Managing risk and reducing cost for an enterprise are goals at the forefront of every General Counsel’s mind these days. GCs are playing an increasingly strategic role in the C-suite and need to think proactively about how they can reduce their company’s exposure to reputational, financial, and legal risk while also improving the bottom line.
Forward-looking legal departments are tackling this imperative by embracing the digitization of legal processes. For years legal departments were minimally affected by the digital transformation sweeping other facets of commerce. As long as the lawyer had Microsoft Word and email, he or she was happy!
However, that is quickly changing.
Over the next few weeks, I will be sharing stories I’ve come across in talking with inside counsel from a wide cross section of industries about how they’ve used technology, and contract management software in particular, as the cornerstone of a transition to becoming smarter and more strategic legal departments. Since contracts form the legal foundation of a company’s commercial relationships, their digitization and automation provide unparalleled value from a risk and cost standpoint.
In the series, I will start with some simple examples of how digitizing contracts can help legal departments become more effective. As we progress, I’ll demonstrate how even complex corporate legal challenges can be addressed through advanced automation.
The names are anonymized, but anyone who has experience in contracting in an enterprise will recognize the challenges these colleagues have shared, and appreciate the benefits provided by contract management solutions.
Digital Contracts Save Money
First, the simple stuff.
General Counsel is often responsible for negotiating and purchasing liability insurance for the company. As the insurer sets its premium, it will want to see data that shows what the company’s liabilities are and will penalize companies if the data is not available. That data lives in the company’s contracts, which could be inaccessible if the organization does not have a sophisticated contract management platform.
This was the situation for one of my colleagues a few years back. His company included an unlimited liability clause in some highly coveted deals. When negotiating premiums, the insurance company asked for data showing how many unlimited liability clauses were active in the company’s portfolio. Because those contracts were scattered across the world in shared drives and email folders, my colleague had no way of producing an accurate number. In the absence of real data, the insurance company adjusted its premiums upward to protect against what it assumed was the company’s high exposure to risk. A lack of real-time information about a key risk living in the company’s contracts cost the company nearly a million dollars a year.
It didn’t have to be this way. In the scenario above imagine if my colleague had an enterprise contract management system that served as a central, searchable repository for all contacts and their metadata.
Now, when the insurance company asks for data on unlimited liability clauses, the GC is able to run a report that searches against every contract in the organization to produce a solid figure. The insurance company now better understands the company’s exposure to risk and lower its premiums.
This may sound simple, but many large enterprises continue to rely on manual contract management processes that do not allow this kind of real-time access to contract data. This data is critical to a legal team’s efforts to manage risk and reduce cost for their company – but only if they have access to it.
By digitizing their contracting processes, legal departments can ensure the commercial relationships defined by their contracts are assets for the company and not liabilities. And, as we’ll see in future posts, this is just the beginning of the benefits that can be realized when legal embraces digital transformation.