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Reflecting Responsible Corporate Citizenship in Contracts

Sept. 13, 2021, 8:00 AM

You’re not supposed to put anything in an email that you wouldn’t want to see published on the front page of The New York Times. How would you feel if your company’s contracts were printed there, on display for the whole world see?

For example, people would see whether your company contracts with diverse businesses, if it nickels and dimes its partners or imposes unfair restrictions or penalties, and if your company shifts risks when it has leverage over smaller partners.

Do your contracts tell stories about a socially responsible corporate citizen that behaves ethically? The question grows increasingly urgent as contracts become both more readable and more accessible, enabling more employees, business partners, and others to see, judge, and question your contractual practices.

New Trends in Disclosure

Aside from a few forced disclosures (Securities and Exchange Commission filings or heavily redacted court filings), lawyers have assumed contracts remain private documents that no one actually reads. The acceleration of recent global trends, including new perspectives on transparency, relationship building, and corporate responsibility, is changing this view for the better. These trends include the following.

The Plain Language Movement

Just as it is no longer quirky-cool to not be able to read doctor’s notes, it is not quirky-cool to speak or write in archaic language. “Legalese” is like velour tracksuits and leg warmers—hopefully never to be in vogue again.

Similarly, the World Commerce & Contracting association advocates for a better contract design that makes contracts user-friendly, clear, visual, inclusive, and good for business.

Increasing Transparency and Collaboration

Businesses increasingly democratize access to information to foster trust and enhance collaboration among employees and business partners. Better design, more straightforward language, and enhanced usability enable more people to understand the stories contracts tell.

Advanced Contract Intelligence

We are discovering and discussing more details about previously unknown “unknowns.” Contracts are now digital assets, significantly increasing our analytical capabilities and enabling lawyers to identify risks and opportunities more easily.

In turn, we discuss more detailed and specific concerns in contracts. Accurate, up-to-date, and relevant data helps parties determine how to make changes today for a better tomorrow. Parties can create comprehensive plans to prepare for the future more effectively.

Enhanced visualization techniques reveal information in a new light. That is, viewing comparisons of multiple elements simultaneously (as we do in a comparison chart) helps more people see the bigger picture and spot trends faster and more easily.

Increasingly Dynamic Corporate Social Responsibilities

The above trends coincide with an urgent business imperative to demonstrate corporate responsibility through sustainable and ethical business practices. Socially responsible companies seek to offset any negative impact their actions have on humanity’s social and economic welfare, our environment, and natural resources.

The 2021 Edelman Trust Barometer found that 86% of the general population expects CEOs to speak publicly on social issues while 68% feel CEOs should step in when the government does not fix societal problems. Increasingly, dynamic corporate responsibilities form a major part of a company’s brand identity and reputation and can significantly impact financial risk and growth opportunities.

Growing Prevalence of Formal Relational Contracts

Researchers say these save costs, improve profitability, and result in happier partners who receive higher levels of service in complex relationships that need flexibility. As we discuss below, “relational terms” are the operative part of “responsible contracts” that display corporate responsibility.

Responsible Contracts Help Display Ethical Corporate Citizenship

Lawyers can help companies demonstrate corporate responsibility by creating “responsible” contracts.

Responsible contracts can only be born in an environment of trust, which excludes companies that behave like bullies and green-eyed monsters from the start. Parties are straightforward and practical, openly recognizing their shared dependencies and acknowledging the inevitability of uncertainty and change. They don’t short-sightedly bicker over potential failures during contract negotiations. Instead, the parties focus on building and sustaining a long-term relationship that seeks to create joint prosperity.

Responsible contracts include formal “relational terms” that are integral to ensuring an organization adheres to its social commitments. Relational terms set the expectations for how parties will work together through conflict and change. They promote steady, open communication and enthusiastic cooperation in working toward mutually beneficial outcomes.

In other words, business partners don’t let the relationship dissolve into bitter disputes over lost opportunities. They create a responsible contract that enables change to create and capture more value in a continually evolving partnership.

Transitioning to Responsible Contracts: Look for the Stories They Tell

As the trends above evolve, contracts become more than static instruments to manage risks and document value. Contracts are increasingly dynamic sources of truth about a company.

Responsible contracts will mirror a company’s PR messaging about corporate responsibility, in effect putting them into practice. Start creating responsible contracts by reviewing contracts not just for value and risk to the business but also for the stories they tell about your company’s values.

Lawyers must stay attuned to the ways contracts can influence a company’s reputation and growth. When you’re on top of evolving contract practices, you can optimize opportunities to build relationships that deliver more value. In creating responsible contracts, lawyers serve as strategic advisers who help organizations build positive reputations, behave ethically, and retain great employees—all while increasing profits.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Olga V. Mack is the CEO of Parley Pro, a next-generation contract management company that has pioneered online negotiation technology. She focuses on improving and shaping the future of law, having led for decades as a general counsel, operations professional, startup adviser, public speaker, adjunct professor, and entrepreneur.