Over the past 5 years, general counsel have become increasingly aware of the need for the corporate legal department to steward an enterprise contract management business process. The previously “federated” approach to ownership of the process meant that groups like legal, procurement, finance, marketing, sales, etc., all were involved in “contracting” at some level, but this also meant that no one owned the management and optimization of the contracting business process across the entire company. This awareness has translated into a trend of the office of general counsel taking over administrative control of the enterprise contract management business process in order to properly manage risk and value for the company.
Among the key developments that are part of this trend is that contract lifecycle management (CLM) technology has become an important factor in enabling an efficient and effective business process. One of the biggest appeals of this automation is that the previously distributed and uncontrolled process of contract creation, negotiation and approval can get more structure and standardization. With this, comes consistency and therefore more risk control. What has not, until late, become of paramount importance as part of this technology enablement effort, is the establishment of a deliberate “source of truth” of all material obligations in the repository of the contract management system.
This source of truth was often viewed more as a necessary evil. “We need to migrate legacy contracts into the new system. We will get to that at some point. We didn’t really budget much for it right now.” Increasingly, general counsel are realizing that establishing this source of truth is critical to baseline the current location/state of contracting at the company. With this baseline, the destination of contracting utopia is easier to define.
What a source of truth contains is all contract documents, organized in a proper parent/child hierarchy, renamed in a consistent manner, fully text searchable and attributed with metadata that is specific to certain contract types. Having this information at their fingertips has enabled general counsel to demonstrate tight governance to audit committees of boards and also support the CFO in their quest to ensure good financial governance. Further, general counsel have found a treasure trove of intelligence to help them determine the best way to standardize contract templates, negotiation playbooks and create clause libraries from the source of truth.
Two other revelations related to the source of truth have caused general counsel to pay attention to this previously tactically viewed domain. One is the need for the process of creating this source of truth to involve deep attorney review of the contract documents contained in the repository. General counsel have realized this is not a technical exercise but a legal process exercise. The other key revelation is that the creation of this source of truth makes it easier to get colleagues to adopt new processes for contract creation, negotiation and approval. The change management associated with this front-end process is easier for employees to accept if they see the technology as a place they can go to search, retrieve and manage contracts for which they are responsible. They start viewing the technology as a true enabler. The result is usually a faster deployment of the contract management technology with less emotional tumult.
The creation of a source of truth is not an elixir. However, general counsel have realized that it is a critical process that requires a lot of detail orientation with a focus on data integrity. This process can create a foundation that enables the organization to envision and define the destination for contract management with more clarity.
Prashant Dubey is President & CEO of The Sumati Group. Sumati has helped corporations create sources of truth for over 1.5 million contract documents, using their team of experienced attorneys to manage the process.
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