How to create a data-driven law department - Jason Smith

Made with speech-to-text software, so a few words may be off.

0:00Welcome to another episode of Contract Heroes, the show where our guests, and sometimes us, provide best practice recommendations on all things related to contract management. Hello, everyone, and welcome to another episode of Contract Heroes, where we're not the heroes, our guests are. And today, we have a fantastic episode for you. Uh, Jason Smith, uh, and we're gonna be chatting about a, a lot of different things. And Jason currently, uh, is the managing director over at Elevate, uh, but has an extensive history on, on all sides of, of, uh, contracts. So, uh, before we dig in and, and Pepe kind of kicks us off, I wanted to flip things over to Jason and, uh, allow him to give you a bit more information on his background. So welcome, Jason. Hey, thanks, Marc.

1:02Uh, glad to be here and, and I've watched a lot of your... or watched, I've listened to a lot of your podcasts, so it's, it's kind of cool to actually, uh, be on one for a change. And I appreciate you saying I've got lots of history instead of just saying I'm an old guy. Um, but, uh, yeah, I've been, I've been doing this sort of legal technology work since the, uh, the mid to late 1990s. Doesn't seem like it's been a long time for me, um, but then I start seeing folks that are just sort of entering into the space and, and, yes, the younger people, uh, and I start realizing just how old I am. Um, in fact, I did have, uh, one of the founders of a legal tech company a few years ago, when I was telling him my background. He looked at me and he says, "Wow, you're, you're one of the godfathers of legal tech." I think that was supposed to be a, a nice thing, but man, it made me feel old. Uh, so I'm a, I am a licensed attorney.

1:56Uh, I, uh, have, have been born and raised in Texas and, and, uh, got into legal technology sort of as a, as sort of an accident, but it was in, in law school. Um, I started realizing there were a lot of things in legal that were so rules driven that could be automated. Um, and technology was kind of starting to pick up then. So that's how I got into it. I came out of law school. I was practicing bankruptcy law. Absolutely hated it. Apologize to any of you out there practicing bankruptcy law who love it. Uh, it wasn't for me. And, uh, got invited by a couple of attorneys to, uh, to join a startup company, uh, back in the, uh, late '90s, and we did that, and I was hooked. So I've done legal technology, um, ever since. About 2006, I stumbled into a project with a customer, uh, around contract management, not really having any idea what the heck contract management really was, more than just what I had learned in, in contracts in, in law school and, and managing contracts. Right. And, uh, the rest is history. So 15 years later now, you know, my big focus in legal tech, uh, has been on the, on the contract space.

3:07And yeah, well, I, I gotta say, like, a lot of the things have changed, like maybe from, from the mid-'90s to now. Like now, a lot of the lawyers and... well, not just in li- like private practice, but I think, uh, more inside companies, in-house, in-house counsel, they're starting to look for, uh, automation tools because like you said, there's a lot of things that can be just automated. And, uh, I would like to start by talking about exactly that, on contract management, because I think a lot of the companies think about contract management more like a software that can just automate your contract processes. But I... there's a lot of things to do before going on contract management, right? So I, I, I would like to, uh, uh, start this, this, this chat with you, Jason, on why do you think that the contracting process of every organization needs attention?

4:06Well, ha- so it, it, it needs attention for various reasons. I think it depends on the organization as to what and, and how much attention it needs. A lot of companies are still doing everything on paper. Right. That's the old school way and, and, um, and, and so really I think it's, it's... others have tried to automate and jump into automation and created sort of over, over engineered processes, uh, because they've jumped into technology as the savior. Uh, somewhere in between, I think, you know, uh, there's, there's basic stuff. When you look at it too, and this was a podcast I did a, a few weeks ago, uh, one of the, one of the underlying problems is who owns contracts? Exactly. As a lawyer, I look at it and say, "Look, they're legal documents, therefore legal owns them." If you look at it from a business standpoint and sales process and the finance and everybody else, they're looking at this as this is a, a business relationship, this is a commercial relationship with another party.

5:05We just happen to put it into a document that, you know, lawyers have created, right? Yeah. Uh, but there's... the documents themselves are still sort of half commercial, half legal, or maybe 80% commercial, 20% legal. And I think historically they've just always sort of been viewed as a, as a commercial relationship. Then let's throw it over to the lawyers to sort of wrap that little bubble wrap around this relationship in case anything goes wrong. And I think that was sort of the root of a lot of problems, which is, uh, businesses tend to look at legal as, as the, the department of no. Sure. Like, you know, I wanna do this. I wanna, I wanna build this relationship with another party, but legal's gonna tell me, "Ah, too much risk," or there's issues here. And so really what I think happens is the biggest problem across everything is that companies do not involve legal at the right time. And I think that's kind of the fundamental issue. Which is let's do all of the commercial negotiations, let's pull all the various levers on commercials and terms and prices and margins and quantities and blah, blah, blah, and discounts, and then once we've got that hammered out, let's throw it over to legal to put in some boilerplate legal language, and then we'll move on.

6:19And then the lawyers will sort of battle from the, the documents. The problem is, all that commercial, uh, stuff that's happening up front is typically viewed as what can go right with this relationship? What do we both benefit from this? When it gets kicked over to lawyers at that point after the fact, it becomes a, okay, now protect us from anything that could go wrong. Pr- you know, build that fence around it. And I think if you get legal, and, and this is where we're seeing contract management, take out the technology conversation for a second and look at- Right... the contract life cycle process, which is really the relationship life cycle in a commercial term. If you involve legal more strategically early on, you're going to have more levers to pull in that negotiation as well. You can trade off maybe some legal risk for some commercial value or vice versa.

7:12And then what ends up happening is you don't throw it over to legal, who's then just sort of stuck with the, the, you know, five or six always, uh, negotiated clauses and where can we go, you know, within those because all the commercials are now sealed. So I think really at the end of the day, every c- every organization needs to look at their contracting process. But what they need to do is they need to look at the process, they need to understand when do we start the contracting process, which is the relationship with another party that may be interested, all the way through not just the signature of that document, but then- Right... the obligations and the rights and the delivery. So there's, there's a broader process, and I think what's happened is people have simplified this to say, "Oh, we need to address contract management. Let me go out and Google contract management systems, pick a technology, and go with it." And that technology really sits sort of, you know, as a, as an enabler to the rest of everything else. Right.

8:09I think it's a big mistake that a lot of companies are doing that instead of taking that step back and look inside their processes, what are they doing? Maybe just look on the contract that they designed too, because maybe, like, the language of the contract is not understandable for the people in the commercial part of the company, and they always need to have the legal assistance, which is not effective at all. And, and then once you have all that process very well defined, then you can start looking for a, for a piece of technology that, that can help you to work or automate a lot of the, of the paperwork, right? Yeah. Yeah, absolutely. I think the, the worst thing you can do is look for technology first to solve it. That's like, you know, getting a flat tire in the middle of the highway and saying, "Okay, I need to buy gas." Like, okay, gas helps and it will enable the movement of the car, but it's not really addressing the need that you have at that moment. Yeah. Yeah, I mean, and this has been a, a, you know...

9:08If, if anybody out there is listening and you're out there looking for a piece of technology and you think that's gonna solve everything, I think if there's a reoccurring theme we've had on the show, it's, it's that technology is not always the answer. And, um, you know, we were speaking with a, another guest that's gonna be coming on the show in the next couple of weeks here and, and he said, "You know, forget about phase one. Let's think about phase zero." And, and you need to take that step back, you know, like we- we've just been saying and, and you need to look at your processes, and you need to understand how to, or I guess what to fix first, what do you need to focus on? Um, and then, and then go out there and find a piece of technology that can ha- help specifically with those issues, because there are dozens of CLM tools out there, and a lot of them f- a lot of them do different things extremely well. Uh, and you need to find the application that's gonna be the best fit for, for your organization. And I think you hit the nail on the head there, too, with, with the let's focus on phase zero, because a lot of times people do start with phase one, which is we need automation.

10:05Well, you're gonna automate where you're currently at, which means you're gonna automate the bad process. If you do take a step back and look at those processes, and, and I, I don't know how many times I've worked with customers or, or not even customers, but, you know, prospects that, that say, "Hey, we need some help." A- and, you know, a lot of times there's consultants that will go, "All right, here comes some revenue. Let's, let's help you. Let's pick a system. Let's implement the system." And sometimes it's just a matter of sitting down and sort of diagnosing the problem, and it's like going to a doctor and saying, "Okay, I think I need help. Not quite sure. I'm not really feeling well." And them saying, "Okay, let's put you through chemo." Like, you know, sometimes it's kind of the extreme of, wait a second, how about let's take a step back and figure out, and if you look at the process... Now, here's, here's an added piece to that, Marc. When you look at the process, it's important to understand that contract management and contract life cycle is not just sort of this finite box within one business unit, and a lot of times that's what happens, and maybe it's budget driven, maybe it's, maybe it's pain driven within legal or pain driven within sales or finance.

11:12Right. But all of those stakeholders touch that relationship along the way, so unless you take a step back and look at the process across the board... Now, you may break it down to say, let's look at sales, let's look at finance, let's look at legal. Now let's look at the interplay between those various groups. But until you sit down with legal and show them, here's what happens in the commercial side of the contracting process from the beginning until the p- point it lands on your doorstep, and you show the salespeople, here's what happens when legal gets involved and here are the things, until you've done that, you really don't have that cross-functional understanding, because sometimes the pains exist within that business unit, sometimes the pains exist across the business units or in that sort of middle ground And unless you're looking at that whole thing, you may address a few of the symptoms, but you're not really gonna understand, you know, what the problems are. And people are like, "Oh, man, I send it over to legal."

12:12I, I had a client like this one time where we said, uh, you know, they, their whole driver was every time we kick a, a contract over to legal, everything gets solved. It takes forever, and then we get it back. Well, once we kind of went through the whole process, and this was not a quick process, and we came out on the other side and they started actually getting metrics and data around that contract life cycle, they started seeing that legal was actually turning the contracts around and the review around fairly rapidly. What was happening was it was going to the other side, and it was the other party who was taking a long time. And i- in the, the whole scheme of things, legal was really a small percentage of the time of that entire contract life cycle. It kind of flipped things on its head. But until you've actually stepped back and examined, you know, like a lawyer does, you break this thing down into its elements and then you look at each element and understand what are the compositions of that particular element, then look at them as a whole. Until you break it down, you're not gonna see what you need to address.

13:11You're just gonna address a few pi- a few things, and then you'll probably automate a bunch of other things, and, and some of those automations will be just automation for automation's sake. Yeah. And, and, you know, I think, you know, uh, that kind of leads us into our next question, right? Is, and with these organizations that, that aren't or, or don't have good contracting processes right now, and I, I know obviously we just touched on this a, a ton, but, I mean, what, what other tips would you give to organizations that are out there trying to diagnose what is wrong with their process before they start looking into technology to solve the issues that they might or might not know that they have? Yeah. I, I, I would say, and, and, you know, look, there's gonna be some sort of bias in my answers because of where I sit in this sort of marketplace of, uh, in, in this world. But I have been, I've been a private practice attorney, I've been an in-house counsel, I've been a consultant, I've been a salesperson. I've sort of held every role in this space, so I can view it from different spaces.

14:14But what I will say is that there are companies that try to sort of self-diagnose, and you'll end up kind of catching on that there's some confirmation bias sometimes when that happens. There are things that we're gonna self-diagnose, we're gonna look at the problems, or, or we're gonna look at the process we're having. We're going to sort of justify some of the things that we complain about as well. It has to be this way. So I think getting sort of a third neutral party to do the assessment, and, and I equate this to, I can go on WebMD and, and look up my symptoms. Chances are I'm gonna be dead in 24 hours based on what it's telling me, and so I've got to take drastic measures. Or I can go to a doctor who, you know, has no bias towards diagnosing me and they can look and they've got the foundation and understanding. Plus, they have a lot of other patients they've seen, and they're able to say, "Well, you know, it could be this, or it could be that, or it may be this," and they're able to look at.

15:09So I would say that companies would do well to engage an outside party to help evaluate that process. The other part of it too is when the company tries to self-diagnose, it's usually within one business unit. Usually, it's legal or legal operations going out and doing it. They're not necessarily going to get all of the information they need from the sales operation organization for procurement or from other groups. And so I think having sort of a program manager that's from the outside that kind of looks over all of this can engage all of these stakeholders, can piece together that roadmap and kind of talk to the neighbors over the fences and help them see, you know, each other or what's going on. Right. So let's think about or continue with this example. Like, okay, so we have this company, they already involve a lot of the stakeholders in order to do like an auto diagnose on their, on their contract management process. So how or, or what kind of, uh, metrics or data do you think it's useful for them to keep an eye or, or to monitor efficiency? I mean, uh, of course there are some numbers pre-signature and then post-signature.

16:19What would you say it's like, uh, or some of the data that you, uh, usually re- recommend to your clients? So I'll, I'll give you the legal answer. It depends. And I refer back to my initial statement, which was, you know, it, it, it can be... There, there are some that are just sort of universal- Right... and then there are some that are gonna be organizational specific. Right. I would say, you know, when you start by understanding your process, you will start developing the metrics there because the first thing you're gonna see is what is that current life cycle of not just the contract document, but the contract life cycle and that relationship life cycle. That's something that can be measured. You look at how it is today, you put a system in place with automations and other things, and you can measure it again and see, okay, uh, it's faster. Is faster good? It can be. Generally is. Faster may not be good because then you look at another metric which is really sort of effectiveness or value of the contract. Right. And, you know, usually we look at effectiveness in terms of contract.

17:23We u- we look at it from a commercial perspective, right? Like how, what's the, what's the total contract value? What's the ACV? What's the margins? What's the pricing? What's the, you know, so on and so forth. Maybe post-contract we look at delivery because maybe there's milestones that are triggered. Right. And, and so we look at some of that. But the effectiveness and value of the overall relationship can be broader than that. And in fact, I had a customer where we integrated their contract lifecycle management data with their matter management and e-billing data from legal. And what ended up happening was contracts that ended up in disputes and litigation actually showed up in the matter management system as cases or disputes that then the lawyers were managing either- To a settlement position or to trial and to a judgment or, you know, maybe there was like SEC fines around it. You know, all sorts of other things. You start taking those things into account, those become metrics about the contract value as well.

18:20You roll those back into the contract, you can feed it into the front end of the contracting process and start then sort of creating this, uh, closed loop cycle. So you've got the contract life cycle, which is an obvious one. You've got the contract value and effectiveness. Um, and then you've got, you know, other, other related metrics around performance, around, you can look at, um, you know, um, um, how many contracts have we processed? How many contracts by attorney, let's say, if you're looking for metrics within legal. Um, there, there's a lot of sort of objective and subjective, uh, metrics that can be created. But what I do see is a lot of people that jump straight into that technology as the solution start measuring only the small subsets of, um, of those metrics without really looking at the broader value of it. Yeah. Which is a big mistake, right? When you start with that. So of course, these kind of services or consultant services and technology cost money, right?

19:21And a lot of the companies, uh, I, I would say that in our experience, most of the, let's call it like the owners of these kind of projects, most of the times they're part of the legal department, right? Either the general counsel or it's, uh, somebody inside the contract management. And they, they of... Well, most of, most of the time, because they're a lawyer, it's kinda hard to think about like how they can see the economic part of this, uh, or the, or the benefits by implementing a good contract management process and then invest on a software. So how are companies seeing value after a good contract management process is implemented? Like, can you, can, i- is there a way on how you can calculate that return o- of investment? Yeah. And, and I will say that again, there, there's the objective, um, and there's the, there's the subjective.

20:14Now, when we talk about like how would the sales organization look at it, you know, they're gonna measure things on day sales outstanding. They're gonna measure it on AR, they're gonna measure it on value and margins and price- Right... price per unit, things like that. When you get to legal, oftentimes sort of the value that legal builds into contracts is sort of a nebulous concept because what you're trying to typically view from legal is, what did you help us avoid? So you're trying to sort of prove the negative. Like, we didn't have fines, we didn't have litigation, we didn't have a contract that was breached. We managed the risk. We didn't have to, you know, pay all these penalties. But if you didn't have to, then it's sort of just more speculative. So you've gotta figure out then, what is the value that legal brings to these things other than just the avoidance of things happening?

21:08And I think that's where I get into, if you totally bifurcate the system and you have the sales process and then it's kicked over to legal, then you're always inherently going to measure those two things in separate buckets. But if you take legal and you move them, and this is where the trend is, you move legal by virtue of sort of the, the concept of legal operations and treating the legal department as a regular business unit that's involved in strategy and go to market and all sorts of things. You move that legal sort of overlap and, and in conjunction and parallel with the sales and revenue organization, then you start seeing additional value because now legal can actually unlock some of the market value in terms of, you know, looking at the landscape, looking at target markets, understanding legal implications of entering into a market with a new product, per se. And you're starting to sort of then see commercial value of the legal advice versus just the what could possibly go wrong.

22:13But all of that, that's why I think contract management software has a big place in this conversation because you can't just take the lawyers from the legal department and say, "Hey, I know your day job is busy, but I want you to come and sit in on all these sales calls with all the salespeople so that we can integrate this thing like Jason is saying we should do," right? So that's where, sorry, I go back to my early days coming out of law school, which was, I saw legal as, I, I spent three years in law school learning all the rules. Like everything is very rigid when it comes to the law. You break things down into elements, you prove the elements for a cause of action, you go through a criminal action, you look at these things. E- everything is broken down. I even saw that in my first startup company where we were actually taking video depositions and digitizing them, putting them on the web.

23:07This was, the, as my daughter would say, this was back in the 1900s, which sounds a lot farther away. Uh, we were taking those things and you could actually keyword search the, the deposition. You could clip the videos and you could, you could do all of this. But the reason we were able to be successful with that is because th- there were certain rules. A, a, a transcript of a deposition had to fit an exact format of page and line numbers so that you could reference it in courts, you could reference it in filings, and therefore we could code around that. Well, if you can code around that, you can automate things around that. And so what ended up happening in my head was I started realizing, man, legal is really ripe for technology and automation in a lot of areas. And so when you come back to looking at, um, at, at contracts, you start realizing, one, a lot of the questions that go to legal tend to be the same thing over and over and over again.

24:04A lot of the things that get negotiated, you know, that's why Tim Cummins and, and Sally and the folks over at World CC that, you know, every year they put out, "Here's the top 10 negotiated terms." You don't see it changing a whole lot. Maybe one or two, you know, change in a pandemic year and something becomes a little bit more important. But generally, there's still a lot of the same stuff. So when you have a lot of that same stuff- Then you're just kind of getting repetitive. Those are the things that are right for let's automate. The templates, when lawyers are looking at it, they're building playbooks. A lawyer is going through an evaluation process when they're looking at the contract to say, okay, you know, if this, then this. If this jurisdiction, if it's California, I need CCPA language in there. If it's this, I need this. If it's this, I need this. Well, those are things that can be created as rules and put into a contract lifecycle management system and then pushed forward almost in a sort of a self-service capacity to the front end, the sales folks, the operations folks, who now have the ability to, as they're filling data in, trigger those rules. And those rules and that playbook is already preordained by legal. Therefore, you sort of have legal looking over your shoulder as you're building this first round of the contract and this engagement.

25:19So you've involved legal, even though you technically haven't involved legal per se. And so I think that's where it all kind of, you know, comes back around full circle to get legal involved early. But you don't necessarily have to be walking into the legal department with your first draft of the contract or blank paper and say, draft something new every time. Yeah. Now, yeah, and I think that, you know, in our experience, we've seen that teams are getting more collaborative and are bringing in legal more often and earlier often. I don't know if it's with the help of CLM or maybe it's just making them realize that their processes, you know, need some work as well going through this journey and implementing new processes and things like that when they're investing in CLM. But I think that that's definitely something that we're seeing. And I think that sales teams really, and again, from my perspective, they want to start working more so with legal and make them look more like a partner in the sales process and not a blocker. I agree.

26:23And so that maybe even LinkedIn has helped with that and bringing people closer together. But no, Jason, I mean, this has been a fantastic conversation. It's great to get your view on all of these different ideas and things that we typically talk about just because you've had, like you said, I mean, you've played so many different roles in this space. So I think this has been a fantastic conversation. If anybody wants to connect with you and learn more or just have a conversation, where can they find you? Well, you can hit me up on LinkedIn. You can hit me up on Twitter as well, TJSmythEsquire on Twitter. You can email me, Jason.Smith at ElevateServices.com. And you can find me on also, I'm the chair of the State Bar of Texas Corporate Counsel Section, TexasCorporateCounsel.com. We've got a website there as well. So lots of places, you know, online in the virtual world. And then once we get back to the events, you can usually find me speaking at CLOC or ACC or ELTA, any of those as well. Cool. No, yeah, I mean, we're, at least, yeah, I think I speak for both Pepe and I when I say that we're definitely looking forward to hopefully meeting some of our guests in person, you know, once things start to, I guess we'll see what happens. But, hey, and one more question, Jason. We haven't asked anybody this before, but it just kind of popped into my head. So if you could, and I'm going to put you on the spot a little bit here. So if you could name one person who you think would be a great guest for us, does anybody come to mind that we haven't had on the show yet?

27:57Wow, that is putting me on the spot because that means anybody that I don't name is probably going to be firing off emails and tweets to me. Here's what I will say. I will give a politically correct answer because this is a very tight-knit community. There are, and there's way too many people to mention. I will say if you go out and follow hashtag law Twitter, you'll find a lot of folks out there that both like to talk, like to give opinions, and are generally, you know, pretty on point with a lot of things. So I'm going to hedge on you putting me on the spot there and not take the bait. But- Okay. No, that works. That gives us some runway. So maybe we'll go ahead and start tracking some people down that way. Well, Jason, this has been awesome. Thanks for coming on. And thanks, everybody, for listening to another episode of Contract Heroes. Thanks, guys. Yeah.