Purpose

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Marvelling, as the JC often does, at the wondrous Fender Stratocaster got us thinking about how the design imperatives in a process may differ at different points in that process.

An electric guitar’s overall life-cycle includes its design, manufacture, marketing, use, maintenance and further use, in perpetuity, to kill fascists. The design imperatives for these different phases are very different: during manufacture, what’s important is cost of components, speed and ease of assembly. During sale, it is distribution channels, marketing, branding, and transport. Once purchased, a single careful owner cares not how easy the tremolo is to set up or the pickguard harness is to wire: she cares about only how easy it is to make, as Frank Zappa put it, “the disgusting stink of a too-loud electric guitar”.

These design imperatives conflict. How easy it is to make or sell bears no necessary relation to how easy a guitar is to play or fix. The interests and aspirations of those who interact with the guitar during its production and use — er, stakeholders — are very different. This was Leo Fender’s genius: to manage all these interests so the same thing delivers for all its users: It’s easy to machine, easy to build, easy to set up, easy to fix, easy to upgrade, easy to play, it looks great, gets the girls and kills fascists. It is probably even quite cool way to be killed, if you happen to be a fascist.

Hypothesis, therefore: great design works for all phases of the life-cycle, and all users, of an artefact throughout its production and use. There no strict hierarchy of priorities between these users: you might say “it is more important to be easy to play than to build” — but if build hassle doubles its production cost — or makes fixing it harder — there will be fewer users. The competing uses exist in some kind of ecosystem in which the artefact will thrive or perish.

Ok; that is a long and fiddly metaphor. Let us now — sigh — tear ourselves away from Fender’s wonderful creation, and apply it to the process of preparing, executing and performing commercial contracts.

Who are the interested constituencies when it comes to the production and use of contracts? It is not just Party A and Party B: it isn’t even Party A and Party B, if we take the JC’s cynical line that those corporate forms are merely a husk: a host — a static entry in a commercial register somewhere — unless and until animated by their agents.

The constituents — stakeholders who have an interest in “the contract” as it makes its Rake’s progress from hopeful aspiration to static data are in Sales, Legal, Credit, Docs, Operations, Risk, and Trading and their external advisors. Do not underestimate the interests of those advisers.

These diverse interests — what each group wants from its intervention in the contracting process — are wildly different as, therefore, are the design principles that apply to the contract in their hands.

You may hear wishful chat from LinkedIn thought-leaders about “legal design”: if they are serious, this is what they mean. How to bring Leo Fender’s spirit to the task of constructing a legal contract.

It is a spirit more talked about than seen, of course. Standardised contracts in the financial services world look more like the Teisco SS4L Orbiter than a Strat.

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See also

• Agency problem
• Design principles

References

For the Purpose of an NDA, see Purpose - Confi Provision

Sales

To Sales, a contract should be a tool for persuasion: it should induce the customer to think happy thoughts about her principal — okay, fat chance with a legal contract, but a gal can dream can’t she? — but at the very least it should be no less intimidating a document than is being presented by her competitors to the same client.

Sales will be specially tuned to the message, however disingenuous, that all our other counterparties have agreed this, should her legal or credit baulk at a client request, and will hammer this imperative home, as often as not prevailing.

The purpose of a contract for Sales: a brochure.

Credit

To Credit, a contract is a long-range defensive strategy. The name of the game is to encode as many snares, booby-traps, tripwires and hundred-ton weights into the document as could possibly come in handy in a time of apocalypse. A credit officer will care not of row of buttons that few of these contingencies will, in the life of our universe, come about, nor that the firm would not, in that same cosmic life-span, dream of using these tools even if the opportunity arose: the exercise is fully hypothetical. The credit team’s perspicacity is measured not in prospect, about what in a sensible universe might happen, but in hindsight about what, in the mad universe we do inhabit, did happen. Since, at the inception of a relationship all of this is entirely unpredictable, a credit officer has no choice but to select all ordinance available to her.

The purpose of a contract for Credit: A tin foil hat, a bottomless supply of tinned soup and a shotgun.

Documentation team

The documentation team just wants to know who to ask for permission to do what, when. Their line management will be focused only on turnover of their portfolio, how many days delinquent it is. This is a shame, but a consequence of our modernist obsession with lean production management. It is all very well to set up your assembly line as if it were punting out Toyota Corollas, but your suppliers need to be on message, and generally they are not: the process is captive of fantastical terms imposed by Credit as per the above, rendered in language confected by legal, buffeted by the incommensurable frame of reference adopted by their counterparty and, more usually, its legal advisors.

The purpose of a contract for the Docs team: A crust: once uploaded into the contracts database is done, I move on, like a shark: I cannot stop moving.

External legal counsel

Theirs: The opposing side’s lawyers main goal is to show how their clients how clever and useful they are. This they do by hotly insisting you change minor terms in your contract. Thus, Büchstein’s articulation of the founding principle of commercial legal advice: scribo, ergo sum. Now, the more rigorously you benchmark your terms to the market, the less scope there will for show-boating mark-up: to be sure, one can never entirely rid a document of fussy clarifications and “doubt”-avoiding parentheticals, but one can minimise them, by careful document design.

Yours: But this rubs directly against Credit’s prerogative, above, which is to move the document as far from that point of tired capitulation, and as far back up the hill, towards the Olympian ideal of Platonic risk management as it can. This is what the home side’s legal will fight for, and they will scorch the earth to deliver it. Since opposing counsel will have struck their camp an equivalent distance down the hill, there will be a wide tract of no-man’s land in between which will serve as a playground for joyful, vandalistic legal rent-seeking: the eagles can all mark-up, strike-out, thrust, parry and counter-thrust to their hearts’ content.

Now, if the opposing camps start out five miles from each other, neither side can know when, whether or on what terms minds will meet — or even if they will meet. Experience will say there is a fair chance, but exactly where will be a mystery. By the time it becomes clear, the place will be so rubble-strewn, shelled, pock-marked and shot up that it will more closely resemble the ruins of Dresden than an agreement between amicable merchants seeking each others’ mutual benefit.

The purpose of a contract for the legal counsel: A livelihood: a thing in and of itself. Somewhat a like a stag weekend, doing paintball.

So what?

The unstated presumption is that these twains shall ne’er meet — lawyers gonna be lawyers, haters gonna hate — but we wonder. Certainly, there exists a world in which a document can be designed to optimise the respective parties’ interests. to be maximally effective for the salesperson and maximally effective for the risk manager?

Now if we contrive to take a pace back from the canvas and look at it through the lens of the disembodied entity who pays all the wages, some agendas appear more important than others. The ultimate clients care a lot about creating a relationship of trust and reciprocity in which mutually beneficial commerce can flourish; they care somewhat about safety mechanisms should that relationship break down, but they will put these behind maintenance of that healthy relationship in the first place, and they will care little about the ongoing livelihood of the professional advisers who claim to help them achieve it. If they could achieve it without agents, they assuredly would.

Case history of the NDA

Let us apply this “behavioural economics” lens to a workaday contract that draws constant gripes from practitioners and constant efforts from legaltechbros and disruptors to solve the legal problem it poses: the non-disclosure agreement.

Our proposition is this: the impulse towards confidentiality at the start of a commercial relationship is universal. The overarching legal purpose of an NDA is well understood, yet the NDA has resisted standardisation and automation.

This has not been for want of trying: any number of nascent legaltech providers have brought serviceable AI review tools to market, and while they handle many NDAs, the reality is they do not save much time or money, let alone move the dial on legal risk. Oh, they will argue differently, but come on.

Similarly, excellent standardisation and centralisation initiatives such as OneNDA have localised take-up but have not revolutionised, nor really made a dent in, the wider NDA industry.

The mystery of why this is so disappears when you look at it from a purpose point of view. The point of an NDA, notwithstanding formalistic legal theory, is not to “manage legal risk to proprietary information”.

Rather, an NDA is a commitment signal. It shows you are serious and you care enough to make an effort. It also speaks to exactly how special you consider your sauce to be, and therefore how much it is worth. Its role is ostentatiously to display your preparedness to invest time and resources in beginning a business relationship and sharing a precious secret. It is a bit like sending expensive embossed wedding invitations rather than a to-all email.

An NDA is largely performative.

That being the case, an important part of the NDA process is incurring expense to put it in place. Engaging expensive humans to perform a ritualised “negotiation” of no real legal moment. You must haggle, a little bit. A “for the avoidance of doubt” here, a “without limitation” there, some undertaking to inform the discloser in this circumstance or that.

That being the case, no legaltech solution that transparently makes the process easier, cheaper, quicker or less bothersome fulfils that primary function. A ritual that can be completed in a trice loses its essential force. It becomes meaningless.

Therefore the only role for AI in the process can be behind the scenes: the interface between parties must still be human to human, and must carry the gravitas of grit. It must be somewhat painful (Think embossed invitations).

Therefore (since there isn’t really any legal purpose to an NDA “negotiation”) the AI (or any other “cheapifying” strategy) cannot afford to make any part of the process more efficient. What it must do is make it seem more efficient to the chief operating officer inside the organisation without actually being more efficient to the counterparty. Its only application can be to further complicate a formal process.

And this is exactly what we are seeing, l. We should expect this to be the basic template for any AI deployment in a commercial negotiation==See also==

• Agency problem
• Design principles