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topic 1Communicating, Negotiating, and Resolving Conflicts across Cultures

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Communicating, Negotiating, and Resolving Conflicts Across Cultures

, the author lists 11 second-language strategies to improve communication with ESL speakers. The author suggests that culturally intelligent people have an obligation to adapt their style to be in harmony with less-skilled English speakers. If true communication is the key, this is a reasonable expectation. Discuss a recent personal exchange with an ESL speaker and how you could have used the strategies from pages 91 and 92 to enhance the quality of your communication. For those of you who are ESL speakers, share your observations on how these strategies would enhance your ability to understand or engage in discussions. Two paragraphs will suffice.


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Discussion Question # 2: Discusses the debates surrounding the CSRL office mission and measures of its success as well as the impact of conflict of interest policies on technology development and commercialization.

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August 1, 2009
Communicating, Negotiating, and
Resolving Conflicts Across Cultures
From Cultural Intelligence: Living and Working Globally,
Second Edition, by David C. Thomas and Kerr Inkson
© 2009 by David C. Thomas and Kerr Inkson. All rights reserved.
Published by Berrett-Koehler Publishers, Inc.
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affiliate of Harvard Business School.
This document is authorized for use only by Ingrid Suazo in Negotiations and Conflict Management taught by Rex Hammond, Virginia University – Lynchburg from Dec 2020 to Apr 2021.
For the exclusive use of I. Suazo, 2021.
This document is authorized for use only by Ingrid Suazo in Negotiations and Conflict Management taught by Rex Hammond, Virginia University – Lynchburg from Dec 2020 to Apr 2021.
For the exclusive use of I. Suazo, 2021.
Negotiating, and Resolving
Conflicts across Cultures
Consider these four vignettes of cross-cultural living, all of them
authentic experiences involving Americans.1
An Australian woman, flying aboard Sky West Airlines from
Atlanta to Pittsburgh, asks a flight attendant if she can have
a pack of pretzels instead of crackers. When the attendant
says they don’t have any pretzels, she replies, ‘’Fair dinkum?’’
But before the Australian can say anything more, a second attendant asks for her passport and copies down her name. Her
local colloquialism has sparked a security scare, her common
Australian phrase apparently being misinterpreted as an act of
An American student shares a dormitory room with a Thai. They
get on well. Then, after they have lived together for several
weeks, the Thai abruptly announces that he has applied for a
transfer to another room. The American is surprised and upset
and asks the Thai why he wants to move. The Thai is reluctant
to speak but eventually says that he can’t stand the American’s
noisiness, loud stereo, late visitors, and untidiness. The American
is even more surprised: all this is new to him. “Couldn’t you have
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told me this sooner?” he says. “Maybe I could have done something about it.”
A newly qualified American community counselor is assigned as
a client a Malaysian man who suffers from low energy and poor
concentration. In their first interview, the Malaysian is very quiet
and withdrawn. The counselor is used to silences in counseling
sessions, as clients reflect and analyze, but this client does not
seem to want to communicate at all. So the counselor takes time
to try to persuade him of the nature of the counseling process.
At the end of the session, the client does not seek any further
counseling. The counselor is disappointed: he has learned almost nothing about his client. Has he done something wrong?
An American economist is on a study tour in China. He visits an
economic planning institute where a Chinese economist, who is
interested in the American’s economic forecasting techniques,
invites him to spend two months in China giving seminars. The
American is very interested in the offer, and says so, but he adds
that he has to check with the administration of his U.S. institute to
get their approval. Back in the United States, he is granted the
necessary clearance and sends a message to China indicating
that he is definitely available. But the Chinese never contact him
These cases, to which we will return later, demonstrate communication failures that led to the breakdown of relationships, and all have cultural origins.
Communication—the interchange of messages between
people—is the fundamental building block of social experience. Whether selling, buying, negotiating, leading, or working with others, we communicate. And although the idea
of communicating a message seems simple and straightforward—“You just tell it straight. And you listen.”—when it
comes to figuring out what goes wrong in life, “communication failure” is by far the most common explanation.
Communication operates through codes—systems of signs
in which each sign signifies a particular idea. Communication
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also uses conventions—agreed-upon norms about how, when,
and in what context codes will be used. If two people do not
share the same codes and conventions, they will have difficulty communicating with each other. And codes and conventions are determined mainly by people’s cultures. The most
obvious example of unshared codes is different languages.
Each communication breakdown in our opening set of
vignettes can be explained in terms of cultural differences:
In the first case the expression “fair dinkum” is a common Australian phrase that is used to refer to something worthwhile or reliable. As a question, it can mean
“Really? Is that right?” and this is most likely the sense in
which the passenger used it. However this term was not
in the vocabulary of the American flight attendants. And
they drew a wrong conclusion. This is an example of different codes.
In the case of the student whose Thai friend moved out,
culture and custom interfered with communication. In
their upbringing, Americans are encouraged to be active,
assertive, and open, and to expect the same in others. In
their upbringing, Thais are encouraged to be passive and
sensitive, and they too expect the same in others. The
Thai expected the American to be sensitive to his feelings;
the American expected the Thai to say what his feelings
were. When neither behaved as expected, the relationship
broke down. This is an example of different conventions.
The counselor whose client wouldn’t talk failed to appreciate the meaning of an important part of the communication—the silences! Silences are not always absence
of communication; they are often part of communication. Asians tend to wait longer than Westerners before
speaking, especially to authority figures. To some extent
long silences are a sign of respect. The counselor might
have been more patient. Also, the Malaysian may not
have been assertive enough to seek another appointment
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without being invited. So the whole situation was mismanaged. This is an example of different codes AND
The economist whose invitation to visit China was never
followed up failed to appreciate the meaning of his own
communication in Chinese culture. A Chinese saying
that he had to check with his office before accepting the
invitation might have been communicating two things:
first, that he was a relatively low-status person who had
to check everything with bureaucrats; second, that he
was not really interested in visiting. So in this case the
Chinese may have made these same assumptions about
the American and concluded he was not really interested
in visiting. Chinese people seldom say “no” even when
that is what they mean. Instead, they have numerous polite ways—including the one in this story—of courteously
indicating it. This is another example of different codes
AND conventions.
How Cross-Cultural Communication Works
In communication, the communicator transmits messages to
others (“receivers”) who interpret them. The process is shown
in figure 5.1.
When the receiver in turn becomes the communicator, the
process is reversed. The channel may be spoken words, written words, or nonverbal behavior such as gestures or facial
expressions. Face-to-face conversations, meetings, telephone
calls, documents, or e-mails may all be used. Successful communication occurs when the message is accurately perceived
and understood. Skills of communicating and listening, selection of an appropriate channel, and the absence of “interference” from external factors are all important. Cultural
differences threaten communication because they reduce the
available codes and conventions that are shared by sender
and receiver.
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Cross-cultural communication process
Source: Based on Schramm (1980)
The cultural field shown in figure 5.1 represents culturally
based elements in the sender’s and in the receiver’s background, such as their language, education, and values.2 The
cultural field creates the codes and conventions that affect the
communication process.
Language is the most obvious code for communicating. In language, combinations of sounds represent elements of meaning
and can be combined to represent complex messages. Most
languages contain speech conventions, subtleties, and figures
of speech of which only experienced speakers may be aware.
The essence of language is that sender and receiver should
share the code. But the development and mobility of humankind has left us with thousands of different languages, plus
different dialects and adaptations of many of them.3 Most
people have only one language, which they have learned and
spoken since early childhood, and even accomplished linguists
are usually fluent in only a few. Moreover, psychologists have
determined that the best time to acquire new languages is
before the age of ten, after which we become progressively
less able to adapt.4
A complicating factor is that whatever the language, its
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everyday use normally goes beyond any simple single code
such as that in a dictionary. Languages are living entities that
grow and change to accommodate the widely different groups
who use them and the changes in the social circumstances in
which they are used. For example, among young speakers of
English, language is becoming more direct and dramatic, so
“She accused me of breaking the window. I said I hadn’t.”
has become:
“She’s like, ‘You trashed the window!’ I’m like, ‘No way it was
In most cultures, different groups have their own vocabularies, slang, accents, and idioms. Sometimes the differences
are so strong and systematic that we say they have a different
dialect. Technical or social groups may develop their own
jargon and may use the jargon to distance themselves from
outsiders. Another common linguistic convention is euphemism, when words with sexual or other potentially impolite connotations are replaced with less explicit words. For
example, in some English-speaking cultures it is common to
say that someone has “passed away” rather than “died.”
Finally, most of us would be surprised at the extent to
which we mindlessly use proverbs, maxims, and even slogans
or catchphrases heard on television as part of our day-to-day
conversation. Examples are the Anglo-American expressions
“it’s a no-brainer,” “yadda yadda yadda,” and “it’s not rocket
science.” Such expressions are in good English but may genuinely puzzle outsiders.
Finding Common Language Codes
While language is a wonderful tool for communication, it is
also fraught with difficulties. Two people seeking to communicate with each other who do not have any overlapping
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language codes face a major barrier. They can, of course,
employ translators. But translation is time-consuming and
expensive. It also complicates the communication process
and potentially distorts the message by requiring a further
People who choose to learn and use a foreign language
find benefits beyond simply overcoming the language barrier. Most people appreciate the efforts that others may have
made to learn their language. So even though your fluency
in another language may be limited, the fact that you have
made the effort may generate goodwill.5 In addition, language
conveys many subtleties about a culture that a person with
high cultural intelligence might notice and use.
However, learning a new language carries major costs.
Becoming fluent in another language takes substantial study
and practice, particularly if that language is unlike your own
in pronunciation, grammar, and conventions. Language learners expend considerable time and effort in learning, and find
that when using the language they feel stressed and may even
be distracted from other aspects of the situation. Also, lack
of fluency may unfairly undermine credibility in the eyes of
fluent speakers. In contrast, fluency may lead to the speaker
being perceived, sometimes mistakenly, as being competent in
other areas, such as overall cultural intelligence. 6
Second-Language Use
One by-product of the Anglo-American economic dominance
of the twentieth century and the relentless unwillingness of
British and American people to learn languages other than
their own has been to make English increasingly the accepted
common language of business. Worldwide, the learning of
English to facilitate international communication has become
a major activity. This change facilitates international business
communication. Those who speak English as their only language owe a debt to the millions of people around the world
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who have gone out of their way to learn to understand, read,
speak, and write in the English language.
Learning English as a second language (ESL) is full of
challenges. The language’s richness of vocabulary and its
numerous synonyms can cause ESL speakers great difficulty.
Take the simple word “fly.” It can mean an annoying insect, a
means of travel, or an important part of men’s trousers.7
A person fluent in English who is communicating with a
less skilled English speaker has an obligation to communicate
in relatively standard terms, to avoid jargon and obscure language, and to avoid assumptions about comprehension by the
other person. Culturally intelligent people will consciously
adapt their language to be in harmony with the vocabulary
and style of the other person.
Some ESL speakers—particularly those from cultures that
set high store by not losing face—pretend to understand when
they really do not. In these situations there is a special onus
on the parties to be aware of barriers and limitations in their
sending and receiving, and to check whether messages have
successfully gotten through.
The following are some brief guidelines that culturally
intelligent people can use to help improve communication
with ESL speakers.
Second-Language Strategies
Enunciate carefully.
Avoid colloquial expressions.
Repeat important points using different words to explain
the same concept.
Use active verbs and avoid long compound sentences.
Use visual restatements such as pictures, graphs, tables,
and slides.
Hand out written summaries of your verbal presentation.
Pause more frequently, and do not jump in to fill silences.
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Take frequent breaks, and allow more time.
Do not attribute poor grammar or mispronunciation to
lack of intelligence.
Check for understanding by encouraging speakers to
repeat concepts back to you.
Avoid embarrassing speakers, but encourage and reinforce their participation.8
Communication conventions cover the ways that language
and other codes are used within a particular culture. Once
again, cultural values and norms, such as those based on
collectivism or individualism, are apparent.
E x plicit a nd Implicit Commu nicat ion
There is a Western view that individuals perceive something
called the truth and should state it, and a convention that
communication should be verbal and that verbal messages
should be explicit, direct, and unambiguous. But in other
cultures—for example, many Middle Eastern and Asian cultures—there is no absolute truth, and politeness and desire to
avoid embarrassment often take precedence. The convention
is therefore that communication is implicit and indirect. In
the direct convention of communication, most of the message
is placed in the content of the communication—the words
that are used. In the indirect convention, the context is more
important—for example, the physical setting, the previous
relationships between the participants, and the nonverbal
behavior of those involved.
The direct convention tends to be the norm in countries
with individualist cultures, the indirect in countries with
collectivist cultures. Understanding apparently indirect communication in collectivist cultures may sometimes be simply
a matter of learning another code. The examples in the fol92
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lowing box show a variety of ways of saying no politely and
indirectly. In most cases a low-CQ individual would understandably think that the answer might be “yes.”
S AY I N G “ N O ” I N R ES P O N S E TO
“ H A S MY P RO P O S A L B E EN ACC E P T E D ? ” 9
Conditional “yes”
Criticizing the question
Refusing the question
Tangential reply
Yes, but
Delayed answer
If everything proceeds as planned, the
proposal will be approved.
Have you submitted a copy of your
proposal to the ministry of . . . ?
Your question is very difficult to answer.
We cannot answer this question at this
Will you be staying longer than you had
originally planned?
Yes, approval looks likely, but . . .
You should know shortly.
The problems associated with explicitness of communication are not limited to face-to-face communication. In fact,
the use of e-mail as the preferred mode of communication in
many firms can make these problems even more difficult. One
Dutch manager (direct convention) was so frustrated in trying
to understand the real message in e-mails from his Mexican
counterpart (indirect convention) that he finally jumped on
an airplane and flew from Amsterdam to Mexico City just to
get clarification.10
V erbosit y a nd Silence
Cultures vary in their conventions about how much and how
loudly one should talk. Americans are notorious for talking a
lot and talking loudly. Silence can be used deliberately and strategically in communication. Japanese negotiators use silence
as a means of controlling negotiating processes, whereas Finns
use it as a way of encouraging a speaker to continue. As the
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counselor in one of our opening vignettes failed to note, in
Malaysia silence can show respect. Interpreting silence accurately is important in culturally intelligent communication.
Nonverbal Communication
I had no trouble finding the café. It was picture-perfect, as many are
in Athens: checkered tablecloths, white walls, nice Mediterranean
atmosphere. It was morning, so there were no customers. Behind
the counter, a slim woman in her forties was getting ready for the
start of the day. Dimitri’s mother. I’d seen her photos.
“Mrs. Theodoridis?”
She turned toward me, puzzled.
“I’m Ray. From Australia. Your son Dimitri . . . “
She smiled broadly. “Oh, Ray! Yes! You Ray! Oh yes, Dimitri
write me that you come to Greece. Oh, come, come! Sit! I bring
you come coffee.”
She moved toward the kitchen, motioning me to sit at one of
the tables. Suddenly, a worried frown spread across her features.
“Oh! Maybe you no like Greek coffee? Maybe you want ouzo?”
She was fussing over me. If there’s one thing we Australians can’t
stand, it’s being fussed over. But I stayed polite.
“Coffee would be great, thank you.”
She nodded and went into the kitchen. I sat down at the table.
She came back with the coffee and stood opposite me. She was
speaking to me in a warm, indulgent gush.
“Dimitri tell me you so help him when he move to Australia, with
his English and everything.” She put the coffee down on the table
and sat down opposite me, leaning toward me. She seemed too
close. I could smell her perfume. I leaned back a little. Australian
guys don’t like being gushed over; we like to keep our distance.
“So.” Suddenly she placed both her hands over one of mine, flat
on the table. She stroked my hand a little. “How you like Athens?”
Before I could answer, she moved her right hand, took a gentle hold
of my cheek, and shook it affectionately. “You find girlfriend, yes?”
This was not going the way I had expected. I had envisaged a
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more formal conversation, at a respectable distance, about Dimitri.
Instead she had her hands all over me. Her eyes seemed to be
staring right through me. And she was asking about my love life,
for heaven’s sake! What business was it of hers?
“Well, Mrs. Theodoridis,” I managed, “I . . . err . . . um . . .”
She was leaning toward me, close, intense. “I’ve only been here a
couple of months.”
“Yes, Ray, that’s right.” She was speaking to me as to a ten-yearold child. Now she took my face in both her hands, and leaned
even closer. “You find nice Greek girl, settle down.” At last she
took her hands off me and leaned back, considering. “Some nice
Greek girls. You have good salary at Constantine Shipping, yes?”
She sipped her coffee. I was thinking, what is it with this woman?
She is altogether too familiar. Better be polite, though.
“Well, Mrs. Theodoridis, I . . . err . . . haven’t really thought
about settling down.”
“Yes, Ray, that’s right.” Why was she agreeing with everything
I said? “Better be careful. Some of these Greek girls, they want
big diamond ring, or fancy church wedding.” A thought occurred
to her. She leaned toward me, put her hand under my chin, and
looked at me intensely. She said softly “Are you religious, Ray?”
Bugger me, I thought, I’ve only known her two minutes, and
already she’s asking about my personal life, my money, and my
religion! I felt confused, embarrassed, and hot. And her constant
pawing was getting to me. What to do?
Then I had a brainwave. Play for time! “Ah, well, Mrs. Theodoridis. Maybe I will have that ouzo after all.”
“Aah!” She smiled and grasped my hand in a way that said, this
is our special, shared moment. Then she got up, ruffled my hair,
and went into the kitchen.
I looked after her, shaking my head involuntarily. What was she
about? Why was she so personal to a stranger, why so intimate?
What did she want?
This case is a good example of poor communication due to
cultural differences in conventions and body language. Greece
is a collectivist culture, with a lot of emphasis on the extended
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family. Mrs. Theodoridis is treating Ray like a member of that
family because of his close relationship to her son Dimitri—
indeed she is treating him as if he is her son. And like many
people in Southern European cultures, Greek people have a
low interpersonal distance, and touching of the type Mrs.
Theodoridis is doing is not uncommon, particularly between
members of the extended family. But Ray, from the more
reserved, higher-distance Australian culture, sees all this as
intrusive: in his culture, touching between men and women
often has sexual connotations. No wonder he is confused!
And, it has to be said, in failing to notice Ray’s embarrassment
Mrs. Theodoridis shows low cultural intelligence.
The topic of body language is popular, and most of us
now realize that we communicate, often inadvertently, by
such means as physical proximity and orientation to another
person, body movements, gestures, facial expression, eye
contact, and tone of voice. Thus, nonverbal communication
supplements verbal communication a great deal.
Often, nonverbal communication is a good guide to the
truth: for example, if an athlete is sitting in the dressing
room after the match with shoulders slumped, arms folded,
and face glum, you do not need to ask, whatever his or her
culture, whether his team won or lost. Sometimes nonverbal
behavior reveals the opposite of verbal, for example, when
someone red in the face and making a considerable effort to
control himself, tells you, “No, I’m not angry.”
Nonverbal communication often assists cross-cultural
understanding because many nonverbal signals are similar
between different cultures. For example, smiling universally
expresses positive feelings. But there are also subtle variations between cultures: for example, Asians often smile to
conceal nervousness or embarrassment. A shake of the head
means disagreement in Western cultures but agreement in
some parts of India. The codes that tell us the meanings of
postures or gestures, or where to stand or whether to bow,
sometimes agree across cultures but sometimes disagree.
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Dista nce
How close should you stand to other people when communicating with them? Should you face people directly or stand
beside them? The answer can vary according to the characteristics of the other person, for example, his or her authority,
age, or gender. But there are also differences among cultures.
For example, in casual conversation, Greeks stand closer than
Americans, who stand closer than Norwegians, and so on. A
culturally intelligent person will be mindful of the comfort of
those he or she deals with and will modify his or her social
Should you ever touch the person you are communicating
with? If so, where, and how much? In most cultures, touching
another person symbolizes various emotions and relationships. The most obvious example is the handshake, which in
many cultures denotes a friendly relationship—“I’m pleased
to meet you” or “Goodbye for now.” Kissing another person’s
cheek is common between men as well as women in France.
In some cultures, approval or support may be shown by a slap
on the back or a squeeze of the arm. Soccer players worldwide
hug each other fiercely when their team scores a goal.
Because of gender differences and concerns about the sexual
connotations of touching, conventions are often different for
men and women. There are low-touch cultures (predominantly
in North America, Northern Europe, and Asia) and hightouch cultures (predominantly in Latin America, Southern and
Eastern Europe, and the Middle East). A touch that is meant to
be meaningful in the United States, such as a pat on the back,
might not even be noticed in a high-touch culture like Brazil.
Body Posi t ion
In a case in chapter 1, a Samoan job applicant sat down in the
office of an American manager to show respect by positioning
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himself at a physically lower level. But the gesture misfired
because to Americans sitting down when others are standing shows disrespect. Polite Americans wait for others to sit
down before they do, and show respect by rising from their
seats when others enter the room. The way people position
themselves has meaning in all cultures, but it is hard to draw
up any hard-and-fast rules.
Another common body-position issue is the adoption of a
position that makes one’s body look big—for example a rigid,
angular stance to denote aggression or a curled-up, cowering posture to indicate submissiveness.12 Bowing to show
deference is common across many cultures, but in some its
use is extreme. In Japan, the (unwritten) rules about who
should bow to whom and how exactly they should do it are
complex, subtle, and difficult to master. In fact, the culturally
intelligent person knows that a foreigner trying to imitate
Japanese bowing is at best humorous and at worst offensive,
and that bowing in Japan is a custom best reserved for native
Hand and arm movements are often used simply as physical
accompaniments to words, to supplement them or to provide
a visual illustration. Often gestures are meaningless without
the verbal commentary, other than as a general statement of
the state of mind of the person. But there are also gestures
that carry established meanings, for example pointing to indicate direction, hands held up with the palms facing upward
and outward to indicate defensiveness, and a shrug of the
shoulders to indicate incomprehension or lack of interest.
Other signals vary across cultures. Some gestures, which are
positive, humorous, or harmless in some cultures, are considered hostile, offensive, or obscene in other cultures. High-CQ
people tend to avoid explicit gestures until they know what
they mean.
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Fac i a l E x p r e ssion
Facial expressions most obviously indicate the basic human
emotions: happiness, surprise, disgust, fear, anger, and sadness. The facial expressions denoting these are instinctive and
common across cultures.13 However, in most cultures people
have learned how to disguise their emotions by adopting an
expression that does not represent how they really feel. For
example, do you truly believe that the flight attendant beaming happily at every passenger she serves is truly happy to
meet each one? In some Asian cultures, smiling is often used
to hide displeasure, sadness, or anger.
Emotions can also be concealed by the adoption of a neutral expression. Every negotiator and card player knows the
value of being able to sit with a face devoid of any expression
that might indicate to others how he or she is feeling. Thus,
while natural facial expressions provide a cross-cultural code
to others’ emotions, in many situations conventions can mean
that facial cues are either absent or misleading. For example,
in collectivist cultures, the open expression of individual emotion is often suppressed because it may threaten group harmony. This is one reason why Westerners often characterize
Chinese and Japanese people as inscrutable.
Ey e Con tac t
Making, or avoiding, eye contact is another important form of
nonverbal communication. In Western countries a moderate
level of eye contact during conversation is a way of communicating friendliness or interest, whereas excessive eye contact
(staring) is considered rude and lack of eye contact can be
perceived as hostile. Eye contact is also used in conversation
as a signal: for example, making eye contact with the other
person as you finish a sentence often means, “Now it’s your
turn to speak.” But Arabs, Latinos, Indians, and Pakistanis
all have conventions of longer eye contact, whereas Africans
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and East Asians interpret eye contact as conveying anger or
insubordination. A further complication is the fact that most
cultures have different conventions about eye contact depending on the gender, status, and so on of those involved.
With all areas of nonverbal communication, the ability to
observe the behavior of others, to be mindful of it, and to be
skilled at modifying one’s own behavior are key components
of cultural intelligence.
Negotiating across Cultures
Negotiation is a special communication situation in which the
objective is often for people to overcome conflicting interests
and to reach an agreement that is advantageous to all. The
practices of negotiation include the making of threats and
promises, the use of persuasion, the signaling of concessions,
and the development of compromises and creative solutions.
As usual, the existence of cross-cultural differences complicates things. Most international tourists know, for example,
that there are some countries in which it is accepted custom to
haggle in shops over the price of souvenirs, and others where
one is expected to pay the marked price without any fuss.
Bill Miller, a top American salesman with a major information
technology manufacturer, sits in his Mexico City hotel room, head
bowed, running his hands through his hair in frustration. Two days
into his trip and with only twenty-four hours left, he feels he is no
closer to “closing” the sale he is trying to make than he was when
he arrived.
It’s not that his Mexican hosts are hostile. On the contrary, they
smile broadly at him, take a personal interest in him, and certainly
look after all his physical needs: the hotel, for example, is excellent.
But the Mexicans show very little interest in talking business. The
manager who has been assigned to look after Bill is a good host
but is not party to the deal Bill wants to negotiate. On the way in
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from the airport, when Bill began to talk about his carefully prepared sales presentation, the manager seemed surprised. “Plenty
of time for that later,” he advised. “For the moment, you must be
tired from your flight. Why not relax for a day or two and do some
sightseeing first? I can look after you.”
So Bill spent his first day being shown around Mexico City, struggling to conceal his impatience. On the second day, however, his
host invited him to an after-work meeting with the senior managers
of the company. Bill prepared carefully and arrived promptly at
the meeting room with his PowerPoint display. No one was there,
just a table of drinks and nibbles. Gradually the executives drifted
in. They engaged Bill conversationally in English and began to ask
questions. But the questions were not about the equipment Bill had
to sell but about his company—its history, its plans, and its future
expansion in Latin America. Next, they moved on to Bill himself, his
history in the company, his views of the IT industry and their own
industry, even his wife, family, and hobbies.
Bill was still impatient. He wanted to get on with his presentation,
but he did not want to offend his hosts. Eventually, during a pause,
he said, “Thanks—I am so grateful for your hospitality. Now, I wonder if we might sit down and let me go through my presentation. I
think we have a real good deal here for your company.”
There was an embarrassed silence. Then the deputy CEO said
slowly, “Unfortunately, I think Mr. Alvarez may already have gone
home.” Alvarez was the CEO, and without his signature there could
be no deal. “Maybe . . .” said the deputy CEO, “maybe tomorrow? In the meantime, why not come out to dinner so we can get
to know each other better?” This time, Bill pleaded fatigue.
How on earth, he wondered, did these people ever sell anything
to each other, or buy anything from each other, let alone from him?
Back at his home, Juan Alvarez lit a cigarette thoughtfully. The
American had looked so ill at ease that Juan just hadn’t felt like sticking around. He had wanted to try to build a business relationship, a
basis not just for one future deal, but for many. Miller had thrown it
back in his face. Alvarez had seen it before with Americans.
How on earth, he wondered, did they ever learn to really trust
each other in business?
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The behavior of the different participants in the story and
the reflections of Miller and Alvarez reveal distinct outlooks
on business relationships and how best to pursue them. Bill,
like most Americans, is concerned with the short term, with
being efficient, reaching a conclusion, and not wasting time
on social trivia. Juan and his staff, like members of most
Latin cultures and many others, believe that good business
is the result of good business relationships. Therefore, the
initial effort must go into building a relationship: it is worth
spending time to do so.
The result is that both Bill and Juan endanger what they
value most—Bill endangers the immediate transaction, and
Juan endangers the long-term business relationship. If each
had been willing to accommodate, at least in part, the other’s
customs, a worthwhile business relationship could by now
be under way and each could have secured exactly what he
Negotiating Styles
Negotiation processes typically go through different phases,
and there are intercultural differences in the emphasis on each
phase. The phases are:
building a relationship
exchanging information
trying to persuade each other
making concessions and reaching agreement14
Generally, people in Western cultures take a relatively “transactional” approach to negotiation, focusing mainly on the
last two stages. Many other cultures focus on creating a
background relationship that will make agreement more
likely, and emphasize the social side of the situation over the
task side. The case of Bill Miller in Mexico is an example of
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people from two cultures not being able to negotiate with
each other because each was stuck in a different part of the
process. Culturally intelligent Americans learn to be sociable
and patient in negotiation, and culturally intelligent Asians
and Latinos learn to get to the point a more quickly.
Styles of persuasion may also differ. In political and business negotiating in Western societies, rational argument is
favored, whereas in some other countries appeals to emotion
or ideology may be used. Again, Western negotiators, having individualist values, are relatively competitive in their
negotiating style, whereas Asians are likely to be more polite,
more obscure, and more restrained. One researcher has used
the metaphors of “sports” and “household” to explain the
different approaches of American and Japanese negotiators.
The sports metaphor of the individualist Americans suggests
that they are task-oriented, accept conflict as normal, and try
to conduct an orderly process with rules of procedure within
which they have the chance to excel and win. The household
metaphor of the more collectivist Japanese, in contrast, is
focused on their relationships, their desire to avoid overt
conflict and save face, and the fact that they gain satisfaction from the performance of their role rather than from
Another key cultural variable is power distance (see chapter 2), the extent to which people expect to see power and
authority invoked to solve problems. The arbitration model
of negotiation supposes that whenever there are differences
of interest to be negotiated, there should be a higher-level
authority figure who can resolve any problem by making a
decision that is imposed on all parties. This is often observed
in Japan. Another model is the bureaucratic one, which
attempts to reduce the need for negotiation by specifying in
advance rules and procedures suitable for solving disagreements. This model is often observed in Germany.
Again, there are differences in the details of negotiating:
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for example, the level at which initial offers are made and
the willingness of the negotiator to make concessions. An
American negotiator might be put off by a Chinese, Arab, or
Russian counterpart because these groups seem to start off
with extreme positions. Russians are also reluctant to make
concessions, seeing this as a sign of weakness, whereas other
groups such as North Americans and Arabs will make concessions and respond to others’ concessions. To complicate
matters further, negotiators alter their behavior when they
are negotiating with people from different countries. Finally,
of course, the generalizations made above about different
cultural groups’ negotiating styles are subject to substantial
individual differences.
In cross-cultural negotiation, it may be possible to use combinations of these different methods, but doing so requires all
parties to step temporarily outside their normal conventions.
Principles for Cross-Cultural Communication
and Negotiation
While plenty of information is available on cross-cultural communication and negotiation, from both everyday observation
and systematic research, it is difficult to spell out hard-andfast rules for communicating and negotiating. However, here
are some broad principles.
Gain the knowledge to anticipate differences. Learn
what you can of the codes and conventions of groups
that you plan to deal with. Be aware of all the various
areas of difference in communication we have noted
in this chapter—for example, verbal versus nonverbal,
contextual versus noncontextual, different negotiating
styles. Learn the prevailing cultural values of the country—for example, individualist versus collectivist—and
think about how these may influence the process of your
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Practice mindfulness. Pay attention to the context and
the conventions of communication. There is a tendency
to focus on the code and content of messages, but you can
acquire additional information by attending to how messages are delivered. Additionally, question attributions.
In chapter 3 we discussed the process in which we go
behind surface behavior of others to attribute motivation
and meaning. As we have seen, the meaning we usually
attribute is based on a familiar understanding of our own
behavior and that of our cultural group. Practicing mindfulness helps us to see new possibilities for the meaning
in the behavior of other cultural groups.
Develop cross-cultural skills. How much should you
adapt your behavior to accommodate the codes, conventions, and style of another culture? You and the other
party have potentially conflicting goals, so this situation
is challenging. Should you try to imitate them or just be
yourself? Some adaptation seems to improve relationships by making the other party more comfortable, but
too much adaptation can cause suspicion and distrust.
Finding the optimal point of adaptation is more art than
science. However, by improving your cultural intelligence, you can gain a broad repertoire of adaptive skills
and the knowledge of when they are appropriate.
Communication is fundamental to all social interactions and
relationships. Cross-cultural communication presents many
possible barriers to shared understanding because individuals
from different cultures don’t share a common background,
codes, or conventions. While language skills are important,
cross-cultural communication involves much more than language differences. Culturally based codes and conventions of
language also involve nonverbal signals and communication
styles. Negotiation is a special communication situation in
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which the parties have potentially conflicting goals. While all
negotiations follow a similar process, the emphasis placed on
each stage varies considerably across cultures. The challenging nature of negotiations makes high cultural intelligence a
prerequisite for knowing when, how, and how much to adapt
one’s behavior to achieve the most successful outcome.
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NOVEMBER 8, 2004
Technology Commercialization at the
Massachusetts General Hospital
To provide the highest quality care to individuals and to the local and distant communities we serve, to
advance care through excellence in biomedical research, and to educate future academic and practice leaders
of the health care professions.
— MGH Mission Statement
After a busy day, Frances Toneguzzo was finally able to relax in her office at the Massachusetts
General Hospital (MGH) research building, located in Boston’s Charlestown Navy Yard. She wanted
time to consider her upcoming meeting with the Chairman of the Executive Committee on Research
at the Massachusetts General Hospital. Toneguzzo had been Director of the hospital’s Corporate
Sponsored Research & Licensing office for more than three hectic years, and it was now time to take
stock and plan for the future. The upcoming meeting would be important.
Like many not-for-profit medical research establishments, her hospital’s commercial activities had
expanded enormously in recent years, and the demands on her office had grown commensurately. In
2003, with a staff of only 22, her group had negotiated more than 100 technology license agreements,
up from 32 the previous year, facilitated the creation of seven new companies, received $33 million in
sponsored research income and $46 million in license and royalty income, and put together dozens of
agreements governing consulting arrangements, confidentiality, and the transfer of research
But all this activity was now creating tensions. How exactly did commercialization of hospital
innovations fit with the hospital’s broader aims, and what roles was her group expected to play? Did
the hospital’s conflict-of-interest rules inhibit innovation? Should—indeed could—they be changed?
Should her group’s overarching aim be simply to raise as much money as possible for research, or
perhaps to speed innovations to market for the benefit of patients, or to help researchers? Were all
these aims in harmony with one another, and if not, which should dominate? She hoped the
upcoming meeting would address these issues, but what should she herself propose?
Professor Jonathan West and Research Associate Mona Ashiya prepared this case. HBS cases are developed solely as the basis for class
discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2004 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.
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Technology Commercialization at the Massachusetts General Hospital
Background: The Hospital’s History and Mission
Government funding for MGH research in the life sciences had more than tripled since 1990 but
the hospital’s endowment, many believed, needed to be enlarged to help stabilize the institution’s
precarious dependence on external grants. As revenues from licenses and royalties had increased,
Toneguzzo saw that some within the MGH community looked to her office as an additional revenue
source, albeit one that could not be counted on.
Established as a corporation in 1811, the Massachusetts General Hospital was the largest and
oldest hospital in New England. Its stated missions were to improve patient care, teach medicine,
and understand disease. By 2004, it had grown to become the largest non-governmental employer in
Boston, employing more than 16,000 people. It employed 2900 nursing staff, and 3700 member
medical staff, including physicians, dentists, psychologists, residents, and fellows.
In March 1994, the MGH had joined with the Brigham and Women’s Hospital (BWH), another
prominent hospital in Boston, to form the Partners HealthCare System, which aimed to deliver
integrated health-care to eastern Massachusetts. Between 1994 and 2004, in addition to the two
founding institutions, the Partners system grew to include several other specialty and community
hospitals in the greater Boston area.
Patient care
Since its inception, the MGH had been a world leader in patient-care innovation. The beginnings
of anesthesia could be traced to MGH, where the first use of ether took place in 1846. An MGH
physician made the first X-ray in the US in 1896, 30 days after the technique was first demonstrated in
Europe. And in 1905 the MGH was the first hospital to create a social service department to help
patients with non-medical issues arising from illness or injury.
By 2004, the MGH was a world-renowned medical center that offered sophisticated diagnostic
and therapeutic care in most medical and surgical specialties and sub-specialties. Each year,
approximately 42,000 inpatients were admitted to the 868-bed medical center, and the hospital
handled more than 1.2 million outpatient visits at its main campus and its four health centers in the
greater Boston area.1 US News and World Report repeatedly ranked the MGH one the country’s best
hospitals, counting it among the top four nation-wide for five consecutive years.
The MGH was also the oldest and largest teaching hospital of the Harvard Medical School. Most
of the hospital’s active staff physicians held faculty appointments at Harvard. In 2004, Partners
Healthcare, through Brigham and Women’s and MGH, offered residency and fellowship programs in
adult and pediatric advanced specialties and sub-specialties. The MGH was also affiliated with other
teaching hospitals in the greater Boston area and some affiliates provided training for health care
specialists in nursing, physical therapy, and medical imaging. Continuing medical education for
physicians was available through accredited courses offered in conjunction with the Harvard Medical
School Department of Continuing Education. Most investigators at MGH, however, were not paid
for their teaching duties.
1 In the Back Bay, Charlestown, Chelsea, and Revere.
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The MGH was also one of the first hospitals in the US to conduct research. Its cancer research
program, for example, began in 1925, when the institution opened the first hospital tumor clinic. By
2004, it operated the largest hospital-based research program in the world, with more than $400
million in research revenues. Its parent organization, the Partners Healthcare system booked $559
million in direct research revenue for 2003, a 15.5% increase over 2002. See Exhibit 1 for financial
statements for the Partners Healthcare System.
One measure of research activity at the hospital was growth in the amount of laboratory space
dedicated to researchers. Following construction of the Wellman Research Building on the hospital’s
main campus and a 400,000 square-foot research facility at the nearby Charlestown Navy Yard in
1988, research space had grown to nearly 800,000 square feet by 2002. In 2004, the hospital was
constructing another new research building on its main campus which would house four multidisciplinary initiatives in bioengineering and regenerative medicine, integrative and computational
biology, physiologic genomics, and human genetics. See Exhibit 2 for growth of research space at
In 2004, approximately 400 principal investigators in five major research centers2 and hospital
departments undertook basic biomedical research. Full-time employees included 653 research
fellows and more than 4000 additional part-time or full-time professional or technical staff were
affiliated with the nationally renowned institution.
Growing demand for funding
Between 1990 and 2003, direct and indirect research spending at MGH grew 271%. The hospital
received more funds from the National Institutes of Health (NIH) than any other independent US
hospital, and like its sister institution, the Brigham and Women’s, enjoyed NIH grant approval rates
well above the national average. As biomedical research was becoming increasingly expensive, the
hospital’s research activities were not able fully to cover their expense; additional funds were needed
from other sources each year. In the past, funds from clinical operations contributed to the stability
of research operations. Such support was made possible because research outlays had been
comparatively small and margins on clinical activities were healthy. In 1993, for instance, an
estimated $20 million of clinical revenues were used to cover research costs.3 Through the 1990s,
however, margins from clinical activities shrank as pharmaceutical companies shifted clinical trials to
less costly institutions, at the same time as the demand for research funding mushroomed. See
Exhibit 3 for MGH and Partners research expenditure.
Moreover, unlike universities, MGH ran entirely on “soft money”. That is, most investigators at
MGH were entirely dependent for their salary and research support on grants from external sources.
Research grants paid for partial laboratory overhead costs, the cost of equipment, as well as the
salaries of researchers and laboratory technicians.
John Potts, former Chief of Medicine at the MGH, explained, “Big, powerful clinical departments
were the guarantors of the rainy day needs of research groups. Now, they have no endowment and
are struggling to make ends meet. They can’t take money from nursing budgets to protect scientists.”
2 These were the Cardiovascular Research Center, the Neuroscience Center, the Cancer Center, the Cutaneous Biology
Research Center, the Transplantation Biology Research Center, and the Wellman Laboratory of Photomedicine. Additional
research was carried out at the NMR Center, and the Center for Imaging and Pharmaceutical Research.
3 Partners HealthCare System, Inc. (A) Harvard Business School. 9-696-062
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Richard Bringhurst, Senior VP of Medical Services at MGH, added, “Now, if a grant doesn’t come
through for a group, they cannot meet their payroll needs for six to nine months, and the group may
be broken up. That can be tragic.”
Thus, as its research activities had grown, the MGH had become increasingly vulnerable to
fluctuations in NIH funding levels. Bringhurst lamented, “The amount of money we have to cover
lapses in grant support is less than 1% of our annual funding. There’s no safety net.” Although some
‘bridge-funding’ could be offered to help investigators who lost grant support, such funds were
modest and typically insufficient to support staff that had been hired on grant money.
The lack of funds also had an impact on the hospital’s recruiting activities. While it could draw on
the excellence of its clinical studies to recruit the best clinicians, it was harder to recruit faculty in
basic scientific research since MGH did not have a tenure system that guaranteed salaries and did not
provide start-up funds4 as universities typically did. A recently completed Partners five-year
strategic plan on research recognized the problem, noting the need to provide basic science
researchers with greater infrastructure and start-up funds in the future. Such efforts, it was
envisioned, would enable MGH to compete more effectively with universities for top-notch
To finance all these efforts, individual departments at MGH looked to technology transfer, along
with philanthropy and industrial relationships, as sources of funds.5
Evolution of MGH-industry relations
Prior to 1977, MGH had had little interaction with industry. In 1977, however, the MGH recruited
a staff lawyer who had also been a patent attorney, Marvin Guthrie, to draft a patent policy. Guthrie
soon also became responsible for the hospital’s nascent technology transfer program.6
In 1979, MGH formalized its technology transfer program by creating the Office of Technology
Affairs (OTA). Although the hospital had cooperated with companies such as Centocor and Du Pont,
which sought access to MGH faculty and their research, most of these agreements were small.
During these early years, Guthrie also crafted the institution’s policy on consulting agreements and,
with his staff of two, assisted investigators in filing patents and negotiating agreements with the
private sector.
The hospital’s first large agreement, approximately $1 million in research funding per year from
Johnson & Johnson, was initiated in 1979.7 It immediately generated concern within the hospital’s
4 New faculty recruits were typically offered start-up funds that could be used over two to three years to set up research
5 Only a few departments currently enjoyed a satisfactory level of stability; the Department of Molecular Biology, for instance,
had a $90 million endowment built through its relationship with Hoechst, a prominent German chemical and pharmaceutical
6 The development of the MGH patent policy was also enabled, in part, by Harvard’s change of its IP policy for inventions
made in medical and life sciences. Inventions could now belong to Harvard, where they had previously been dedicated to the
public. Indeed, a research agreement between Harvard University and Monsanto, which stipulated the protection of any
intellectual property, instigated changes in Harvard IP policy. Harvard’s earlier policy prevented the university from taking
any patents on technology developed in its environs.
7 Protracted negotiations relating to the company’s desire to have a secure facility that ensured confidentiality had initially
resulted in a compromise, in which scientists were required to sign in and out of the company’s sponsored research facility at
MGH. This arrangement was ultimately scrapped.
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Technology Commercialization at the Massachusetts General Hospital
staff over the appropriate form and level of relations with for-profit industry. Concern exploded into
outright controversy, however, with the hospital’s landmark 1981 agreement with Hoechst. Hoechst
offered more than $70 million over 10 years to finance a new Department of Molecular Biology, in
return for exclusive rights to any patents that emerged from the sponsored research.8 For Hoechst,
the agreement provided a window into cutting-edge research and access to a first-class molecular
biology department, where its own scientists could be trained. The company also anticipated that
inventions resulting from the agreement would translate into products. At MGH, the creation of the
department reflected a commitment to basic scientific research. Although the agreement had been
carefully vetted within MGH to ensure that academic prerogatives, including rights to publish, were
not compromised, and had been reviewed by the NIH before it was signed, cries of protest erupted
when the agreement was made public. Some scientists denounced the agreement outright, and
subsequent congressional hearings voiced concern about a foreign company benefiting from US
government-funded research. An NIH review eventually found the agreement to be acceptable.
While the initial terms of the agreement stipulated that Hoechst (later, Aventis) would be the sole
funding source for the department, over time other external funding sources were accepted. Later,
the company’s support evolved further, as it chose to sponsor research programs in specific
laboratories, on an ad hoc basis.9 Throughout, the OTA worked closely with the company whenever
a potentially commercial discovery was reported, and Hoechst was then free to decide if it wanted to
file a patent.
At MGH, the Hoechst funding enabled key discoveries by Brian Seed, an investigator in the
molecular biology department, that were important to the development of Enbrel, a best-selling drug
for rheumatoid arthritis and other related diseases. Seed recalled:
The Hoechst funding was particularly beneficial for scientists here because it provided a
stream of unrestricted funds, which effectively meant that we didn’t have to apply for grants.
That’s a huge advantage. It was especially beneficial for me. A lot of my work, in particular in
its early phases, involved technology development, which is not looked upon with favor by the
study sections of the grant review panels of the NIH. So I would have had a much, much
harder time had I not had industrial funding.
The agreement with Hoechst/Aventis ended in 2000. While some within the company regarded
the agreement as a failure, Seed, who had also trained Hoechst scientists, was adamant that MGH
had met all requirements of the agreement. Hoechst-funded research at MGH had resulted in
products and Seed maintained that the royalties alone that the company had received from Enbrel
had more than compensated for the funds Hoechst contributed to MGH.10
Later, the Hoechst agreement served as a blueprint for subsequent agreements, including a 1989
agreement with Japanese cosmetics company Shiseido. This multi-year, multi-million dollar
agreement initiated by dermatology department chair John Parrish funded the creation of the
Cutaneous Biology Research Center at MGH. Shiseido’s formal influence over research directions
8 Under the initial terms of the agreement, Hoechst would pay for all equipment and other expenses in the Department of
Molecular biology.
9 Hoechst would have the option of exclusive rights to any IP resulting from the sponsored research but MGH would control
the disposition of any IP that Hoechst did not want.
10 While new products (such as the bacterial strain for the insulin production process) had emerged as a result of the
agreement, differing expectations and perceptions of success, as well as management changes at Hoechst contributed to
growing discomfort between the two parties. At MGH, some investigators in the molecular biology department were
enthusiastic about the Hoechst agreement but most were not; at Hoechst, tensions arose as some company scientists resented
that Hoechst was funding research in Boston rather than the company’s projects in Germany.
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was limited to an advisory role, and a scientific board would oversee the new center. In return,
Shiseido would enjoy first rights to any patents resulting from the sponsored research. As well as
providing research funding at a time when federal support was being reduced, the agreement added
35 new research positions at MGH. Slated to end in March 2006, the agreement had brought in $150
million in research support and had yielded several significant products for Shiseido.
By the late 1980s, industry-sponsored research had grown from 3% in 1976 to more than 30% of
total MGH research funding. By the mid-1990s, the MGH possessed four of the six largest industrial
sponsorships of academic biomedical research in the US11 but the 1990s also saw a shift in emphasis
towards licensing and start-ups. Large industry sponsored agreements were becoming scarce.
Academic researchers were now more willing to work for pharmaceutical and biotechnology
companies, and for large companies, sponsoring specific research projects at academic institutions
made more sense than long-term broad-based agreements.
By the mid-to-late 1990s, the MGH itself held patents on several products, but royalties were
small. Guthrie recalled:
Some people believed we were doing something wrong [and] perhaps not marketing our
discoveries aggressively enough. People began to feel like they weren’t getting enough return on
their research investment dollar. And because we led the pack in NIH funding, they thought that
if we held equity and had more startups based on our research, we should be getting more money
from industry.
Others felt the institution suffered from hubris. “People here saw Berkeley and Columbia making
money from licenses and there was a question as to why we weren’t making $50 million a year”,
noted one senior administrator. He recalled, “[There was] a dichotomy between expectations of
faculty regarding what the OTA could and should do, and what they were actually capable of [given
resource constraints].”
Through the 1990s, there was also a growing awareness among junior investigators of the
commercial applications of their research, and an interest in start-ups and technology licensing.
Guthrie recalled, “Many came after doing postdocs and PhDs in labs where patents were filed, equity
taken, and their experience was different.” The result was a more aggressive emphasis on licensing
and start-ups at MGH.
Corporate Sponsored Research and Licensing
In 2001, Frances Toneguzzo was recruited to head the department of Corporate Sponsored
Research & Licensing (CSRL) at MGH. Following 12 years in industry, Toneguzzo had worked in
Harvard’s technology transfer office, before founding a similar department at Tufts University. Her
office at MGH would serve as the primary interface between the hospital and the private sector. In
addition to its technology transfer efforts, CSRL was responsible for negotiating and executing
agreements to access materials, funding, and resources at MGH. See Exhibit 4 for the new group’s
organizational structure.
CSRL’s responsibilities were broad. CSRL tailored each agreement, for funding and materials as
well as licensing agreements, to the specific needs of the MGH researchers and the company
involved, but ensured all adhered to MGH policies; agreements could not infringe on the academic
11 www.mghra.partners.org/overview.html accessed March 3, 2004.
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freedom of researchers.12 Case managers were responsible for guarding against potential liabilities to
MGH, and ensuring that the hospital’s IP and tangible assets were protected. CSRL also reviewed all
consulting agreements by MGH staff. More generally, CSRL served as an in-house resource on all
facets of relations with industry, and helped educate investigators and researchers on technology
transfer issues. Toneguzzo and the associate directors were also involved in complex litigation
issues. See Exhibit 5 for trends in CSRL activities.
As government funding for the life sciences grew at an unprecedented rate during the 1980s and
1990s (see Exhibit 6 for federal R&D expenditures, by discipline; Exhibit 7 for NIH financing),
pressure on Toneguzzo’s office intensified. At MGH alone, NIH research expenditures increased
four-fold in the decade to 2003, to more than $200 million. Over the same period, research conducted
by academic scientists was seen to be increasingly relevant to the emerging biotech sector, as well as
to pharmaceutical companies. More recently, the need for increased interactions with academic
scientists had prompted major pharmaceutical companies such as Novartis and Merck to relocate
substantial segments of their research operations to the Boston area. At US academic institutions, the
passage of the landmark Bayh-Dole Act13 in 1980 also accelerated the filing of invention disclosures
which grew from 6,337 in FY 1991 to 15,573 in FY 2002.14
The process of bringing an MGH discovery to market traversed several well-defined steps. First,
inventions with commercial potential were identified, through invention-disclosure forms that
investigators submitted to CSRL. A case manager assigned to each new disclosure would then work
with each investigator to assess the discovery’s commercial potential. Case managers oversaw the
decision-making process leading to patent applications, which were filed by patent attorneys hired
by CSRL.
Once promising technologies were identified and patents filed, Toneguzzo and her staff worked
in cooperation with researchers to develop a commercialization strategy for the invention. Case
managers might conduct market research to identify potential industrial licensees. In other instances,
investigators had already identified potential licensees. Exclusive licenses might be granted where
technology development was unlikely to proceed without one, as with therapeutics, for instance.
As the 1990s drew to a close, MGH’s commercialization activities began to bear fruit. Royalties
from Enbrel, a therapeutic protein for the treatment of rheumatoid arthritis and other related
diseases, began to contribute to MGH’s income stream in 1999. Marketed by Amgen, Enbrel was one
of the hospital’s first major therapeutic products and was based, in part, on key technology
developed by Seed (through Hoechst funding). Other key revenue-generating technologies included
cross-linked polyethylene for artificial joints and inhaled nitric oxide. These three inventions, all a
decade or more in the making, accounted for more than 75% of the $46 million MGH earned as
license income in 2003. Indeed, over the past two years, the top 10 inventions accounted for more
than 97% of all license income. See Exhibit 8 for trends in total license income at CSRL, Exhibit 9 for
the volume of invention disclosures leading to licenses generating income, and Exhibit 10 for the
relative contribution of top 10 products to royalty income.
12 All agreements between MGH and industry had to protect the researchers’ freedom to choose subjects and directions of
research; to publish, communicate, and discuss research results; and to collaborate with other investigators.
13 The 1980 Bayh-Dole Act passed by the US Congress aimed to promote innovation, economic development, and US
competitiveness. The act focused on inventions created with federal funding and allowed universities and other non-profit
institutions to retain rights to and profit from such inventions.
14 AUTM licensing survey, FY 2002
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By FY2003, royalty streams at MGH had increased sufficiently so that even after the annual cost of
running the MGH CSRL office was subtracted from the hospital’s 25% share of royalty and license
income, more than $7 million remained.15 Such funds were particularly valuable since they were not
earmarked and, so, could be used to fund a broad range of activities at the hospital.
Debating CSRL’s Mission
Within this context, debate had escalated within MGH over what role exactly it should play in
delivering medical advances to the public, and what should be the primary focus of CSRL’s efforts.
Bringhurst highlighted the value of income derived from CSRL’s technology transfer activities:
It’s fair to say that there is no articulated goal of the [CSRL] office which stipulates that
financial success of a scientific idea is most important…. And while we’re not in the business of
making money, we have a mission that is not adequately supported. So there has been an
institutional buy-in for MGH to reap at least some financial benefits in the form of royalties
and licenses, and there has been a discussion of holding equity at the institutional level to keep
the enterprise moving forward.
The hospital’s research committee would very much like to be able to provide interim financial
support for some projects, as well as support for core labs and special innovative projects that
are high risk and which NIH would never approve. We would like to tap into the revenues
from commercialization activities at MGH for the sake of the whole community.16
But if CSRL were to focus primarily on income generation, Toneguzzo believed it important to
understand the impact that decision would have on the service her office could provide to
investigators. She explained, “If I’m going to concentrate on maximizing revenue, then I’m going to
focus on a subset of inventions. I may not be able to pick all the winners, but I should be able to pick
some good ones. But we won’t be able to support all inventions equally. We will be forced to
relinquish some inventions, and tell some inventors, ‘Sorry, we can’t work on these.’”
In early 2003, following the release of CSRL’s 2002 annual report, the hospital’s General Executive
Committee convened a taskforce to clarify CSRL’s mission. Toneguzzo wanted guidance on what the
specific aims and focus of her office should be. Where exactly should “income generation” fit within
the overall goals and priorities of the hospital and Partners? CSRL might be judged by the good it
accomplished for society (without consideration of the financial return to MGH), or it could be
evaluated by the revenue it attracted. Alternatively, the success of her office might be gauged by the
service it provided to MGH investigators. There were several instances where Toneguzzo believed
CSRL was faced with choices between ‘doing good for the public’ versus maximizing revenue. See
Exhibit 11 for some of these examples.
However, some at MGH did not believe that revenue maximization as a goal necessarily was at
odds with a focus on ‘doing good’. Seed argued:
If you naturally prioritize technology innovation by its impact on society, you will find almost
invariably that discoveries with the biggest impact have the biggest return. If you get into
15 However, when the cost of running the Partners CSRL office was subtracted from the Partners’ share of license and royalty
income (derived from the MGH and BWH), less than $3 million remained in contributions to the institution’s non-operational
16 Case writer interview with Richard Bringhurst.
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technologies for third-world hygiene or other similar kinds of advances [with low financial
return], then I’d be all in favor of that. But [MGH’s] metric should be maximum impact on
society. And dollars can be a good proxy for [such] impact.
In the end, the taskforce concluded that, “income generation, while important and an expected
outcome, is not the sole strategic goal of technology transfer—doing good is at least as important as
doing well.” Moreover, CSRL had to maintain an equal focus on research support and technology
transfer activities. The conclusions of the taskforce, William Terry, VP of CSRL at Partners observed,
meant that:
Basically, CSRL [at MGH] has to do everything. But I would say that one place we’re not
egalitarian is in terms of looking at technologies and where to invest resources. We make some
estimation of what the bang is going to be in terms of return [on investment] and that’s where we
put our efforts.
Toneguzzo interpreted the task force’s ambiguous language to mean that financial considerations
were not the sole aim of her office. Her office would not negotiate so severely as to maximize
revenue; it was more important that the deal be closed on equitable terms and the technology be
transferred for further development. In November 2003, the Executive Committee on Research voted
to accept the taskforce’s conclusions.
To increase revenues, Toneguzzo anticipated more deals in the future. “We can do more deals
once we have the infrastructure in place and everything is working smoothly. We’ll get a bit [of
money] on each deal, but we’ll have a lot of them and sooner or later something is going to hit”.
Some, however, believed that such efforts to market and license MGH technologies were misguided.
One investigator declared:
Industry ain’t dumb. When they see great ideas, they buy them. To be honest, there are not
that many great ideas here. There is a view around that many great ideas are dying here. But
there’s no evidence of that. Great ideas break through and move across. I don’t think there are
gems that are laying a-waste because no one will develop them. It’s possible but it’s a low
probability [event].
Protecting patients and academic prerogatives: Policies on Conflicts of Interest
All faculty and staff at MGH were bound by the Harvard Medical School (HMS) Policy on conflict
of interest or the Partners policy on conflict of interest, which was very similar to the HMS policy.
Developed to avert the actual or perceived influence of financial interests on patient care and
academic pursuits, the HMS policy was reconsidered from time to time by the dean of HMS. The
dean was advised by a committee charged with reviewing the rules.17 The policies, considered
among the strictest in the US, prohibited investigators from participating in any clinical research (i.e.
research involving human subjects) on a technology owned by a company in which the investigator
possessed any financial interest. This included holding an equity stake or maintaining a consulting
17 There had, thus far, been two attempts in the 1990s to review and modify the policy. In 2000, the HMS committee charged
with reviewing the guidelines proposed that investigators holding an equity interest in a company also be able to receive
sponsored research support from the same company for basic scientific research which did not involve human subjects. Those
engaged in clinical research involving patients could receive greater financial interest than currently possible through
consulting agreement, though they could not hold an equity interest in the company. However, a day after a gene therapy
patient at the University of Pennsylvania died, the proposal was withdrawn and no changes were made to the policy. It was
later revealed that the lead clinical researcher and the institution had financial ties to the company developing the therapy and
potentially stood to profit from the research.
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relationship with compensation above certain de minimus levels. In conducting research not
involving human subjects—that is, basic research—an investigator was prohibited from receiving
sponsored research support (in dollars or in kind) from a company in which the investigator held an
equity interest. See Exhibit 12 for the complete HMS policy.
If, for instance, an investigator held equity and received sponsored research support, Ronald
Newbower, Senior VP for Research and Technology at Partners, explained, “The concern is that the
equity of a company does not necessarily reflect substance, it may be hype, and it’s the volatility that
makes it disturbing. The market cap[italization] can increase a hundred fold based on one seemingly
promising lab result which may or may not prove to be reproducible.” The concern was that the
investigator would then be in a position to bias research results in a manner where he or she could
reap financial benefits. Still, financial gain was only of many factors that could lead to bias in
research. As Seed observed:
I’ve seen many examples of misbehavior among scientists for personal gain and rarely was
money involved. I don’t think money is the evil that’s going to suddenly impel the Jekyll side
of people. I see that people have an internal barometer that tells them what’s ok and what’s
not ok. And whether money is involved, or whether it is fame, prestige, or advancement that
are involved is really a bit immaterial. People will misbehave when there is something they
really want.
Nonetheless, he, like others, conceded that the public’s trust was particularly sensitive to
perceived bias motivated by financial interests.
Protecting patients
Concerns relating to the influence of an investigator’s financial interest were particularly acute in
the clinical research arena. Warren M. Zapol, Chief of the Department of Anesthesia and Critical
Care at MGH, believed that HMS was right to maintain its conservative COI policy. He elaborated:
I worked on our technology (inhaled nitric oxide as a therapeutic agent to dilate pulmonary
circulation) for ten years before we got FDA approval and we’re now receiving royalties of $6
million a year. If you held stock and were taking care of a patient, you would never know
when you made a decision to start or stop your investigational drug, if your decision was
based on the patient’s disease or what your [financial gain] would be. If you didn’t report
something, or if you said a side-effect was not important, we would never know if you made
that decision because the stock price would go down…it requires leaving the money on the
table and saying that I need the patient’s respect and the respect of my colleagues and that I
can’t make decisions if I am polluted by stock ownership…One can’t be too tough ensuring
this necessary isolation. You cannot and should not do human trials if a person or institution
holds equity.
While allowing that the potential for financial gain could influence a physician’s decisions on a
patient, others at MGH were more sympathetic to those investigators faced with the choice between
equity ownership and sponsored research funding. Investigators with expertise in a particular
clinical area, for instance, were often in the best position to develop a technology further but were
proscribed from doing so if they wanted to reap financial benefit from their research. One
investigator lamented, “From an intellectual and career standpoint that can be devastating. Great
ideas come by rarely, and now these people are taken out of the equation.”
Some believed there were ways to avert any potential betrayal of the public trust. For instance,
one investigator suggested, a technology in development could be used at MGH even if a clinical
investigator held an equity stake in the company developing the technology as long as the decision
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on whether to use that technology on a patient would not be taken by those associated with or
controlling development of the technology. For instance, co-principal investigators (who did not
hold equity in the company) could be appointed to make the decision on use of the technology on a
patient. Moreover, in such a scenario, patients would be informed that someone at the hospital had a
financial stake.
Protecting academic prerogatives
Although some MGH researchers distrusted and did not favor industry-supported research at
the hospital, the institution tolerated certain arrangements in which the hospital’s research was
aligned with corporate interests. Royalty-based arrangements were considered acceptable
because they accrued following independent validation of the research. They also typically took
many years to earn and, moreover, substantial royalties were earned only when product sales
were high.
The conflict of interest policies, however, prohibited receipt of sponsored research support (in
dollars or in kind) from a company if an investigator held an equity interest in the company
because of the greater potential for bias (where a seemingly important lab result could potentially
inflate the company’s stock price in the near term).
An additional concern relating to the hospital’s interactions with industry was that the pecuniary
interests of a supervisor could potentially influence the training of students and post-doctoral fellows
in an investigator’s laboratory. Bringhurst elaborated, “A strong concern here is that we have lots of
trainees who have important career goals of their own, which need to be nurtured. Some fear that the
presence of corporate-sponsored support in a lab may in some way change the direction of the
trainee’s research away from what might be considered an ideal career trajectory.”
Interpreting Conflict Of Interest policies
Over the years, the Partners Professional and Institutional Conduct Committee (PICC) had
developed a substantial case log that defined the institution’s conflict of interest policy in broad
strokes. Made up of trustees from member institutions and some faculty, PICC typically met every
six weeks to debate cases in which the COI policies were unclear. Many at Partners and at MGH
firmly believed that decisions on the implementation of the institution’s COI policy had to be made
by disinterested people—not department heads—at a sufficiently high level so that the process was
not politicized. As Newbower explained, “The [members of PICC] are not thinking about their own
department or whether they’re going to lose a faculty member. They take the long view.”
Others held that the committee was excessively conservative and, “so ready to see problems that it
was a struggle to move forward.” These investigators and administrators believed that the current
COI policy was, more often than not, interpreted too strictly. “They’re [PICC] still of the philosophy
that we shouldn’t let anything bad happen, even at the interface where they can interpret the
Harvard rules liberally”, observed one senior investigator who advocated creation of a different
committee that would vet such issues. For instance, if a company received money from the US
government’s Small Business Innovation Research program, and used the government funds to subcontract research to an investigator, PICC viewed such funds as company money. The NIH, in
contrast, had excluded this as a conflict. The situation had arisen more than once but investigators
were bound by PICC’s ruling.
In another instance, an MGH investigator was faced with an opportunity to receive substantial
support for his research program from a particular company. The investigator was also a member of
the board of directors of the parent company and retained an equity stake in the parent firm.
However, although the investigator only had an indirect financial stake in the sponsoring company,
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PICC viewed the proposed research support as equivalent to receiving research support from the
parent company. So, the investigator had to choose between receiving the sponsored research grant
and keeping his equity stake. He chose the latter and the sponsored research agreement went to
another institution.
The HMS COI policy also considered the receipt of research reagents from a company as
equivalent to sponsored research support (with the reagents seen as ‘payment in kind’) when an
investigator held stock in the same company. Seed recalled the time he received two shipments of a
particular reagent from a company in which he held stock. The receipt of these two “gift” shipments
from the company posed no problem but after the submission of an Material Transfer Agreement
(MTA) for the third shipment, CSRL contended that the reagent transfer was disallowed because the
reagents were ‘payment in kind’ (even though the earlier shipments were still, Seed maintained,
‘payment in kind’). He explained:
If you create technology in academia and if you’re in the Harvard system and you want to create a
company, then as a lab [within the Harvard system] you have a difficult time working with that
company. There is this wall and goods can’t flow back and forth because of the [COI] rules. But
the weird thing is that if you exchange materials as gifts, it’s not a problem. That can continue
indefinitely. If there’s an MTA, then there’s a problem—somehow the existence of an MTA makes
it a payment in kind.
However, as Toneguzzo explained, the presence of an MTA, which defined the rights of the
company relating to the materials and their use, had created a quid pro quo that did not exist when the
materials were exchanged as gifts. While a one-time exception was made which allowed the reagent
transfer to Seed, the policy remained unchanged. Later, faced with a similar situation, Seed simply
chose to inform a company he co-founded (and in which he held stock) that his lab would infringe on
the company’s patents. Such policies, he maintained, were the primary reason he had chosen not to
create a company based on technology being developed in his lab.
It was also unclear, until recently, how the returns of an institutional equity sale would be
disbursed to investigators in certain cases. MGH, like other hospitals in the Partners system, owned
its IP and held equity in start-up companies that were based on technology developed internally. See
Exhibit 13 for a list of MGH startups and equity holdings that the hospital retained. Importantly,
MGH did not hold equity in any companies that sponsored clinical studies. Likewise, investigators
could not perform clinical research on technologies owned by companies in which the hospital held
equity. While no policy existed as yet for the conditions and circumstances under which institutional
equity could be converted,18 a key question was whether an investigator who had opted to receive
sponsored research support over an individual equity stake could receive the 25% of the institution’s
equity interest when it was converted in the future. A recent clarification of the COI policy by PICC
concluded that this scenario was little different than an investigator having a direct equity stake in
the company. Toneguzzo disagreed with this interpretation, contending that control over the sale of
an asset determined ownership—hence, the institution’s equity was not equivalent to an individual’s
equity stake. Further, as Terry and others noted, the decision meant that, “there is a disincentive for a
primary investigator to receive any sponsored research [support] because there is no upside for
18 The trustees of the institution were charged with determining the conditions and circumstances under which equity could
be converted but, as yet, there had been no set policy. As a result, MGH had by and large simply held onto its equity holdings
and, as Terry observed, “the value is never realized….We do startups and [while] lots of people get nervous about equity, our
only incentive to do a startup is to get equity and then optimize the value.” In addition to liability issues, a major concern was
that proceeds from an equity sale would flow either directly or indirectly back to the original science or affect the investigators
advancement. However, many believed it was possible to design a process that averted such problems.
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them.” Indeed, when presented with the choice, investigators were increasingly opting to take an
equity interest rather than sponsored research support.
Some proponents of liberalizing the COI guidelines pointed out that the conservative rules
constraining an investigator’s interactions with industry could also have an impact on faculty
recruitment and retention. Investigators would be more inclined to consider other academic
institutions in the US with more liberal policies. Most, however, did not see this as a real concern
observing that there were few who had left for whom the stringent policies may have been a factor in
their decision.
In 2003, a committee assembled to review the COI policy was convened again at HMS. Greater
sensitivity to public perception and a zero-risk philosophy appeared to have been adopted and
although the new set of rules had not yet been released most believed little would change. Instead, as
one senior administrator remarked, “There is a trend for other institutions [in the US] to move closer
to the HMS policy. It is seen as centrist.”
In 2004, the greater Boston area was widely recognized as one of the pre-eminent centers of
biomedical activity in the world. The area boasted several prominent universities including Harvard,
MIT, Boston University, Brandeis, and Tufts, in addition to several world-class hospitals including
the MGH, BWH, The Children’s Hospital of Boston, the Dana-Farber Cancer Institute and many
others. There were also numerous biotechnology companies, many of which were spawned by
academic researchers from these institutions. And recognizing the vibrant nature of the local
biomedical community and to be closer to MIT and Harvard and its affiliate hospitals, large
pharmaceutical companies such as Merck and Novartis had recently decided to shift substantial
segments of their research operations to the Boston area.
Shortly after taking office in 2001, Harvard President Larry Summers had noted, “We [at Harvard]
have to think creatively and flexibly about how to work with the private sector, how to support
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