Maintaining Balance: Building Trust
Is executive management losing its grip?
The speed of change in today’s markets makes top jobs increasingly demanding. Maintaining the right balance between control, collaboration, empowerment and innovation is a tough task. Yet that is also what executives are paid to do. And an increasing number are getting it wrong.
I am observing a growing number of corporations – especially US-headquartered multi-nationals – where the Legal organization is gaining increased power. And they are exercizing that power with a renewed focus on standard terms and conditions that are blatantly unreasonable and confrontational. Some are doing this on the buy-side, others on the sell-side – and when these two perspectives meet in the market, the only people who are empowered to fix the probelm are …. the lawyers.
At the same time, the CEOs of these companies are talking about trust, speed, collaboration and the adoption of ethical standards. With the exception of ethics, these are qualities and characteristics notably absent from the measurements of the typical legal group.
The issues surrounding today’s global trading environment, the uncertainties, the regulations, the speed of change – these understandably make executives nervous and open to the argument that ‘we must get tough, we must have stronger controls’. Yet at the same time, those executives recognize the need to engender trust, to encourage innovation and to build brand reputation.
Sadly, few appear to understand that these qualities and attributes require a careful balance in their company’s policies, practices and rules. Success in today’s markets demands a combination of fairness and firmness that is lacking in most legally-driven cultures. Lawyers assume failure; they are protecting the business from catastrophic consequences when things go wrong. Their task is not to focus on structuring relationships or governance systems that increase the chances that things will go right, nor are they typically accountable for the economic outcomes of the deals that are transacted.
As lawyers gain control over contracting and the principles under which negotiation will occur, they also create an environment that potentially destroys trust, collaboration and the framework for honesty and transparency. This undermines the value that can be achieved from the contract, because it creates a confrontational and protective relationship. focused more on the allocation of fault than on the mechanisms for success.
Risk experts flourish in an environment of fear and uncertainty. True leaders recognize that uncertainty represents opportunity. So while the Legal function is an important stakeholder in contracting policy and practice, it is but one of several interest groups and allowing it to have ownership of the ‘the contract’ is an extremely dangerous and risky step, unless accompanied by increased accountability for contract outcomes.
In today’s environment, where contracted relationships are becoming the life-blood of corporate performance and competitivemess, the failure of executive management to recognize the importance of contracting – and their readiness to allow one pressure group to gain control – is an indication of the struggle that Western corporations will have in maintaining competitiveness. This importance and complexity means that executives must focus on the management and measurement systems that will induce ‘good practice’ in the formation and management of trading relationships.
IACCM studies, as well as those of groups like CAPS, suggest that relationship and communication skills will rise to the top over the next couple of years. These will be accompanied by a new level of accountability and on-going governance. Some Legal groups recognize this and either a) step up to the challenge (e.g. BT, Hewlett-Packard, LGE), or b) step aside and allow others to lead the transformation.
Sadly, a few miss the point altogether and use a period of heightened risk and uncertainty to drive functional power and interests. In ths, I am sure they are not alone. But that does not make their behavior right.