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In the modern world of high-volume online transactions, it is no secret that companies need to undergo a digital transformation. What might be less obvious is that legal departments must do the same. While still needing to manage legal risk, legal teams are expected more and more to also contribute to strategy and the company’s bottom line. And Legal will find it hard to do so, if it remains stuck in the outdated manual processes of the pre-Internet age.
Below are a few examples of how legal teams can undergo digital transformation, and how the emerging field of legal operations can help this process along.
Legal departments have traditionally been viewed as cost centers - that is, departments that don’t directly contribute to the company’s profits but still cost money to operate. But this traditional view is changing, as legal teams are expected to assist with innovation and the company’s bottom line. And one way for Legal to accomplish this is by moving past manual processes and embracing digitally native contracts.
The best way to understand the utility of digitally native contracts is to compare the three main methods of acceptance for online contracts: traditional eSignature, embedded signing, and clickwrap.
Traditional eSignature: This generally involves the online delivery of an otherwise traditional contract, usually via email, which is then accepted through the typing, stamping, or drawing of a signature. This is the oldest form of online contracting.
Embedded Signing: This allows the user to view and sign documents directly through the company’s app or website. While embedded signing is more efficient than eSignature, there is still friction in such processes as user signup and eCommerce checkout.
Clickwrap: Clickwrap contracts are accepted by one click, generally involving the click of a button or checking of a box, which contains language such as “I agree” or words to that effect. Clickwrap agreements are digitally native contracts, meaning they “live” online.
The use of clickwrap and digitally native contracts leads to an efficient signing process for users and customers. And as explained below, digitally native contracts can make life MUCH easier for Legal.
Without digitally native contracts such as clickwrap agreements, legal teams will be left to more traditional solutions, such as contract lifecycle management (CLM) tools. But CLM tools are often inadequate for several reasons.
CLM tools are intended to make the contracting process more efficient through the use of templates and workflows. But despite their widespread use, the costs of standard low-risk contracts have increased by almost 40% in the last six years.
One weakness of traditional CLM tools is that they follow a linear process: (1) contract creation; (2) contract delivery; (3) contract negotiation; and (4) contract storage. A non-linear approach, where multiple steps are handled at once, is often a far more efficient method of contracting.
Another weakness of traditional CLM tools is they do nothing to address a major hurdle to efficient contracting: review and acceptance. The traditional process - contract review, redlining, and then allowing the other party to review and accept or reject redline edits - is highly time-consuming. In order to keep up with the speed of modern online transactions, companies need to use digitally native contracts instead of CLM tools for certain types of contracts.
But what types of contracts are conducive to these different approaches?
Contracting should be approached differently for different types of contracts. One method is to differentiate between standardized and personalized contracts by determining the contract ROI for each type of contract your company uses. These terms can be explained as follows:
Standardized Contracts: These are generally high-volume, low-value contracts with short sales cycles, such as terms of service and NDAs. They usually involve no negotiation and can be presented on a take-it-or-leave-it basis.
Personalized Contracts: These are low-volume, high-value contracts that often require several rounds of negotiation, such as M&As or long-term partnerships.
Contract ROI: Determine the ROI for each type of contract by calculating the time spent on each contract and the value of the transaction. The low-ROI contracts will tend to require little to no negotiation and can be accepted as-is by a high volume of signers.
Standardized contracts will generally be low-ROI contracts that are appropriate for digitally native formats, such as clickwrap. This approach will speed up the transaction speed for high-volume transactions. Then Legal will have its resources freed up to concentrate on the high-ROI personalized contracts that require more in-depth analysis and negotiation.
Besides the traditional aversion to tech solutions, there is another weakness of traditional, legacy legal departments: the inability to work with other departments in the company. Legal teams have usually been siloed, with little interdepartmental cooperation. To maintain its value to modern companies operating in the online space, Legal will need to address these weaknesses.
An emerging function in companies is legal operations: a set of business processes that enables Legal to serve the company more effectively. Legal ops generally focus on improving communication between Legal and other departments through the following: (1) investment in tech tools, (2) knowledge sharing with other departments, (3) strategic planning with other departments, and (4) standardizing workflows for contracting.
The digital transformation of legal teams can contribute to all of these goals. The use of clickwrap for standardized agreements can allow Legal to maintain control of the contracting process while still enhancing transaction speed. Even high-ROI personalized contracts can be produced more efficiently, with technology such as templates and dynamic eSignatures. With digital transformation, Legal can take its place among other departments in spurring innovation and profits.
For more, read our eBook, Digital Transformation of Legal Agreements.