There’s no question that Legal plays a key role in running a business. Generally, Legal is seen as the function that provides advice and counsel for staying compliant with laws and regulations. In even more general terms, Legal’s value is myopically recognized as the go-to function for mitigating legal risks or finding the right lens to establish a defense when violations, ethical or legal, are alleged. However, the situationship between Legal and Sales can be tricky and the broader business value that Legal can offer during the sales process is oftentimes discretionary.
Sales executives generally utilize Legal as a nice to have, rather than a must have, when driving sales processes, especially for those processes executed at the top of the funnel. Later in the sales lifecycle, particularly when it’s time to pull together the contract, Legal is brought into the mix to review the document. However, if Legal has too much input, like too many redlines, then Sales will tend to push back on the necessity of changes, questioning the rationale, and more significantly, becoming frustrated by the delay in getting the deal closed. And if that delay crosses into a new month or a new quarter, then the frustration can sometimes grow into antagonistic dealings between Sales and Legal. Sometimes, complaints are mounted about Legal bogging down the sales process. But from Legal’s perspective, the issue is one of timing. They’re asked to review a contract after the Sales Lead has already agreed to the terms. Then when Legal finesses the language to minimize a cost threat to the deal, which is usually a threat not so obvious in the numbers but instead hidden in the terms, Sales hesitates to accept the legalese for fear that delay will ensue. What happens next usually culminates in escalation and a business decision is made, oftentimes a business decision that prioritizes closing the deal in month or in quarter to meet business targets. The business justification for moving forward is supported when the cost threat is not imminent and a core legal concern is not present; and herein lies the business case for Legal being a must have in the cross-functional core competencies of a high-performing Revenue Operations team --- the terms and conditions of the sale live on and keep the RevOps engine running long after the sale is booked.
Take for instance a sale involving a payroll system implementation that requires access to payroll data to complete a rules analysis. If the sale is priced based on the assumption that data exposure risks will be managed jointly with liability being limited to direct damages and indemnity exclusive of third-party claims, then anything that deviates from these assumptions will have an impact on the price. But when the negotiations get underway, the Sales Lead decides to give in to the client’s push for indemnity to include third-party claims. And of course, the client wants that part of the contract clause to be struck without any change in price. Legal advises that if the data is used for purposes beyond the scope of the required access, massive penalties could be assessed, up to 4% of global revenues if the breach comes within the General Data Protection Regulation or GDPR, and that would be in addition to the third-party indemnification that may also come into play. Therefore, Legal insists that the data risk exposure has potential to outweigh the value of the deal and therefore, as a matter of commercial risk mitigation, a price increase should be considered. Yet, the final decision rests with the business in light of this deal being strategic and poised to set the stage for substantial growth with the client, so the indemnity clause is modified to strike the exclusion related to third-party claims. Legal raised a business risk, not a compliance issue with any laws, regulations, or ethics. And there is no guarantee that a data exposure will in fact occur; proper protocols and monitoring will likely be put in place to manage the risk. However, a price increase is deemed unnecessary. Yet, the risk of data exposure, although mitigated, will persists. And Legal will undoubtedly be the go-to function if the client data security clause is ever triggered.
The client data protection term is just one example of how a contractual term and conditions linger post-sale and can have substantial financial impacts long-term; however, client data protection is a hot topic and should not be glossed over during a negotiation, and the highest and best use of Legal is early in sales lifecycle. During sales origination is the best time to engage Legal as part of the commercial operations or RevOps function. This early involvement allows Legal to understand the client’s business needs and the value proposition being put forth to address those needs. There are many other terms and conditions that will be based on cost assumptions that are not reflected as a line item in the sales price and could uncover significant risks over the life of the deal; these terms and conditions could have negative impacts to revenue and profitability if they are not being properly commercially managed. When the sale is booked, the historical knowledge of the deal’s evolution could be lost if the parties at the negotiating table exit after the deal closes. The agreement that consummates the sale, whether in writing or not, is the source for the buyer’s and seller’s expectations of the value to be delivered. Nonetheless, when a long-term cost impact arises due to an unfavorable contractual term or condition, it’s generally the service team, who is not typically involved during the sales phase that is responsible for navigating the issue. In the client data protection example above, the post-sale issue will typically find its way back to Legal, whose role may have been reduced to a mere Inform during the Sales phase but has now transitioned to a Consult in the RACI chart post-sale. The service delivery team is usually not onboarded until it’s paid services are agreed upon and that’s when the contract is signed and terms and conditions are already in place. If Legal’s role was merely to review the contract for form over substance except for pure legal issues, the commercial term remit is diluted and the RevOps engine is not operating on all cylinders in this model. Hence, utilizing Legal in a “check the box” way as an Inform is counterproductive and is the antithesis of what commercial operations excellence should look like.
For organizations to optimize their RevOps team (or, in more mature organizations, their Commercial Operations function), Legal should be viewed as on par with the cross-functional value of the Sales, Marketing, Finance and Client Experience functions. When the Sales Lead or other business leaders have full discretion to override Legal’s input or recommendations, it defeats the purpose of leveraging the power of many in Revenue Operations processes; rather, if Legal rises to the level of a true Consult, then Legal is empowered to provide input into the decision-analysis about the deal and offer a perspective that balances risks with rewards. With this type of operating model, RevOps is managed effectively to address the long-term scope of commercial operations with checks and balances to achieve optimal ways of working across multiple functions. More importantly, decision-making power is jointly shared by the cross-functional core competencies that fuel the engine for a high-performing Revenue Operations (RevOps) function. For a fully charged RevOps engine, Legal has to be a must have in those core competencies to deliver commercial operations excellence.
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