Last week, I was contacted by an IACCM member who was struggling with questions about internal authorities related to contracts and negotiations. Their company – a large multi-national – had sought external recommendations on the role of lawyers in providing contract drafting, negotiation and advisory services. They wanted to determine the right balance between the use of the in-house legal team and granting authorities to their trained contract managers.
As brief background, this company has historically tended to use lawyers for front-end sales support and contract managers in the post-award environment. However, experience has led them to appreciate that contract managers bring a broader perspective, enriched by the practical experiences of implementation. Therefore, they are often better equipped to provide advice and avoid business pitfalls than their colleagues in Legal.
Based on this realization, they went to a top international law firm to obtain a risk assessment. They asked for advice in each major jurisdiction regarding the extent to which the role of the contract managers could safely be expanded. As the answers came in, they broadly supported a re-balancing of authorities – until it came to the US. There, they were told, it was extremely risky for anyone but trained counsel to make any decisions related to contract terms, negotiation or advice. In fact, the implication was that far from expanding authorities, they should even be cutting back on those that already exist and ensuring that every deal was subject to ‘active supervision by a qualified attorney’.
The reasoning appeared to be based on fear of the potentially disproportionate penalties generated by the US legal system and an argument that its relative unpredictability is something that can be managed only by the cognoscenti – in this case, the practising attorney. If true, it suggests that we have reached a point of major imbalance, where ‘the rule of law’ is becoming somewhat tyrannical in its application. Certainly that is a growing concern for businesses outside the US, for whom the fear of litigation within the United States has become an increasing concern. That fear is driven by the sense of unpredictability and shifting standards which make litigation a lottery.
Of course, an alternative (perhaps cynical) view is that the US has far too many lawyers and they need work. They would also prefer this work to remain highly paid. Therefore it is in the economic interests of any law firm to portray levels of risk and complexity that demand the expert intervention of counsel, whether external or internal. Grasping control over contract management disciplines is therefore just a further extension of already broadening control and influence.
My simplistic view of this is that lawyers are an important stakeholder in the contracting process, but as a specialist function they are not the natural owners of that process. Good contracting, rather like any other form of complex integration, demands a consolidation of specialist views and wider stakeholder interests. Maintaining balance is key to good decision-making and to successful business outcomes. Dominance by any specific group undermines that balance.
What are your thoughts regarding the role of lawyers in business contracts and, in particular, the allocation of roles in drafting, negotiation and contract advice?
IACCM recently undertook a study to compare the attitudes to contracting between the private (commercial) sector and the public (government) sector. It sought input on some of the key values that drive and motivate contracting personnel. It also gathered information on how contracts are viewed – for example, are they just an administrative necessity, or do they assist in generating value?
The research revealed that many core attitudes are the same, not just between public and private, but also between major geographies. However, there are substantial differences in key areas, especially those that closely relate to the generation of value and the quality of relationships.
For example, while public and private sector are pretty much neck-to-neck in their attitudes towards integrity, fairness, social responsibility and the desire to achieve value, they diverge significantly in some of the areas that actually make these policy objectives achievable. Some of these differences most likely relate to caution regarding the interpretation of public procurement rules or policy; but ironically, this caution also appears to reduce the level of public sector insight to wider risk issues.
Among the major differences were:
Private sector personnel are almost 80% more likely to be influenced by the need to promote competition and minimize operating costs
Private sector personnel are almost 70% more likely to be influenced by a drive to fully exploit market opportunities
Private sector personnel are 34% more likely to take a holistic view to minimizing operating risk (financial, legal and contractual)
Private sector personnel are 25% more likely to place value on building customer or supplier loyalty and showing respect for trading partners
For a copy of the full report, contact info@iaccm.com
There are many people with a Contract or Commercial Manager job title. IACCM research shows that a large majority enjoy their work. They find it fulfilling due to its variation and their sense that it is making a real contribution to the bottom line. Most believe that what they do is special and somewhat unique – for example, a large number think it is not a skill that is readily transferable between industries or from buy-side to sell-side support. Indeed, a significant proportion (especially in the more senior ranks) perceive their underlying knowledge as something that can be gained only through experience, not through education. There is strong resistance to the idea that there could be meaningful university qualifications and graduate entry to the world of contracts and commercial remains very much the exception.
Given this summary, it is not surprising that few can quickly describe their role. Even less can clarify its precise business value (except perhaps in a context of the bad things that might have happened if they were not there). And most are surprised when senior management questions whether the expense of contract and commercial management can be justified.
Dipesh Taylor, an IACCM member based in the UK, was fascinated about the attitudes of practitioners to their job and the extent to which they understood or welcomed moves towards professionalism. He worked with IACCM staff to develop a survey exploring contract and commercial management as a career. The results will be the subject of a webinar on July 18th (visit http://www.iaccm.com/events/register/?id=1687 to register). Once more, they confirm the enthusiasm that practitioners have for their role, yet also the weaknesses – and the threats – that come from a continuing lack of professionalism. It is far from clear how people develop in this role, or where staff of the future would come from. Perhaps most important, there is no evident commitment to research and continuous improvement.
As society develops, jobs tend to disappear. Professions have continuity. It is important for contract and commercial practitioners to decide – are you performing a job, or are you part of a profession? Join the discussion on July 18th – or share your comments below.
In recent weeks I have had a number of confidential discussions with senior Supply Management staff in which they have expressed concern over executive influence in the bid and selection process.
Although the details differ, each of them has been describing an environment in which selection decisions are often not made in accordance with objective criteria, but are driven by favored relationships between senior executives. “There are some situations where you know it is not worth others bidding; and there are also some companies that are simply not in favor – they just cannot win, even if there is no good business reason for their exclusion,” commented one Director of IT Procurement.
Executive involvement in significant procurements is important and desirable. A senior sponsor is critical to generating appropriate review, prioritization of funding and speed of decision-making. On-going engagement assists in performance management, handling change and timely escalation. But there is a big difference between executive sponsorship and executive influence. The latter can be – and often is – unhealthy. It not only undermines competition, it also tends to undermine successful outcomes.
While the evidence is anecdotal, there are many who perceive a close connection between executive influence and failed projects. ICCPM highlighted this in a paper entitled ‘The Culture of Optimism’, in which they observed the tendency for customer and provider executives to mutually agree on unrealistic goals and objectives. I think the problem goes deeper. Executives simply do not have the time to allocate to detail and in my experience, they are frequently impatient with those who want to be sure that everyone knows what they are doing. Executive-led procurements often lead to a lack of clarity regarding what is to be done; they often lead to a disconnect between the high-level vision and the on-the-ground reality.
Personal relationships are important, but they are also temporary. Executives move on, they change job, they retire. And this means that supply relationships are frequently disrupted. Overall, it is of great importance that executives understand the difference between objective sponsorship and biased influence in the supply management process.
Standing in the corridor near reception, I was at first a little surprised when a girl passed me on a scooter – or was it a skateboard? After all, most Legal offices are impressive, but in a traditional way. That is not the experience when you visit Fondia, just voted the best legal services company to work for in Europe – and a company from which many of us can learn.
As i walked around their offices in Helsinki, it was certainly a place I would enjoy working. Every room is different. The one where I met Maire Laitinen, a Senior Advisor with the company, felt like the den in an up-market New England mansion. Others reflected many different styles and moods, perhaps aligning with the diverse client base. For example, in keeping with Finland’s world ranking for innovation, Fondia has targeted many of the young start-ups, especially in the field of apps and software. These young entrepreneurs need legal support, but it must be practical, low-cost and on-demand, offering a place and people with whom they connect and want to visit.
The support model is proving successful. Unlike many law firms, Fondia is growing – and is determined to be at the forefront of change. For example, on August 28th they will host a ‘Rewriting the Legal Industry Summit’, capturing many of the trends and ideas that are set to revolutionize the world of the lawyer (a topic on which co-incidentally I wrote earlier this week).
Browsing the Fondia website, I was interested to read a blog, ‘What’s The Recipe Of A Great Company?’, by Managing director Jorma Vartia. The ‘recipe’ Jorma proposes is one that many functional groups should also adopt if they want to achieve high levels of enthusiasm, innovation, staff and customer retention. So here it is:
___ grams of trust
___ cups of openness and transparency
___ grams of caring and empathy
___ tablespoons of sharing
___ grams of thanks
___ cups of listening
___ tablespoons of reinforcement and feedback
___ grams of smiles
___ tablespoons of fairness
___ grams of respect
___ grams of inspiration
___ cups of responsibility
___ grams of fun
___ grams of focus, planning, targets, follow up and measurement
Jorma suggests that the precise mix of ingredients varies over time and in accordance with priorities. But he advocates that one thing you make sure you avoid is bureaucracy. I suspect the scooters and skateboards are also optional extras!
Cloud computing and Software as a Service (SaaS) have dramatically reduced the entry costs for IT and applications. They simplify purchasing decisions and allow rapid adoption and use.
However, this ‘commoditization’ comes at a price. It has made central control of IT buying a nightmare. Employees are finding their own solutions; business units are signing up for applications that meet their specific needs. The CIO is running in constant catch-up mode.
Over time, such uncontrolled activity will undermine the cost benefits that the Cloud should deliver. But more importantly, it poses a massive challenge to the ability of the business to integrate systems and data.
A number of recent articles have highlighted this dilemma that now confronts the CIO and the costs associated with integrating the diverse applications now in use. Businesses must find a new balance between the flexibility, the rapid response to user needs and the potential for innovation that Cloud and SaaS offer, versus the potential inefficiencies and anarchy that they represent.
In many ways, the situation reminds me of the challenge faced by other central control functions such as Legal, Procurement and Contract Management. They too are wrestling with the dilemma of a business that expects greater speed, flexibility and innovation, yet at the same time is concerned about compliance, cost reduction and safeguarding brand value. This is also a conflict between local empowerment and overall integration and it is clear that a new balance is needed. Mandated compliance and rigid review and approval systems simply are not sustainable.
My view is that this shift can best be achieved by the emergence of centers of expertise, or knowledge centers, that see their job not in terms of control, but instead focus on enablement. They need to use their in-depth understanding to develop and communicate policies and practices that make sense for the business. They must take responsibility for updating and flexing these rules to maintain alignment with market needs. They have a responsibility to ensure the tools and systems are in place to offer on-demand user access to templates, guidance and expert resources. Those same systems will enable oversight and support compliance monitoring and data analysis.
We have to accept that networked technologies are transforming our world and the way it operates. We are at the beginning of this journey, so continuous change is inevitable. But the priority right now is to open our eyes and realize that everything around us is moving – and we must join the migration.
The legal profession faces dynamic change. Over the next few years, the role of the lawyer is going to look very different from today.
In many respects, the legal profession has managed to resist the transformation affecting other professions for a remarkably long time. The impacts of technology on fields such as medicine or engineering have been far more dramatic. Yet as I wrote in my previous blog, much of the basic work of a lawyer can now be undertaken far cheaper and on an outsourced basis. forcing a re-think of many services. Compound that with demands for increasingly global intelligence plus the general disquiet over the level of fees and salaries, and you have irresistible pressure for change.
This pressure seems to be reflected in the announcement last week by US law-firm Weil, Gotshal and Manges (one of the top 20 in the US) that it is eliminating many of its junior lawyers and support staff and cutting pay for ‘under-performing partners’.
Among the many shifts that appear to be on the cards for the legal profession is the rapid erosion of the partner-model law firm and also increased integration with other professions, such as accountants, to offer a more coherent business service. But with so many law students still pouring out of universities and law schools, other changes appear inevitable. One of these is the likely move by many trained lawyers into the field of contract and commercial management – which is for many businesses a growing area of recruitment.
Today, legal training does not equip lawyers for this role, though of course their knowledge has some direct application. And since few universities produce qualified contract or commercial graduates, it is a natural home for a lawyer. Indeed, with contract management increasingly reporting to the in-house law department, there is a natural tendency to recruit qualified lawyers to the role.
In addition, law schools are waking up to the fact that they must expand their body of training and equip graduates to enter the world of business. With entry level jobs disappearing at an alarming rate, the need for action is urgent.
For IACCM, a consequence has been rapid growth of interest in our work from both law firms and law schools. Research, case studies and the underlying ‘body of knowledge’ that we have developed are suddenly very relevant for both new course content and new chargeable services. There is also increased uptake of our Managed Learning and certification program as lawyers seek a fast-path route to expanding their commercial competence.
Interesting trends indeed; but perhaps somewhat frightening for the largely unqualified, uncertified body of contract and commercial managers currently in business. Suddenly they face a whole new breed of competitors for their jobs.
“Chris can prepare your business/website terms and conditions for £199. In 24 hours you can have a gleaming new set of Terms and Conditions custom written for you. I just need to know your business type and anything unusual about it. I have dealt with just about every business type in my time and usually that’s all I need to get me started.”
This is an offer that arrived in my email today from a company called People per Hour. They promote a tremendous array of low-cost service providers – many of which probably work extremely well (we found our outsourced book-keeper, a qualified accountant, via this source).
It seems tempting to think about contract preparation this way. Low cost, doubtless a rapid turn-round. Yes, Chris needs a briefing – I must tell him my business purpose and any critical policies, practices or constraints. But I have to do that with any lawyer, so what’s the difference?
Well, of course I do not know the scope of Chris’s expertise. For example, what familiarity does he have with industry regulations? Does he know anything about international trade or foreign jurisdictions? How smart is he when it comes to topics such as intellectual property? But I could discover his competence levels with a few simple questions – and if all I really want is contract drafting, a fee of less than $300 for the finished product sounds rather tempting.
IACCM and its members have recently undertaken ground-breaking work in establishing the returns that can be achieved from improved contract management. Gone are the days when we have to rest our case on risk avoidance; the data clearly shows the scale of the impact on the bottom line – the real costs and revenue losses that occur when you don’t adequately manage your contracting process.
For organizations that are leading the way on raising contracting competence, clear targets are emerging – often running to benefits of several hundred million dollars. How they get there is quite simple. They start to look at contracts as a portfolio and identify the frequent sources of value leakage, the extent of the financial impact and then they take steps to plug the holes.
Since this work is still in process of gaining broad industry recognition, it is always helpful to discover other sources of data that confirm the original IACCM research. One of those is a recent report from EC Harris, a global consultancy in the building and construction sector. Their Contract Solutions and Construction Claims team has published the 3rd Annual Report on construction disputes and, I quote :
“All of the top five causes of construction dispute revolve around a mistake or failure, which makes them all avoidable to varying degrees. More specifically it is interesting to note that the causes are all directly related to contract administration”.
There are many features in common with IACCM research findings, though also some interesting industry or regional variations. I will expand on these in future blogs, as well as webinars in which we can discuss these findings and ways they can be avoided.
The real point is that research should be empowering contracts and legal groups to shift discussion in their business. It reveals quite clearly that today’s contracting practices are not an effective way to manage risk – they are actually a major source of risk.
With so much written about relationship management, you might think there is little more to say or discuss. Yet the body of underlying research is relatively sparse – and that is why I support some of the surveys that are undertaken to generate greater insight. (A current example is the annual State of Flux survey on Supplier Relationship Management – see more below).
Yesterday I was at IMD, Europe’s top business school, teaching on a program with James Henderson. Our topic was ‘Strategic Partnerships for Competitive Advantage’ and the audience was a large group of executives drawn from many world-leading corporations. As the title implies, this group buys in to the idea that ‘partnering’ matters; and implicit to partnering is some sort of ‘relationship’.
The class started by looking at collective experience that compared good, high-performing partnerships and those that had failed, or delivered disappointing results. The distinguishing characteristics were clear – clarity over mutually beneficial objectives, transparency between the parties, commitment that is sustained over time, common values and common view of the future, clarity over roles and responsibilities and mechanisms for update and change, breadth of organizational understanding and buy-in ….
Underlying these factors, many felt that there must be trust. Yet on examination, they realized that trust can be a fallacy in the business world. It requires levels of relational commitment, openness and absence of control that simply don’t occur. So while a level of trust is probably important, the real driver is economic interest. Factors such as mutual dependency, mutual profitability, complementary skills, relative competitive advantage emerge as critical to maintaining the relationship.
So what does this tell us about relationship management – and in particular, about supplier relationship management? It seems to me that many SRM programs fail at the first hurdle – they lack clarity of objectives. And if they are managed and controlled by Procurement or Supply Management, they often suffer from too narrow a perspective, an absence of transparency, limited commitment to the longer term. Yet executive sponsorship can also be a dangerous route, because it easily translates to ‘favoritism’ and has no evident basis in true competitive advantage or long-term mutual interest.
As with any successful program, relationship management depends on coherence in its purpose and its methods. We probably know what needs to be done to make it work; the question is, are we willing to do those things? And that brings us back to the survey I mentioned at the beginning. We work with State of Flux because they share the IACCM interest in a balanced view and, like last year, seek to gather perspectives from both the buy-side and the supply -side. Also, their subsequent reports and discussion groups offer great value to participants. So take some time to provide your input. If you are a buyer, then your survey is at http://srm.stateofflux.co.uk/2013-srm-survey-buy-side and if you are a seller it is http://srm.stateofflux.co.uk/2013-srm-survey-sell-side.
Commitment Matters 