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How General Counsels Benefit from Contract Life-Cycle Management

A Corporate Leadership Role

The modern role of a General Counsel (GC) is both as a corporate lawyer and a business executive. General Counsels are no longer limited to a reactive role overseeing litigation farmed out to law firms, but instead are key members of the corporate decision-making team. For many, they find the job unmatched within the legal profession, both from the demands placed on them and the rewards they receive. The job offers enormous opportunities for innovation, leadership and decision-making at the highest levels—especially as companies have gone global. Over the last 20 years the role and responsibilities of GCs have changed remarkably.

The Speed of Change

As the speed of change has accelerated and the breadth of responsibility has grown, the GCs of today must be equipped to respond immediately to corporate needs. When you need to manage risk and ensure compliance, the world moves very quickly. Heightened attention from shareholders, the public, and U.S. and foreign regulators means companies face unprecedented scrutiny of everything they do. Failure to comply with laws such as Sarbanes-Oxley, Dodd-Frank and the Foreign Corrupt Practices Act—which makes it a crime for American companies and their subsidiaries to bribe foreign authorities—can lead to severe consequences, including fines and criminal penalties for board members and officers. With more aggressive regulatory enforcement, compliance and risk management have become a prime requirement of board oversight and GCs have become a key advisor to both CEOs and to Boards of Directors.

With such broad, diverse responsibilities, how do GCs manage to keep abreast of all of the areas for which they have oversight? Part of the answer is through adoption of highly effective tools that take the guesswork out of risk assessment and discovery/forensics, allowing insightful recommendations to be made quickly and effectively. This frees up bandwidth to deal with other pressing issues. One such tool that helps General Counsels to respond quickly is Contract Life-Cycle Management (CLM).

Enterprise Contract Reliance

Whether they are with customers, partners, suppliers, the military or government, contracts represent the life blood of any enterprise, large or small. Without a reliance on contracts, the predictability necessary to manage staffing commitments, make capital purchases and strategic plans and to report to shareholders with confidence all, but disappears. Despite this, the number of companies who misunderstand their liability exposure and are managing their contracts in uncontrolled ways is surprising. In certain cases this results from assumed ERP functionality that is minimally used, not used at all or incapable of accommodating a company’s unique business processes.

Enabling Smarter, Better and Faster Risk Management Decision Making

Three (3) Critical GC Responsibilities.

Understanding that a GC’s responsibilities include many areas that are potentially less predictive i.e. intellectual property, patent infringement, labor, employment law, etc. let’s look at 3 areas where GC’s have huge responsibility and where intelligently managing risk and governance is made more manageable through the use of a comprehensive CLM solution. These are Compliance, Liability Assessment and Liability Management. We’ll discuss how CLM solutions can help GCs make smarter, better and faster decisions for the benefit of their companies, allowing them to more intelligently manage risk.

Compliance.

Compliance spans many functional areas, from contract origination, to approval of contract terms, to contract oversight, float up notification of non-standard agreements, predefined templates and clause libraries, to reporting.

Surprisingly, in many large companies today, the issue of contract compliance is loosely addressed through a combination of basic off the shelf business tools like MS Excel, CRM, MS Access and My SQL, with a big dose of personal conscientiousness and with a commitment to significant staffing. This approach is fraught with problems, missteps and missed opportunities, despite the best intentions and rigorousness of major stakeholders. From a compliance perspective, the first step to better oversight is to know where your contracts are located (either digitally or physically), who has responsibility for them and to have the ability to view any given contract, or the meta data associated with it, within just a few seconds. CLM accomplishes this by providing a central digital repository that allows contracts to be securely accessed from anywhere, by anyone with the proper access rights.

Despite the Best Intentions

You have no doubt seen instances where the management of contracts is supposed to utilize standard, approved boilerplate, approved language and a strict approval process, all of which at some point are subverted for what are always the best of reasons. And through that process, in many cases contractual commitments are inevitably made in error and the company must live for years with the onerous contractual obligations that are created. Good Life-Cycle Contract Management (CLM) solutions with their imposed controls and process, assure that compliance cannot be subverted. And because it is so closely controlled and because each person viewing a document, or modifying a document, changing an approval process or a commitment is automatically recorded as part of an audit trail, visibility and accountability is 100%.

Liability Management

Contract Liability Management and Contract Compliance are inexorably intertwined. Having a process in place that assures that all documents are centrally located and accessible allows better compliance control and monitoring across the entire contracts portfolio; when contracts can only be viewed by persons with appropriate access, information is easily managed and compartmentalized; strict version and approval control prevents creative or malicious individuals from causing unknown liability; events and activity alerting and annunciation assures key commitments are not missed (i.e. also, auto renewing contracts that you don’t want to be renewed, can’t be); giving stakeholders outside the process easy visibility into the process, to see where any task is at any point in time, assures better oversight and accountability, and when every action by any individual is recorded for later assessment and reporting occurs, meeting compliance standards is made significantly more easy (e.g., SOX, HIPAA). When these strictures are in place the liability associated with contract management drops precipitously.

Some systems additionally control strict exposure of sensitive information: efficiently managing discovery, subpoenas, conflict checks, and audit request, allowing the creation of virtual negotiation “rooms” to control disclosures.

One Important Piece of a Complex Puzzle

This is what a CLM management system does for General Counsels and the enterprise at large. Through the system and its enforced processes, control and risk is intelligently managed and tasks that can take an inordinate of time to research, understand and solve, happen at a dramatically lower frequency, if at all. When they do happen, they are easy to understand and act upon, freeing up time for other, more pressing issues.

Liability Assessment/Risk Exposure. An Example.

The scenario goes something like this. Seven years ago, your company makes some contractual concessions that you needed to make to land a large customer. Sales was involved in this transaction, as they are in many contract negotiations. Your standard contract was used with some modifications related to penalties, liquidated damages, and governance. One of the changes was a subtle term of art. Over the next several years the complexion of both the sales department and the legal department changes dramatically, with an entirely new cast of characters. Sales still originates contracts, but controls have become lax, both in sales and legal. So 7 years down the line and thousands of contracts later, you learn that a change in supplier deliveries, including those suppliers that are second sources, will result in severely delayed customer commit,commitments. It gets worse, because of poor contract origination and approval processes, some number of contracts, using the one-off language that was truly intended to only be a one-off occurrence 7 years prior (to limit liability), may contain parts of the changed language. The potential liability is enormous.

The Reality

In this scenario, the only way to assess company liability is to review every single contract to determine if the modified language is present. This is a hugely intensive work effort that will take weeks to resolve. Without a central repository and an effective search tool, you may never know whether you have found every contract. Comprehensive risk management in this scenario depends much too much on luck. So is that how you want to run your organization?

Today’s most comprehensive CLM solutions utilize something called “deep document search” where any word, phase, term, specific language, or value, etc. can be quickly searched within documents, even within PDF documents across an entire document dataset. Unfortunately, most CLM solutions do not support this capability. Enabled systems actually display the searched term within each document paragraph exactly where it occurs, and with the click of a mouse, you are taken to the actual page in the related document. So an assessment that would otherwise take weeks, just to accumulate and record the initial data, only takes a few seconds and no contracts are missed. This capability gives GCs tremendous horsepower to resolve such issues quickly.

Isn’t It About Time To Re-Assess Your Practices?

At a time when the need to manage risk more efficiently could not be more important, the responsibilities of today’s General Counsels are already enormous. Comprehensive CLM solutions provide an excellent opportunity for General Counsels to reign in potential liability and more intelligently manage risk. Thankfully, benefits, albeit different benefits, also accrue to CEOs, Presidents, COOs, CFOs, CTOs and to Contract Managers. And, if your believe the industry pundits, having a well implemented CLM solution in place generally results in a 5% higher contract yield. This does not include improved efficiencies and adverse risk avoidance that are additional benefits. What this means is if you are a General Counsel and you do not have a comprehensive CLM solution in place, it’s probably time you took a good look at the potential benefits.

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