Innovation Shorts: Think Differently, Raise Your Game

People, Process, Technology. The secret of legal industry innovation. Or the secret behind that snoring you sometimes hear at legal industry innovation seminars? Maybe it’s neither. As the law firm partner I used to work for liked to say, it’s not what you do but how you do it that matters, Guber. I don’t know why he called me Guber, by the way. He was a strange man. But that’s not relevant right now.

People, process and technology are the raw ingredients. There is one area of legal work that particularly highlights how those ingredients, brought expertly together, can deliver interesting results. Today we are going to look at event-driven contracts remediation. Admittedly, this is a terrible title for a topic, so we’re going with The Big Event to drive up ticket sales.

And before we begin, I’d like to thank my esteemed colleague and subject matter genius – yes, genius – Laura Dickson. Every piece of technical wisdom in this article can be attributed to Laura. The jokes are mine. Sue me.


The Big Event

Disaster movies have always been popular, especially the realistic ones. The tsunami. The incoming asteroid. The legion of snakes let loose on a plane. In the world of the corporate lawyer, a big acquisition or a major new regulatory regime can trigger some of the same primitive panic responses as a forecasted hurricane. The event is coming, but, frozen by indecision, people do not always act in time. You struggle to know whom to turn to for help, now that Tom Cruise is pushing 60. And what survival tools are you going to need, anyway?

What you do know is that your company’s estate of contracts is going to be affected, whether the event is a significant corporate restructuring or the latest round of privacy legislation. You also know that lawyers are going to be involved, getting right in the thick of it like, er, snakes on a plane.


What is the big deal, anyway?

Whatever the event trigger, contracts remediation projects have the following features in common:

  • Something is going to happen that requires a review of business contracts, at scale and with a reasonably well-defined deadline.
  • The client will need to understand what contracts are going to be impacted by the change event, how the contracts may need to be amended, and the risks associated with full, partial or failed implementation.
  • A plan is required to implement the change, designed to meet the client’s risk prioritization and deploying the right resources to handle applicable tasks as efficiently as possible.

Surviving the big event – i.e. getting the impacted contracts located and fixed on time – will depend on 3 factors in particular. Not people, process and technology – that’s the what, Guber. But the how – timing, synergy and tooling.

And like all good disaster movies, there is an extra villain on the loose. The villain’s name is Murphy.


Murphy

Nobody really knows who Murphy was. An Irishman, for sure. And arguably one of the greatest jurists the world has ever known. Because it is one thing to know the law in a particular territory, but to discover a law that applies throughout the known universe really does merit some sort of industry recognition. For it was Murphy who noted that whatever can go wrong, will go wrong.

As the big remediation event approaches, mistakes in both preparation and execution can be made. With Murphy watching from the sidelines, the question is how to avoid them.


Timing

The 3 stages of event denial are well documented in legal circles:

  1. What event?
  2. I don’t have time right now: this week I am presenting to my boss / client / wellness group.
  3. This is going to be huge. I’m scared to ask my law firm for more details.

A common trait among lawyers is to seek to plan for all eventualities, and to strive for perfection in design before starting the work. With remediation projects, a more agile approach is often required. This means adopting an iterative methodology to program implementation, but also striking the right balance between getting on with it while not leaping in prematurely. In simple terms, there are some – I stress some – activities that can be initiated very early in the program timetable and before the full implementation design has been completed.

This problem of timing is particularly acute in remediation programs triggered by regulatory change. Clients have an understandable tendency to wait for comprehensive industry guidance, technical standards to be established, and so on. But by the time the clouds part and the view is completely clear, it is often terrifyingly close to the deadline. Luckily, program activity can often begin early, with a view to gathering and reviewing the relevant contracts population and making a start on how the contracts are organized.

The great remediation beast of the IBOR transition is a case in point. Just to recap, banking regulators decided a few years ago to phase out the long-standing IBOR interbank lending rates benchmark. This transition would affect trillions of debt and derivative financial products, in turn impacting the contracts that underpin those products as well as the business processes and technology systems that form part of the IBOR regime infrastructure.

Many financial institutions were relatively slow to start the remediation process, because they wanted to establish a complete program design before grinding into motion. For example, there would be business decisions to make about which rate to apply under the new scheme replacing IBOR. But that decision-making – painful and strategic as it was – need not have caused so much delay in starting to collect the relevant contracts in the first place. Given the scale of that initial data collection exercise, best practice dictated a pretty much immediate start.

But Murphy was lurking in the shadows. While contract collection could be kicked off promptly, some institutions forgot the old adage that you should measure twice and cut once. Meaning that certain aspects of project design required very careful thought, up front, before launching into implementation. One example, two words: Effective Date.


Effective Data Points

Among other things, remediation programs require the development of a protocol for the collection and analysis of salient data points from each affected contract. The effective date of the contract is commonly captured, identifying when the agreement became operative and often key to establishing whether the instrument is still live. But there is no single standard as to where to look in a contract for this data point, nor in how it might be expressed. If the job is rushed, a client might be tempted to instruct the remediation team simply to “look for the start date”, without considering the sequence of what-ifs that flow from the lack of standardization across contracts and industries. For example:

    • Step 1: Look for start date, commencement date or effective date.
    • Step 2: If there is both a contract commencement date and an operational start date (i.e. service commencement date), take the former (for the purposes of this program) as the effective

date.

  • Step 3: If there is no explicit start / commencement / effective date, take the date of signature as the effective date.

Perfect. A simple process flow to ensure that the remediation team knows how to capture the effective date. What could possibly go wrong? Well, Murphy has a few ideas. What if there is no explicit commencement date AND no signature on the contract in the system? Or what if there is only one signature and the contract is meant to be countersigned?

A relatively simple data point-capturing exercise gets mangled in the real world of contracts as stored and managed by companies. If the process design is not well thought-through at the beginning, there will be escalations and delays.

In an ideal world, all contracts would be clear, consistent, and without contradiction. But unless you are consuming psychedelics, that is not the world we live in. So thinking about the “what-ifs” and incorporating them into the process out of the gate can prevent time-consuming headaches down the road. Psychedelics can also produce headaches1.


Synergy

Corporate lawyers are famous for their self-sacrificing instincts. They do love to take the blame when a collaborative project goes off the rails. Increasingly, large-scale contract remediation programs bring together at least 3 different legal teams: the in-house lawyers who are ultimately responsible for fixing the problem for their client, the outside counsel advisors who bring the regulatory expertise, and the legal process companies who specialize in workflow optimization and the deployment of cost-efficient resources to handle the remediation workload. That’s three groups of legal professionals having to collaborate, known mathematically as M3 – or Murphy to the power of 3.

But it need not be so bad. The legal ecosystem is getting better at inter-group collaboration, partly through practice and partly through thousand-yard stares from the clients. No doubt the professionals involved would, without any prompting, play nicely together in any event. But it helps when roles and responsibilities are clearly established. No, that’s a ridiculous understatement. Remediation projects will flirt with epic failure if the roles and responsibilities are not agreed, clearly understood and maintained with discipline.

This is more than just a question of organizational protocol. The lines between what the law firm does and the remit of the legal process company can be a little blurry. Leaving aside the hybrid organizations that try to offer a one-stop shop combining both roles, the division of labour is, in principle, straightforward. Law firms are the experts in the law, the regulatory environment and the risks and risk mitigation options available to the client within that legal and regulatory context. Legal process companies specialize in the design and standardized, cost-efficient execution of the operational aspects of the remediation program, often bringing particular technology know-how into the frame as well. And the in-house legal team are the experts at directing the program to align with their corporate client’s aims, values and risk appetite.

These are discrete areas of expertise, but of course they overlap: the risk analysis contributed by the law firm informs the commercial risk judgment applied by the in-house team, which together shape the remediation playbook that becomes the operating manual for the legal process consultants.

Setting the rules and respective remits is just the beginning. Engagement needs to be open and supportive, at the outset and throughout the program. Especially when there are difficulties – those unforeseen sources of delay and triggers for client frustration with the process. These are principles with which all contributors will wholeheartedly agree when the theory is discussed during the setup phase, but the practice is always harder than the theory. The client has to set the tone and be willing to coach their advisors when collaborative behaviours come under strain.

A strict rule prohibiting Bus Limbo should be agreed from the get-go. Bus Limbo is a traditional game played in corporate and professional circles, in which project collaborators look for opportunities to throw their partners under an imaginary bus that represents their mutual client’s visceral anger at a perceived project mishap. Clients should know Bus Limbo when they see it and give the appropriate corrective steer. Finger-pointing is not what they are paying for: if a remediation program is encountering some difficulties, the clients will want an unqualified, determined and mutually supportive commitment to get the show back on the road.

Of course, clients do reserve the right to subject their service providers to unprovoked Bus Limbo at any time they see fit. Let’s not kid ourselves: finger-pointing is exactly what clients are paying for, in that context.


Tooling

When we talk about tooling, we refer to more than the technology itself. Before we go into this, we should clarify what kind of technology may be involved. In a previous, best-selling2 article in this series, it was noted that one of the main current uses of artificial intelligence software is to support contracts remediation projects. What the software actually does is to scan vast quantities of legal documentation and find relevant data points that are within its programmed parameters. At lightning speed, the software identifies what the remediation team are looking for and can produce helpful analytics and visualizations that support the reporting process.

But that’s the technology. We say tooling because the technology has to be selected for the job in hand, deployed correctly and supported by an adequately resourced team. All of these steps demand experience. Designing the process that will get the best out of the AI tool – and doing so efficiently, with an unwavering eye on the project timetable – is simply not a task that can be handed to an in-house team with no prior experience. To be fair, nor is this a task that should be handed to a law firm or legal process company with no prior experience. Alright then, only people with experience should take it on. Here is why.

Only an experienced team can ensure that the output produced by the technology will be fit for purpose. Contracts in scope must be broken down into structured data formats that will facilitate review and ingestion by the system. Only a team with experience can ask the right questions about data points and format up front. If you let Murphy run the show, the end result might just be a massive, expensive spreadsheet3.

There is also something of a gap between what the “out of the box” AI solution can do and a deployment that is properly configured to meet the client’s needs. Artificial intelligence can be incredibly powerful for a remediation program, but the deployment methodology needs to be equally intelligent.

People, process, technology. Not what you do but how you do it, Guber.

More Innovation Shorts to follow. Next time – Just About Managing</strong


1I am told.
2OK, barely anyone read the damn thing. But if, against all odds, you’re interested, you can find it here.
3Murphy is believed to have joined a large consulting practice after he left the law.

Sylvain Magdinier

SVP - Contracts, Compliance & Commercial Services