Contracts play a vital role in every business. From employee agreements to supplier contracts, proper contract management can save your company from costly legal battles and financial losses. Legal teams must balance regulatory compliance with revenue growth goals as they review, create, and manage contracts. This requires suitable systems to ensure i’s are dotted and t’s are crossed before a contract is finalized.
Identifying Risks
Legal issues are a genuine concern for every business. They can result in monetary damages, loss of reputation, or restrictions on future opportunities for growth. They can also cause damage to your brand image and impact customer trust. While no business can eliminate all legal risks, you can limit your exposure using a carefully balanced strategy—contract process consulting, for example, Intuitive Edge, focuses on identifying and assessing potential risk factors and developing appropriate mitigation strategies. Legal departments should conduct regular risk assessments to identify threats to the organization and its operating environment. These assessments should cover compliance, dispute, and operational risks. The risk assessment should consider the likelihood of legal events, their severity, and the company’s overall risk tolerance level. This helps decision-makers choose strategies that reduce legal risk. For example, risk-averse firms may seek insurance against legal claims to mitigate their vulnerability. They may also minimize their legal risk by implementing a crisis management program that addresses legal and force majeure risks.
Developing Mitigation Strategies
While some legal risks are unavoidable, most can be mitigated through intelligent contracting, implementing safety protocols and messaging, and securing appropriate insurance coverage. These strategies also help corporations to avoid financial losses caused by reduced business. However, these mitigation strategies are only effective when implemented holistically, connecting the strategic portion of the decision-making process with operational data and analytics. This requires legal teams to work with other departments in the company, including records management, procurement, insurance coverage, and strategic sourcing, to establish reliable controls and implement mitigation strategies for all the risks associated with contracting. Legal risk-mitigating initiatives must also ensure that the contracts they produce are enforceable and comply with all regulations, even those that don’t directly affect the company’s core business. This can be accomplished through standardized clauses and templates that allow resources to draft agreements quickly without creating any issues with ambiguous language. Legal professionals can then check These clauses and templates for compliance with regulatory requirements before they’re finalized.
Developing a Monitoring Plan
Developing an effective monitoring plan requires that a team focus on critical questions that can be reliably answered with adequate data. The monitoring plan should be designed to understand management actions’ short- or long-term effects on a population using retrospective comparative mensurative or before-after control-impact designs. Contracts should address intellectual property rights at each stage, including clauses allowing ownership transfer. A contract management platform with role-based security controls that provides visibility and editing on a need-to-know basis can minimize these risks.
Implementing a Monitoring Plan
With contracts permeating every aspect of a business, legal and contract management teams understand the inherent risks in each agreement. However, the pressure to get deals done can create a cycle of lax risk management and negative consequences. For example, it may be tempting for lawyers to involve themselves early in sales discussions to avoid potential risk issues. Unfortunately, this can backfire by introducing risk-averse language and slowing the process down. Another challenge is ensuring that contracts meet all required regulatory compliance criteria. This is particularly difficult when agreements are negotiated and signed with different parties from all over the globe. A digital contract lifecycle management (CLM) solution with predictive analytics can help identify key risk factors and alert legal teams to the need to act, from proposals to renewals. It also enables companies to avoid security risks impacting the entire organization and brand, including financial, operational, and reputational damage from data breaches.
