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Tackling The Mysteries Of Law & Contract Management

January 4, 2011

I recall some years ago, when researching for a presentation, I discovered the origin of the word ‘mystery’. It was a mediaeval term, used to describe the craft guilds and their hidden practices and methods.

Those craft guilds were the fore-runners of today’s professions. Now, as then, there is a tension between the obvious merits of specialization and the maintenance of high standards of practice, versus the inclination to create barriers to entry and to resist change.

This conflict is especially evident in the legal profession and, by association, it affects many contract and commercial managers. As an article in The Economist points out (‘Offshoring Your Lawyer’), there is widespread belief that lawyers are inefficient and overpaid. In large part, this is because they often fail to distinguish high value work from routine and low value tasks. Respect for the judgment of a good lawyer can be undermined by frustration over the profession’s reluctance to innovate and its insistence that repetitive activities require the intervention of high-paid professionals.

The practice of law definitely demands thoroughness and sound investigative techniques. But so do fields such as medicine, scientific research and engineering. In each of these, there are many lower level (and lower salaried) positions to undertake supporting or peripheral roles. In addition, technology has made major inroads, enabled by a readiness to record experience and define patterns that enable the application of consistent methods to generate rapid results.

Many legal jobs are routine and could be conducted far faster and far more cheaply than they are today. The same applies to contract management. Work could be automated; it could be outsourced; it could be transferred to the client.

At present, the focus for change appears to be on the external law firm, where costs have risen and billing practices are widely regarded as unsustainable. The Economist forecasts a surge in outsourcing and a consequent ‘squeeze’ on the profession, especially in the United States (where the number of lawyers has continued to increase). This will drive many to look at careers in related areas – such as contract and commercial management. Hence we already see a growing inclination by in-house legal groups to assert territorial rights over all contract-related activity.

Lou Gerstner, when he was CEO of IBM, made the observation that ‘contract management is far too important to be left to the lawyers’. He is right. Many lawyers can excel at contract management and some General Counsel are visionary leaders. But contract management is a business discipline, requiring wider knowledge and talents than those taught to the law graduate. It demands judgments that take account of the legal issues, but are not subjugated to them. Mr. Gerstner understood this. He felt that contract management was all about brand image – that is, supporting the brand’s reputation and demonstrating its quality and trustworthiness.

Does all of this really matter? I think it does. As another Economist article (‘The Tyranny Of Choice’) points out, we are increasingly overwhelmed by the volume and variety of products and services at our disposal. Research shows that increased choice creates confusion and delays decisions. This plays into the hands of those who focus on their brand image. “Brands simplify choices. They are a guarantee of quality or consistency in a confusing market, and a badge of trust.”

So as we enter a new year, the need to improve the quality and value of legal and contract management services is pressing. And so is the importance of distinguishing between them and ensuring that each, in its own way, is contributing to external perceptions of trust and quality.

  1. Peter permalink

    Hello Tim

    Interesting read, as always.

    Lou Gerstner`s quote reminds me of Clemenceau’s famous line “War is too important to be left to the generals”
    -recited by Jack D. Ripper in Dr. Strangelove.

    “Supporting the brand image and demonstating its trustworthiness”. I am interested in that concept and to apply it by example: Dell`s recent SEC settlement; taking payments from Intel in order to avert rival AMD procurement. Up to 70+ % of EBIT in one year from the Intel “MDF” alone. Then the well becomes dry and a new dawn of indirect selling…coincidence?

    …I get a little cynical about brand and trustworthiness. Such qualities of “trust” should be kept to family and friends. In business, we know what it is all about – ROI and shareholder equity. I suppose if trust increases that return, all well and good. But when the CEO is taking the cash …hardly an example for the legal or contract management functions.

    • Yes, but there is no evidence to suggest that Clemenceau sought to exclude the generals, simply that he felt they should not ‘own’ the war. And that is certainly how I understood Lou Gerstner’s observation. He recognized that contracts must protect the business, but he also believed that they must be reflective of market needs and business capabilities. In his view, lawyers do not ‘own’ decisions over what commitments the business should be making in order to satisfy customers or attract suppliers. The truth of this perspective is evident in the reluctance for lawyers to be accountable for the effectiveness of the contract – or indeed even its efficiency. They would argue – quite rightly – that they are the servants of the business people in creating the relevant terms and conditions and that the ‘wrong’ terms come about if they are given poor or misleading information.

      Hence I believe that Gerstner was seeking to ensure accountability lay where it should lie when it comes to having ‘good’ contracts – and that is with the business people.

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