The General Counsel Imperative: How does contracting complexity hide clear profitability?

By setting a clear path, selecting the right approach for each type of work and striking the fine balance between business enablement, cost control and risk mitigation, contracting teams can expect to change and contribute to the business far more effectively.

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The world is rebounding. After more than a year in which the pandemic nearly shut down the global economy, business leaders are now intently focused on driving growth in what economists predict will be a period of hyper and accelerated expansion, while simultaneously anticipating and managing a period of unprecedented risk. Navigating this complex environment will require that business leaders pay close attention to how their legal and contracting teams support business objectives while protecting the company’s long-term reputation and value.

To help understand how these critical functions anticipate responding to these key business and risk challenges, EY Law and the Harvard Law School Center on the Legal Profession interviewed more than 2,000 General Counsel and leaders from procurement, commercial contracting and business development located in 22 countries. These interviews took place in early 2021 and covered a wide range of topics relating to contract creation and management, law department operations and legal entity management. When put together with the EY CEO Imperative study, conducted during this same period, these surveys provide an expansive and up-to-date 360 degree view of legal and contracting teams and their pivotal roles in achieving business success in the post-COVID-19 economy.

In the first report of a three part series, The General Counsel Imperative: How do you turn barriers into building blocks? (April 2021), we examined the implications of CEOs’ priorities for legal departments in 2021 and beyond. In this second report, we present the results of our interviews with contract, legal, procurement and business development leaders on the challenges these professionals face in managing and improving contracting operations. Why is contracting top of mind for law departments? As business leaders know, contracts — for supplies, for services, and for other operational necessities — are at the heart of operations and growth, regulating and driving virtually every business function. At the same time, understanding what is in these contracts is also at the heart of assessing and mitigating risk. But who is responsible for these contracting processes? Who manages them, from initiation to completion? What are the risks — and opportunities — embedded in these agreements, and how are these costs and benefits affected by the process by which contracts are created, executed, managed and enforced? These are not
idle questions.

Large organizations manage, on average, 350 contracts a week, each costing anywhere from a few thousand dollars to tens of thousands of dollars to create — not to mention the price of the actual goods and services provided, or the potential risks buried within contractual terms. And almost every organization wants to reduce the costs and risks associated with the contracting process. By interviewing the full range of departments with an interest in — and control over — contracting, this report offers a comprehensive view into how this critical function is actually managed and the implications of this reality for a business’s ability to respond to the broader strategic priorities of their top leaders around risk, costs, digitization and growth.

We look forward to engaging with you on these questions in the weeks and months ahead.

Cornelius Grossmann, EY Global Law Leader

David B. Wilkins, Lester Kissel Professor of Law, Vice Dean for Global Initiatives on the Legal Profession, and Faculty Director of the Center on the Legal Profession, Harvard Law School