How Legal contributes to the growth journey through solid contract management

When a company grows and reaches a certain level of maturity, legal aspects begin to play an increasingly important role ‒ particularly regarding contractual matters. This article will provide you with insights into how you, as a legal counsel with deep contractual expertise, can add significant value in a potentially newly established legal department and contribute to future-proof growth.

Establishing a legal function marks a significant milestone in a scale-up company. It represents an acknowledgment of the company's growth, size and complexity, which has now made a dedicated legal focus a necessity. Particularly within the discipline of contracts, a legal function can make a notable difference.

Contracts are central to any company's operations. They are the means through which agreements with customers, suppliers, distributors and other business partners are established, setting out terms and conditions for deliveries, purchases, collaboration projects, development initiatives, product development and more. In short, contracts form the foundation upon which all significant activities contributing to the company's operations and growth rest.

Therefore, as a legal counsel in a newly established legal department, you will be valuable in the efforts to take the company to the next level by managing its contractual matters. The effective legal department ensures that contracts are not only legally sound, but also practically applicable, grounded in the specific situation, and future-proofed.

First and foremost, the contract must be drafted. Here, it is crucial to balance the consideration between safeguarding the company's interests and risk appetite while ensuring that the counterparty can accept the contract's content.

Sometimes, a legally sound customer agreement can be so lengthy and complexly worded that it becomes difficult to convince a counterparty that the agreement serves their interests, thus making the contract challenging to implement in practice. In other words, it becomes more difficult for the company's sales team to close deals. Without sales, there is no contract – and no growth.

In this regard, you can significantly help make the company's contracts concrete and value-creating when they need to be executed.

The negotiation and drafting process is only a small part of a contract's life cycle. Once adopted and put into practice, there may be aspects of the contract that require follow-up; perhaps there are provisions regarding extension/termination, reporting requirements, discount schemes, processes for securing IP rights, exclusivity etc., as well as possibilities for renegotiation.

These are all points that should be handled systematically to ensure that the company's interests are always managed, and that the strong focus on growth and innovation does not come at the expense of solid legal foundation, ensuring that the company secures its rights going forward and can exploit potential market opportunities.

The sales department plays a crucial role in most scale-ups, as this stage often focuses on growth and selling the company's services or products. Therefore, creating synergy between the sales department and your legal department is essential. This can be more challenging than expected, as these two departments, despite sharing the same goal of ensuring company growth, often experience different focuses and approaches to achieving that growth ‒ whether in terms of pace, thoroughness, risks or consideration for the robustness of future cases.

While the sales department maintains high momentum and sometimes tends to promise more than advisable to close a deal, the legal department needs to keep track of obligations and ensure uniform terms that are compliant and match the company's risk profile. So how can these two departments and worldviews harmonize and add value to each other?

By developing solid standard contracts with clear guidelines for sales representatives' boundaries and providing viable options with specific alternative solutions, an effective legal department can play a crucial role in supporting an efficient sales department. By clarifying when salespeople should consult legal for advice, you in the legal department can, in collaboration with management, help the business navigate negotiations with customers and suppliers within a framework that aligns with the company's overall strategy and risk appetite.

For the sales department, this will create a more structured and predictable sales process, while the company is better protected against unforeseen potential risks and disputes.

The sales department can be further equipped to understand and comply with legal frameworks by receiving education and training from the legal department. This way, sales representatives can have strong arguments ready for potential customers while ensuring they stay within the company's desired parameters.

Conversely, you and your potential colleagues in the legal department can also learn much from the sales department. By understanding the dynamics of being in a sales process, you can gain a better understanding of what guidance salespeople most often need, thereby adjusting and dosing legal support to facilitate a sales process where you, as legal counsel, remove obstacles along the way.

A dedicated legal function also helps ensure sound governance in the company, both in relation to contract formation and the subsequent management and execution of contracts. Besides preparing accurate and comprehensive templates and final contracts, your department can also determine who provides input for contracts and how this input should be obtained. For example, who is responsible for providing input regarding VAT or insurance matters, and who delivers input concerning the procurement of business-critical components?

You can also be of great value to the CEO, CFO and other leaders through a 'signing frontpage' – a one-pager that lists the most important aspects of the contract, displays the risk profile and provides an overall contract recommendation – enabling them to be better informed about what they are actually signing. When they can confidently sign a contract without necessarily having to review every detail, they save valuable time and can maintain focus on the company's strategic and broader objectives.

If the company is contract-heavy, it is advisable to create a governance structure ensuring that contracts are processed and signed at the appropriate level with input and sign-off from relevant stakeholders. This way, as legal counsel, you can help ensure that minor contracts do not create a bottleneck at the CFO level, but rather that other functions within the organisation can handle them without management involvement. This can typically be accomplished through division by department level, contract type, contract economic value, contract strategic importance or a combination of these, while simultaneously granting signing authority to the relevant employee. This is also part of the company's maturity process, where responsibility can be distributed among more employees.