Stewart Macaulay: pioneer for relational contracting

Posted: 07/14/2015 - 09:00

Stewart Macaulay – Professor of Law Emeritus, University of Wisconsin Law School – occupies a unique place in the evolution, awareness and acceptance of relational contracting. In fact one might safely argue that he helped set relational contract theory in motion in 1957, with the publication of his famous article, ‘Non-Contractual Relations in Business: A Preliminary Study.’ He was 26.

Over Macaulay’s long career he has written engagingly and intriguingly about contracts, and even “freedom from contracts.” At one point he was dubbed the “the Lord High Executioner of the Contract is Dead Movement.” He declined that honour but did concede that the so called “academic contract” was dead while the real institution was alive and well. He likes to use dialogue from Dilbert cartoons to illustrate his points.

“The phrase ‘freedom of contract’ carries philosophical, ideological, and symbolic baggage,” he wrote in ‘Freedom from Contract: Solutions in Search of Problem?

Macaulay noted. “Many, and probably most, parties to contracts disputes do not litigate or even threaten to do so. Some know that if they went to court, they would lose. However, many who might or almost certainly would win do not litigate.”

It is easy to overstate the importance of contract law; this is because “relational sanctions and private governments do most of the work of protecting expectations and reliance.” For that reason, contract law in practice is “a flawed product that costs too much in most situations.”

Obviously Macaulay is someone who has thought deeply about the nature of contracts and their role in society.

He has also inspired many, including fellow big thinker and relational contracting guru Ian Macneil, and our work at the University of Tennessee on Vested.

Macneil pointed to Macaulay’s 1957 article as a “demolition effort” that cleared the way for relational contract theory.  For his part, Macaulay asserts he is a “card-carrying member of the Macneil party,” and that he knew and has admired Macneil for more than 40 years. If they started a relational contracting club, I’d stand in line to be the first to attend.

One of the most powerful lessons in both Macaulay’s and Macneil’s work is that contracts should be viewed as “organic” agreements: a living, collaborative document that exists as a legal and social entity, one that evolves as the nature of the relationship changes. In his paper, “Relational Contracts Floating on a Sea of Custom?” Macaulay says contract law plays the symbolic role of “reinforcing the sense of organic solidarity.”

Macaulay emphasises that relationships are not fixed once and for all time, and because people may rely on the need for changes, strict reliance on the original paper deal may be unfair. He writes, “It is one thing to make temporary concessions to keep a relationship alive. It is another to redefine what is expected under the contract. Much turns on what one party communicates to the other and on the reasonableness of a significant change of position.”

Thank you Stewart Macaulay! You are an inspiration to many and we are proud to help embed some of your many lessons into our work on Vested Outsourcing to help make relational contracting practices come alive.

Region: 

About The Author

Kate Vitasek's picture

Kate Vitasek is an international authority for her award-winning research and Vested® business model for highly collaborative relationships.   Vitasek, a Faculty member at the University of Tennessee, has been lauded by World Trade Magazine as one of the “Fabulous 50+1” most influential people impacting global commerce.    Her work has led to 6 books, including: Vested Outsourcing: Five Rules That Will Transform Outsourcing, Vested: How P&G, McDonald’s and Microsoft Are Redefining Winning in Business Relationships and Getting to We: Negotiating Agreements for Highly Collaborative Relationships.

Vitasek is known for her practical and research-based advice for driving transformation and innovation through highly-collaborative and strategic partnerships.   She has been appeared on CNN International, Bloomberg, NPR, and on Fox Business News.  Her work has been featured in over 300 articles in publications like Forbes, Chief Executive Magazine, CIO Magazine, The Wall Street Journal, Journal of Commerce, World Trade Magazine and Future of Sourcing.