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Moving the role of the legal function from a reactive, on demand advisory service to a proactive, commercial activity

Published: 15 Mar 2013 Average Rating: unrated Print
 
This article appeared in Contracting Excellence magazine on 15 Mar 2013 view edition
 

Many organizations rely on their legal function for contract support, but have failed to recognize changing market conditions and the pressures this places on traditional legal skills.  This confusion puts the business at risk and in this article, Professor Rene-Franz Henschel calls for a re-think of the role.

By René Franz Henschel, Associate Professor at Department of Law, Business and Social Sciences, Aarhus University, Denmark

Contributors: 
Fayola Yeboah, Contracts Officer for Cobham;
Stephen Davis, Commercial and Contracts Manager, CGI UK;
Flora Cabean, Senior Contracts Analyst, VF Corporation

Many organizations rely on their legal function for contract support, but have failed to recognize changing market conditions and the pressures this places on traditional legal skills.  This confusion puts the business at risk and in this article, Professor Rene-Franz Henschel calls for a re-think of the role.

The traditional view of the legal role as an on-demand support function

The traditional role of the legal function in contract management has often been an advisory, on-demand support function.  Legal experts have been called in to advise on specific legal matters, often when things have gone wrong or to approve or draft specific contract documents.  Unfortunately, this forces them into mostly a reactive and risk mitigating role, based on a court-centered analysis.

Although the importance of legal specialist knowledge has always been recognized and welcomed, -- e.g. in relation to compliance with laws; drafting contract clauses; resolving complex Intellectual Property (IP) questions; and in relation to litigation and Alternative Dispute Resolution (ADR) -- legal specialists are now called upon to more proactively contribute to the development of corporate value.

Such demands even extend outside the enterprise, with growing expectations that the external law firm will also offer increased 'commercialism'. This calls for a critical look at whether the legal function should be more actively involved in the business and contract management processes, including involving them as contract or commercial managers.

The legal function as a proactive, value-adding business function

Some organizations have clearly chosen to invest in dedicated contract and commercial support groups, which may or may not be part of the legal function. Others, however, have not taken this step and are relying on their internal lawyers to provide expanded coverage.

In these circumstances, early involvement at the front end by legal specialists is often necessary, depending on the specific business area involved, the corporate priorities and the legal/business topic. Early involvement relates to traditional, legal risk management -- e.g. compliance with laws and regulations (European Commission [EC] procurement law, competition/monopoly laws, import/export regulations, homeland security and white-laundry rules etc.) -- or the drafting of Non-disclosure Agreement NDA clauses before important negotiations occur.   Increasingly, however, the importance of early involvement relates to shaping complex deals such as service and projects contracts and commercial relationships.

In a service and project contract, the contract is not only a legal instrument, but it also serves a core function as a planning and project management instrument and as a proactive risk management instrument, such as establishing the necessary governance models, communication and reporting lines, etc. 

This means that the legal specialist must also design the contracts and the contracting processes to fit the business models and business processes and secure the necessary flexibility and agility. In other words, the role needs to be more deeply involved as a business architect.  Based on the specialist's detailed understanding of the business, this person supplies the optimal structures, tools and processes to support the business relationship while serving the traditional legal role such as, drafting limitation of liability clauses, etc.

Consequently, the interaction with the business functions intensifies and this drives the need for the contract support function to understand other business functions, their concepts, methods and overall business strategies. It is important to appreciate how legal tools might help or undermine securing and monitoring those strategies (e.g. innovation and Corporate Social Responsibility [CSR]).

Seeing contracts and the contracting process as management tools

Contracts and contracting processes are not only legal instruments, but also management tools that are instrumental in achieving the success of the organizations' strategies and business goals.   IACCM frequently reminds its members that the primary purpose of a contract is economic, not legal. This should be understood by legal and the other functions as well. Therefore, contract specialists must get closely involved in the processes and communications that surround the business projects.

If the contracts are not synchronized with the underlying business model, things go wrong! How the legal function best contributes to value creation – and ensures that its role and actions are not undermining value -  must therefore be analyzed and planned at the top management level. This may also call for a change in the mentality among all those involved.

Lawyers and in-house counsel need to understand that contracting is a management process.  The logic applied must be different from traditional contracts and contract law to implement management techniques.  These include analyzing existing contracts and practices; making strategies for the necessary changes; planning, organizing, staffing, resourcing and leading activities such as monitoring and reporting. This can create a competitive advantage.

Integrating the legal function into contract management can be an opportunity to improve commercial management

Lawyers face a choice. Either they must shift their focus to provide these wider commercial services, or they must enable and support others – like professional contract and commercial managers -- to do so.  By deepening their focus, lawyers can extend their own opportunities for growth.  In a recent article published by IACCM, two general counsels agreed that contract and commercial management actually offers a strong alternative career path for the qualified lawyer.

If all the business functions -- including top management of the legal function itself -- fail to understand the importance of combined contracting, commercial and legal skills for the business outcome, there is a great danger that the legal function will be isolated and fail to contribute value, as every business function should do.

For organizations that continue to look for primary commercial support from their lawyers, the value adding role of the legal function must be analyzed and the legal strategy aligned with the overall business strategy, including whether and how it will empower and enable others. Roles and responsibilities of the business functions have to be carefully defined to maximize the output. Ownership of the processes and the decision-making right must be clarified.

In today's increasingly complex business environment, in some instances, the legal function might involve both the process owner and the decision maker e.g. in relation to legal compliance.  In other instances, the legal function may be in the loop, but not held responsible for the process or be expected to have decision-making rights, e.g. performance management and subsequent production of termination letters or change orders.

The real danger occurs when the legal function is not integrated into the contract management process at all, or if the legal function is in charge of the entire contracting process without possessing the necessary business, process and managerial skills. 

 

ABOUT THE AUTHOR

René Franz Henschel is Associate Professor at Department of Law, Business and Social Sciences, Aarhus University, Denmark. His area of research is Contract Law, Contract Management and Proactive Management and Proactive Law. He has contributed to chapters in The International Contract Manual (Thomson Westlaw) and the IACCM Contract and Commercial Management – The Operational Guide. He is consultant to companies and public procurement organizations on how to implement best practice Proactive Contract and Commercial Management and software systems to support the relevant processes and activities.

ABOUT CONTRIBUTORS:

Fayola Yeboah is a Contracts Officer at Cobham. Cobham designs and manufactures an innovative range of technologies and services for aerospace, defence, security and commercial environments. Fayola has worked in contracts for a number of years, for industry leaders such as Rockwell Collins, Honeywell and Quintiles

Stephen Davis is a commercial and contract manager with Logica (now part of CGI, UK based). Having worked in this capacity for over seven years, his career path spans BAE Systems, Fujitsu and Logica.

Flora Cabean is a Senior Contracts Analyst at VF Corporation in Greensboro, North Carolina 

TO CONTACT AN AUTHOR OR CONTRIBUTOR, please mail your question to info@iaccm.com or connect using the IACCM Member Search (login required)

 

 
 
 

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