Kepp business relationships simple
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Almost every person and organization encounter lengthy, complicated contracts full of legal jargon and fine print. Whether you’re updating the user agreement on a smartphone or starting work with a new business partner, the sheer volume of text can quickly become overwhelming.
It shouldn’t be too surprising, then, that very few people actually take the time to read these contracts. In fact, a Deloitte survey found that 91 percent of people who consent to “terms of service” admit that they don’t read the contract at all. Among individuals age 18 to 34, that percentage was an even higher 97 percent.
However, real-world case studies indicate that the percentage is even less — such as when a wi-fi provider in the U.K. included a gag clause committing users to community service, with a prize to anyone who found the clause. Of 22,000 people who signed up for the service, only one was able to claim the prize.
The complexity of such contracts can create very real complications for consumers who don’t pay attention to the fine print. For business relationships, complex contract language can lead to even more serious consequences — highlighting the need to keep contracts as simple as possible.
The Dangers of Uncertainty
If the way the general public treats terms of service is anything to go by, growing businesses are often not doing all of their due diligence when signing contracts with a new partner. And for those that do take the time to read everything, the sheer amount of legal jargon can leave business professionals unsure what they even agree to.
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As Chris Flynn-Rozanski, co-founder of Ingredient Optimized, explained in a recent email conversation, “All too often, complexity leads to uncertainty. The last thing a growing business needs is uncertainty about its existing relationships. Keeping everything from founding documents to partnership contracts simple ensures that all parties are on the same page. This is especially important when turnover or new hires inevitably happen. Simplicity in your contracts helps everyone get on the same page quickly, limiting unnecessary delays that could cripple your growth.”
In an effort to avoid liability risks, complexity in business contracts could be enough to keep potential partners from doing business with you in the first place. This is especially true if the contract language appears unfair in favor of one of the parties.
Even if your lawyer tells you it is OK to sign a contract, legal jargon can be extremely confusing for non-lawyers. So many clauses, schedules, addendums and appendices can easily lead to incorrect assumptions by the people who need to operationalize the requirements of the contract.
The Need for ‘Plain Language Contracting’
The complexity of so many business contracts stands in direct contrast to the “plain language contracting” that I’ve advocated for many years. In reality, the goal of any contract should be that all parties involved clearly understand what the relationship entails and what they need to do to keep that relationship in good standing.
A great example comes from a company called Lemonade, which developed an open-source insurance policy called Policy 2.0, which was specifically designed to be a straightforward, casual and easy-to-understand contract.
The policy even goes so far as to explain confusing legal terms that someone signing the agreement might need to know: “‘Subrogation’ is a fancy term for when ‘someone else is responsible for your loss.’ If we pay you for a loss under this policy, then you give us the right to pursue the responsible party to recover what we can. If we recover enough money from them, we’ll even send you back part of your deductible. We can’t promise we’ll collect, but you give us the right to try. If you get reimbursed by someone else, like your credit card company, your friend, or landlord, you agree to return the money we paid you for that loss. No double-collecting allowed!”
Plain and simple language in contracts with customers and business partners ensures that you won’t have disputes because someone misunderstood what was written in the contract.
It fosters a strong foundation with good communication right from the start, promoting a more collaborative and sustainable relationship. Everyone can move forward with confidence, knowing what is expected of them and how to respond if any issues arise.
Keep it Simple for Stronger Relationships
Uncertainty and misunderstandings can create adversarial relationships between business partners. Such relationships are doomed to failure. From payment disputes with contingent workers to high turnover among suppliers, adding greater layers of complexity to the contracts that define your business relationships will only hurt the brand in the long run.
This is one reason why World Commerce and Contracting is behind a movement to design better contracts, emphasizing the importance of contracts that:
1. Use plain language and simplified design, avoiding vague terms and jargon, while also explaining any special terms that might be required
2. Are clear and well-structured for easy navigation, even using graphic elements when necessary to avoid creating a wall of text
3. Prioritize the readers’ abilities and needs so that they clearly understand what actions are required of them, while also minimizing generic content that isn’t as applicable
4. Promote transparency, communication and trust with a respectful tone that clearly identifies who is communicating to whom
5. Make doing business easier with clear points of contact for the counterparts involved in the document
6. Align the tone with the organization’s brand to create a consistent experience across all interactions
The Value of Simplification
World Commerce and Contracting’s Stefania Passera is adamant that a shift to better contract design and simplification can bring significant benefits to organizations. Passera – a pioneer in contract design and simplification – points to an International In-House Counsel Journal article citing case studies such as EcoVadis who tackled better contract design and simplification for its services contract. The initiative saved between $6,000 and $10,000 per contract and EcoVadis estimates they saved at least $2 million annually – citing a 60% reduction in the cost of external legal counsel fees.
Passera’s research runs deep, having written over two dozen articles and research papers touting the benefits of contract design and simplification. One of her tips? Replace complex concepts and legalese with visual enhancements and diagrams. “The saying goes a picture is worth a thousand words, and when you use explanatory diagrams in contracts it significantly enhances comprehension and compliance.” She cites a recent study showing “visually enhanced” contracts increased comprehension by 80% for non-native speakers and 26% for native speakers.
The bottom line? While it is certainly smart to think through what goes into a contract, it is even smarter to do so in a way that lays a strong foundation for a stronger and clearer working relationship.
