One of the television game shows that my two young sons have recently discovered is 'Tipping Point'. They absolutely love it. Trying to answer (in other words "guess") correctly the multiple choice questions...followed by the anticipation of just how many 'chips' will drop in the right place of the drop zone to create a chain reaction that pushes other chips over the edge to win big! What has dawned on me lately, however, is just how analogous it is to contract management and, how contracts and associated data are generally handled across the majority of companies today, both big and small.
Contracts are the single source of truth and in many instances will take a significant number of lawyer hours (at significant cost to all parties) to negotiate and get right. In an ideal world then, the same focus and investment should go into managing contracts and the valuable data that resides within them post execution - however, this is rarely the case.
The broad challenges I have seen across many companies preventing a more optimal approach are:
- confusion around who internally should own the process or a lack of desire to own, for example legal functions often see their role ending at the point of signature;
- lack of internal budget to invest into a long-term strategic process and suitable technology to manage contracts and associated data - especially enterprise-wide CLM systems which are expensive to licence and implement;
- purchasing and implementing new technology for many organisations is a very time-consuming and arduous process - one that can take many many months to get through the procurement and information security processes, and then often years to fully implement across a large organisation; and
- finally, the age old challenge of "decision paralysis" - organisations know something needs to be done but struggle to identify where to start and are nervous about making the wrong decisions so invariably end up doing nothing.
Most organisations have had to navigate regulatory change after regulatory change and black-swan event after black-swan event over recent years - each putting an individual spot-light on poor contract hygiene and providing an opportunity for incremental improvement. Starting with uncleared margin reform, Brexit, GDPR, EBA Outsourcing Guidelines, Bank Recovery and Resolution Directive II, IBOR, COVID-19, Sanctions to now Schrems II - all of these events have caused enormous burden on organisations due to the lack of centralised contract repositories and associated databases to access key information related to each document real-time. However, the opportunity for an ROI on these types of change programmes has largely been lost.
The good news is - even if you are one of the many organisations suffering similar challenges as those outlined above, there are lots of lighter weight and more digestible changes that can be implemented in the short-term that can have significant positive impact. For example, most organisations have access to existing technology (such as the suite of Microsoft 365 apps) that if used in the right way can provide you with the basic functionality you will need to manage contracts and data - without all of the bells and whistles offered by enterprise-wide CLM platforms - and can equally help to avoid the internal procurement and IT obstacles.
How many more regulatory or black-swan events need to be dropped into the contract management "drop zone" before companies are ready and willing to start to solve the challenge long-term? Even if that is taking those small incremental steps. I suspect we are very close to the "tipping point"!