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Contract & Commercial Management: 18 years and counting


This week I have been overwhelmed by messages of congratulation for IACCM’s 18th birthday. It is a stark contrast to 1999, when I recall one of the more encouraging comments was: “It’s been tried before. It’ll never work.” Today, with over 40,000 members, from more than 16,000 organizations in 165 countries, I think we can confidently conclude that the pessimists were wrong. Indeed, it seems safe to say that commercial and contract management are flourishing.

Eighteen years ago, the formation of IACCM was indeed a leap of faith, but that faith was based on an evident shift in business need. The forces of globalization – and in particular the spread of networked technology – had created conditions that demanded greater standardization and simplification of commercial policies, practices and procedures. The contracting process – and contracts themselves – stood out as a major barrier for global business, with traditional multi-national companies operating through relatively independent country subsidiaries and unable to enter into multi-country commitments.

Those conditions also revealed the fragmented and inconsistent nature of contract and commercial skills. There was no consistent training, no underlying body of knowledge. The jobs and skill sets – if they existed at all – were largely undefined, except within a single company.

It took 3 years to gather more than 1,000 members. It was 5 years before IACCM had any paid staff. Still the overwhelming view was that the organization could not survive. Yet steadily, with the strong support and enthusiasm of a dedicated band of believers, the pace of growth accelerated.

Today, the conviction that got us started continues to shine through. Indeed, I believe that we are entering a second and even more fundamental phase of relevance, not only to business, but to society as a whole. This time it is the digital world that is the transforming force. User-based systems, social media, advanced analytics – these are forces that demand a new wave of fundamental simplification in commercial practices and in contract formation. Trust in business, trust in institutions is at a premium. To respond to social and political demands, both public and private sector must operate with increased commercial transparency and using methods – such as contracts – that engender confidence and understanding, rather than distrust and confusion.

Who will lead this new wave of change? For me, the answer is clear. Just as in 1999 a small band of believers led fundamental change in contract and commercial practices, so the next few years will see an expanded band leading the way in creating a framework for successful trading relationships. While many traditional roles may be challenged by the emerging global forces, those in contract and commercial management will adapt and prosper as those agents of change.

My thanks and gratitude go to all those who have been on the journey with us over the last 18 years. Today, the Association is strong, with a dedicated and talented staff, a focused and enthusiastic Board and a myriad of ambassadors among its members. I look forward to welcoming many more over the years ahead, because the journey has only just begun. At 18, IACCM has just come of age – the best is yet to be!

Join us today – become part of the IACCM family at http://www.iaccm.com

Why would company execs want the GC to report to the CFO?


An article in Inside Counsel poses the question “Why would company executives want the General Counsel to report to the CFO”? It highlights the following as potential reasons:

• The CEO travels extensively or has too many reports. Hence, the CEO wouldn’t be a good manager and there would be a lack of connection—which would be a detriment to the GC and the legal function.

• The CEO has an extremely difficult personality so the GC needs a buffer, which is best served by the CFO.

• The CFO is a more active manager and would be more effective in maintaining a stronger relationship with the GC. There is a dotted line to the CEO.

• The CFO wants the added report for his own professional development.

• The structure of the company has many other core functions reporting to the CFO.

• Because the CFO and GC work so closely together, that reporting structure is a more logical one.

• The CEO doesn’t like lawyers and wants to engage with the legal function “only as necessary.”

• The nature of the company’s legal matters does not merit a CEO report at this time.

As with any organizational debate, these points are all interesting. But it seems to me they miss a fundamental issue – and that is, the scale to which a business’s financial performance links to the General Counsel and the legal staff.

Should the Legal function grasp financial opportunity?

In IACCM’s recent ‘Purpose of a Contract’ survey, respondents were asked whether a contract should be ‘an instrument for generating financial benefit’. They ranked this purpose in tenth place – out of eleven. Arguably, this should be first on the list. Businesses enter into contracts to secure economic gains or to protect economic assets. Similarly, they care about things like regulatory compliance not for their own sake, but to avoid the financial consequences of non-compliance. Hence there is potentially a powerful argument for the GC to report to the CFO, if only to increase legal department appreciation of the key impact their role has on corporate financial performance.

My counter-argument to this position is that the GC – and legal department – is needed as a moral compass. In my experience, companies with an over-powerful finance function are the most likely to lack balanced commercial judgment.  Their focus on profitability and growth can lead to decisions that damage business reputation. A strong legal function, properly integrated into the business and with significant authority, should operate as a counter-balance. But to do that, they certainly must appreciate the extent to which their work has an economic and financial impact – so we need lawyers who are truly commercially aware.

 

 

 

 

 

Culture or competence: why is Australia different?


Compared to other world regions, Australians sees less purpose in contracts – and those expectations are mirrored in the results they perceive themselves achieving.

IACCM’s recent study, ‘The Purpose of a Contract’, is generating many interesting findings. Participants were offered eleven areas of possible purpose, ranging from value as a support for marketing, to finance, to operations and risk. In every category, respondents from Australia rate the performance of their contracts lower than any other region, by an average of almost 20%. The only areas where the sense of purpose is close to the worldwide ‘norm’ are:

  • defining rights, responsibilities and obligations. Australia is in line with the global average for purpose, but 8% below average for results.
  • governance and performance management. Australia is again in line withe the global average for purpose, but 14% below average for results.
  • a framework for a mutually successful business outcome. Australia is marginally below the global average for purpose and 18% below average for results.

Why the difference?

The only immediate clue for this variation from norms comes in the form of the write-in comments. These reveal a possible divide between views of the contract as a legal instrument, as opposed to an operational tool. There is a sense that the contract fails because of a lack of authority – and this is especially strong among those who work for large multi-nationals, where contract terms and models are perhaps imposed from elsewhere. Some comments also reflect a degree of cynicism about the role of lawyers, especially in areas such as the contract’s effectiveness as a communication tool or operational guide (each being a category where effectiveness is rated especially low).

These findings are interesting because Australia is also among the most innovative in approaches to contracting. The focus on alliances and collaborative relationships goes back almost 20 years and today there has been tremendous success in raising the quality of performance management through better contracts. So ultimately I am left with the hypothesis that these differences are a matter of culture – that the general approach in Australia tends towards greater collaboration through strong and well-defined relationships, but that this approach is often frustrated by external forces. Limited local empowerment reduces the overall effectiveness of the contract and therefore gives it a reduced purpose. This is especially notable when it comes to the role of the contract in supporting the brand and corporate values: for Australians, that certainly is not something that their contracts achieve.

 

 

Do we need contracts? Industry speaks


We all know that people have different views about the purpose and value of contracts. But what about industries? Do they also have distinct perspectives?

Based on IACCM’s recent survey on ‘the purpose of a contract’, the answer appears to be yes. And for any negotiator – especially when working across industry borders – those variations are important to understand. There is only one area in which there is unanimity of purpose – and that is in defining rights, responsibilities and obligations.

Those in Engineering and Construction and Outsourcing and Consulting place the highest overall value on contracts; those in Retail and Aerospace and Defense place the least. Why might that be?

  • The Engineering and Construction industry has a long history of fractious relationships. The contract is of major importance in communicating roles and responsibilities (including definition of scope). And given the traditional adversarialism of relationships, it also scores very high for its role in apportioning risks.
  • In the world of outsourcing and consulting, there is no tangible product, so the contract takes on a far more significant role in defining the business relationship, governance and performance management. People in this industry are also more likely to see the contract having a role in promoting their brand and its values, providing an instrument that generates trust.
  • Those in Aerospace and Defense do not see the contract as unimportant, but they are more selective in the areas where they see a strong purpose. In particular, they rate its role in supporting communication, risk management and operational guidance significnatly lower than others.
  • Retail is perhaps no surprise; in general, retailers are working with less powerful suppliers and in many cases place limited value on the relationship. Contracts are primarily focused on risk alloacation and the rights of the customer.

The table below shows the industries that considered each ‘contract purpose’ least and most important. It is just one of many discoveries that will be contained in the IACCM research report on the purpose of a contract, to be issued to IACCM members later this month.

Lowest score (Scale 1-5)
Highest score (Scale 1-5)
Providing protection and remedies in the event of a dispute 4.1 – Outsourcing / Consulting 4.8 – Eng’g & Construction
A framework for a mutually successful business outcome 4.3 – Technology 4.8 – Aerospace & Defense
A tool for risk apportionment 3.9 – Outsourcing / Consulting 4.6 – Technology
Support for a business relationship 4.1 – Eng’g & Construction 4.5 – Outsourcing / Consulting
Governance and performance management 4.0 – Technology 4.5 – Outsourcing / Consulting
A tool for risk management 3.5 – Aerospace & Defense 4.4 – Technology
An effective communication tool for those with a need to know 3.7 – Aerospace & Defense 4.5 – Eng’g & Construction
Providing operational guidance 3.4 – Aerospace & Defense 4.2 – Eng’g & Construction
An instrument for generating financial benefit 3.5 – Public Sector 3.9 – Technology
Demonstrating brand and corporate values 2.5 – Aerospace & Defense 3.5 – Outsourcing / Consulting

To view the IACCM survey, visit https://www.research.net/r/Thepurposeofcontract.

“Contracts aren’t much use to me”


As someone running a small business, that quote might be mine – but actually it isn’t. The comment came from a project manager responding to the recent IACCM survey that explores the purpose (and effectiveness) of contracts.

Overall, the survey shows that those who draft and negotiate contracts are aware of the diverse purposes they serve. They are communication tools, methods of allocating and managing risks, a vehicle for establishing roles and responsibilities. Interestingly – and of concern to some – is the relatively lowly rating of the contract as “an instrument for generating financial benefit”. The fact that this purpose comes so low on the overall list is remarkable when you consider that the key drive behind relationships and transactions is economic; without financial benefit, contracts would not exist.

But what about our project manager? He spoke for many of the operational staff who responded to the survey, reflecting a degree of cynicism about the role and purpose of contracts. In his experience, contracts often fail to give effective operational guidance. Although it may be intended to offer definition of roles and responsibilities and a governance framework, many times the contract is ineffective. That may be because it is incomplete, or perhaps simply too complicated to read and understand.

In fact, many of those responding from Legal or Contract Management roles do not entirely disagree. They too reveal a substantial gap between aspiration and reality. One question in the survey asks whether a contract should provide the framework for a mutually successful business outcome. While over 60% strongly agree that it should, only 11% feel that is what actually happens.

So unfortunately, our project manager is right to be disapppointed. But doesn’t he deserve better and could we not do more to make our contracts truly ‘fit for purpose’?

Game of Moans


The series ‘Game of Thrones’ reveals competition at its most cut-throat. Family is pitched against family in their efforts to gain power, exert influence and protect assets and interests. In spite of all the pressures and demands this imposes, one thing that is notable by its absence is moaning. These arch competitors are not heard complaining about their position or their fortunes. None of them expect someone else to fix their problems. If things aren’t the way they want them to be, they take action.

The business world is also by its nature highly competitive – not just between organizations, but also within organizations. Indeed, it is often the case that internal tensions and politics are more challenging than the competition between businesses. Functions and departments frequently compete for attention, for resources, for power and influence. Complex organizations are driven through contention systems. But unlike the response in Game of Thrones, it sometimes seems that this functional warfare is accompanied by a ‘Game of Moans’.

The Game of Moans is typified by a number of characteristics, for example:

  • Everything would be great if we were given more power
  • Everything would be great if we were given more resource
  • Everything would be great if (function x) had power taken away from it
  • Everything would be great if only the executives understood us and the value we provide

I could carry on the list, but you probably get the gist. The point is that far too often, it is more comfortable to complain and expect others to act than it is to take personal responsibility. In today’s volatile business conditions, that is a high risk approach – status (perhaps even survival) depends on becoming a proactive agent of change.

At times like this, I am always reminded of my conversation with a successful entrepreneur based in Turkey. We all know the turbulent conditions in that country, so it was not unnatural that I would sympathise with him and the challenges he must face in running his businesses. Yet to him, my comments brought only a look of incredulity. “It is at times of uncertainty that opportunities are at their greatest”, he replied.

I guess he is a good candidate for Game of Thrones. Are you?

 

 

Commercial innovation: here is how to jump aboard


Wherever we look, the business world is obsessed by change, an urgent need for innovation. In many cases, commercial innovation leads the way, driven by new technology platforms, new charging models, new commitment capabilities, digitisation of business processes, even new regulation. This translates into endless ‘calls to action’ – leaving many who perform commercial roles bemused and confused, wondering ‘Does this really apply to me?”

The truth is, behind all the frantic activity, working life for many carries on much as before. To the extent change happens, it is incremental and, in many cases, inconvenient. Should you wait to see what happens or ought you to take action now?

I am strongly of the ‘take action now’ view. Why? Because real changes are happening. They are starting to affect your business and therefore your job. By being amongst those ‘in the know’, you have the chance to be among the leaders or influencers of change.

Why am I so confident that the pace of change is now so rapid? In large part, it is because of my role at IACCM where I work with and advise such a wide array of leading thinkers and organisations. We aren’t just talking – we are doing.

Take for example this comment from one of our Innovation Award judges: “Thank you so much for giving me the opportunity to gain insight into the remarkable activities that are going on “out there” – it inspires me to strive for even higher ambition. I found it hard to judge the entries apart from one another – simply because of the extremely high standard of the initiatives contributed and amazing business impact made by the large number of brilliant “colleagues” around the globe.”

So what can you do to jump aboard and avoid being left behind? I could provide examples or anecdotes, but I truly believe it needs much more than that – you need to climb aboard the train, not just watch it going past. Here are some practical options:

1. For anyone who can make it, the IACCM Conference in Toronto on October 11-13 is surely a ‘must attend’ event, featuring numerous award-winning innovation case studies as well as dedicated ‘Ted talks’ by many of the technology providers and visionaries who are hard at work transforming commercial, legal and procurement process and practice. If it’s cost that’s inhibiting you, contact lscottheatley@iaccm.com.

2. If you can’t be there to listen, share and network, then a second option is to engage in IACCM’s on-line thought leadership communities. These expert groups are busy exploring and implementing key change programs – within industries or on key topics such as GDPR, contract automation, data analytics and skills of the future. There is no charge beyond membership – so no excuse to be left behind. Wendy Lawson (wlawson@iaccm.com) can provide more details of the many initiatives underway.

3. At the very least, you can surely find time to invest in joining the occasional IACCM webinar, either live or recorded and available in our library. These are packed with ideas, insights and examples of the many changes affecting us – and again, they are free to members (even non-members can access a limited number with no charge).

Finally, if you have specific questions or needs, simply contact info@iaccm.com. Our global team is passionate about commercial innovation and the opportunities it represents for a better future – for us, for our businesses and for society as a whole.

This isn’t just tinkering – it truly is practical and fundamental reengineering. Climb aboard!