The Emperor was already discussing surrender. Decoded Japanese diplomatic messages informed President Truman that within a few more months, Japan would be ready to formally surrender without use of the A-bomb. Revisionists believe that a Japanese surrender could have been negotiated in fairly short order without the destruction of Hiroshima and Nagasaki.

Nuclear vs. BATNA

Perhaps you’ve experienced a certain degree of desperation or even hopelessness in past business negotiations when you don’t feel you have any leverage. Your BATNA, or best alternative to a negotiated alternative, is a powerful tool in any situation requiring compromise. It is always preferable to the nuclear option.

With a BATNA, one party walks away when the terms of a deal don’t work for them, or for their organization. Perhaps the terms of a purchase or sale, such as price, become too steep. So, how can you best prepare for a negotiation?

My recommendation? Prepare a term sheet that includes a range of alternatives from ideal to workable. Practice with educated guesses about where your adversary might begin negotiations and rank what you see as their top priorities or criteria. Meanwhile, don’t give away the ranking of your own priorities. Keep your advantages and priorities to yourself. Providing a concession to the other side when it comes to an item they consider crucial will be key to obtaining the best negotiated outcome.

Doing everything possible to permanently damage your adversary during or after a negotiation—thereby cutting off any future possibility of reconciliation—isn’t your best option. Neither is the nuclear option as a preemptive attack or aggressiveness that diminishes you or your competitor’s product. Instead, do everything possible to resort to your BATNA, not the A-bomb. When a reasonable compromise seems unreachable, don’t burn bridges or relationships you could find important in future.

MARKET LIFE is a recurring feature in WAVE, a dedicated news source at Jacksonville University. Email commentary and questions about market and money matters to Dr. Don Capener, Dean of the Davis College of Business at Jacksonville University, at dcapene@ju.edu. Or read the latest from Dean Capener’s desk on LinkedIn.