As a trainee lawyer, I would spend hours trying to craft clauses governing liability, jurisdiction, and confidentiality. And in the boiler room that is law firm life, every one of these clauses can feel like a matter of life and death. And they do all need to be written carefully and reviewed diligently, because that's what the client is paying for, and you never want something to fall apart because of a silly drafting error, or because of an oversight or misunderstanding. This is important and necessary work.
So important and necessary, it seems, that lawyers sometimes will burn a lot of attention, energy and hours on getting them right at the expense of other clauses that they treat as being less "legal", and more "business-y". As a client, I have received template contracts or markups where it's clear that most of the effort has gone into achieving perfection on any clauses relating to litigation, regulation, intellectual property and so on, while entire sections on pricing, payments and service levels have been left blank.
There is a legitimate reason for this state of affairs, but I'd like to challenge the underlying assumptions and make a case for doing things differently.
Stereotypes about business clients, and stereotypes about lawyers
To understand why things are the way they are, it's worth examining our beliefs about clients and lawyers. Just as I have done in other posts, I'm going to paint a stylized picture, which is exaggerated for effect. I will leave it to you to work own your way back to reality.
In this stylized world, businesspeople are optimistic risk-takers, who have a high risk appetite, and like to think about upside. They love to think about strategy, product design, pricing, and all the other fun stuff that go into serving customers and making money.They don't spend their day thinking about which jurisdiction they'd rather fight a case in, or whether their product liability clauses cover every new and unexpected use of their product. Those situations are generally unpleasant, and (hopefully) exceptional.
In this world, lawyers are staid, risk-averse, detail-oriented financial bodyguards. They obsess about obstacles, risks and worst-case scenarios. They are not particularly interested in the prizes that entrepreneurship offers, and though they might find certain aspects of business intellectually stimulating, they get bored with the day-to-day mechanics of running a business. Temperamentally, they find the perpetual uncertainty and lack of structure to be unpleasant.
Consequences of those stereotypes
The consequences of this stylized model is that lawyers spend their time worrying about the downside so that clients can concentrate on what they love doing, which is building up the upside. This helps explain the fact that some clauses and sections receive far more time and attention than others.
Roughly speaking, lawyers will deliver endlessly edited, absolutely bulletproof work product regarding:
- Jurisdiction and choice of law
- Litigation and dispute resolution
- Regulatory compliance
- Intellectual property
- Governance
- Pricing
- Invoicing
- Terms of trade
- Product and service descriptions
- Service level agreements
The intuition, which is correct in many cases is that those sections are the responsibility of product managers, salespeople, finance teams and others.
But is this really the best way to of doing things?
Challenging the model
It’s obvious that businesspeople are not actually all carefree dreamers who only think of upside. They do actually obsess about a lot of potential risks to their business. But the risks they obsess about are just not the ones that young lawyers are used to thinking about. What are these risks? I would argue that they are actually similar to what lawyers think about, but just at an earlier point in time.
Let’s take a simple example: A lawyer will work hard to make sure that the dispute resolution clauses are well-drafted, that governing laws and forum for resolution are favourably defined, and that the right bankruptcy protections are in place. The client will worry about those screw ups in production and service delivery that might lead to a dispute in the first place.
How about stereotypes about how lawyers think, what they should focus on, and where they add value. Again, the stereotype captures a little bit of truth but is overly broad. Lawyers can certainly be commercial savvy and are perfectly capable of thinking like businesspeople.
The key idea is this: Just because the client’s product manager, finance head, or sales team is the “expert” on the underlying substance of a clause, doesn’t mean they don’t need a lawyer’s help to draft it. Lawyers are precise, diligent and organized. Clients need all of those qualities to be applied to the business-y commercial terms just as much as they do for the lawyer-y ones.
So what?
The aim of this entire blog is to get young lawyers to lean in to business matters, and apply their skill, brains and stamina to adding value. In the context of commercial contracting, here’s what I think that means.
- Equipping yourself with the right tools. That includes everything we have already talked about in this blog, but especially those technical skills that help you understand commercial intent and translate it into words and tables and formulae. (There will be a post focusing on this.)
- Insisting on understanding the business you are working with, and the products and services involved. Try to find ways to talk to product people, operations people, marketing people - whoever can help you build the right intuitions about what the commercial intent really is.
- Focusing on efficiency and value. Does the mechanism you are working on duplicate another mechanism that exists? Is it operationally practical? Does it impose unnecessary costs? I’m not suggesting you have the authority or experience to challenge other on this, but everyone benefits if you are able to catch egregious violations of financial common sense.
- Being able to trace the life of a transaction, as governed by the contract. Party 1 sells a widget on behalf of Party 2. When is the sale recorded? When is payment made? And so on…
- Documenting all of this in a way that is easy for a non-lawyer to understand and execute
To conclude: A contract is not just a document to govern those exceptional circumstances where things go wrong. It is also a document to support the day-to-day marvel of things going right. So don’t neglect the seemingly mundane tables, appendices and schedules where prices, obligations and payment terms are set out. When it comes to business, that’s where the action is!