December 27, 2007

When Good Companies Go Bad

When Good Companies Go Bad

This post could just as easily be entitled, “When Small Companies Go Big.”

I know risk management is an important part of business, but I have run into several examples in the past few months where another company’s insanely aggressive staff roles — legal, procurement, and HR in particular — have driven me batty.

We have a big financial services client who, after much wrangling with their legal time, signed a two year contract with us that was based on our standard form of agreement, though modified quite a bit to their specifications. A few months into the contract, we and our client wanted to add a new service into the agreement via a simple addendum. Someone in their legal team called us up and in a near-hysterical tone of voice told us that he didn’t think the current contract with us was valid because — even though it had an authorized signature on it and had been signed off by their legal team — it wasn’t based on their standard form of vendor agreement. So we had to start over and draft an entirely new agreement if we wanted to get the new service included in the contract.

We had another long-term client who was putting us through the paces on a contract renewal. The company had grown large enough to now have a procurement department for the first time. The renewal, in the midst of a perfectly good working business relationship, took 9 MONTHS to wrap up, during which time the client was missing out on services that the business user deemed critical.

A prospect of ours was another similar company – once small, now large, now with a procurement department. This procurement department demanded the following terms from us as a vendor: an uncapped amount of services for a fixed fee; unlimited custom modifications at no cost; and unlimited liability. When we balked (mostly because we have a brain), the procurement person called back and said “Every vendor who works with us agrees to all of these terms, always. So thank you, I’ve decided this your services are no longer a strategic area of interest for us…and please don’t call the business contact ever again without going through me.” Right, I’m sure the electric company gives these guys unlimited power for a fixed fee.

Honestly. I’m not making this stuff up. I have a lot of respect for lawyers who protect their companies. And for procurement people who are trying to negotiate a good price. But when lawyers and procurement people run the show instead of taking their cues from the business people and adding value on the margin, it’s a sign that your company has a big, big problem.

2 responses to “When Good Companies Go Bad”

  1. Art says:

    Oh how I hate this sort of behavior. Testa Hurwitz used to be one of the biggest law firms in Boston. We were taking investment from a company that used them as counsel. We had negotiated a cap on the amount of legal fees we would pay for the deal and TH added a clause to the paperwork stating we had to bring a check for that amount (the capped amount) to the closing.

    We argued that it was a cap, not a fixed fee, and that we couldn't do that. They indicated it was a "deal breaker" for *them* (even though they were not a party to the contract!).

    I then came up with the good idea to demand that they must then produce an invoice for the services provided at closing, noting the costs of everything. I knew that no law firm with more than 2 people is capable of producing an invoice on a moment's notice. They balked saying they could never do that in time. I balked back stating that we couldn't possibly pay a bill without an invoice. All of a sudden this requirement was no longer necessary (never mind a "deal breaker") and we didn't have to do it.

    Why companies use legal representation like this I'll never know. But I was happy to watch them crumble and go out of business during the subsequent years. They really sucked.

    Oh, I just got done negotiating a contract with NASA – it only took an entire year for something we negotiate with hospitals (not the quickest orgs on the planet) in about a month. Yeesh.

  2. Matt, I totally agree. When the legal/procurement department has more power than the business user, I generally end up walking away from a deal… not because I don't want to help that company with our services, but because we honestly just don't charge enough money to pay for all of the time and effort that goes into working through those issues. If we have to have more than two calls with a legal department, we just walk away. It's hard to do (especially for our sales team) but in the end, it's always saved us from having to bend to rules and policies that just don't make sense for us to bend to… and I firmly believe we end up better off without that client in the long term. Great post.