By Martin Lonstrup & Magnus Steen
So we have been challenged. We have been engaged by a General Counsel stating:
I want my company to do the best contracts we can, I want to be closer to the business, be an active part of strategic decisions. I want the legal department to be a valuable business enabler driving better performance on bottom line. Therefore, I want my team, my company and myself to become a leader in contract management.
The contract management challenge
Back to the challenge – we recently met up with a GC heading a quantifiable legal department at a technology forefront company. He told us that his company is innovative at the speed of the internet, taking size-able market shares and starting to trace profitability, but at the same time he had to admit that his company were “so eighties” when it comes to contracting.
We ended up helping him through the contract management process – from idea, development of business case, preparation with stakeholders, assessment of current processes, governance model, policies, contract drafting and negotiations, execution and then into post-contract with organizational set up and monitoring, to analyze and finally into termination or renewal. We strived for a 360 degree view and we looked into his and his crew’s skills and capabilities, we assessed the larger contracting team’s processes and tools as well as how the company had organized the ways it works with contracts.
Guess what – he was right … not only was the company when talking contracting in the eighties, the company also showed a nice plate of common issues, risk and mistakes within the contract management process. We gave him some sort of comfort by assuring him that the current maturity of the legal department, his company and the overall governance isn’t much worse than other companies in the market and that the potential for improvements is enormous.
After discussing and debating for a while with him, we went home and worked out a plan for his company and ended up sharing a plan somewhere close to the one set out in our article: “how a General Counsel creates value through Contract Management leadership. This was based on our assessment of his company maturity and the fact that changes in contract management takes time.
However, next time we met he told us: “This plan you have proposed – this is somewhat half baked? It is just basics – keep track of your agreements, simplified contract processes, modern and simplified contract templates, institute post contract mechanisms and so on. This I should really have figured out myself.”
We talked him through maturity model, sell-in, and change management etc. explaining that you need to have a realistic approach to this type of transformation, yes it is basic to begin with but…, for many even basic is difficult. But then he replied “What would it take to put my company at the frontier – really taking us to be among the top 10 in the world in contracting?”
We often hear other professionals putting their foot to the ground, pulling up their sleeves and start working towards the top tier. But very rarely we hear this from a General Counsel. So now there is finally somebody that is not satisfied with being at status quo!
Well, this is what we proposed to do.
The start of the contract management journey
First of all, we had to ensure that the General Counsel was ready to lead a legal department transformation and the legal department ready to step up to the challenge. This is about the General Counsel understanding the need of Contract Management ownership across the whole company. He must also embrace that this is a journey, which potentially changes how contracting is done today and that the legal department will play the role of architect rather than firefighter. There must also be a will to change and to be changed.
As acknowledge by the General Counsel we talked to the first step sounds pretty basic, but building the foundation should not be underestimated. It is like building a house, if the foundation is wrong, it will eventually lead to cracks in the structure leading to failure and additional costs – so we asked him to have respect for the first step as it sets the scene for the success and should refrain him from jumping into the classic mistakes thinking that a Contract Management tool will solve the worries. However, we told him that a contract management tool is a vital tool, but not the silver bullet.
So building the foundation, like in any other change management process, you need to establish your starting point. You can do that in many ways: investigate how things have been done until now, interview relevant stakeholders across the organization and potentially do a formal contract management maturity assessment in order to understand current situation.
So where are we heading?
Our next valid question would then be, so where are we heading? This is really the ten thousand dollar question and something that needs to be deeply considered. What started the exercise in the first place? Compliance issues? Unable to locate important contracts? Having paid too much for services? General housekeeping concerns by management? Here it is important to set the right level of ambitions, preferred to achieve something rather than die trying and this is not the same as the company lacking ambitions.
We wanted to ensure that the plans would be realistic – so we set up milestones as the plan would address the entire Contract life-cycle ensuring that successes would be delivered continuously as the project moves ahead.
We also stressed that goal-setting is an iterative process between goal and capabilities. By the way, we made it very clear that there is no checklist. One level of Contract Management could be sufficient in one company but not in any other. We discussed the ambitions, goals, milestones with management and set up a realistic plan that develops together with the organization and company. We didn’t want to end up with a plan overshadowing the company’s own growth plans because this exercise is as much a stakeholder exercise, as a contract management exercise and we knew that if pitched in a way that doesn’t fit the company culture and history – it would most likely get the opposite attention from stakeholders and fail!
Our General Counsel asked to be top tier in contracting. This is really not a measurable goal by itself – it has nothing to do with the style on contracts, what Contract Management tool you end up with, the number of clauses, or if we have the most favorable clauses. The only way to measure is to understand whether the contracts are delivering the anticipated and intended value to the company.
Once the road-map/plan came in place and was agreed with management, we needed to assure that project leadership was assigned in order to secure ownership of the change management process. The General Counsel needed to step up here and represent the entire company and play an active part. It was regarded as basic but the effects we saw was mind blowing. We have seen this before – General Counsels who have had leading roles in Contract Management or legal transformation projects are suddenly being seen differently by the organization as an vital part of the business and he and his team are being included into business relevant discussions and decisions where the General Counsel never were invited to participate in the past.
Setting the team for success
With the leadership in place, the General Counsel taking the lead – it is key that the organizational capabilities are considered. Do we have the right people with the right skills and attitude in place to do the transformation? Do we have any existing Contract Management systems to consider and if not, do we need to consider searching for a Contract Management system as part of the initial steps or wait until the organization, governance model and processes are in place? Well, it depends on the maturity of the organization; some companies are relatively advanced on the capabilities, existing policies and procedures and able to start the search of a Contract Management tool in the very beginning of their Contract Management project. Very immature companies without governance and processes in place might benefit from pushing the Contract Management tool investment to later in the project in order to avoid having to fit the company to the system and instead being able to search for a system based on company requirements matching the level of maturity. Some companies may need to start with a contract discovery system just to show some value to justify the project.
Securing the buy-in
The last and probably most importantly was to make sure that the project was truly cross functional and covers the entire contract life-cycle by establishing a project team consisting of all relevant stakeholders involved in the life-cycle of the contracts in the company. We also ensured an overall project steering committee with a few of key management stakeholders as the decision board in order to secure complete buy-in to our change project.
So with that, the foundation was established and we started to talk about #bettercontracts with the General Counsel.
We will return to the contents of the project in the next article and in detail cover the road-map and proposals that we put in place for each category that we worked through.
The authors of this article, Magnus Steen of Contract Business Intelligence and former deputy General Counsel of Sony Ericsson has worked with transformation of legal departments in several companies, provided advise to several global companies on how to initiate cross discipline Contract Management programs including systems and establishing governance, processes and procedures and Martin Lonstrup, a Danish Lawyer, having worked with contract management and legal for the last 9 years, founded the Danish Contract Management Association (DCMA), former Chairman of DCMA. Martin has worked with operational contract life-cycle management in different companies and industries, implementing legal department governance models, policies, CM processes, CM tools, compliance, legal processes, financial optimization. Most recently Martin has in the role as Senior Legal Counsel and Business Lead on implementing a new contract management tool in the Maersk Group globally across +16 business units, +120 countries and +16 ERP systems before moving to a new position as Senior Legal Advisor & Contract Management within the Maersk Group in Maersk Oil Houston.