Part One of this article described how Cisco’s legal department has become an agent of change and specifically how they have highly automated the process for creating and approving contracts. In Part Two here we explore the Role of Sarbanes Oxley, how Cisco reduced the number of approvals required, their framework for contract management, and the evolving role of the legal department.
The Role of SOX
Sarbanes Oxley (SOX) is another driver of these changes in how legal departments are run. Because of that legislation, there is much more pressure to document the evidence of arrangement between a company and its customers. The implication is that the management of contracts needs to be replicable and auditable, as in finance. Historically, legal has not had that expectation, so has generally not developed the robust systems and processes, as most financial organizations have. That is all changing.
Reducing the Number of Approvals Needed
Gaining efficiencies is not only about technology. Cisco has a big push to get to “one-approver per function.” Groups (e.g. finance, export team, etc.) get dinged if they require more than one approval. Because of this, the average number of approvals required for non-standard deals went from as high as 30 per contract down to about 7. On standardized deals, they do automatic approval whenever possible.
This type of change cannot be implemented by arm-twisting alone. The legal department had to sell the concept to the organization. They showed the business users how much time those extra approvals were adding and calculated the time-value of money of holding up orders for that many days. They also asked questions like how many times are deals really getting rejected by additional approvers, what is the real ROI and value of having an additional approver, and what is the impact on revenue and on customer satisfaction?
Framework for Contract Management
Harmon presented a model of what is needed in Contract Management, consisting of the following components throughout the end-to-end process:
- Create — Authoring tools to plan and create contracts. The emphasis is to maximize reuse as much as possible, and speed authoring via auto-templates and wizards.
- Negotiate — Heavy use of telepresence tools during negotiation.
- Approve — This is driven by a workflow process, Cisco’s “Virtual Approval Process.” Being really good at the approval phase is key to collapsing cycle times to turn on orderability against contracts.
- Accept — This is the sign-off. Here e-signatures are used – “click to accept.”
- Publish — Data repositories where contracts are captured and stored to make them consumable by the organization. The idea here is not to be a database of “pre-nuptial agreements” that are only used when things go wrong between the two parties. Rather, the agreements are operational documents, clearly setting out the obligations of both organizations (deliverables, metrics, time frames, service levels, payment, etc.) used to drive operations on an ongoing basis throughout the organization (procurement, logistics, quality, manufacturing, finance, etc.).
- Manage — Search, auto-renewal, audit/compliance, measurement, etc.
One measure of the efficiency of Cisco’s legal department is that they have 3.7 legal personnel for each billion dollars of revenue. They are expected to grow the size of the department at a rate lower than the growth of the business.
The Evolving Role of Legal
Cisco’s legal department is striving for ways to make life easier for the end user business customer (now isn’t that a change from legal’s traditional role!). They are doing this via things like actionable reporting (e.g. alerting contract expirations ahead of time) and providing one-page summaries of the business agreements in plain language, so that business people don’t have to try to interpret the lengthy legalese in contracts.
Legal is no longer just giving advice, but also becoming an operational hub that drives the business via the operational expectations defined within the contract, and using those to drive the relationship. With the right data and the right platforms to support automation, Cisco’s legal department is no longer an impediment, but rather a contributor to the speed and value of their business.
To view other articles from this issue of the brief, click here.