"Writing a business contract is like predicting the future. It's a series of if/then statements - if this happens, then such-and-such party is responsible for that. The idea is that neither side really trusts the other. So a contract, backed up by the highest legal authority, gives a company something that it can put its trust in. That's why a firm's lawyers include every little thing they can think of."
"But the one thing we know for certain about the future is that it is uncertain. The most carefully-worded, bulletproof contracts can fall apart once they hit the reality of modern business dynamics. Inevitably, when one side gets the short end of the stick, since they can't change the contract, even subconsciously, they try to get even. Our guests today show a better way to make complex deals between firms - a so-called 'Relational Contract.'"
Traditional business contracts function as a series of if/then rules designed to allocate responsibility and reduce reliance on trust. Legalistic, exhaustive provisions often arise because parties and lawyers anticipate every contingency. The future, however, is inherently uncertain, and rigid contracts can break down when actual business conditions change, creating resentment and opportunistic behavior. Relational contracts replace exhaustive contingencies with mutually understood guiding principles, shared norms, and governance practices that enable adaptation over time. These agreements emphasize cooperation, ongoing communication, and flexible mechanisms for resolving unforeseen problems, strengthening long-term partnerships and reducing adversarial responses when circumstances shift.
Read at Harvard Business Review
Unable to calculate read time
Collection
[
|
...
]