This is second in a four-part series for Legal teams on how to assure compliance; manage risk now and in the future; and enable growth.
Read Part One.
Achieving risk and compliance maturity through contracts
Too often contracts are filed and forgotten, relying on the protective language lawyers draft to stay fines or avoid risk. Problem is, change is a constant. As global regulations proliferate and expectations increase, an audit, or risk assessment (here’s a 90 point checklist), as painful as they can be, is a necessary step in due diligence—helping hold suppliers accountable and saving money in the long run by reducing risk and improving processes and controls.
Rule of thumb: review often and monitor performance. Easier said than done unless using an online contract management solution. Contract management solutions not only make performing a successful contract audit easier, they make implementing changes and enforcing them easier too, giving an organization faster processes and the flawless compliance that accelerates growth.
Legal trusts that departments can negotiate contracts on their own, to a point. However, as changes are made to accommodate terms, to different provisions in the contract, it’s important the Legal team is included in the conversations so they can make sure that the company hasn’t been put at a disadvantage. Both companies involved in the negotiations are doing this, so it’s best to keep them over-informed. Legal can be thought of as the contract consiglieri.
Using templates, standard with most contract management platforms, start contracts off with all the necessary components. Online negotiation eliminates version control issues, as parties never have to download-edit-email a document. Approval workflows automatically loop in Legal when necessary. Each capability helps take the worry out of the process and enables Legal teams to have the control they need without being a blocker or slowing down the process.
Does your organization know all the contracts that will expire in the next 30, 60, or 90 days? Does it measure the legal risk of its portfolio of contracts? Does it have a list of its own violations of existing contracts? Does it know how many contracts will automatically renew this year and whether that renewal is good for the organization? Does it know how many contracts it has? If your contracts manager left today would you be left scrambling?
A well managed contract portfolio can control expenses, and protect revenue, stopping financial leakage that can hurt profitability and expose the organization to litigation, failed counterparties, and compliance violations.
With a CLM (Contract Lifecycle Management) platform approval workflows can help automate compliance, and renewal alerts keep things from falling through the cracks. With this added perspective, businesses are better able to gain new insights, leverage future opportunities, and further enhance efficiency.
Identify which areas to improve. When an audit is performed and an analysis is complete, it’s the perfect time to assess the full-lifetime value of a contract, and prioritize customer relationships and commitments accordingly. Look for areas that can be automated. Are there contracts you can templatize to streamline the process and enable more departments?
For legal teams looking to become more strategic and play a larger role in an organization’s success, there isn’t a better way to bring your A-game to the table.
Tagging and categorizing contracts according to best practices allows targeting contracts close to renegotiation, those that might prevent you from growing profitably, and identifying contracts which are more attractive because they contain repricing opportunities (savings) or previously undiscovered opportunities for growth.
Construct contracts to mitigate risk as much as possible. Applying risk mitigation by avoidance, elimination, transfer, or bearing the risk often involves the creation or modification of contract clauses. Having pre-approved clauses is a key factor for the successful contract risk management of any company. Placing clauses at the template level ensures the appropriate and necessary clauses are always included, regardless of who creates a contract.
Along the same lines as clauses, identify minimum security protocols and standards for vendors and apply them during the vendor selection and contracting process. This includes protocols for cybersecurity, where regulations and best-practices are constantly maturing. Monitor changes to the law and create risk management processes and procedures to protect information, especially when contracting with vendors.
A third important, yet oft overlooked, part of mitigating risk is organizational flexibility.
How do you get compliant flexibility, a seeming oxymoron? By automating processes—through templates, approval workflows, and so on.
Because businesses are constantly changing—new customers, new products, and new regulations—a filing cabinet is no longer (even a hard drive) an acceptable storage option for a company’s most critical business documents. Many companies, with the advent of SaaS, are beginning to look to the Cloud to help manage and store their contracts.
Legal should spend their time helping accelerate deals and keeping the company out of legal hot water, not “digging” through folders and creating massive spreadsheets.
Visibility and control. These are two things that contract management platforms afford Legal teams, helping them deliver results when it comes to compliance and risk management. With centralized contract management processes, putting all people, processes, and contracts in one place, and the aforementioned capabilities (workflows, templates, online negotiation, organization) these platforms take the unknown out.
The quickest way to neutralize a situation is by creating trust and security. Meaning one of the best ways to neutralize or avoid contractual risk is through good, old-fashioned collaboration.
Contract management platforms do this by enabling online, in-document editing and negotiation. It ensures all parties see and accept the clauses and terms of the contract in real-time, making sure everyone agrees to an acceptable, realistic amount of risk up front, while accelerating deals—and maybe even increasing the deal size.
Implementing company policy, getting the right information out to the right people at the right time… there are so many necessary parts to eliminating risk, which are nearly impossible without a robust, integrated solution. Soon, if not already, legal’s job will be more about managing the processes, which means having effective processes in place to begin with.
When it comes to the efficacy of eliminating risk there is no better way than a platform that allows you to eliminate risk with the push of a button.
Create checkpoints and build them in as approval workflows within your contract processes, tailor these steps based on departments, which types of contracts, and so on. Use the modern tools available for legal teams built to make contracts and contract management simpler, faster, and easier—for everyone.
If risk can be an opportunity, it’s all about how it’s managed that makes the difference. Legal is a vital business function, and well-managed risk can help legal teams provide three main areas of value to the rest of the organization, each outlined in the next post.
See how Concord can help your Legal team.
Concord’s mission is to help companies achieve scalability and efficiency by automating their most central process, contracts. The cloud-based solution enables over 400,000 users around the globe to create, collaborate, sign, store, and manage their agreements all in one place. Founded in 2014 and headquartered in San Francisco, Concord is built by business for business.