Contracts are omnipresent. We subscribe to it. We run it. We are run by it. Everyday.
Yet, most of the times, we deceive ourself considering only a dense, textual document with clauses to be deciphered, as contracts.
But contracts are much more than that. Much more than a means for successful partnership, even in business environments. It is a means of creating rights. It gives an individual, an opportunity to legalize his interests and more importantly, opponents favorable responses.
Contract, in simple terms is legalization of mutual rights and obligations, which basically serves two key purposes.
- Enable seamless business execution – RIGHT
- Avoid litigation and penalization – OBLIGATION
THE RIGHT:
Businesses are run for profit. And contracts enable it, through collaboration and commitment between parties. Hence, the success of a business, is highly dependent on the respect the stakeholders provide to the terms of the compliance and their commitment to it.
ZARA ,the global fashion retailer is a poster child of supply chain success. Their vertically integrated supply chain across Europe which brings new products to its 2000+ stores, 2 times a week is a strategy that most businesses try to emulate. But the bedrock of this most touted success is the commitment, the stakeholders offer ZARA, via various contracts and agreements.
Here, the confidence ZARA has over its collaborators is a direct result of a well conceived contract, which stands for its interests, more importantly its rights.
THE OBLIGATION:
The very fact that business operates and involves society, makes it vulnerable to litigations on all conceivable fronts. Consequently, the composure to operate, managing obligations is what one desires in a business environment.
But, even in its self, the expectation and relationship between stakeholders is a zone for conflict and proven costly many a times to businesses. Proper management of expectations and obligations is a key to a venture’s success. Comprehensive contracts between the businesses and stakeholders remove the ambiguity and obscurity in the expectations and provide a clear set of compliances to adhere.
As you could find in the recent Amazon – Future group conflict over the ‘Right of first refusal,’ it presents a concrete case for managing obligations. It illustrates the importance of a contract and realization of the consequences of your actions.
Hence, in definitive terms, the objective of a contract is to set the rules of a compliance, to avoid litigation and to penalize defaulters. But in real terms, it’s objective is to provide the confidence to execute your goal, today and tomorrow, with the support of your stakeholders and society. That’s the importance of the written word.