Contracts: a picture paints a thousand words

Pictures have been used to communicate important information between different parties for billions of years, from ancient cave art, to using symbols to communicate and, more recently, data visualisation to inform decision making in business.

Today, enterprises use visualisations in many different ways, but perhaps one of the most surprising use of images (and one growing in popularity) is within contracts.

With visual contracts, components of a contract – clauses, terms, obligations and entitlements – are extracted to create visual representations of how the parties will interact with one another and to provide a holistic view of what is being agreed. Words aren’t completely substituted for pictures, but images and illustrations provide an additional way of simply conveying key information in an agreement.

Visualisation is a growing trend within the enterprise space and there is a strong business case for future investment in visual contracts

For example, if a stakeholder wants to see what geographies the contract will be active in and the resulting regulatory protections that need to be included, then they can view a map for a quick answer. Or perhaps they want to see how changing a service-level agreement (SLA) will affect pricing terms. Rather than wade through complex contracting language, they can click and drag a model.

This approach enables businesses to cut through contract complexity so that employees across all areas of an organisation – be that sales, procurement, HR or the C-suite – can quickly interpret a contract and better understand the impact that each clause of a contract will have.

Visualisations are being acknowledged by many as the future of the contract; Harvard University Economist Oliver Hart for example, has been particularly vocal about the need to simplify legal documents. As a result, many leading companies are early adopters and already include visualisations within many of their contracts.

In one example, Airbus recognised an opportunity for its contracting process to become faster and more agile. What it came up with was a simple non-disclosure agreement (NDA) to be used with contracting parties that were start-ups. The visual NDA used far fewer words than its standard Airbus NDA and used visual representations to better convey the parties’ obligations within the document. The information on the business process was captured in a single page, and its ‘readability,’ as measured by the Flesch Readability Score, rose from 22 to 51.

Visualisation is a growing trend within the enterprise space and there is a strong business case for future investment in visual contracts. In the last 20 years, globalisation and technology innovation have led to industry disruption, both creating more opportunities and making operations more complex. Important regulations – data protection, trade standards and anti-bribery have made contracts longer and negotiations around risk mitigation and transfer more laborious.

For people that aren’t legally trained, contracts can be extremely difficult documents to navigate and fully understand. And with the average person’s ‘focused reading time’ standing at 9 seconds, most are unlikely to get beyond the introduction before they start scanning or diverting their attention elsewhere.

Research and current trends suggest that we will see further adoption of visual contracts in places where ease of processing the document is the top priority and where more non-legal stakeholders are involved. Visual data can help a company to come across as friendly and easy to engage. In such cases, visual contracts will also provide organisations with a competitive edge. The early uses are likely to be relatively simple documents like NDAs (as in Airbus’s case), Privacy Policies and Employment Agreements.

In the finance space, it may still take some time for visual contracting to go mainstream. A more practical use will be to use visualisations extensively for business insights. Although the base document might continue to be entirely textual, images could be used to help non-legal staff easily understand key details of the contract, have an overview of contract relationships and identify trends and patterns between the contracting parties. Visualisations will provide vital insights to better understand contract implementation, and they could be great tools for simplifying the binding legal language that underlies the contract – making the contract faster to negotiate and easier to enforce.

There is still a long way to go for this exciting possibility to come true in everyday life – but the wheels are in motion and the way is quickly being paved to get there!