There's another scenario where Laharl actually ends up joining the party. He shows up claiming to actually be over six feet tall and that Mao is the legendary Overlord that stole his height from him. They beat the crap out of one another until Mao's friend convinces them that neither are the legendary Overlord the other is looking to beat. 

This is mutually exclusive with the other one of course, but that's just how Disgaea rolls sometimes.