Today, we are launching this eleven-part blog series sharing deep insights from our experience migrating close to 5 million legacy contracts for many of the top brands and organizations. Our Sumati- Apttus partnership is ever-expanding as more and more companies are on a journey to move towards a CLM system. As such, we will discuss the ins and outs of setting up a high-integrity repository using Apttus CLM as the foundation. Our first post discusses the state of the state that we find exists in most companies, regardless of size or industry.
The cost of contract chaos
When I think of the word chaos I envision pandemonium and bedlam. To be fair, contracting in most companies is not pandemonium – that just sounds too extreme. After all, business gets done and done quite well, every day, in thousands of companies – can’t happen if the steady state is bedlam.
Yet I know “chaos” is the right way to characterize the true state of contracting. Many of our clients call it exactly that so I needed a way to describe contract chaos. Luckily, my 15- year old son, unbeknownst to him, came to the rescue.
When in doubt, learn from the lab
My son decided to come sit next to me to do his physics homework. He didn’t ask me for help of course, realizing that would be an exercise in futility. He did however start describing to me the lab exercise of the day. He excitedly talked about an inverted pendulum and sonar measurements recorded using a microcomputer…I was really interested but it was obvious to him that my neurons were not firing quite as fast as he would like.
Then, he said something that really got me animated. He said that the purpose of the lab was to record the movement of a pendulum from regular to chaotic motion? “Stop! I said. Chaotic motion??” He seemed perplexed that I was so interested in this, due to my obvious lack of understanding of the overall lab exercise. What do you mean chaotic?
He said that his teacher described “Chaos” as behavior so unpredictable as to appear random. My eyes widened. He had an audience, so he continued. My teacher said This random behavior happens because of sensitivity to small changes in conditions. “Aha, I said, just like contract management.” Now HIS eyes starting glossing over. He picked up his phone and sent a SnapChat.
No-one ever tries to be chaotic
Contracts are meant to be consistent. In other words, a company’s risk threshold does not change on a daily basis. What a company is willing to accept in contract language should, theoretically be within certain tightly controlled bounds.
However, sometimes an executive yells loudly that a contract is a bet the company scenario. A salesperson stands at the door and talks about a big deal that will make the numbers for the quarter. The data privacy team stands at the same door to lock down new language related to data handling since new regulations just came out yesterday. The senior lawyer is ill and outside counsel has to be engaged to complete a negotiation in a short timeframe. So, a services agreement with a vendor that should theoretically look like a services agreement with a similar vendor, executed the day prior, is only about 65% the same. Sensitivity to small changes in conditions lead to seemingly random behavior.
Once chaos sets in, it becomes “the way things work”
There is a snowball effect to this chaos. The lawyer asked to review a contract is often brought into the review cycle after business terms are already negotiated. A lawyer’s job is not just legal review, but legal and risk review in the context of the business deal. The ensuing chaos? A frenzy of back and forth discussions so the lawyer can get properly briefed, the business person can go back to the counter-party and claim that the legal department is acting like the business prevention department and the lawyers’ work queue grows by the minute. Oh wait, an executive screams – the queue is re-prioritized!
The lawyer tries to infuse some calm into the chaos. She looks into the legal department shared drive for the last contract executed with this counter-party. Maybe there is precedent language that can help this discussion move along more efficiently. She can’t find the contract. Well, she found Amendment 3 to a contract with this counter-party but the MSA is nowhere to be found. She’s not sure if the contract is expired or active. The amendment is not executed so she can’t look for the company signatory who may have information. So, she re-drafts an agreement from whole cloth in order to fulfill the seemingly unique requirements of the situation – it’s now 11:25 p.m. on a Tuesday. Not something she predicted would happen when she walked into the office at 8:15 a.m.
Chaos is more than inefficient – it could be “bet the company”
The next morning, the GC receives a note from the board chair (the GC is also the board secretary) that the audit committee is concerned about the company’s contract management processes and could he please do a review and get back to them by the next board meeting? Where on earth did this come from? Turns out that the company was looking at a potential acquisition target and the CFO needed to find contracts with the target company – two weeks went by and no contracts could be located. This scenario represents a missed potential opportunity of unknown cost, and a state of contract (dis) organization that can be described as “chaotic.”
So while the similarities of my son’s assignment and the state of contract chaos ended there, it inspired us to launch this series of posts to address how this chaos is being transformed at companies in all industries. We wake up every day to tackle just this problem, and we look forward to sharing our “seven commandments” of legacy contract migration, in moving from a state of chaos to a high-integrity Apttus repository, where contracts and their amendments can be quickly located, and obligations can be efficiently managed.
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