Look, I tried
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The psychology of legal relations
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From our “understanding the implications of behavioural science for contract negotiation” series — it is a short series at present — comes this oft-overlooked motivation for your counterparty’s apparently absurd negotiation demands: not out of any wish or intention to enforce them, per se, but to persuade its own, absurdly demanding clients, that it has done its best.
In our crazy, inter-connected world, much financial markets activity comprises of fattened intermediaries sitting cross-legged in a circle, passing around a parcel belonging, at some remove, to someone else. A pensioner, most likely. As it passes by, each one takes a nibble at it.
Now each of these intermediaries needs to agree the terms on which it will take the parcel, and then hand it on. Its main concern, of course, is to hold on to it for just long enough to justify a good old chomp before they pass it on, but each needs also to prepare for the consequences of the parcel, when it comes time for it to be returned to its owner, looking a bit more careworn and ragged than it was when the intermediary first got it. The parcel might not, eventually, come back at all. As it completes its return trajectory around the circle of nibblers, each intermediary, having had a last loving peck, must be able to explain the state of the parcel to the person to whom she gives it.
Now the ultimate client might be a credulous old fool with a chip shop by the lighthouse in Dungeness, but the Russian doll of agents through whose intestinal systems his pitiful savings have passed are not. Each has its own team of assiduous legal eagles who will demand ever-higher standards of prudence from their onward counterparties — one has to do something to earn one’s commission, after all. Right, Fairfield Sentry? And so commences an arms race of covenants, indemnities, hold harmlesses and representations and warranties. It will get to a point where the legal eagle handling the incoming finally baulks. The request exceeds all policies and internal procedures. It cannot be done:
- “I ... I ... we cannot agree to monitor every individual employee’s personal investments to comply with your environmental, social and corporate governance policy,” she will wail. “But it is absurd!”
- “But you must,” will come the reply. “For it is in our charter. We have committed this to our clients. This is a show-stopper.”
Deep down, everyone will know that this fellow has not the faintest intention of ever asking about your employees’ personal investments. Once the contract is safely inked and put away, no one will give it another thought. Why would they? And what, even if they did, could they honestly expect to do about it? What, should it discover that your employees invest in exclusively in tobacco, arms and the financing of organised crime, would be its loss?
None. But that is not the point. What it wants is plausible deniability, should any of its own clients ask what on earth it thought it was it is doing giving money to Fairfield Sentry, or how it is ensuring its counterparties are all feckless virtue-signallers. It can say, “you see? It is in the contract! They promised!”
See also
- The mythical ultimate client
- Software as a service
- Disintermediation
- Boilerplate