Picture the scene. A quarterly board meeting at a mid-sized or large business, with leadership and all the ‘heads of’ gathered round the (potentially virtual) table. Head of Sales speaks and presents a graph showing significant growth in the number of sales over the quarter, and presents a detailed forecast of future deals all pulled from their CRM system. Contented murmurings all round. Marketing demonstrates the impact of several campaigns across the quarter and how this has led to a real change in how the business is perceived. This data is all pulled from their marketing automation platform. Excellent. Then the general counsel (GC) is called on to speak. How do things look from a legal perspective within the business?
‘I’m afraid I don’t have any graphs to show or data to present today. But things are good, the team seems happy and I think they really delivered against the crazy timeline of Project Typhoon. We also managed to cover all of the other major deals that hit our desk during this time but are a little behind with understanding our exposure to the LIBOR changes and we may have to bring in external counsel to assist.’
The wording may be different, but the underlying theme of a qualitative response rather than a quantitative one is all too common and could leave some board members furrowing their brows, and also cause unnecessary grief for the GCs themselves. While other heads of functions are armed with insightful data and actionable analytics delivered by the technology platforms that they use to run their teams, the GC has for too long had little more than instinct or experience with which to inform future business strategy at a boardroom level. As a result, the GC, unfortunately, can often appear as a reactive responder in contrast to their more data-informed and thus proactive colleagues.
Now, not only is this unfair on some of the hardest working, intelligent, and highly pressured employees that any company will have (the legal team), but it is also inaccurate. The GC and their team members are tasked with a mission-critical role - they ensure on a daily basis that the company is not sailing into murky legal waters, or exposing itself to too much risk in its contractual dealings - they simply have limited or perhaps no access to insights from that contractual data to be used proactively for decision-making. They are exploring those murky depths with no flashlight.
Given the importance of the role that the legal function plays, we would love to see the GC become a true data-driven strategic advisor to the business who not only manages risk but drives growth as well. The decision to empower the GC to unlock, interpret, and apply those insights should be evident. It would be a win for the business, which is able to better understand the risks, which are a necessary part of work, and for the GCs themselves, who can demonstrate exactly what responsibility lies on their shoulders (and hopefully, of course, how they are handling it superbly). This is the future vision of the GC and what we should all be striving for.
So why is this not done? Again, it comes back to data. Ask a GC at any company of size how many contracts they are working on at any one time, or how many live contracts they have in total and the answer is almost always ‘I don’t know’. The speed of data extraction from this contract portfolio to meet a new business question can also be a thorny issue. The GC’s team often has to manually read through an opaque portfolio of contracts to extract key data points before reporting back to the business on the obligations detailed within.
In the current climate, while the majority of legal professionals (63%) are able to get an overview of the contracting process and identify commonalities, well over a third are unable to identify common trends from one transaction to the next. This means that the cause of delays or even the reasons why deals collapse at the last minute may not be recognised or documented – increasing the likelihood of similar problems reoccurring in the future.
The power of contract analytics
Contract Analytics is the collection and subsequent study of data from a companies contracting process to understand ways to improve the process and increase efficiencies in legal and therefore drive deal velocity for the business.
Contract analytics software takes away many of the manual and often repetitive elements of the GC’s role by automating the extraction of information from a portfolio of contracts into an analytics platform in a timely and efficient manner – eliminating bottlenecks and facilitating faster deal velocity. Many tools, like ThoughtRiver deliver the very useful function of automatically reviewing contracts during the negotiation stage before they are signed. When all new contracts are pre-screened for risk in this way, it is as if an army of paralegals have reviewed all new contracts for risk, categorised them and indexed them for future data extraction needs.
This type of legaltech can analyse data to uncover insights, trends, and opportunities. These data-driven insights can be used by the GC to proactively suggest ways to improve business performance, securing their position as a trusted advisor and a proactive accelerant to growth.
The benefits of automated legal document review also extend beyond the GC. Data insights can be visualised and shared with all stakeholders in a fast and accessible manner. By democratising data in this fashion – putting it in the hands of employees at all levels – better decisions can be made more securely, faster, and more frequently. In the same way that most businesses use data from their CRM to improve sales and marketing efforts, legal contracting data can be used to improve sales, procurement, and legal processes. Improving these processes drives deal velocity and directly impacts the balance sheet. Almost every company is sitting on a gold mine of data within their contracts; they just do not yet know or have the right tools to take advantage of that data.
From a recent survey conducted by ThoughtRiver, more than two-thirds of respondents (who are senior corporate lawyers) said that they struggle to leverage information from their signed contracts and from their contracting process to make data-driven business decisions. There is no value to the contract outside of the obligations and positions stated within each document. This implies that very few lessons can be learned from each contracting experience. It is difficult for the GC’s team to add value at a strategic level, because there is simply no data for them to demonstrate their hypotheses or prove to the board that certain decisions should be taken to improve the way the company operates. The GC is reliant on opinion, instinct and experience, not empirical data.
The potential of this is enormous. By analysing multiple contracts, they can track patterns in contract negotiations and obligations. For example, they might learn that their current negotiation playbook has 60-day payment terms, but this always gets adjusted to 45 days with a certain counter-party. And this adjustment always adds several weeks during negotiations, which causes loss of revenue and impacts deal velocity. By analysing this, the GC is empowered to inform business leaders that a commercial review may be necessary, as changing standard terms, even if it is just with a specific supplier or customer, will be beneficial in driving more efficient contracting.
In a similar fashion, the GC can now surface other contracting trends and better arm the sales or procurement teams with information on what's ‘market’ or common for certain positions to further accelerate deal velocity by making sure the starting terms suggested to the counterparty are too far off the commercial norm.
A well-deserved seat at the table for the GC
Ultimately, strong contract analytics can enable GCs to discover common bottlenecks and causes of delay in their contracting process, while empowering them to answer business questions in minutes rather than days. ThoughtRiver’s survey showed that 53% of the data extraction work that the GC’s team embarks on is driven by a request from the business so answering these questions fast is paramount. With contract analytics tools in place they can prove hypotheses, back up opinions with data and let the business see what is really happening. No longer seen as just a supplier of legal services, or as a risk mitigator, they will be considered a valuable business advisor, and quite rightfully have a permanent seat at the executive table.
Having proper contractual analytics in place achieves something else too. Up to now, a GC has struggled with a truly data-driven approach to managing their team’s workload and performance. On a day to day basis, the underlying data of how lawyers negotiate is rarely examined but we think that this data represents a huge opportunity. Knowing how much risk a lawyer typically takes on in their contract is important - same for how many revisions are typically required on any contract they are working on. The GC can measure how the company's risk position has shifted throughout the negotiation process from draft to signature, and also compare these risk positions across team members. This surfaces the actual data needed for understanding who negotiates best, and who negotiates the most efficiently: key information one would expect in today's data-rich and results-driven world.
This article was first posted on Artificial Lawyer at this URL https://www.artificiallawyer.com/2020/09/10/the-devil-is-in-the-detail-empowering-gcs/