Contracts. While not always the most “glamorous” of legal work, they are an essential part of the business process. Contracts serve as a bridge between the legal and business functions. Sometimes negotiating them is straightforward, sometimes negotiating them can be a long and drawn-out process. More often than not, it is something in-between.
When I was first assigned a contract negotiation in a corporate setting, it was trial by fire. I had all the legal theory underlying contracts ingrained in my head. Yet, when faced with my first major deal, I felt lost like a sailor adrift at sea. The issue was not my legal knowledge, but something just as important.
Imagine the following scenario. You are given the outlines of a business deal and have just received a draft of the agreement from the other side. As you review, you have your list of key terms. You have a firm understanding of your company’s risk profile. You prepare the redlined agreement then send it over to the other side and hope to soon start the negotiation process assuming they are even willing to negotiate. If they are, you may set-up an in-person meeting or get on the phone, or after draft an email to facilitate the negotiation. End of story, right?
Not quite. I decided to quite unscientifically survey fellow in-house counsel to quickly gauge what the common contract pain points seem to be. The usual suspects quickly came to light: indemnification, limitation of liability, termination rights/obligations, information security, IP rights, and warranties. However, another broader and very important issue came to the fore.
Getting and keeping internal business stakeholders and legal aligned.
This is something no law school course can teach; yet, it is a major aspect of the contracting process. It often defines the contours of a negotiation and/or can redefine them. It may appear, particularly to a new or inexperienced lawyer, that your job and the job of your internal client, often someone in sales, are diametrically opposed. You want to protect and defend against legal risk. Your client wants to get the deal done and by doing so generate revenue. It doesn’t help matters that in-house lawyers are not seen as a revenue-generating function. In a traditional sense, this is true. However, by doing your job, you help companies make deals that both protect the company’s interests and bring in revenue. At the same time, the legal function also serves to minimize potential loss of revenue down the road, namely in the form of costly litigation.
So, how does one resolve this seemingly intractable issue? There is no one size fits all solution. Yet, there are some practical approaches that can make contract management and negotiations easier and more efficient.
- Balance – legal risk vs. business needs
- Each contract requires a balance to be struck between the needs of the business and the risk profile of the company. Finding a balance is not nor should ever be a zero-sum game. However, what is required is to truly understand your company’s business and understand what legal risks come into play vis-à-vis the company’s business. Lawyers should invest time into getting to know their sales teams, how they operate, how they sell their products, getting to know the products themselves, and understanding what is essential to their products, i.e. what makes their products attractive to the customers.
- Communication –open, honest, constant
- Keeping all parties on the same page through open, honest, and constant communication can do wonders to keep all parties aligned. No matter if it is an email, a text, a voicemail, each message should be tailored to its audience and be clear and concise.
- Contract Management Processes that involve all relevant stakeholders –
- As many companies are discovering, putting into place transparent contract management processes that allow stakeholders to track all contracts from start to finish.
- It is important to ensure that these processes involve and require input from all relevant stakeholders. The real key here is to ensure that these processes are not simply there to make counsel’s job easier or more efficient. Rather, the system/process must allow all stakeholders to provide input in a clear and consistent way. This not only will promote better efficiency, but also better, closer relationships and better cooperation, now and in the future.
- In addition, another key component is having a template library. This allows the sales people to be a part of the process from the beginning by allowing them to propose the contract to the other side and it allows you to feel comfortable knowing that the templates in use adhere to your company’s risk profile.
- Of course, not all companies will accept your paper, but even in that case, having templates affords you the opportunity to more quickly run comparisons and determine what are acceptable provisions and what provisions need to be negotiated.
Naturally, not all of these concepts will be as applicable in all scenarios. However, by working to ensure that the business people are on your side, you are at an immediate advantage in the contract management process.
Editorial Note: The original version of this blog post was first published on In The House, an online community for In House Counsel: http://inthehouse.org/role-of-in-house-counsel/contracts-bridging-gap-legal-business/