In a previous blog, I noted that the GCs I meet generally fall into three categories of tech adoption: those that have adopted very little technology, those who are in the process of implementing digital solutions, and those who are demanding the next generation of technology like AI and blockchain.
We talk a lot about the last group and the exciting things happening with bleeding-edge technology, but today I want to talk a little more about that first group. When you are just starting a journey to digitize your contract management processes, it can be very difficult to know where to start. When everyone around you is talking about artificial intelligence and you're still managing contracts on paper, it can feel like you have totally missed the boat.
However, the value of digitized contracts and contract data can be realized extremely quickly even at companies where digitization efforts have been modest to date.
I think of it like a building: When constructing a magnificent structure, the first step is putting a foundation in place.
Where's the Latest Contract?
Let me share a story I heard recently to explain.
A distribution company had a contractual arrangement with a manufacturer to give it exclusive marketing rights in a territory. A strong business relationship had been built over the years, and it was mutually lucrative. Each year the contract was renewed with little discussion.
With business going well and a strong foundation of trust formed between the two companies, neither side was diligent about dotting their i's and crossing their t's in each renewal. Version control was not closely monitored, and storage of the latest contract was haphazard.
This state of affairs is not unusual. In fact, it is still quite common in long-standing business arrangements. In these situations, all is good…until it's not.
In this case, things went sour when the manufacturer decided to begin doing direct marketing in the region and terminated its relationship with the distributor. Overnight, the distributor's entire business was destroyed. They were left with uncleared inventory, and the manufacturer began to poach employees from the distributor who understood the territory.
The distributor served notice to the manufacturer, highlighting the harm caused and seeking compensation. At this point, the manufacturer turned to its contract to show that what they did was perfectly within their rights under the contract.
There was a problem, though—the most recent version of the contract the manufacturer could produce was three years old. The distributor had a more recent version of the contract, which had a non-solicitation clause, which the manufacturer violated when it started hiring the distributor’s employees.
To cut a long story short, because the distributor was able to produce a later version (ironically this was still not the latest version as neither party could locate it), it was able to settle the matter in their favor in an out-of-court settlement of $3 million for loss of business from breach of non-solicitation.
Digitization Is Key to Proper Contract Management
So, what happened here? Of course, the distributor had to prove the solicitation of its employees occurred, but the most important winning point was being able to produce the most recent version of the contract.
How many times have we as GCs had to take the settlement path because we lacked the proper documentation during the evidence gathering?
When you have litigation or disputes going back to many, many years, and evidence gathering is about old documentation, it's then that the lack of a good contract management system comes to bite you.
The building block of a good legal department is ensuring that the entire enterprise’s, and not just the legal department’s own contracts, are digitized, in one place, and centrally managed.
Does this mean things like AI and analytics aren't important? Of course not. But companies who are shying away from digitizing their contracts because they fear its too big of a leap should recognize that even the smallest steps will pay huge dividends and without taking those, you cannot take the bigger steps anyway!
Our ability to succeed is about getting our foundation right. To learn more about contract management best practices, watch this on-demand webinar, The Digitization of Contracts in the Legal Space.