How Contracts Can Feed Trust Rather than Destroy It

David Zechnich leads Deloitte’s Contract Risk and Compliance service, a unit within their internal audit group (I think I’ve got that right).

In speaking with him recently, he has given me a new angle on contracts, trust and relationships. In this blog I have decried the increasing tendency to rely on contracts instead of trust (see, for example, “How Too Many Legal Contracts are Costing Business” .

True enough, fair enough, and I don’t disavow any. But David reminds me of another truth:

In a business relationship, over time there will be hints and evidence of things that cause you to challenge trust; in a business relationship in general there will be many temptations to stray.

In a negotiation (which may start every minute of every day), every mistake you provide provides fodder for disbelief and mistrust. So, conversely, every discussion to clarify the facts increases the basis for trust.

Sharing data in contract negotiation turns out to be a great basis for trust.

Properly treated, contract discussions are not adversarial, or even impersonal. Properly treated, they are opportunities for transparency and mutual disclosure.

What’s at stake, as David points out in a brochure co-authored with Eric Hespenheide (More Than a Matter of Trust: Managing Risk in Extended Business Relationships), is the level of trust in what he calls the Extended Enterprise. (It’s what I mean when I talk about horizontal commercial interactions taking over vertical management structures—see for example "Trust is the New Leadership.")

In other words, transparency in contract negotiations is good business—in part because it feeds trust.

David might get hired by company A in advance of licensing contract renewal negotiations with licensee company B. Company A hires Deloitte to dig up the data.

But that’s not all. David lives the values. He tells both companies in advance that he’ll be sharing the findings with company B as well as company A. That cuts down on argument and friction, because he is providing unbiased facts. Unbiased, in part, because the fees to his client A are based on time and materials—not a percent of the “damages.”

He even tells A that part of his objective is to make B inclined to hire him down the road—because of his obvious integrity and transparency.

I’ll be more careful in future about my wording of the dangers of over-contracting. It depends a lot on how the contracts are developed. If developed as a source of transparent information-sharing, then the cause of trust is served, not hurt, by contracting.