If you are a director, officer or manager of a business, you cannot ignore the fact that the health of the latter requires a modicum of involvement in the legal monitoring of its activities. The legal management of a business, although it may involve delegating many tasks to the business’s external legal counsel, is still one of the business’s management’s priorities, as the ultimate responsibility lies with the people in charge of deciding whether or not to entrust such a task to a specific person, of establishing the scope and purpose of the legal management task, and of approving the result.
In order to help the persons to whom such a task is delegated, we have seen fit to include in this column, what we consider to be the ten basic rules of sound legal management to reach the best practice standard in this regard.
The Rules
1 – Develop, depending on the business plan of the company, a roadmap of the legal infrastructure required to support its activities and update it as needed;
2 – Judiciously use the internal or external legal counsel of the business to develop and maintain said infrastructure;
3 – Develop a legal preventive maintenance program for the main components of the legal business;
4 – Never launch a business process without knowledge of its legal framework;
5 – Establish, if possible, a legal watch process for each business process creating risk which may have a material impact on the business;
6 – Encourage the use of control panels in the management of a business, to easily locate any required legal information;
7 – Develop, for the benefit of the business’s decision-makers, “just-in-time” techniques to access legal information regarding any business decision;
8 – Avoid nebulous trade agreements;
9 – Set up a specific filing system for the legal documentation of the business;
10 – Keep a log of legal reminders for the business.
Observations
To help you better understand the reasons for these rules, related compliance issues and solutions we shall now review, in detail, each individual rule.
1 – Develop, depending on the business plan of the company, a roadmap of the legal infrastructure required to support its activities and update it as needed;
Reason – The first rule addresses the fact that a business cannot exist without legal infrastructure to support its legal body and to establish/regulate its operating framework. This legal infrastructure constantly evolves depending on the available opportunities and threats to its development. Like any complex structure, it requires a minimum of cohesion from the legal standpoint to produce the desired result, hence the importance of a master plan to ensure success. It is management’s responsibility to ensure that such legal infrastructure master plan exists and that it is constantly adapted to support the company’s growth. It must also ensure that all persons involved in the construction of any of the components of the intangible work known as the business comply with it.
Issue – Business persons, who are unaware of the importance of proper implementation of such a task within the business and who do not have the know-how and instrumentation required for its implementation, have great difficulties in complying with this first rule which nonetheless marks the starting point of a legally sound business.
Solution – To assist in complying with this first rule, we recommend that businesspersons pay more attention to available legal training seminars, not only to understand the rationale behind such a plan, but also to acquire expertise and, ideally, to discover instruments which will allow them to take a more active role in the development and monitoring of such a plan. Although we would have liked, for the sake of objectivity, to disclose the existence of other training options, to date, the only such option containing all the elements mentioned above, entitled « Processus d’affaires et veille juridique : comment gérer les risques juridiques se rapportant à la création et l’exploitation d’une entreprise”, was designed and is taught by the author of this column. As regards the need for instruments, it is important to note that this training seminar includes and overview of two works included in Édilex’s « Business Legal Management Collection », which can be of use in complying with this first rule, namely the Corporate Data Book, used as a platform to establish and monitor the legal infrastructure master plan of the business, and the Business and Corporate Precedents, including more than 10,000 pages of contract templates, thus offering models for many potential transactions.
2 – Judiciously use the internal or external legal counsel of the business to develop and maintain said infrastructure;
Reason – The second rule refers to the fact that a legal adviser is a necessity for the legal management of a business. Since such legal counsel is the only person with the necessary expertise to carry out the various legal works required for the many business processes launched by businesspersons, the latter must efficiently use this particular resource.
Issue – It should be noted here that businesspersons often make poor use of their legal counsel. Businesses are unlikely to confer with their legal counsel at the beginning of a business process. Instead, the legal counsel is often contacted at the end of the process, which often cause many problems due to the lacking legal direction. One of the reason for this problem is that the intervention of a legal counsel often involves significant costs, which intimidates businesspersons. This is in turn often due to the fact that businesspersons are poorly prepared when they refer a question to their legal counsel, which forces the legal counsel to waste, and charge, time establishing the scope of the work to be performed instead on focusing on said performance.
Solution – The best way to use a legal adviser is to refer to the latter at the beginning of a business process, so as to be aware of the legal dimension of the transaction in order to avoid any possible conflict in its performance. Since it is easier to correct a plan than a mistake in performance, legal counsel should ideally be involved at the planning stage of the process, and afterward act as a guide or coach, to enable it to influence the work plan so as to comply with all laws applicable to the transaction. That way, the business avoids any risk of initial mistake which could jeopardize the intended business processes. This also allows the legal counsel to directly or indirectly monitor the actual process once it is up and running. At the end of the process, the legal counsel may intervene in the final phase, without disrupting the process, to draft any writing required to document the agreements reached, or to satisfy any other requirements.
3 – Develop a legal preventive maintenance program for the main components of the legal business;
Reason – The third rule is based on the fact that it is generally cheaper to maintain a work, whether material or intellectual, than to repair or replace it at an inopportune moment due to premature obsolescence. As it is impossible to predict which of the legal components of the business will fail in a way which impairs its functioning and which may even cause the business to fail entirely, the best business legal management practice must therefore include constant monitoring, supported by timely maintenance interventions, of each component risking obsolescence. Consequently, the need for preventive maintenance, in which the state of each component is periodically assessed and through which is created a list of corrections to be made in order of priority according to needs and resources of each company becomes more evident.
Issue – Compliance with this rule is again impeded by the fact that businesspersons do not have the motivation, expertise and instrumentation required to undertake a program of preventive maintenance of an intellectual work, of which they often ignore the essential elements. How can they then maintain something they don’t understand? Their management style is then limited to fixing, at unpredictable costs, the legal problems appearing in their way when they occur, rather than systematically preventing them at a predictable cost.
Solution – To be able to comply with this rule, a methodology problem must be solved. Business persons must first be able to visualize the specific components of the business, to analyze their current state, and to compare them with the ideal situation. By providing such a methodology to the business, the businesspersons become able to track the legal status of their business, i.e. to see the business’s needs, to plan required interventions to meet such needs, to mobilize resources to carry out such interventions and to monitor the quality of the performance of such legal maintenance tasks. As the essential elements of such a methodology appear in the Corporate Data Book , we refer the reader to said work to learn of how it can contribute to compliance with this rule.
4 – Never launch a business process without knowledge of its legal framework;
Reason – This fourth rule refers to the most common mistake businesspersons make. Too often a business process begins in ignorance of the law applicable to the transaction covered by this process. For example, many businesses develop a product without knowing the mandatory standards which the product must meet. Many business processes fail for the simple reason that the legal framework which must ultimately be met at the performance stage or at the realization stage was ignored until it was too late.
Issue – The climate of urgency in which many business processes are launched is often the main obstacle to compliance with this rule. It is not so much a lack of will than a lack of time from businesspersons which threatens compliance of this rule.
Solution – The time savings that businesspersons believe they may obtain by not performing a legal analysis is quickly lost if the process is poorly directed. The business must deploy the appropriate means to facilitate access to relevant information from the start of the planning process. The best method to comply with this rule is to comply with the second rule. If the services of a legal counsel cannot be retained at this stage, an alternative may be found in the use of instruments which may help businesspersons understand the legal framework of the business process. Since most business processes lead to a contract, we recommend that businesspersons require from their legal counsel, at the beginning of the business processes, a copy of the contract template that will eventually be used to document the transaction, which will be used to provide a good indication of the relevant legal framework. In doing so, they will be able to minimize the problems of adapting the business transaction to its legal framework.
5 – Establish, if possible, a legal watch process for each business process creating risk which may have a material impact on the business;
Reason – The fifth rule takes into account the fact that each of the transactions executed in the course of business involves the execution of a written or verbal contract of some kind. Although it is impossible for businesspersons to have their legal counsel constantly at their side to validate the legality of their smallest gestures and acts, they need a minimum of skills to perform a quick legal analysis of the transactions they perform. In terms of routine transactions, they can play a very active role in their maintenance within a framework pre-approved by legal counsel. As for more complex transactions, they must have the ability to identify potential legal problems and work effectively with the legal counsel they need to mobilize to assist in the conclusion of such a transaction. In doing so, they will avoid at a lower cost many pitfalls that may affect their business.
Issue – As they have not received legal training enabling them to trace, in the business processes in which they are involved, legal problems or situations likely to generate such problems, businesspersons usually have to rely on the experience gained over the years, of which the value varies from person to person, to be able to conduct a legal watch. This deficiency in the training of a director, officer or manager of a business results in the absence, at the beginning of their career, of the know-how needed to perform the kind of legal watch they could be able to do and which the business badly needs.
Solution – The reason why a basic training in business law does not provide the required level of competence to perform the legal, is because it is more of an overview of abstract legal concepts, which never leads to teaching a methodology to manage the implementation of these concepts within the business processes, which is why knowledge gained through such training sees little practical use. It is better to offer to businesspersons general and specific training in legal concepts as they relate to business processes. This will serve to teach businesspersons dynamic and generic notions regarding the law applicable to different business processes on which they focus in their work. To meet this specific need, our learning centre now offers a series of seminars intended for directors, executives and business leaders on the subject of legal business management. Taking such courses is an excellent way to acquire the skills needed to perform their continuous and simultaneous legal watch of the components of a business.
6 – Encourage the use of control panels in the management of a business, to easily locate any required legal information;
Reason – The sixth rule deals with the practices that business people must implement to effectively play their role in the legal management of the business. Think of the outside director who wants to do his job but has little time to handle the legal management tasks incumbent upon him. What can we do to facilitate his task?
Issue – Complying with this rule is made difficult by two issues. The first problem stems from the abundance of legal information which is sometime confusing, which makes complying with this rule somewhat illusory. The second problem is organizing this information hierarchically in three levels, namely the business as a whole as the first level, the business component (financing, human resources, marketing, etc…) as the second level, and the transaction as the third level.
Solution – The only way to overcome this sizeable problem is using business legal management through control panels which allow businesspersons to easily navigate the sea of information without ever getting lost. For an overview of types of control panels available to make a legal analysis fast and efficient we suggest consulting newsletter # 55 titled “Processus d’affaires et veille juridique”, which includes an illustration of the control panels to which this rule refers.
7 – Develop, for the benefit of the business’s decision-makers, “just-in-time” techniques to access legal information regarding any business decision;
Reason – The seventh commandment refers to the importance, for a decision-maker, of being a connected person. Businesspersons people want to be, first and foremost, decision-makers who entrust to others the task of implementing their decisions. To achieve this goal, they must have constant access to the best information available to make informed choices in all areas of business including the legal sphere.
Issue – Business people do not always know where they should go to find the desired information. Given the abundance of information sources, they choose not to venture into this field and prefer to rely entirely on the advice of their legal counsel in this regard.
Solution – The best solution that we recommend to enable businesspersons “just-in-time” access to legal information which may be of interest is to use the Internet to access a range of information and legal documents relating to the subject of their decision. Whether it is basic legal information such as legislation, case law or doctrine, there are many websites providing rapid access to such information sources. We recommend, to avoid spending too much time searching for this kind of information, to refer to the Lexum website of the University of Montreal, which offers, in our view, an excellent compilation of Internet addresses of interest in this area .
8 – Avoid nebulous trade agreements;
Reason – The eighth rule states the basic goal of a legal watch in the context of any business transaction. There is nothing more dangerous for a business than entering into nebulous trade agreements, thus opening the door to significant unforeseen events which may result in substantial hidden costs. This can happen when a contract does not clearly state the scope of an obligation or right of either party, exposing the company to different interpretations of such undertaking or right, some of which may be very costly. It is then taken by surprise at the consequences of such an interpretation. This occurs all too frequently, which is why it is important to correct this whenever possible.
Issue – Business people, for whom the concept of a transaction is easier to structure than its terms, tend to delegate this task to a lawyer. They mistakenly believe that the latter has all the expertise required to draft the terms of the transaction. This approach, although widespread, is unfortunately not the best practice, as it is an easy excuse, cited by business persons, to limit their participation in the transaction only to financial aspects (apparent costs) of the transaction thereby neglecting its technical and commercial ability to generate substantial hidden costs which the business may not be able to absorb.
Solution – In order to facilitate the involvement of business in the transactional process involving the conclusion of a written contract, we recommend the seminar titled “Contrats d’affaires : un mode de présentation et d’analyse des contrats qui simplifient les transactions” whose main objective is to introduce participants to the world of contracts and to a working methodology which eliminates the confusion that usually prevails in such situations. We also recommend making the effort to read contract templates relating to the transaction they want to execute to help them identify their possible content that documents the transaction in question. Many websites offer this kind of documents. Simply indicate in the search engine you use the name of the contract sought to see the different choices available to business managers. We would like to mention that Édilex offers an extensive listy of contracts whose main attribute is that they all comply with universal presentation standards which facilitate their reading and use. A simple reading of these contracts allows business people to kill two birds with one stone, namely to learn the methods of transaction and to establish, using such an instrument, their contractual preferences . This will document the final version of the trade agreement. It should be noted that if the draft contract originates from the other party, it is also possible for businesspersons to maintain their involvement in the transactional process through the use of one of the many benchmarking grids offered by Édilex, which will help the user not only to see what the contract being analyzed contains, but also what it fails to address. For more information on this subject, see our newsletter titled: “L’analyse d’un contrat : la technique de benchmark.”
9 – Set up a specific filing system for the legal documentation of the business;
Reason – The ninth rule states the need to have an archiving system specific to the legal management of the business. Generally, the filing of the legal documentation of a business is first and foremost a result of the financial management of the business, rather than of its legal management. The result is that many important documents are stored in the accounting records which aim to meet completely different requirements. At the end of a fiscal year, many documents with legal implications can become hard to find and access as they are moved into storage in uninviting archiving warehouses.
Issue – There is no universal system to record the legal documentation of a business. In addition, businesspersons do not believe it is useful to invest time in creating such a system whose profitability is not obvious to them.
Solution – In order to assist the businesspersons convinced of the merits of such an archiving system, but who do not know how to start one, Édilex has created the Corporate Data Book which can be used as a legal documentation filing system as it is possible to store the original or a copy of all material legal documents of a business within it.
10 – Keep a log of legal reminders for the business.
Reason – Although the tenth rule refers to a fundamental rule of sound management, we believe it is important to restate this specific rule in the legal watch of a business by adding a statement that, on the legal front, missed deadlines can rarely be remedied to, and thus cause irreversible harm to the business. Indeed, some of the dates refer to deadlines for the exercise of a right or the fulfillment of an undertaking, others are used for the production of opinions / reports / forms of many kinds, while some of them may mark the end of a right or obligation. In short, there is a range of dates, which must be taken into account and which we must not lose sight of.
Issue – Where should such dates be recorded? Who should be responsible for monitoring such a calendar?
Solution – The reminder function contained in most software including a calendar can be used for such a purpose. An alternative more specific to legal management would be to create a journal dedicated to reminders regarding legal actions and inserted in the Planning section of the Corporate Data Book. Computer users can now store and archive such documents in an order similar to that recommended by the Corporate Data Book. The person best placed to keep track of such a timetable are either, as appropriate, the head of the legal department or, if no such position exist in the business, the chief financial officer or controller who usually has access to all relevant documentation to establish such a journal. In addition, the external legal counsel of the business should also consider taking such an initiative.
Conclusion
These ten rules are not absolute. Always adapt them to the particular circumstances of each situation where it is appropriate to make sure these rules are good servants and not bad masters. Undoubtedly, the effort to observe such rules will lead to many benefits for any business commited, through its directors, executives and managers, to sound legal management practices.
