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Will lawyers undermine our recovery?

August 18, 2020

People want change. Many believe there will be change, real change, as we emerge from the pandemic. Even politicians are being forced into fundamental reassessments of their policies, proving adaptive, acknowledging their mistakes and errors of judgement.

The current IACCM survey of the Most Negotiated Terms reveals a similar hunger and aspiration for a fresh approach. Commercial and Contracts professionals grasp the importance of increased transparency, better and more efficient communication, more intelligent approaches to the allocation and management of risk. They want to increase the level of collaboration between customers and suppliers because they know it is the right thing for their business and its future resilience.

Has anyone told the lawyers?

I am worried. That’s because, in a series of interviews with in-house counsel, we are hearing that many are going in the opposite direction. Take this quote from a senior lawyer in a large technology and services company as an example:

“Negotiations now are definitely different because of the future uncertainty – we are all trying to work out how best to handle it. But things go downhill once the buyer’s lawyers get involved. They seem to see these increased risks as a need to become even more unreasonable, to impose even more onerous terms on the supplier.”

The challenges created by the pandemic are universal. It did not discriminate between buyers and providers. Successful emergence requires a spirit of compromise and a readiness to work together to identify and resolve future issues. A narrow focus on protecting ‘my client’s interests’ at the expense of the counter-party is sure to backfire. Negotiation has to move attention towards terms that support open communication, reporting and governance. This includes an honest conversation in sensitive areas such as change management, rights of delay, ways to reduce the likelihood of supply disruption. Organizations that fail to address such topics and simply seek to place all risk on the counter-party either lack understanding of the market, or are operating in denial. They are probably best avoided.

A shift of thinking and approach

We know from our interviews and surveys that this problem of legal attitude is not universal. For example, the recent webinars that IACCM conducted with law firm Baker McKenzie illustrated how highly experienced lawyers appreciate the need to think across the entire acquisition lifecycle and set terms accordingly. But a universal shift of thinking and approach is urgently needed. No matter who is negotiating, they must do three things:

  1. Make an honest appraisal of their own organization’s position and the potential threats to its ability to honor commitments.
  2. Perform a similar analysis of their counter-party, where necessary asking tough questions and gathering data to understand their strengths and weaknesses.
  3. Have an honest conversation about ways they can best work together to either reduce or handle the risks they anticipate or the areas of potential weakness they observe.

This expanded view is not customary for many law departments, often because they are not involved early enough in the process. That must change. Every in-house lawyer should ask themselves whether they are doing what is needed to support growth and recovery.

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