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Updated by Kurt Vikas and Jochen Pampel 12th ed. Despite the many resources that are devoted to the contract generation and maintenance process, the demand continues to outstrip the capacity of those resources. Sophisticated companies have pursued a number of avenues to stem the tide: adopting standards for contract drafting, using contract automation software, adopting contract lifecycle management technology, and applying LEAN manufacturing principles to legal departments, to name just a few.

However, few if any companies have questioned why we are devoting such time and resources to contracts, and whether there is a better way. There is indeed a better way, but to understand how to improve the status quo regarding contracts, we must understand what contracts are, what they do, and what impact they have on businesses.

If you ask those questions to different contract professionals, you will get different answers. Fundamentally, this typed, signed contract is a risk-management tool because each of its provisions tries to manage specific risks related to the transaction. Conventional wisdom says that contracts help to manage risk by having the parties agree on their respective rights and obligations, thereby minimizing the risk of disputes if something goes wrong.

In fact, almost every department or function in a business has a risk-management responsibility and a set of tools to help accomplish this responsibility. In many companies, these risk-management tools are constantly evaluated to determine their effectiveness, often using cost-benefit analysis.

Interestingly, companies rarely if ever employ such a rigorous and methodical approach to evaluating the utility of contracts as a risk-management tool. In searching for a cost-benefit analysis of contracts, I found some data on several large, publicly traded, international companies. These companies each reported on material legal issues affecting their businesses. For each of these companies, less than 10 percent of their reported material legal issues both in number of claims and financial exposure arose out of, or could have reasonably been prevented by using, a contract.

With these companies, contracts were not the source of their legal headaches. One response to this might be that contracts were not legal headaches for these companies because their contracts successfully minimized ambiguity and risk. Personal experience suggests otherwise. Many of my former clients in marketing, procurement, and supply-chain functions whose responsibilities require investing a lot of time in contract negotiations have asserted that they have never or almost never referred to a contract to solve a business problem with a third party.

Business problems with counterparties are almost always negotiated and, at best, the contract is a starting point for the negotiation. That trend is evidenced by initiatives like supplier relationship management and development and co-innovation. Most companies rely on their counterparties for more than a single transaction, meaning that there is little chance a contract will be litigated, mediated, or subject to arbitration. In addition, the risk-management protection that contracts afford is recourse-oriented rather than preventative. In the unlikely event that a contract is litigated, mediated, or subject to arbitration, the damage is already done—a business has already experienced a loss and whatever can be recovered through these dispute-resolution processes is likely to be much less than the losses the company actually suffers.

In this context, using a contract as a primary risk-management and dispute-resolution tool is often counterproductive, expensive, and ineffective. That is not to say that contracts do not have a purpose—they do. If done well, a business contract provides clarity and can facilitate business relationships. In addition, as legal writer Ken Adams has persuasively argued, conventional contract drafting is notoriously ambiguous, duplicative, antiquated, and confusing see A Manual of Style for Contract Drafting , Ken Adams, Introduction, xxx-xxxi.

Given the nature of lawyers and the history of our profession, I am not holding my breath. A better way is to systemically reduce the importance businesses assign to contracts in favor of robust risk assessments and pragmatic risk-management strategies. As stated earlier, a contract is a risk-management tool.

Whether a company should use a contract or another of the myriad risk-management tools available should be determined after performing a proper risk assessment. Here is how a standardized risk assessment might work: A project leader for the transaction is selected. Column 1 lists categories of risks for that business deal. Here is what such a risk assessment would look like:.

When completed properly, this tool effectively gives the project leader a heat map of risks for the transaction, allowing the team to tailor risk-management strategies accordingly. However, a more robust risk-management strategy might be to require audited or verified financial statements to be delivered on a regular basis, with the project manager using an internal company resource to verify the validity of those reports.

This kind of risk-assessment tool could be valuable in helping clients judiciously use contracts and eliminating those rigid standards for when to use contracts that currently plague companies. Risk is not correlated with amounts paid or -the kind of assets or services involved in the deal—cheap goods and services are sometimes risky, whereas transactions for expensive goods and services often are not. Similarly, a business deal that includes IP with a counterparty whose business model does not rely on IP is extremely unlikely to dispute IP ownership.

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These examples demonstrate the waste created by the rigid standards that currently predominate. One potential objection to performing such a risk assessment is that some might regard the process as additional bureaucratic red tape. As stated earlier, however, all functions in a business are already either formally or informally performing risk assessments and employing risk-management tools. Using a standard process and form for every business transaction actually makes the process more efficient and consistent and gives the company better data for future risk assessments.

Companies could greatly improve their risk management by using a simple risk-assessment tool like the one described above. The success of that tool relies heavily on the project manager, however, and his or her assessment of risk. Yes, that project manager should consult with subject-matter experts in functions like finance, legal, and insurance. Yet, even those companies who select conscientious project managers and institute standards are still reliant on the subjective evaluations of those people. Those subjective evaluations are important, but they are even more powerful when coupled with good, reliable data.

Let us use an example to illustrate:. Suppose that there is an anticipated global shortage of a commodity that is essential to a business. As part of the new contract negotiation, the vendor insists on its standard force majeure clause, which would protect the vendor if the shortage occurs. That data reveal that the vendor has fairly and equally distributed its available inventories of the commodity during past shortages to all of its customers, as opposed to supplying some customers rather than others.

Of course, when given this data in context, a CEO likely would not pursue the expensive risk-management strategies of stockpiling supplies and limiting sales contracts. In this context, the force majeure clause negotiation should be evaluated with the same cost-benefit analysis applied to the other risk-management options considered by the company. One reason that cost-benefit analyses are rarely used in determining whether a contract or a contract provision should be used is the dearth of contract-related data.

The kind of data that would be more beneficial is more granular data based on industry or particular company experience. In the example above, the valuable data were past behavior and experience of the vendor and the company in similar circumstances. Companies that are collecting data must ensure that it is used not just for sales projections and marketing campaigns, but for risk assessment and risk management as well. Even for companies that consistently and methodically assess risk based on reliable data, someone must make the determination of which risk-management tools are appropriate for the transaction.

In most companies, the determination of whether to use a contract is left to the lawyers. Although that delegation makes some intuitive sense, it is often not in the best interest of the company to do so. A more effective way to manage risk is to allow the project manager to decide which tools are most likely to work, rather than deferring to the subject-matter expert e. The project manager has the best overall perspective on the deal and is in the best position to combine various cross-functional, risk-management strategies. In my experience, project managers are extremely reluctant to make determinations that touch any legal-related issue, but that aversion is generally unwarranted.

Risk is risk, and the distinction between legal risks and other risks is often overstated. Ultimately, the consequence of realizing a risk is lost money or liberty, and that is true of every risk a business takes. Sections I and II above take a critical look at a fundamental tool of the business lawyer — the contract. Those sections argue that business lawyers often focus on the wrong issues, and assign too much value to the contract.

However, even if the recommendations offered in Sections I and II are followed, that alone is unlikely to make lawyers more satisfied. If we really want to improve performance, we need to shift our focus from a data and process oriented analysis to a more philosophical, humanistic understanding of what motivates business lawyers.

As this section will argue, that approach will deliver better results than solely applying the tactical, data and process oriented analysis advocated in Sections I and II. We know that many business lawyers are generally unsatisfied with their work, either through personal experience or the volumes of headlines, reports, and data that scream that conclusion to us: Unhappiest Job in America?

These headlines and the data that underlie them are not new, and despite the many resources our profession has devoted to addressing the problem, it persists. I believe that there is a better way to combat this problem than the traditional remedies, and that is by helping lawyers understand what motivates us professionally, and by helping each lawyer form a plan that provides the best opportunity to realize those motivators.

This article shows business lawyers how to create a plan that helps us work toward what motivates us, which will improve lawyer satisfaction and performance as well as generate enormous saving and efficiencies for companies and law firms. Pink persuasively argues that better performance and professional satisfaction are correlated with autonomy, mastery, and purpose, and that those businesses that have recognized and applied the science behind these conclusions have generated remarkable improvements to business performance and realized tremendous cost savings and efficiencies.

Let us begin by looking at one of our core motivators—autonomy—and how we can apply the lessons of science and business to our profession. At this point, a skeptical lawyer might question whether autonomy is a realistic objective for our profession. After all, we serve a client—how can we be autonomous? It means acting with choice—which means we can both be autonomous and happily interdependent with others. The first essential element of autonomy is time. It is widely believed that lawyers have little or no autonomy over their time.

Whether in-house or at a law firm, the client, the billing partner, or the general counsel needs you to meet a deadline. However, time autonomy is not about eradicating deadlines; it is about how you meet that deadline and how you are compensated for doing so.

The law firm business model is based on compensating lawyers for lawyer input time rather than lawyer output work product. This is the antithesis of time autonomy and a great culprit of lawyer unhappiness. In addition, although firms selectively apply alternatives to the billable hour, the law firm business model has not yet changed. It is curious that the billable-hour standard remains, especially given that a viable alternative model has been widely used and refined by the consulting industry for decades.

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The consulting industry, like business law firms, provides mercenary services to the business world with legions of well-paid associates without sacrificing profits per partner that rival AmLaw firms, and they do it with an output-focused, rather than an input-focused, business model. Irrespective of why, it is clear that most business lawyers are still captive to the billable hour. So long as the billable hour is a staple of business law firm compensation, we will continue to struggle with giving law firm lawyers autonomy and, therefore, professional satisfaction.

Although time-autonomy restraints for law firm lawyers are more rigid, in-house lawyers also struggle with a lack of time autonomy. In many in-house environments, abiding by the conventional 9 to 5 or 8 to 6 is expected. In one of my former in-house jobs, it was common to see department leaders strolling the halls at p. Those companies that have experienced success in developing time autonomy for their employees, like Best Buy, take a very different approach.

Best Buy eliminated the conventional work schedule which, according to Harvard Business Review, resulted in better relationships, more loyalty to the company, better energy and productivity, and less employee turnover. There is no reason to think that the Best Buy model would not work in a law firm or in a legal department, especially if used in conjunction with task autonomy described in more detail below. Another essential element of autonomy as described by Pink is autonomy over task. Companies like Google and 3M give their engineering and technical teams, respectively, 15 percent and 20 percent of their time to devote to any work-related project that the employee wants.

These case studies have different implications for in-house legal departments than they do for law firms. At first glance, it might seem impossible for an overburdened in-house legal department to do 15—20 percent less of its traditional workload without negatively impacting the client. Many of them fail, but enough succeed so that small businesses are now adding millions of jobs to the economy at the same time that the Fortune companies are actually losing jobs.

Paul Hawken — entrepreneur and best-selling author — wrote Growing a Business for those who set out to make their dream a reality. He knows what he's talking about; he is his own best example of success. In the early s, while he was still in his twenties, he founded Erewhon, the largest distributor of natural foods. And he wrote a critically acclaimed book called The Next Economy about the future of the economy.

Since its original release, The First 90 Days has become the bestselling globally acknowledged bible of leadership and career transitions. In this updated and expanded 10th anniversary edition, internationally known leadership transition expert Michael D. Watkins gives you the keys to successfully negotiating your next move—whether you're onboarding into a new company, being promoted internally, or embarking on an international assignment.

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Allen's premise is simple: our productivity is directly proportional to our ability to relax. Only when our minds are clear and our thoughts are organized can we achieve effective productivity and unleash our creative potential. The "disease" of self-deception acting in ways contrary to what one knows is right underlies all leadership problems in today's organizations, according to the premise of this work. However well intentioned they may be, leaders who deceive themselves always end up undermining their own performance.

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This straightforward book explains how leaders can discover their own self-deceptions and learn how to escape destructive patterns. The authors demonstrate that breaking out of these patterns leads to improved teamwork, commitment, trust, communication, motivation, and leadership. Whether you're new to the field or a seasoned executive, this book will give you a firm grasp on what it takes to make an organization perform. It presents the basic principles of management simply, but not simplistically. Why did an eBay succeed where a Webvan did not?

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Gerber, with sharp insight gained from years of experience, points out how common assumptions, expectations, and even technical expertise can get in the way of running a successful business. Most importantly, Gerber draws the vital, often overlooked distinction between working on your business and working in your business. From the book flap: Only a handful of business books have reached the status of a classic, having withstood the test of over thirty years' time. Even today, Bill Gates praises My Years with General Motors as the best book to read on business, and Business Week has named it the number one choice for its "bookshelf of indispensable reading.

The book became an instant bestseller when it was first published in It has since been used a a manual for managers, offering personal glimpses into the practice of the "discipline of management" by the man who perfected it. This is the story no other businessman could tell—a distillation of half a century of intimate leadership experience with a giant industry and an inside look at dramatic events and creative business management. It is impossible in a bare outline to do anything like justice to the subtlety if also, sometimes, the prolixity of the argument and to the wealth of telling instances with which it is illustrated.

This book shows how the seventy largest corporations in America have dealt with a single economic problem: the effective administration of an expanding business. The author summarizes the history of the expansion of the nation's largest industries during the past hundred years and then examines in depth the modern decentralized corporate structure as it was developed independently by four companies—du Pont, General Motors, Standard Oil New Jersey , and Sears, Roebuck.

Another classic, even today. It seems, at first glance, like an obvious step to take to improve industrial productivity: one should simply watch workers at work in order to learn how they actually do their jobs. This highly influential book, must-reading for anyone seeking to understand modern management practices, puts lie to such misconceptions that making industrial processes more efficient increases unemployment and that shorter workdays decrease productivity. And it laid the foundations for the discipline of management to be studied, taught, and applied with methodical precision.

Most of Barnard's career was spent in executive practice. His career began in the Statistical Department, took him to technical expertness in the economics of rates and administrative experience in the management. This international bestseller challenges everything you thought you knew about the requirements for strategic success. They have fought for competitive advantage, battled over market share, and struggled for differentiation.

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In "Focal Point," Tracy brings together the very best ideas on personal management into a simple, easy-to-use plan. For more than twenty years, millions of managers in Fortune companies and small businesses nationwide have followed The One Minute Manager's techniques, thus increasing their productivity, job satisfaction, and personal prosperity. These very real results were achieved through learning the management techniques that spell profitability for the organization and its employees.

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So begins the story of a self-made man and a self-described rebel who thrived in one of the most volatile and economically robust eras in U. Jack Welch surveys the landscape of his career running one of the world's largest and most successful corporations.

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The definitive work concerning Warren Buffett and intelligent investment philosophy, this is a collection of Buffett's letters to the shareholders of Berkshire Hathaway written over the past few decades that together furnish an enormously valuable informal education. The letters distill in plain words all the basic principles of sound business practices. They are arranged and introduced by a leading apostle of the "value" school and noted author, Lawrence Cunningham. Here in one place are the priceless pearls of business and investment wisdom, woven into a delightful narrative on the major topics concerning both managers and investors.

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Co-authored by Business Model Canvas practitioners from 45 countries, the book was financed and produced independently of the traditional publishing industry. It features a tightly-integrated, visual, lie-flat design that enables immediate hands-on use. Bruce Greenwald, one of the nation's leading business professors, presents a new and simplified approach to strategy that cuts through much of the fog that has surrounded the subject.

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As newly appointed captain of the USS Santa Fe, a nuclear-powered submarine, he was responsible for more than a hundred sailors, deep in the sea. In this high-stress environment, where there is no margin for error, it was crucial his men did their job and did it well. But the ship was dogged by poor morale, poor performance, and the worst retention in the fleet. Marquet acted like any other captain until, one day, he unknowingly gave an impossible order, and his crew tried to follow it anyway.