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The Contract Certainty Blog

The New Deal for General Counsel

The New Deal for General Counsel

June 27, 2017 Peter Wu Contract Management   Data Extraction  

The time has come for General Counsels and their teams to deliver true business value, by leveraging complete mastery over their organization's contract portfolio.                      

For too long, contract management has been cast in the "too hard" and "so what?" baskets. And with good reason.

Contract management systems were too hard to implement - data capture was manual and slow, took staff away from their day jobs, and return on investment was questionable and impossible to quantify.

And "so what?" - even if we had all our contracts stored in a system, there was no easy way to make useful sense of the contract data.

We are now at an inflection point due to the confluence of the following events:

  1. mainstreaming of artificial intelligence in the form of machine learning and extraction technology
  2. breakthrough mapping of the contract genome
  3. emergence of the General Counsel who thinks like a CEO

Before we delve further, it might help to summarize the current state of play and how we got here.

The earliest General Counsel were not ipso facto members of the C-suite - the move from private practice to inhouse was in fact regarded as the "soft" option. Unsure of how to find their feet, early inhouse teams often fell into the trap of justifying their existence on terms set by the bean-counters (it was not unusual for general counsel to report through the CFO rather than directly to the CEO). This meant cost reduction was the order of the day - generally by cutting external legal spend and demonstrating internal workload.

Eager to impress with quick wins, many a legal team rushed into implementing matter management systems with the primary purpose of workload tracking and reporting. Legal briefings to the executive team were dominated by narratives of the top matters on the team's plate, subjectively ranked by each individual lawyer. Risk reporting was secondary and manually compiled, meaning that dark risks remained hidden.

This mentality has persisted through, and probably contributed to, contract management's "too hard / so what" epoch. Until now.

Contracts are the lifeblood of an enterprise, and legal teams are unique from other cost centres in that they possess the keys to the kingdom. With the three developments above, General Counsel can now realize the potential of mining their contracts for value and pivot the legal department to a profit centre in the process.

IACCM research has identified an average direct leakage of 9% of revenue resulting from poor contract management. There are a range of benchmarks for total legal spend as a percentage of revenue, but for large enterprises generally it amounts to less than 1% of revenue (some say 0.25-0.75, others say 0.20-1.08), with one report citing the external spend component at 0.19 of revenue.

The message is clear – legal teams can deliver much more value by focusing on plugging revenue leakage through better contract management than by reducing internal and external legal spend. For a legal department in a large enterprise, plugging just 20% of the leakage could potentially recover 1.8% of revenue and transform the team into a profit centre.

For the first time in history, we have combined 1 and 2 to enable this transformation and roll it out on a large scale.

Machine learning and extraction makes it easy to implement and embed a contract management system into the legal team without outsized capital- or operating-expenditure.

The Universal Contract Model drives meaningful analytics and triggers that enable lawyers to fulfil their true destiny by becoming effective risk managers for the business. (And you can still run status-aware workload reports.)

As for 3, well, that depends on you. Are you ready to join the revolution?

Peter

Peter Wu is Exari’s Principal Consultant and Counsel. Reach out on twitter @pihao.