Legal Debt vs. Technical Debt

 

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In the world of engineering teams, there is a term called “technical debt.” An informal definition of this term is “a concept in programming that reflects the extra development work that arises when code that is easy to implement in the short run is used instead of applying the best overall solution.” Another way of phrasing it is the re-work that must occur to pieces of code that weren’t written to withstand all conditions and cases. These pieces of code are deployed into general availability to meet a constraint like a deadline or to fix an urgent issue.

Technical debt plays an important role in engineering teams because it enables progress towards the release of new features or products. Much like your personal finances, a little debt allows for growth but too much becomes crippling.

Yet, how does this relate the concept of legal debt? Legal debt, by definition, means “the extra cost that arises when legal teams use processes that are easy to implement in the short run are used instead of applying the best solution.” Keep reading to learn the correlation.

Scanned PDFs

The PDF is the currency in which business transactions take place. PDFs can be sent as forms, sales quotes, proposals, and other agreements. They often require a signature or consent. Prior to the rise of electronic signature tools such as DocuSign, the common practice was to print out a PDF, sign it by hand, scan it to a PDF image and then email it back to the other party.

Perhaps the other party does the same, now, you have a PDF that has been scanned twice to obtain signatures and all the data is locked. Why? Because scanned PDFs are images – they are not searchable, editable or readable by any entity other than a human. This continued process turns every scanned PDF, under the control of a legal team, into a liability since there is no method to understand what’s in the files through any other avenue other than reading them one at a time.

Shared drives

I remember my time working at a big Fortune 1000 company, and I had more network drives or “shared drives” as we called them, than I had the capability to manage. We had network drives for specific projects, departments and even locations. We put every file, related to a project, into these drives so that our teams could effectively collaborate on documents. In addition, IT made hourly backups in the event that we needed to recover a file. It all made so much sense.

Then, as the projects continued for months or years, these drives continued to grow. When the day came that I needed to search for something in particular, I was limited to just file names. I could easily add up the hours spent searching these network drives over the years I worked at this Fortune 1000 company and take a week’s vacation. Why was this so difficult? Because shared drives don’t have a full text search, and because we had a large backfill of scanned PDFs. In fact, none of the text inside was digitally searchable. Shared drives remain a standard for many companies, providing inefficient capabilities to legal and finance teams who need critical business information.

Decentralization of company contracts

We talk to teams in legal and finance departments every single week. A common theme, that often comes up, is that high-growth companies spend little effort creating a process where all contracts are centralized and accessible. Not to mention, more often than not, teams are relying on a “best effort” to put signed documents into a folder. This is because contracts are being executed constantly by multiple departments. That means it is fairly easy to have these critical business documents stored away in email accounts and on employees’ hard drives.

This lack of organization and consolidation results in corporate asphyxiation at a critical time of need. Triggering events, as we like to call it, can take form in the negative (like a data breach) or a positive (like due diligence for fundraising). Although, legal and finance teams that can’t stay organized pay a massive price when these triggering events occur (even bringing in outside counsel for ediscovery, you can’t like your chances for keeping the costs down in this scenario).

Legal and finance teams, who fail to address these three critical areas, accrue exorbitant amounts of Legal debt. It becomes habitual to keep using scanned PDFs, shared drives and continue to allow for contract storage at varying and unprotected locations. Remember that debt is easy to gain but extremely hard to lose without effort.

Want to burn down your legal debt and address the challenges we’ve outlined? Visit linksquares.com to find out about their automated contract analysis technology.  

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