3. Double Agents
When their incentives are wrong enough and their control over the negotiation process is high, merely faulty agents can morph into double agents. Many buyers of real estate and of companies can wryly testify how standard financial arrangements can unwittingly produce this result. Consider the common practice of compensating the real estate agents or investment bankers on both sides with a percentage of the sale price. What tacit alignments do such arrangement create? Just like the seller and his agent, the buyer’s agent now benefits from a high-priced deal. Pity the hapless buyer, the sole player looking for a bargain.
Beyond faulty contracts, other factors can produce double agents. After a small business suffered a fire, for example, its owner fired an experienced consultant to negotiate damage claims with his insurance company. The consultant was promised a fixed fee for success, plus a sliding bonus based on the settlement amount. The consultant very quickly negotiated an adequate settlement, but the owner soon become disenchanted with the outcome. Why? Because he learned that his agent, after dealing for years with the same small set of insurance companies, had fallen into a pattern of rapid but relatively modest claims settlement. If he had bargained harder for his client, the consultant might have gained an incremental incentive fee buy would have risked retaliation from the insurance company. In effect, the business owner was a one-time bit player in a long-term game that powerfully aligned the interests of the insurance company with those of the consultant.
Here’s a more unusual instance of a double agent. New York Times columnist Nicholas Kristof was reporting from Iraq when he was summoned to a government ministry to account for an “outrageous” article he’s written detailing the Saddam Hussein regime’s brutal of a Muslim leader. Included in the meeting was Kristof’s official Iraqi government minder. In a 2003 column, Kristof describes the experience of being “menacingly denounced by two of Saddam’s henchmen”: