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Contracts As A Remedy For Business Performance

March 5, 2013

When I was a child, I once had a headache and was given an aspirin. My headache went away.

A few days later, I had another medical emergency. I fell off my bike and cut my knee. I tried an aspirin. It didn’t work.

This story is of course not true. But I use it now to illustrate the point that whenever we have need for medical treatment, there is also a need for appropriate judgment with regard to the remedy or cure. The world of medical science advances through experimentation and observation which link solutions with results. We use health professionals because we believe they will fix our problem and we respect the profession because it is committed to continuous advances in knowledge.

These same principles lie at the heart of all professionalism. Whether we need an engineer, accountant or lawyer, we expect them to have developed expertise through understanding of an underlying body of knowledge. They provide value by applying that expertise to our specific situation and thereby increasing the chances that we will achieve our desired outcome.

The frustration that managers and colleagues have with contract and commercial staff is that they frequently do not exhibit these fundamental attributes of a professional. They appear to have a limited set of solutions which they apply in hope rather than with judgment. There is no evidence of research or diagnostics, except perhaps in the context of individual experience.

We apply aspirins (for example a liabilities clause) with no apparent understanding of the impact it will have. We recommend or produce form contracts, but often cannot predict whether it is likely to lead to a healthy and sustainable relationship.

The situation can be even worse when it is lawyers who intervene. When it comes to a knowledge of case law or regulation, and consequent riskiness of particular terms or the way they are drafted, the lawyers clearly have great professional expertise. But that does not translate to an understanding of the way those terms or clauses impact the chances of success. So they may be able to help us limit the consequences of our illness, but can actually increase the probability of becoming ill.

No wonder business people find contracts frustrating. What they need is expert advisors who understand what type of preventive methods and techniques should be used. They don’t want focus solely on protection when something goes wrong; they want to know how to increase the chances that it will go right. And that is where contracts and commercial staff must focus their efforts.

In order to do this, the community needs to accept the need for a consistent framework of knowledge and terminology. It must also grasp the point of on-going research and experimentation, to drive continuous improvement and added-value. Without that commitment, the role will become increasingly administrative in nature and will steadily be replaced by automation or integration into the work of others.

3 Comments
  1. Hi Tim

    Reminds me of an example of a contract I was asked to approve once. As required by our client, my team had obtained a parent co guarantee to underwrite the company’s obligations. Problem was it was worthless, since the holding company’s only assets were the shares in the operating company. No one had noticed of course! This was following the rules with no understanding of why. I even guessed that the contractor established this structure purely to satisfy clients who insisted on a PCG!

    To expand on your requirements to be a respected progession, can I suggest it is not just experience of “do this and that happens” that matters, it is knowing why, having some kind of cause-and-effect model. This is the way science develops and it gives a framework to learn from when things dont go as planned. The true scientist uses exceptions to refine and improve the theory. How often do we assume “someone must have done something wrong” rather than imprive or change our models.

  2. Well said. I have listened to comments from business people who brag about their understanding of legal terms for the purpose of sticking other organisations and people with additional risk. The idea of a contract with real agreement between parties would not be taken seriously.

  3. @Ian, I suspect the problem isn’t the lack of a model. Perhaps a flash of insight by a modern-day Copernicus might suddenly make sense of the varieties of human behavior with which contracts are concerned. But I doubt it.

    We contract professionals should take a page from the world of medicine, which has standard reference works as well as training programs for systematically imparting knowledge and values to new practitioners. In the world of contracts, we have neither (let’s say) a Gray’s Anatomy nor a Physicans’ Desk Reference, nor do we have an accepted method for systematically training newcomers in the contents of the same and how to use them.

    That’s one of the long-term hopes for the proposed IACCM Contract Protocols project, which Tim and I will be discussing in an Ask the Expert call next Thursday. (See https://www.iaccm.com/events/register/?id=1598 for details, as well as http://www.OnContracts.com/confidential-information/ for an idea of some possibilities.)

    Incidentally, Ian, I’m going to use your story in my contract-drafting class. In the software world, the unthinking, mechanistic approach that you describe is sometimes referred to as “cargo-cult programming,” a term that has intriguing historical origins dating back to Pacific islanders during World War II (see http://en.wikipedia.org/wiki/Cargo_cult_programming).

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