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Great dogma of contract negotiation: Difference between revisions
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{{a|negotiation|}}Once upon a time an {{isdama}} was a new and dangerous thing, and one would drop twenty or thirty grand with the [[partner|finest finance lawyer money]] could by to make sure one’s goolies were safe. It was a wonderful period of discovery for we young [[associate]]s, trying to figure out what on earth {{isdaprov|Automatic Early Termination}} even meant, but charging some finance director £350 an hour while we found out. | {{a|negotiation|}}Once upon a time an {{isdama}} was a new and dangerous thing, and one would drop twenty or thirty grand with the [[partner|finest finance lawyer money]] could by to make sure one’s goolies were safe. It was a wonderful period of discovery for we young [[associate]]s, trying to figure out what on earth {{isdaprov|Automatic Early Termination}} even meant, but charging some finance director £350 an hour while we found out. | ||
Before long | Before long [[negotiation|negotiating]] {{isdama}}s had become quite the cottage industry. Today any good-sized institution will have literally hundreds of people in [[onboarding]], [[AML]], [[credit]] sanctioning, [[legal]] and [[documentation unit]] {{isdama}}s single-mindedly devoted to generating new [[master trading agreements]]. | ||
[[ | Now we know [[management consultant]]s and [[COO]]s are good at spotting large aggregated {{wasteprov|cost}}s in an organisation. That is what they do. Some would say that, for better or worse, is ''all'' they do. For some years now, the [[contract negotiation]] process has stuck out like a butcher at a chickpea fudge stall, so there is not an [[investment bank]] in the world which hasn’t taken a chainsaw to its [[negotiation]] operation, slavishly following the simplistic urgings of a McKinsey or a PWC. Most have done this many times, as it is a favourite gambit of an incoming COO. | ||
Ask me why. Go on | Yet contract negotiation remains a giant sinkholes of [[confusion]], resentment and nonsense in modern finance. With ever new initiative the process gets more bogged down, more frustrating, and more expensive. | ||
Ask me why. | |||
Go on: ask me why. | |||
And all because the management consultants don’t observe basic principles of their own discipline. That is why. | And all because the management consultants don’t observe basic principles of their own discipline. That is why. | ||
It is a cinch to diagnose high unit costs: these are standard form customer agreements, right? Surely we can do this cheaper? | |||
[[ | Answer: [[Downgrading - waste article|replace]] the current negotiation personnel with cheaper ones. Set up in [[low-cost jurisdiction]]s. ''Downscale''. | ||
There is an old truism | “[[Low-cost jurisdiction]]” implies that, [[all other things being equal]], the quality of the personnel stays the same: just the unit cost that is cheaper. No-one commissioned any research to prove out that conclusion: it was taken as read. It just isn’t true.<ref>Okay; neither have I. But at least I have anecdotal evidence and the basic rules of supply and demand on my side.</ref> | ||
There is an old truism: you get what you pay for. ''If you pay peanuts you get monkeys''. Arbitrage opportunities do not last long in any buoyant market, as any banker will tell you. | |||
Instead, [[low-cost jurisdiction]]s offered an unlimited supply of young, well-educated and ambitious graduates with boundless energy, a yen to get the hell out of their hometown<ref>And its — well — low incomes, you know?</ref> and seek their fortunes somewhere else — ''anywhere else'' and in any case, no [[subject matter expert]]ise whatsoever. These kids work hard, but ''you only know what you know''. | Instead, [[low-cost jurisdiction]]s offered an unlimited supply of young, well-educated and ambitious graduates with boundless energy, a yen to get the hell out of their hometown<ref>And its — well — low incomes, you know?</ref> and seek their fortunes somewhere else — ''anywhere else'' and in any case, no [[subject matter expert]]ise whatsoever. These kids work hard, but ''you only know what you know''. | ||
This might not matter if the subject matter did not need specialist expertise. But, as it is, it ''does''. The {{isdama}} is a tortured piece of legal technology, and that’s before the institutions have injected their idiosyncratic, paranoid and often senseless credit standards. Now, it’s an open point whether an {{isdama}} ''should'' still be so complicated<ref>In your humble correspondent’s view, | This might not matter if the subject matter did not need specialist expertise. But, as it is, it ''does''. The {{isdama}} is a tortured piece of legal technology, and that’s before the institutions have injected their idiosyncratic, paranoid and often senseless [[credit|credit standards]] into it. Now, it’s an open point whether an {{isdama}} ''should'' still be so complicated<ref>In your humble correspondent’s view, it should not: most institutions impose absurd credit standards — this whole wiki is a testament to that.</ref> but the fact remains that it ''is''. And no [[management consultant]] has ever thought of simplifying the legal and credit content of the agreement before offshoring it to give the poor kids a chance. | ||
Why? Because simplifying a complex legal document requires [[subject matter expert]]ise<ref>[[Legal]] ''and'' [[credit]].</ref> that no [[management consultant]] has. Most lawyers and almost every credit officer alive will swear blind that it really is a matter of life and death that we maintain that [[cross default]], complicated [[downgrade trigger]]s, and fifteen Additional Termination Events, and even if our one doesn’t the counterparty’s will, and in any case some [[management consultantMcKinsey analyst]] simply doesn’t have the technical chops to gainsay that assertion. | |||
So instead, the whole operation, replete with its tortured prose, over-engineered legal drafting and fantastical credit expectations, is lifted and shifted from a high-cost jurisdiction (where at least the people concerned have some institutional knowledge, some industry experience and a half-chance of understanding it) to one where the poor kids have no chance. As a result, process managers must create [[playbook]]s and negotiation guidelines which the low-cost negotiators must follow as if colouring by numbers. If issues arise that are not covered in the [[playbook]] the [[negotiator]] must ''[[escalate]]''. Due to the lack of expertise. [[escalation]] happens more; due to the remote location, it is more protracted. | |||
{{sa}} | {{sa}} | ||
*[[Seven wastes of contract negotiation]] | *[[Seven wastes of contract negotiation]] | ||
{{ref}} | {{ref}} | ||