Recently a lawyer insisted that a contractual disclaimer he put into a contract should remain despite my strong protest. He said my client should simply deal with the issue by conducting “due diligence”.
I replied the disclaimer was unreasonably wide removing any scope for complaints. I added that my client would do “due diligence” if the lawyer could provide me with a “due diligence” checklist at the level of a managerial risk management checklist (supported as they often are by recognised standards). The phone went silent. I never received any “due diligence” checklist.
In fact there is no “due diligence” standard in commercial law in Australia. Nor is there any publicly available, detailed and standards-supported “due diligence” templates in law. It’s one of those nice sounding terms lawyers and accountants use, but it lacks rigorous definition relative to alternatives. It is neither defined in legislation nor in any major court decision.
The bigger picture is that there is considerable divergence between legal versus management approaches to risk management. When lawyers talk about “due diligence” they make reference to checks that have no settled or definitive structure or framework. When managers talk about “risk management” they at least can or should have in mind accepted and highly detailed standards for example as published by SAI Global.
These differences between law and management theory are the tip of the iceberg of difference between the information architecture of the two fields. There are differences in both theory and practice. By considering them we can better understand each field, just as the best-selling book, Men are from Mars and Women are from Venus, noted differences between the way men and women think.
As surprising as it often is for non-lawyers, the law is not black and white. The way lawyers sometimes put it is “the law turns on the facts.” The extent to which this is true can be startling. Take the case of the law which defines who is an “employee”. Contract law, employment law, workers compensation law and taxation law each have divergent views. So it is not just that the law turns on the facts, but the law you select depends also on the facts. Confused? You are not alone.
Law’s information architecture problem
I have long believed there are information architecture problems in law. I believe this shortfall in law contrasts with the business management body of knowledge with which executives interact in management theory. I am not saying business management theory is clear and settled while commercial law is confused and always variable. Recent debates on what MBA education should provide, have brought to my notice the divergent views on what might comprise the “business management body of knowledge”. There is no official view on what an MBA must contain, instead there are numerous perspectives. In contrast, in New South Wales the question of the courses which must be studied for the grant of a law degree was settled, when it was last reviewed in about 1990, around 11 or so core subjects. This forms a core subjects list, and that is only the beginning of the process required to form a workable information architecture.
Part of the problem lies in differences in the scope of commentary and reformulation of theory. Writers on management regularly engage with the topic of what is true and what is false in what is known in the field of management theory. Think for example of what Michael Porter did with The Competitive Advantage of Nations. Consequently some of the best management writing is heretical, openly and boldly questioning past theories and models. In contrast it’s rare indeed to find heretical debate by lawyers (whether they be judges, parliamentarians, solicitors, barristers or legal academics) turning what is known on its head. This is a topic worthy of much longer discussion elsewhere
Due diligence versus risk management
For now, keeping it brief, a good illustration of the contrast between legal and managerial thinking is provided by comparing between two texts. One is a law text book on the legal concept of due diligence. The other is a guide for managers relevant to the topic of risk management and organisational excellence.
- The law text book is Due Diligence, a book by W. D. Duncan and Samantah J. Traves, published by LBC Information Services in 1995. These Queensland University of Technology legal academics take an innovative approach (all too rare in law), seeking to give definition to the much used, but rarely defined or understood, concept of due diligence. It is full of case references. There are no graphics in it and the book is now out of print.
- The guidebook for managers is The Australian Business Excellence Framework 2002, published by the Australian Quality Council. An overview is found here at www.sai-global.com. Quoting from its introduction, “The Framework… helps you make sense of a myriad of different systems, cutting through a diverse range of management theories, and forms one holistic model for organisational excellence.” The Framework is symbolised by, and its components are designed into, one egg-shaped graphic (see accompanying graphic). I find the Framework useful as it does a good job at overviewing and unifying a vast body of knowledge.
I prefer the second text to the first. I have used both texts to improve the frameworks which I have independently developed with colleagues to guide the work done at Dilanchian. For that the second text has been far more useful precisely because it is more structured and holistic, making it easier to test ideas and templates, and also because the above egg-shaped graphic it uses puts complex considerations into a nutshell, making it easier to digest ideas. The use of graphics in management consultancy I have long found to be very useful. The accompanying “Rubik’s Cube” style graphic is another example, published in September 2004 by the US COSO organisation.
Lack of legal frameworks
I believe there is a lack of frameworks and holistic approaches in legal theory. It is another major problem in contrast to what is available in management theory. The shortfall in law makes it harder and more time consuming to learn, teach, understand, apply and test legal ideas and legal thinking.
Lack of legal graphics
Symptomatic of the problem is the lack of graphics in law and legal commentary. As the cliche puts it, a picture tells a thousand words. Graphics are rare indeed in law text books, although they are creeping in slowly. As for legislation or court decisions in Australia, I don’t recall ever seeing an explanatory graphic used, not once. There is more and more use of tables in legislation, that is very useful, as is the increasing trend to provide short explanatory sections and other guides for readers of legislation.
Law is an expanding universe of text
However the norm in law is to do all that using words. Whether it is due to their insufficient IT or design skills, limited training, culture or other factors – lawyers are glued to text. I believe this contributes to law continuing to be an expanding universe of text, forever growing in volume, and in the process losing or lacking the gravitational force that might pull things back together into simple nutshells or any unified whole.
We are left with a growing problem. Each time an apparent “legal loophole” is touted, in civil or criminal law, rather than questioning or rethinking the existing legal information architecture – the tendency of parliaments is to make yet more law and courts in turn to make more decisions that “turn on their facts”. If I’m wrong, I welcome your comments.
Solutions – lawyers don’t have to be lost in space
Now let’s end where we began, on business risk management. To simplify and apply legal risk management more effectively, I’ve undertaken research and development over many years towards creating frameworks for intellectual property and commercial law, including for legal risk management in those fields of law.
In this work I have found management thinking often more valuable than legal commentary and I have applied both to create a proprietary integrated set of template contracts and guides for clients. At Dilanchian we use them for legal risk management and numerous other tasks in assessing client needs and delivering appropriate solutions. Indeed, we’d be now lost in space without our tools for assessing legal as well as non-legal considerations.