How can the Board trust the CEO and management? Rarely is such a sentiment written down in Board papers, but this question often lingers long in the mind of every independent (and even non-independent) Board member. Who can really blame them though? The Australian Corporations Act after all clearly sets responsibility for the stewardship of a company in the hands of directors and not necessarily of all those participating in management.
This is where Artificial Intelligence (AI) can help. AI can and will be the solution when it comes to the application of authority delegation levels in managing the authorisation and execution of contracts. Gone will be a copy of an organisation’s authority delegation levels in a Word document, hidden somewhere in a dark corner of the intranet. Documents like that will now become digitised, codified and policed by AI-enabled software that will act as a contract gatekeeper. However, this evolution will not be smooth and uneventful. Expect significant push-back from the old guard who will insist upon maintaining the status quo, that is, the obfuscation of delegated contracting authority. The trick will be for independent Boards to insist upon new and enhanced governance standards enshrined in digitally enabled contracting systems.
The Future of Contract Management
So, what may this future look like?
First of all, wet signatures will disappear – they are an anachronism from centuries past that have stubbornly persisted up until now. All signatures in organisations will become digital, owned and directly traceable to the owner, much like a non-fungible token on a blockchain.
Organisations will morph their authority delegation schedules by integrating them into an online contract management system that is regularly updated. This system will have an AI feature that can summarise and distil from that contract the necessary authority delegation levels necessary to promote its digital execution, making it impossible to manually bypass the authority delegation register. Once executed, the contract will form part of the organisation’s online contracts repository. This repository will be accessible by the Board (to a materiality level relevant to them) and select members of management when permitted under the authority delegation register. The AI-enabled feature of the contract management system should be able to allow the board to have access to a register of contracts and enhance the utility of the repository by summarising the following details of each contract:
- its date of signing
- the period prescribed in the contract for which it is legally enforceable
- a summary of the key recitals of the contract (including terms of consideration and the goods or services to be exchanged as part of the contract) and,
- who in the organisation authorised and executed the contract.
Whenever a new and materially significant contract is signed, Board members will receive an online portal notification, including summarised information about the contract’s execution.
What other changes will this bring?
I can see three major changes
The first is that the now-typical (and often boiler-plate) terms set in contracts, acknowledging representations of corporate authority will be reduced to have specific references to the non-fungibility of those executing the contract doing so under the auspices of the organisation’s authority delegation schedule. More and more now, the audit trail and metadata of contracting will have much greater teeth.
The second is that the digitalisation of contract execution will throw a huge curve-ball to the vast cache of statutory and case law. Will it be enough for an organisation to claim that a contract is valid and binding without its supporting metadata? Due diligence in dealmaking will need to be stepped up to validate that a contract executed by the counterparty has sufficiently and appropriately met the standards of the digital authority delegation schedule. I strongly feel that the collision between the old and new for managing contracts will drive significant legal action in the coming decade and the old handshake in the pub contract will become a thing of the past.
The third is that these contract management systems will be built to stand the rigour of (read-only) oversight, not only of the Board but of external auditors, regulators and third-party due diligence. This will include substantiating the metadata of each contract. The burdensome task of the accumulation and distillation of organisational documents for a major transaction will be replaced by a contract management system designed to accommodate these needs.
Most corporates have not yet fully digitised contract management, but we can expect this to change as large language model AI tools prise out, codify and systemise contract data. Sophisticated contract management systems that combine elements of what I have discussed above, including the infusion of an organisation’s authority delegation schedule are already available and the prominence and role of AI in these systems is ever-increasing.
Smart CFOs, if they are not doing so, are already considering what contract management system they should use to digitise their organisation’s authority delegations for management, the board, external regulators and third-party due diligence thereby strengthening and enhancing organisational controls and governance.
For more information on changes in contract management, contact your local William Buck audit and assurance advisor.