Many professionals in legal, procurement or contracts groups know only too well those repetitive problems that just won’t go away. In fact, much of our work involves protecting against the risks that those ‘problems’ would otherwise generate.

But sometimes it is good to sit back and wonder whether it is true that there really is no other solution, or that the alternatives would prove unacceptable.

The ‘green’ revolution is daily throwing up examples that suggest the problems may often be in our minds rather than in reality. A recent example appeared in The Economist, which described an initiative by UK retailer Marks & Spencer to build a new, environmentally-friendly factory in Sri Lanka.

The “eco-factory” began as a branding experiment, but turned into an economic success. No air conditioning; natural light; hydro-and solar-power; a turf roof. Energy costs alone are 40% lower than comparable ‘traditional factories. And the goods it produces - ‘ethical’ lingerie - are no more expensive than their eco-unfriendly competitors.

Behind this story there was imagination - a group pf people who challenged assumptions and found practical - and superior - answers. It would be interesting to know the make-up of the team that developed this concept and oversaw its realization.

So what about some of our ‘insoluble’ or ‘risky’ problems, such as those terms and conditions that always demand negotiation and to which ‘there is no alternative’?

Are we the barrier to innovation?

Throughout history, human affairs have been governed by rules. They change and evolve with shifting needs and the emergence of new issues and challenges.

Today, we seem beset by increasingly vague and unreasonable regulations. It seems almost anyone - governments, suppliers - feels entitled to impose rules that protect some particular interest - and they feel no obligation to consider whether it is reasonable or enforceable. That is your problem.

I am talking about topics that range from corporate governance, through bribery and corruption, through export and import controls, to issues like software or license compliance. In recent months, I have heard story after story from business people who have no idea how they can ensure compliance with the rules being imposed upon them. In a story today, a US corporation that legitimately provided program access to its German subsidiary found itself in breach of export regulations because a Romanian employee (based in Germany) used the system.

We cannot do much about government regulations, excpet campaign against those that are clearly against the public interest (and IACCM will increasingly do that). But those who negotiate contracts must start pushing back on unreasonable obligations to monitor use. If they wish to protect their assets, suppliers have a duty to build protection into them or into the way they are distributed. It is not right to simply pass the burden of oversight to a customer, except in respect of fraudulent or deliberate misuse.

It is not only a question of reasonableness (though that is also an issue). The point is more that the organization subject to these rules is somehow meant to oversee their enforcement. In a digital world, that is incredibly difficult to achieve.

An IACCM member posted a question on a subject that has been bothering me for some time (and which we included as a discussion item at the most recent IACCM conference). It relates to the area of Codes of Conduct and the extent to which these may represent ‘enforceable’ promises. Or put another way, how do Codes and Contracts interrelate?

This particular question relates to the Codes produced by buyers of goods or services; but of course we are also seeing Codes produced by providers as they seek to reassure or set expectations for their customers.

The question was this:

“I am interested in knowing whether any Purchaser has had a supplier sue or threaten to sue for breach by the Purchaser (including uneven application of the Supplier conduct rules) of obligations on the Purchaser contained in the Supplier Code of Conduct.

I am not focussed on the class action - just on a Supplier who has agreed to a code of conduct as a term of an RFx or a term of its supply agreement and who then sues its Purchaser for breaching its obligations uner the code. Sometimes codes of conduct have very high aspirational standards (like “highest ethical standards”, no “apparent conflict of interest”, no concealment of relevant criteria”) that conflict with sound commercial practice. So there’s an opening here for a Supplier to sue for Purchaser’s breach of the code, if the code is part of the contract, or on collateral warranty if the code is a separate document.”

The issue of ‘codes’ is of great interest to me (and IACCM). For example, to what extent do these supplement or even supercede contracts? Will Corporate Codes be used to replace the need for contract terms in many areas, and in particular used to address the inconsistencies of law between different jurisdictions? And if so, will the result be that they become a source of litiagation, or will ‘the jury’ be public opinion, when companies are called out for failing to match their promises?

We have to remember that Codes are typically used as a marketing technique (setting out capabilities or responsibilities). Contracts (in good companies) may also do this. But more often they are used by each side to limit their capabilities or responsibilities. Codes are about trust; contracts (frequently) are not. So there is a fundamental conflict of philosophy; yet to prosper in the global economy, companies must establish trust in their brand - to attract the best customers and the best suppliers and distribution partners. So Codes seem likely to proliferate ….

My enquiries suggest that in most companies, the group responsible for producing the Codes has little or no relationship to the group producing the contracts. I understand why this may be the case, but it doesn’t seem very smart. The two areeas must bereconciled, or there is a very real risk that they simply cancel each other out (and what does that do for generating either trust or good risk management?).

The question cites the example of Walmart. In the end, Walmart responded to public pressure (reputaion risk) much more than legal pressure. And perhaps that is the way of the future.

If the use of Codes increases, I guess it is only a matter of time before they more frequently get introduced in litigation. What we have yet to see is the extent to which courts are prepared to take thm into account in reaching judgment. Presumably key questions will be the extent to which reliance was palced upon them, whether companies explicitly or by implication include them in their contractual undertakings, the sophistication and history of the other party etc.

And the pattern here is also likely to vary depending on the jurisdiction and its relative readiness to incorporate supplementary materials into its judgments.

Recession, supply constraints, sub-optimized relationships - whatever the forces that lie behind it, more and more organizations are talking about ‘collaboration’ or ‘partnering’ or ‘customer / supplier of choice’ as ways to improve business performance. But realizing such relationships is proving tough to achieve. There are some obvious reasons for this - but maybe there is a hidden factor that actually makes it impossible.

This week, I was at a meeting of IACCM members in Houston, Texas. We were discussing the many pressures and opportunities in front of those in Procurement, Contract Management and Legal. And of course, much of the conversation revolved around the question of how we could improve the quality and results from trading relationships. There is a lot of talk about the need to enhance performance management and relationship management, as well as growing understanding that somehow negotiations (and RFx procedures) must become less constrained / adversarial.

So of course, conversation naturally turns to concepts like ‘trust’ and ‘collaboration’ - words that are increasingly on executive lips as well. And we started to outline some ways that these attributes might be encouraged or achieved.

That was the moment that a critical question came from the back. “Why do you think that we can start building trust and collaboration when we have executives who destroy such principles?” (I do injustice to the exact words, but this addresses the principle). Our questioner (who is French) was making the point that the Anglo-Saxon model of business management has increasingly become suffused by lack of loyalty, lack of trust and an aura of greed and personal progress at the expense of corporate values or principles. So how can you reconcile this attitude -and the resulting detachment that many employees feel - with attempts to create ‘trust’ and ‘collaboration’ between organizations?

It’s a great question and in many respects goes to the heart of some of my recent comments on globalization. Collaboration requires levels of compromise and a readiness to sometimes forgo short term opportunity for longer-term gain. It also requires trust (if I forgo a benefit now, can I trust that you will do the same at some point in the future?). So where are the incentives for such behavior? Since markets demand short-term results and the speed of change makes future needs hard to predict, is there in fact any hope that organizations will invest in forming and nurturing longer-term relationships? Or like employees, are all things now dispensable?

What are your thoughts on this?

When it comes to contracting and negotiation, the software industry has proven one of the most frustrating for its customers. Now, it seems things might be changing.

There are good reasons for some of the complexity in software contracts. The need for developers to protect their asset and establish reasonable returns is well understood. But this has led to tortuous charging mechanisms and onerous terms and conditions - and it has also been accompanied by supplier reluctance to take meaningful responsibility for product performance.

So it is no surprise that Microsoft recently discovered that some two thirds of IT directors see software procurement as a cause of delayed implementation, increased complexity and a source of damage to the reputation of IT within their organization.

What is surprising - and to be applauded - is the fact that Microsoft plans to do something about it. Today, they have announced an initiative to ‘champion industry change in software procurement’. They plan to do this through three major steps:

• Deliver better terms that focus on speed, lower transactional costs, balanced allocation of risk and more customer-oriented contracts;
• Agree commitments that improve customer and partner alignment with Microsoft’s engagement resources;
• Reduce standard contracts from many unique forms to a rationalized few.

A key goal appears to be to build increased collaboration with customers, to agree fair and reasonable levels of accountability for outcomes. This approach not only puts Microsoft at the forefront of the software industry, but in fact moves it to a leadership position in many industries.

Of course, buyers will be waiting to see whether these sentiments are borne out in practice. But early customer experiences cited in the Microsoft press release support the value that is being claimed. Hopefully, customers will respond positively and show themselves ready to work in a collaborative spirit to develop win-win relationships. Microsoft has shown it is listening and is prepared to take a new attitude to risk - and there are many who will be watching to see if that pays off.

It will be excellent news for business everywhere if this succeeds and spurs new approaches to contracting and negotiation on a cross-industry basis.

Those who make it to become CEO of major companies - and the duration of their tenure - have changed in recent years, according to several research studies. A report in The Economist highlights that former CFOs are now the most likely to rise to corporate leadership, replacing the traditional Marketing route.

Today, more than 20% of US chief executives have come from Finance, more than double the percentage of 10 years ago. The research also highlights that ‘lifers’ (those staying with one company) still occupy 26% of the top jobs in the US, compared with just 18% in Europe. And these lifers also get to the top faster - they took 22 years on average, compared with a 26 year average for those who changed companies.

The study shows interesting contrasts between the US and Europe - perhaps the reverse of some popular stereotypes. For example, European CEOs are slightly yuounger than their US counterparts (54 versus 56) as well as being more likely to have worked for more than one company (82% versus 74%). Their tenure is less secure - on average 7 years versus 9 years - and 18% were replaced last year (against 15% in the US).

Last week I posed the question “Is globalilization the next mismanaged risk?” This challenged the wisdom of the 89% of CEOs who, in a recent survey, declared that globalization is ‘inevitable’.

While I am broadly a fan of globalization, I think it is rash of anyone to assume inevitability and therefore fail to consider alternatives when they undertake risk analysis. Many are threatened by ‘the flat world’ and their reactions will continue to be unpredictable, potentially violent. As others experience those reactions - and the broader effects of a more open society - they may also increasingly question the desirability of the globalization process. For example, those in the West have largely seen globalization as a way to export their values, open new markets and obtain cheaper sources of supply. They have rarely considered the extent to which their values might be challenged, or whether long-term success depends on compromise.

An excellent new book raises some of these tough questions. It is called Network Power: The Social Dynamics of Globalization and is written by David Singh Grewal. In it, Grewal makes the point that while we are tempted to think that globalization has fostered diversity (and is therefore non-threatening), the truth is that it has merely revealed diversity that was already there. As one reviewer commented, “It flushes diversity out from the places it was hidden, much as a hunter flushes his quarry out of a thicket, and to similar effect”.

The point behind Grewal’s work is that globalization proceeds through creating new networks. And in order to survive, networks develop and adopt standards. Over time, those standards start to narrow our choices - in fact, they become enshrined through rules and oversight - or ‘complaince’. And with compliance comes a reduction in choice, an imposition of values with which we may not always agree, or which puts us into conflict with our immediate colleagues or neighbours, who may be part of a competing network (or value system).

The power of globalization to break down existing cultures and societies is at this point only vaguely understood. We have welcomed such forces so long as they were affecting others, bringing reform to parts of the world that we consider ‘less advanced’ or less enlightened. But how do we feel when those same disruptive forces are turned on our own society and start to undermine its established values and standards?

Even CEOs might start to react - especially when those networks start questioning the moral validity of their pay packets!

This week I presented at the Association of Proposal Management Professionals (APMP) conference in Palm Springs, California.

Following my presentation, I participated in a discussion about the challenges of “collaboration and competencies in business development”. This was undertaken in partnership with Howard Nutt, Executive Director of the Business Development Institute, and Stacy Goff, Vice-President of ASAPM. It was very evident that IACCM members face challenges that are extremely similar to those confronting bid managers, proposal managers, project managers …… we are all wrestling with issues of speed, workload, cooperation, leadership, clarity of roles etc.

One question we sought to address was how to fix the dilemma of skills and talent. There was discussion around motivation and morale, of the difficulty in attracting and retaining the best people. It was all fairly standard stuff. Then a lady at the back spoke up. She recounted the story of a female business owner who had become her mentor in her student days and had left lasting memories that continued to steer her actions.

The business owner had built a very successful nail salon - so successful that she in fact expanded to running three of four salons within a very short time. She cared fervently about customer service and knew that the best way to achieve this was to invest in her people. But very soon, they became targets for every aspiring nail-salon entrepreneur. Some were tempted away, often at real inconvenience to the owner and her remaining staff. Yet this business owner never seemed to be upset - she did not remonstrate, or cut back on investment, or seek to control the departures.

The lady recounting this story had asked the salon owner why she seemed so relaxed about losing staff, to which the entrepreneur replied “I am not losing staff, the industry is gaining them”. She took the view that a thriving industry could only be good for her - so this was her way of investing.

In case you immediately think that this story is relevant only to small consumer business, it reminded me of my wife, another very successful female entrepreneur who operates in b2b markets. She too invests heavily in her staff and takes every measure to enable and empower them. They are also targets for many of the industry’s big-hitters who can offer larger salaries and dangle career prospects. Yet she ensures that employees depart on good terms and feel appreciated for their efforts.

These attitudes of enablement have interesting side-effects. First, it helps maintain employee morale - they are regularly reminded that they are among the best in the industry. Second, even those who leave remain remarkably loyal - in many cases they seek to return, in others they become powerful ambassadors for the company. Third, that spirit of excellence flows throughout the company, generating real enthusiasm to serve customers and gain their respect and trust. Even if at times they find themselves short-handed.

The key point from this story is that flourishing and successful organizations are open and sharing, they seek to enable their own employees and to empower their customers, they are built on trust and respect. Sure, there are occasional individuals who abuse that trust and they must be watched out for; but overall, it seems the benefits of attitudes that ‘contribute to the industry’ far outweigh the alternative view of ‘protect my turf’.

Quality of risk management is currently one of the most highly rated attributes of the business world - at least, that is what many management gurus tell us. And certainly, the recent financial services debacle would suggest that improving the management of risk should be high on any corporate agenda.

So where was executive management when all those sub-prime decisions were being made? And where was executive management during the internet bubble? Or during the collapse of the telecoms supply industry? And where is it now on the issue of globalization?

According to a study on The Benefits and Challenges of Globalization, undertaken by the Economist Intelligence Unit on behalf of Equaterra, 89% of executives see globalization as ‘inevitable’.

These corporate leaders feel their focus must be on ’streamlining processes, expanding markets, and hiring and retaining qualified local staff’. The executives certainly recognize risks - for example, the threat of new competitors from emerging markets, meeting the challenge of speed or facing the possibility of a global economic downturn. But not once does the report suggest that anyone is questioning the underlying platform for globalization - and hence they appear to be ignoring the greatest risk of all. It is rather like sub-prime - we had better jump on the bandwagon because everyone else is doing it.

I turned to one of my most respected sources for a counter-view. This executive shared some very different thoughts and possibilities and, while not suggesting that globalization will not succeed, I must say that this alternative scenario should at least feature in risk planning.

“Read ‘The War of the World’ by Niall Ferguson for the opposite view. He is an economic historian and Professor at Harvard and Oxford, as well as recently joining the board of Merrill Lynch. He charts the last great age of globalization and notes that economic prosperity is frequently the precursor to war. The reasons for this may be varied, but one possibility is that economic prosperity creates shifts in immigration and waves of people flooding from areas of limited opportunity to areas of more opportunity. Clashes of culture and massive disparities between rich and poor fuel the differences and the cheek by jowl visibility of difference fuels resentment and political upheaval, if not war.

Could this be true? Chart the theory against the Goldman Sachs ‘BRIC’ report that predicts GDP growth in India of 10% per annum for the next 20 years and inside India alone you are looking at 178 million people moving to urban poverty from rural deprivation over the period. That is a population the size of old Europe.

Look at the opportunity that the Olympics brings in an age of global communication for the people of Tibet to seek worldwide public support for their position, and the central Chinese response. This creates conflict, and the closing of borders (such as the challenge in Myanmar).

Look at the position in the Middle East and the rise in fundamentalism; is that fuelled by a rejection of capitalist values and a rejection of the western way of life in favour of a different set of values?

How many wars are there worldwide? And should we discount the lurch toward protectionism in the rhetoric of Obama, Clinton and McCain, or the French and German position on climate change as a mechanism to promote national champions and a vehicle for old fashioned industrial policy intervention?

Let’s cite some examples of areas where globalization is meeting reactionary forces:

3000 new crimes have been enacted in which western democracy since 1997? Answer at the foot of this page. And what about the fact that last year Sarkosy succeeded in his removal of Competition as a key preamble to the EU Reform Treaty, and his statement ‘ What has Competition ever done for Europe’.

In the EU and the US the lack of liberalization of any market that is of serious economic importance, from telecoms being partly open to energy, farming or the airline industry which are riddled with political intervention.

The US reaction to sovereign wealth funds as a mechanism for economic terrorism. Or the push-back on foreign ownership of the ports.

Gazprom’s position in world energy markets and Russia’s willingness to use energy as a political tool vis a vis Georgia: who is next? Big issue in Germany and Italy.

The US lurch towards despotism and lack of transparency and the rule of law (read Naomi Wolf ‘The End of America). Will this be fuelled by recession and fear of foreigners stealing your jobs? You betcha! I am surprised that no one has said that the US recession was all the fault of the Taliban.

No; it looks to me like tyranny exists everywhere; that nationalism and small mindedness prevail and the idea that the good of all that benefit from globalization is aspirational, heartfelt but taking a beating, and that the people in the survey have a limited appreciation of fact and risk and a high discount rate of the real risks involved.

The price of freedom is eternal vigilance.”

Extreme? Not really. If we think about a key impact of gloablization it is the fact that it creates new networks that threaten old power structures; it increases visibility of differences (especially ‘haves’ versus ‘have-nots’; and because it has no established governance system, it has led to a massive upsurge in corruption, illicit trade (drugs, prostituionn etc.) and lack of transparency and accountability (for example, the financial services debacle).

When Tom Friedman’s book, The World Is Flat, was first published back in 2005, IACCM acknowledged its great contribution, but challenged many of the underlying concepts. I wrote then about ‘the spiky world’ - the fact that the global networked economy was revealing and in some cases exaggerating the many differences that exist - and that not everyone wants to be the same, or ever can be.

So I want to know the names of the 11% of executives who do not share the view that globalization is inevitable. It is in their companies that I would first consider investing my money.

(Answer to question about new crimes: Great Britain)

Confidentiality agreements and NDAs seem to have proliferated in recent years, doubtless another manifestation of our information society. This has led to growing focus on ‘best practice’ (IACCM in fact has a Wiki on this subject with some model terms).

In response to a question he received, drafting expert Ken Adams has now weighed in on this subject and his blog has attracted a range of extra comment. So for anyone interested in the niceties of confidentiality agreements - and in particular the question of whether there should be a specified term - you should visit http://adamsdrafting.com/system/2008/05/21/duration-confidentiality-agreements/. It offers some useful hints and tips for those who find themselves negotiating such agreements.

While protecting information is of course important, it is in my opinion sad that many legal groups seem to have moved to a fail-safe position of requiring such agreements with virtually anyone with whome the company speaks. In many cases, this has proven not only an expensive process to manage, but also adds significant delay to business operations and is an example of the lazy thinking that brings the contracts community into disrepute.  Our research has also shown that most companies have no centralized - and commonly accessible - repository, so the business people themselves have no knowledge of whether such documents exist or what terms should apply - rendering much of the effort a waste of time.

If we are indeed fated to be in a world where discourse can occur only under specific rules, companies should at least follow the example of corporations such as Cisco and Intel, which have fully automated the process (including electronic signatures) and can now execute Confidentiality Agreemetns and NDAs in a matter of hours, rather than the multiple days that remains common to most.