The debate over the desirability of rules and regulations will never go away. Humanity has long struggled to determine the ‘right’ balance — and clearly different cultures have different perceptions of what that should be.
But this debate — and the effect of the answers — should be a very active topic for discussion by the contracts, sourcing and legal community. These groups are typically charged not only with creating many of the rules in their organization, but also with their enforcement.
Not surprisingly, many see ‘the rules’ as important and valuable. There is a natural inclination to want more of them — since that is surely the route to greater power and more resources and to ensure control over the ignorance or poor judgment of others. That is the quintessential ‘police force’ mentality — and as the challenges of modern policing reveal, it is not especially effective and becomes a slippery slope of ever-greater constraints on freedom.
There is a counter-view to that position, which is that rules should be minimal and that adherence to acceptable ‘codes of conduct’ should wherever possible, be voluntary. Proponents of this position argue that a rules-based culture inhibits innovation and creativity; it becomes innately risk-averse. By reducing freedoms, we force people to choose either to comply or to leave. And of course it is those who leave who are typically the value-generators, the entrepreneurs, the people with personal drive and ambition.
The challenges facing political decision-makers are therefore reflected in the corporate world. Indeed, many of the new rules that our community is being called upon to enforce are today being driven from outside the company.
Contracts experts, lawyers, procurement professionals are in a unique position to observe the effects of more rules and tighter controls. And because these groups are seen as having an innate interest in supporting them, a voice raised in opposition would have significant impact.
The time has come to start raising those questions. It is clear that governments in the free world are steadily undermining freedoms, not just to protect their citizens, but increasingly to protect vested interest groups that have seen an opportunity to drive new regulation. Those rules may be protecting our jobs — at least short term; but longer term, they are destroying competitiveness and will lead to major economic shifts of power.
IACCM has announced that it will increasingly monitor the areas where external regulation damages world trade and jobs (export/import controls is a current example). It has also called on its members to monitor the way internal rules are having similar effects on their company’s competitiveness. Together, we must start to campaign for (and describe) an environment that maintains an intelligent balance between regulation, trust and education — and structure our contracts and associated policies and practices accordingly.
From Tim Cummins’ Commitment Matters blog, 11 July 2008.
Sales Contracting — Commonly Used Titles Survey
In April 2008, IACCM conducted a survey to identify the Sales Contracting titles most commonly used by member organizations. Members were asked to review the descriptions of four typical sales contracting ‘roles’ and identify from a list of the choices the titles their organization uses for similar roles. Figure 1 depicts the top two title choices for each of the roles defined in the survey.
Positioning legal services to support contracting excellence
From Christine Lithgow, 22 July 2008: As a lawyer, I like to think that I know something about contracts. As a member of IACCM however, I also know that there are many many contracts practitioners out there in the world actually doing it (making contracts and making contracts work) every day. At the present time, I have an opportunity currently to influence the shape of my company’s legal service offering and make sure it is beneficial and “on the money” in terms of meeting the needs of commitment/ commercial managers; corporate counsel and CFOs with respect to their contracting activities. If you can spare a moment, I would really love some feedback and ideas about the areas where you believe a good lawyer might really be able to add value to your business and your day to day activities. What does the ideal contracts lawyer look like? what services don’t they provide but should? and what services do they provide that add most to your business? And, of course the final question, am I asking the right question?
Kurt Frohna: As a contracts professional, my view of the ultimate attorney: define clear roles of legal and contracts functions, establish policies which include decision authority levels, and to create ‘playbooks’ providing guidance and resolution for typical contract issues. Cut the apron strings and assist in implementing processes to make it all work. Help us to evaluate risk, mitigate risk, and to accept some risk. Keep an open door, encourage a contract professional to recommend solutions, and promptly approve/coach etc. Help us to add more value to the business and to build the level of trust between us. I’ve seen done it many ways and am fortunate to be in such a situation.
P.S. If the questions were reversed, how would you view the ultimate contracts professional?
Supplier code of conduct — as a term of RFx or contract?
From Catherine Uffen, M.A., J.D. on 11 Jun 2008: I am interested in knowing whether any purchaser has had a supplier sue or threaten to sue for breach by the purchaser (including uneven application of the supplier conduct rules) of obligations on the purchaser contained in the supplier code of conduct.
There was a California class action case in which employees of Wal-Mart suppliers (offshore) sued Wal-Mart for failing to remove other suppliers who breached the code. It failed of course because employees of a supplier have no privity of contract with Wal-Mart, BUT had the suppliers commenced the action, it would likely have succeeded.
I am not focused on the class action — just on a supplier who has agreed to a code of conduct as a term of an RFx or a term of its supply agreement and who then sues its purchaser for breaching its obligations under the code. Sometimes codes of conduct have very high aspirational standards (like ‘highest ethical standards’, no ‘apparent conflict of interest’, no ‘concealment of relevant criteria’) that conflict with sound commercial practice. So there’s an opening here for a supplier to sue for purchaser’s breach of the code, if the code is part of the contract, or on collateral warranty if the code is a separate document.
Tim Cummins, IACCM: The issue of ‘codes’ is of great interest to me (and IACCM). For example, to what extent do these supplement or even supersede contracts? Will corporate codes be used to replace the need for contract terms in many areas, and in particular used to address the inconsistencies of law between different jurisdictions? And if so, will the result be that they become a source of litigation, or will ‘the jury’ be public opinion, when companies are called out for failing to match their promises?
We have to remember that codes are typically used as a marketing technique (setting out capabilities or responsibilities). Contracts (in good companies) may also do this. But more often they are used by each side to limit their capabilities or responsibilities. Codes are about trust; contracts (frequently) are not. So there is a fundamental conflict of philosophy; yet to prosper in the global economy, companies must establish trust in their brand — to attract the best customers and the best suppliers and distribution partners. So Codes seem likely to proliferate.
My enquiries suggest that in most companies, the group responsible for producing the codes has little or no relationship to the group producing the contracts. I understand why this may be the case, but it doesn’t seem very smart. The two areas must be reconciled, or there is a very real risk that they simply cancel each other out (and what does that do for generating either trust or good risk management?).
The question cites the example of Walmart. In the end, Walmart responded to public pressure (reputation risk) much more than legal pressure. And perhaps that is the way of the future.
If the use of codes increases, I guess it is only a matter of time before they more frequently get introduced in litigation. What we have yet to see is the extent to which courts are prepared to take them into account in reaching judgment. Presumably, key questions will be the extent to which reliance was placed upon them, whether companies explicitly or by implication include them in their contractual undertakings, the sophistication and history of the other party etc.
And the pattern here is also likely to vary depending on the jurisdiction and its relative readiness to incorporate supplementary materials into its judgments.
IACCM Member: We have a similar provision in our contracts with the remedy of buyer’s right to terminate. The key phrase we have in our language is ‘Buyer may terminate an order and the agreement. It is at the buyer’s discretion, and is dependent on the severity of the breach. Nothing is automatic, and whatever action is taken, or not taken, is confidential to the parties.
Charles Rumbaugh: Most firms I’m familiar with include their code as a term and condition. Also, there is usually an appropriate disclaimer as to actions or inactions relative to enforcement so as to eliminate legal liability in connection with same.
To me, the issue is primarily non-legal but ethical one. Why have a code unless it is fairly and uniformly administered? A quick call by/between the CEOs (Chief Ethics Officers) should resolve the matter. Further, if the ‘errors of the way’ are significant, there may be a SEC reporting or an accounting issue that may have to be disclosed ‘to the world’, if not promptly remedied.
Terms & conditions — electronic bidding
Katherine Kawamoto on 16 Jun 2008 on behalf of a sales side member who is experiencing pressure to accept what she believes are onerous terms and conditions in order to submit a proposal electronically. The process includes an immediate ‘acceptance’ of the buyer’s terms. She believes the terms would typically be open to negotiation in a paper/non-electronic bidding process.
Diane Homolak: The buyer typically reserves the right to negotiate terms even when the seller has no such right. As long as the terms of the on-line bid don’t restrict you from withdrawing your bid after the auction you could go ahead and hope they are willing to talk afterwards if you win the award. If you bid was sufficiently attractive and the points you want to raise are minor and you are within your rights to withdraw without penalty or risk of ruining the relationship if you don’t come to terms then you could bid and take your chances. Or you could try submitting your objections in writing outside of the bid process and say that your bid is contingent upon the coming to terms irrespective of the click and accept.
Kurt Frohna: Our company has determined that we will not fall into the trap of having our products treated as commodities. To this end we require our folks to find some way to get to the customer (or the procurement entity) to work out acceptable terms, or we will not bid. We have also implemented a policy that we will not participate in web auctions. We’ve had no negative results.
Talent revisited: the end of professions?
At the ISM conference in St Louis earlier this year, Daniel Pink (author of A Whole New Mind) gave his take on the challenges and opportunities for talent in the 21st century business.
Pink’s suggestion is that changes in the economy are putting a premium on specific types of capability — and that this is challenging the dominance of the traditional professions. Lawyers, accountants, engineers — while still worthy roles — will wield far less influence in the new economy — because they are left-brain dominant. And the future, according to Pink, increasingly favors right-brain thinking.
For those not ‘in the know’ on right versus left-brain characteristics, they broadly boil down to people who are linear, analytical, sequential, quantitative, numeric (left-brain) and those who are more inclined to multi-task, see context, synthesize. In traditional businesses, the logical, linear skills used to be the most important — making ‘professionals’ the dominant management groups. But while these roles remain necessary, they are no longer sufficient. The networked world is placing a premium on those who also display inventiveness, big-picture thinking, the ability to see connections.
Right-brain thinkers are more able to see nuances, to see shadows, to sense degrees of tone or light, proportions, space — hence they tend to be better ‘relationship’ people. And as we all know, the ability to form and manage ‘relationships’ is becoming a dominant influence in our networked world.
Pink went on to describe three great influences shaping our world and destiny. These he defined as ‘abundance’ (the fact that in the west, and in the US particularly, people live in a state of material abundance, increasingly buying things that they didn’t even know they needed. As evidence of this ‘excess’, he highlighted the growth of the self-storage industry — which now earns an amazing $22.6bn annually in the US (to be honest, I am not sure many other countries even have ’self-storage’ at any measurable level).
His second force is Asia — and the pure volume of people that can be deployed to support global markets. Pink declared that ‘Outsourcing has been over-hyped in the short run’ (there is far less of it than people think) ‘and under-hyped in the long run’ (there will be lots more of it). The vast imbalance in numbers of people means that Asia will come to dominate in terms of available skills and purely ’smart’ people. So future outsourcing will move from routine tasks to higher value work.
Finally, he cited automation. This replaces logical, rules-based work — because the fact it is logical and rules-based makes it programmable.
So the ‘new’ professional will be good at what? According to Pink, they will excel in areas like knowledge management, they will exhibit empathy, they will be good story-tellers, they will be good at ’symphony’, by which he means joining dots in a mass of information.
There is certainly a large amount of evidence to back up Pink’s concepts. They reflect the work that IACCM has been undertaking in recent years both in its assessment of required skills and in the re-shaping of organizations to enable such skills to flourish (because traditional functional structures actively discourage such behaviors on any significant scale). Our research also demonstrates the problem when we look at the ‘alienation’ of today’s networked youth from the traditional corporate workplace and hierarchies.
Back in 2006, at the IACCM Americas conference, I posed the question about what jobs parents should recommend for their children. By way of illustration, I listed the careers open to children in the late middle ages — and contrasted them with those of the industrial age. As we now move into the information age, how many of today’s roles will survive? Based on history, very few. The questions we are asking simply are not radical enough; organizations are looking for evolution when they should be considering revolution.