Key Takeaways:
- Letting go of low-value, non-legal tasks is a first step to improved commercial contracting.
- Defining the steps that will increase deal velocity will get faster buy-in from the business.
- Managing the change to more business empowerment requires some planning.
Yes, but what if the sky falls?
Lawyers have long been recognized for their risk-averse nature, a trait deeply ingrained through years of education and practice.
In law school, students are trained to meticulously identify every conceivable risk in hypothetical commercial transactions. The more risks we can pinpoint, the better our grades. This mindset is carried into our professional lives at law firms, where clients pay a premium for us to provide comprehensive analyses of potential pitfalls. The longer we spend scrutinizing these risks, the more we earn. Thus, the incentives to maintain a risk-averse stance are substantial. So, why would we consider doing things differently?
The reason is simple: this traditional approach often stands in stark contrast to business objectives. As legal advisors, we fall short if we deliver legal advice without aligning it with the overarching business goals. This disconnect is why legal departments often gain the reputation of being the “department of no” and why business partners frequently circumvent us.
Over the past decade, however, there has been a noticeable shift towards legal teams embracing smart risks. The role of in-house counsel has evolved significantly, but there is still a considerable journey ahead. The encouraging news is that smart risk-taking isn’t confined to legal risks alone. Legal teams can begin their journey by tackling operational risks, easing into a broader acceptance of risk.
Operational Risk vs. Legal Risk
In the realm of commercial contracting, lawyers typically focus on which contractual terms can be modified. However, there is another category of risk that often goes unnoticed—operational risks. These are within the lawyer’s control to mitigate and involve the tendency of legal professionals to overextend themselves into administrative aspects of the contracting process. The contracting lifecycle is replete with tasks that should not involve the legal team, yet too often, they do.
Letting go of these administrative tasks and entrusting them to the business is an operational risk that legal teams must begin taking immediately. Far too many lawyers squander valuable time on activities that fall outside their purview. By viewing commercial contracting as a series of activities, it becomes apparent how Legal can assume some risks without the burden of taking on legal risk (at least initially). In-house lawyers often over-function because they feel they cannot rely on business owners to handle contracting-related tasks. Conversely, business owners are often content to defer these responsibilities to Legal, handing off tasks that should rightly belong to the business.
Which Operational Risks to Assume First
If you find yourself chasing people for signatures, tracking final signatories, and endlessly searching through executed contracts for terms, then you’re doing too much! Free yourself from these tasks. There are individuals within your company who should be handling these responsibilities, and they shouldn’t be part of the legal team, especially if it consists solely of attorneys.
Depending on how your legal review policy is structured, a contract may be routed to legal or another contracts function. Or it might be self-service by the business owner. Either way, once you have completed your work within the four corners of the contract—drafting, redlining, negotiating—you should hand off that final negotiated document to someone in the business to manage the signing, storing, and managing. While this may seem easier said than done, with the right approach to change management, it is quite feasible.
The benefits to the legal team are immediate, as lawyers are relieved from having to waste their time on low-value tasks. In fact, lawyers who spend time on these tasks are arguably misappropriating very expensive internal resources, given that they are among the highest-paid professionals within companies.
Balancing Business Enablement with Business Resistance
Stepping away from certain tasks requires that someone else steps in. It can be challenging to let go of tasks when you’re concerned about who will perform them as well as you have. And that is precisely the operational risk you should be taking. Assuming the risk that someone else may not be as effective as you have been is the best first step towards later taking on risks within the contract itself, which can also be broken into two categories: legal terms and business terms.
Once you’ve taken the leap and are ready to let go, you will find that business owners are not thrilled about this new empowerment. In fact, many see it as added work. This may be true. It may indeed be additional work. However, it is work they should be doing, and it’s your responsibility to remind them of that and enable them to do it.
Tackle this resistance with a business-first perspective: increased deal velocity! The business craves speed and predictability, and our task is to deliver it. Communicate how these tasks are more efficiently executed within the business and explain how you intend to help them take over these steps before you walk away.
Three Tips to Nail Change Management
Changing how people interact with contracting is no small feat and depends heavily on effective change management. Take the time to plan for this change by:
- Identifying the stakeholders involved in the contracting process.
- Crafting a clear value proposition that articulates why this shift benefits the business.
- Preparing the necessary materials and resources for the business to take on new responsibilities.
By doing so, legal teams can transition from being perceived as obstacles to enablers of business objectives, aligning more closely with the strategic goals of the organization.
Check out these helpful resources to help you along the way, including a legal review policy template, RACI matrix, and CLM worksheet.
One Response
Thank you Lucy – then there are businesses like ours where the entire contract function resides outside of Legal. Our healthcare (PBM) contract management team manages all three contract lines (sell-side/payer, buy-side/supplier, and pharmacy contracting) as well as procurement and vendor relations – all within the Finance department. We outsource pharmaceutical manufacturer rebate contracting to aggregators/intermediaries but we manage the contracts with those entities. Years ago when I only supported sell-side contracts I reported to the GC. Once I was asked to take on the pharmacy (provider) contracts and buy-side contracting (as well as build the procurement function) I was moved over under the CFO. We will handle 95% of all contract issue, redlining, negotiation, closure, signatures, etc. and bring in our in-house counsel (a couple of whom started on my contract teams) as needed, or when the other party has legal representation. Our model works well and allows Legal to focus on their many assignments. I certainly agree that in-house counsel who have developed high business acumen and balance the many aspects of risk (legal, operational, financial) are extremely valuable – so I take pride that those attorneys who were once part of my teams are now supporting our GC and AGC in the Legal function. It also makes our jobs in Contract Management & Procurement much easier when our Legal team has those skills. Interesting story is that my experience working at a big LA law firm while finishing a degree led me to pursue my MBA – looking back it might have been different if I was exposed to the legal profession from an in-house perspective, but after that experience I had no interest in pursuing a law degree.