Author: Tim Cummins
In a recent article, the Association of Corporate Counsel offers its 'Top Ten Tips In Drafting & Negotiating International Contracts'.
While the items listed are worthy considerations, they miss the most critical issues and in some instances, fly in the face of good practice.
So what is wrong? Essentially, the article displays an absence of appreciation for the key risks associated with doing business internationally and the role the contract can and should play in avoiding failure. For example, many experts would suggest that the number one issue in any contract (but especially in an international agreement) is around the financials – ensuring you get paid or you get what you paid for. This puts overall payment terms and the related security provisions in the first two places – though they are missing completely from the ACC list.
Today, the regulatory environment is critical to any contract and its negotiation. Awareness of relevant regulation and appreciation of its consequences is a fundamental issue that your legal team must address, whether on competition law, data security, environment or the myriad of other local and global regulatory requirements. So I am placing this at number 3.
Closely tied to this is the whole issue of reputation risk and sustainability. Gone are the days when 'out of sight, out of mind' seemed to prevail for many negotiators. The networked world means that mistakes in international contracts quickly make global headlines. High performing lawyers are strongly focused on reputational issues and ensuring that the deal and the counter-party are ethical, that the business relationship is sustainable and that local customs or practices will not threaten integrity.
Competent lawyers also appreciate the challenges of speed, cost and communication when transacting internationally and consider ways to tackle these. On speed, IACCM data reveals a remarkable diversity in the cycle times required to close international business. Not only does it take on average roughly 50% more time than an equivalent domestic deal, but also top quartile performers operate roughly 4 times faster than those using the method of contracting implied in the ACC article. The smart lawyer understands that cycle times are sensitive and that failure to address this issue will damage their credibility and lead either to loss of business or to the rest of the organization working around them.
On cost, it is simply unaffordable to engage local counsel in every country or to have local in-house resources. Modern business is finding ways to address this, sometimes through use of low-cost LPOs, but more often through use of alternative dispute resolution. ADR has the effect not only of slashing the legal costs of deal-making, but it also typically cuts cycle times by more than 50%. By following this route, several of the 'ten tips' become redundant.
Communication is a challenging field for the jurisdictionally-trained lawyer. Especially for those from a Common Law background, they feel comfortable using specific terms and wordings which will often be alien to their counter-party. Of course it is always far easier to operate in our native language. But attempting to impose our methods and approach on an international trading partner, with limited effort to ensure common understanding to respect their way of doing things, is frequently a recipe for disaster. At best, they do not really understand what has been agreed; at worst, they view the process and the agreement as unbalanced and feel no real commitment towards it. Good contracts are increasingly designed as communication instruments, not as legal weapons.
The ACC list is interesting and certainly reflects items that should be considered by the parties. However, they focus primarily on the lawyer's role in dealing with the consequences of failure (that old security blanket that makes us indispensable) and presume adversarial behaviours. If this reflects the aspiration of the average lawyer, it explains the challenge they face in establishing business relevance and value. In reality, top lawyers aim much higher; they want to provide legal advice in the context of business realities.
I have to thank an IACCM member for bringing this particular article to my attention. As a General Counsel, she also made the following generous observation: “It is certainly an interesting subject addressed by great experts. Their selected focus though is precisely the reason why I personally find IACCM so enriching for lawyers when compared to other corporate lawyers associations”.