By Bo Kinloch.
If Socrates were to read the terms and conditions in a modern contract, he might very well scratch his head and say, “I am but a simple man, will someone please explain to me why this is all so complicated?” And if you stop and think about it, you may also scratch your own head and ask the same thing.
Imagine a hypothetical dialog with Socrates the company COO, Becky Business as the transactional business client and me, Bo, as the lawyer. It might go something like this:
Socrates: Bo, you’re a lawyer; why is it my business agreements are so darn complex?
Bo: Yes, I’ve drafted many contracts as a lawyer, Socrates, but what is it about our contracts that you don’t like?
Socrates: I feel like they are artificially complicated! Who wants to read ten pages of legalese?
Bo: Right, what kinds of documents are we speaking about?
Socrates: All of them! Service agreements, technology licenses, NDAs for God’s sake!
Becky Business: Why do we have NDAs? Are they even worth the paper they’re written on?
Bo: Sounds like we should have a discussion.
Socrates: You bet. Pretend you didn’t go to law school. You want to buy something—can you decipher the terms and conditions? Do you read them?
Becky Business: Yeah, and why would I suffer through reading the whole thing when the chances of anything “happening” are – minimal!?
Bo: These are good questions, Becky and Socrates. They point to some of the difficulties between lawyers and businesspeople.
Socrates: Bo, you know what gets me? Is when someone in my business says, “oh, I don’t own that agreement, the legal department takes care of that!”
Bo: I hear you. Business agreements should be owned by the business. In fact, I won’t draft anything unless there’s a businessperson who owns the agreement who can help shape the agreement and answer questions as they arise.
Becky Business: Exactly. We “own” the relationship with the other party – the obligations are business obligations. The company gets the benefit, but the business folks are responsible for delivering that benefit.
Bo: And any obligations that are also part of that agreement.
Socrates: Which brings us back to my point. If business folks own these agreements, why are they so hard to read? Doesn’t that jeopardize the potential value of the relationship if we don’t get the full benefit due to “missing” something hidden in the weeds?
Becky Business: I glaze over, but I worry there could be a landmine in there just waiting to get me if I don’t read them—or get my attorney to!
Bo: Well, Becky, I’d say you would make a great business client! But all joking aside, let’s get into it.
Socrates: Here’s what I want: Clarity. Why is it so hard to have a Fair, Even and Safe exchange?
Bo: To get to clarity, I believe we must take a path through How and Why contracts have developed like this. Let’s discuss how both businesspeople and lawyers view contracts, including a bit of history to give context.
Becky Business: And let’s plan to bring in some great folks who think about this stuff all the time!
Socrates: You know I love bringing many people to the party. But let’s not make our discussion about the “dark art” of contract drafting or best practices for redlining. Let’s make it about how we got here and how we can make contracting better. Let’s highlight the value!
Becky Business: Deal.
Friends, we know things have gotten out of hand, and getting back to simple isn’t easy at this point. Don’t get me wrong, I do nerd-out on all that redline voodoo as well — I am a lawyer — but there are a lot of excellent sources to turn to about drafting, negotiating and redlining (such as Contract Nerds).
Here are some numbers to consider:
If contracts are supposed to be about business relationships, why do only 16% percent of the businesspeople who use contracts say they don’t read or don’t understand most of what’s in the document? [1] And the ACC found, in a survey of member-lawyers in 2019, that only 22% of in-house counsel read the terms and conditions of contracts. Why are they so difficult to read that it takes a lawyer to sort it out (many of whom don’t read commercial terms and conditions outside of work)?
Further:
An average person sees about 12 contracts per day online. Add to that any physical terms of service, rental agreements on holiday, waivers at events and the number is higher
Business agreements often don’t look any more digestible than online agreements
91% of people consent to legal terms without reading them, according to a 2017 Deloitte survey
Here’s the problem in a nutshell:
We are not setting ourselves up for success if the very documents that underpin the business portfolio
and operations of an enterprise are only understood by those with special training
and not by those who need them for the operational utility that they represent.
We need businesspeople to understand, own and be accountable for the documents that represent their business relationships and expectations. To do this, some changes will be necessary to get set up for success. Success will likely include simplifying both the contract documents and the framework in which they are created. But first, we must understand what a contract is and how we got here.
In future articles, we will dive into the how and why contracts have evolved into what they are today. Namely, in the United States and many other countries, contracts create private law enforceable by a court. How are lawyers trained to look at contract law and, as a separate matter, how does this training impact how they look at any particular contract? We will roll up our sleeves and ask what precedent is, and why lawyers always talk about it. We promise we’ll make it fun!
Additionally, we will explore treating the contract drafting and negotiation process like projects, where we can create a RACI (a common project management principle for better defining roles and responsibilities on an internal deal team) [2]. RACIs give a framework that many businesspeople are familiar with and that makes sense to lawyers too once they’ve worked with one. They are a tool to provide operational clarity that can improve the quality of working relationships both internally and externally—and the contracts themselves.
We will also discuss the application of two other approaches that are relatively standard in IT operations: business rules and a service catalog, and how these may be modified for legal services, especially contracts.
This will proceed to a series of interviews with several interesting guests who come from the trenches of legal and business affairs—who live this struggle every day—and ask them what we can do to make “how to contract,” a better experience for everyone.
Notes:
[1] A 2018 study by the University of Chicago Booth School of Business found that only 16% of businesspeople read the terms and conditions of contracts.
[2] RACI stands for Responsible, Accountable, Consulted and Informed, roles that are delegated to members of the internal deal team.
This article is sponsored by ClariLegal, a preferred vendor management platform for legal services that improves business outcomes & by R3, Legal Operations Assessments and Consulting
About the Author
Bo Kinloch is the former director of legal operations at Hasbro, where he built and maintained the legal operations program.He is also a digital technology and IP licensing attorney with a data privacy background. Bo uses design thinking and human-centered design principles when problem-solving and loves working with diverse people from different professional backgrounds
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