Why Legal systems of record fail and why you desperately need one
By Andrew Mellett, CEO
13 February 2019
Let me tell you a trick that only a handful of progressive GCs know.
For most of human history 'enterprise value' could be stored in warehouses or buildings or machinery. In the modern era, shareholder value is defined by intellectual property and confined by regulation. Indeed, only two of the top 10 companies in the world (Samsung & Exxon Mobil) produce physical goods, and yet I am sure even these two would argue their value is largely IP.
In this new ‘economic world order’ Legal tasks (such as contracts) are the modern 'vaults' of value. They bring clarity, scalability, and certainty to enterprise value. Without them, most of the world's businesses cease to exist.
Yet there is a problem.
In most cases, no-one quite knows where these assets are. Or if they can locate them they only tell part of the story.
While business has moved on, Legal tasks have largely remained the same. While all other functions have introduced robust governance for assets, underpinned by a sophisticated System of Record, Legal is lucky to have a shared drive.
The very assets that make up all modern enterprises are scattered across the enterprise. They are lost in inboxes of departed employees, stuffed into desk draws, stored on laptops or not present at all.
What business would leave cash lying around in such a way?
You would be hard pressed to find any CFO, CHRO, or Head of Sales who would think it normal to operate their functions without a sophisticated System of Record.
Only 54% of CLOC members report that they have a Contract Management System. And the vast majority of those systems are no more than 'repositories'. Far fewer have a ‘Contract Lifecycle Management’ system. Even less have a Legal Matter/Task Management System or Knowledge Management System.
There are a number explanations for why they GCs haven't adopted Legal Systems of Records:
Although they would hate to admit it, many GCs run their function as an ‘in-house law firm’. Like a Law Firm, they review legal documents and send them to ‘clients’. What happens next is not their problem….Until it is.
Ownership for Legal tasks fall within the grey area between functions. Is the accountability for the agreement with the person who is buying the good, or with legal who drafted it? As they say 'accidents occur at intersections'.
GCs, understandably, claim they aren’t resourced for ‘contract management’...and they aren't particularly interested in the subject.
Legal functions are relatively technophobic (when compared with their peers in Marketing, Finance, Sales, HR etc).
As one GC said to us “Legal tasks are like laptops, they are an asset of the company. For each asset in a business, there is an owner and a user. The user of the laptop is responsible for getting value out of it, the IT function is responsible for having a system of record to manage security, governance etc.”
The logic is irrefutable. Legal should be accountable for the storage and governance for Legal tasks.
However, there is a bigger reason why many functions haven’t adopted an advanced System of Record.
Traditional Legal Systems of Record don't work.
If you want to know why...and what the best GCs are doing about it - read on.
Why traditional Contract/Matter Management Systems Fail
Lawyers are busy. With 91% of GCs forecasting Legal work will rise in the next two years, and Legal currently only supporting 34% of Legal tasks within a business - it is only going to get worse.
To try to bring order to this chaos many GCs are seeking to adopt the Legal Task Management, Matter Management, Contract Management systems they used in their Law Firm days.
However, the vast majority of these investments will fail. Although the intent of these systems is to increase the value the function delivers, through 'scaling' Legal risk management across the business, the reality is that, in most cases, these investments will become a ‘Millstone around their necks’.
Part of this is a result of failed approaches when selecting and adopting technology (Read our ebook ‘Why Legal Tech Fails’).
However, the core issue is not that many of these systems are designed for Law Firms or were built in the late 90’s. The biggest issue is behavioural. As Charlie Munger says ‘show me the incentive, I will show you the behaviour’.
Let us explain a little more.
The central problem with all System’s of Record (e.g. CMS, ERP, HROS etc) is that most of the value of the system does not accrue to the person who has to input the data.
As a result, the system that was purchased to make the function more efficient ends up being ‘one more thing to do’ at the end of an already long day. The GC has to ask a busy Lawyer to input information into a system they don’t get much personal value from. Naturally, over time people ‘forget’ and the value of the system atrophies.
This is often compounded by the fact that most of these systems operate on a ‘seat license’ model. So business person has to ask a Lawyer to input the contract into the contract management system.
Not many banks would buy an ATM that requires a Teller to operate.
But there is a secret that only a few Legal Functions know.
The secret to a successful Legal System of Record
Firstly, let’s start with 'what do we want from a Legal System of Record?'. A bad, but basic answer is to be able to find a signed contract. A better answer is more a paraphrase of Google’s mission ‘to organise [Legal] information and make it searchable’.
Contracts are the most information dense artefact in the enterprise. Yet often there is no searchable platform to store 'single version of the truth', report, create an audit trail, or analytics from. Legal functions are missing out on their biggest opportunity to reposition themselves as a truly strategic function.
Technology provides an opportunity to leverage the data captured across the lifecycle of a Legal task to generate unique insights, improve corporate performance, better manage risk and generate a competitive advantage.
This is not your traditional Law Firm Matter Management, or Contract Management, or Knowledge Management. This is a whole new game.
And here is the trick that only a few leading GCs know.
It is two-fold:
Focus on the sources of the information, not the output
Incentivise the right behaviour by giving the business tools that help them get their job done, instead of asking them to ‘do one more thing’
Once you know this, the idea and the application is relatively straightforward. Instead of seeing Contract Management as the final thing you do at the end of a long process. Start with the end in mind. Give the business a platform or tools that help everyone in the business get Legal tasks done from start to finish.
By giving the business the tools people need to get stuff done Legal gets repositioned as an ‘enabler’ of execution (instead of a barrier) - while incentivising use.
Then what you get is far richer. This approach gives you insights about everything that happened across the whole lifecycle of a contract (or other task) - not just a signed contract.
For a simple example: Instead of people printing out, signing and scanning contracts, get a platform that has DocuSign integrated into it. Getting a document signed becomes easier...and the contract is automatically stored in the system. Win-win.
This is not a new strategy. It is just new to Legal. Other functions have provided expense management systems, leave booking systems, IT support systems etc for years.
They help people get their jobs done and as a by-product of those actions the system captures the information it needs to be high functioning. The business person gets their expenses paid easily - finance get's the data it needs for it's ERP system. Magic.