Podcast Summary: HBR On Leadership

Episode: How Better Contracts Can Strengthen Strategic Partnerships
Date: October 15, 2025
Host: Emily Amanda Kersey
Guests: Oliver Hart (Nobel Prize-winning economist, Harvard University), Kate Vitasek (University of Tennessee), David Friedlinger (Swedish attorney)

Episode Overview

This episode explores how traditional business contracts—often painstakingly detailed—fall short when dealing with the realities of long-term, complex business relationships. Nobel laureate Oliver Hart, along with Kate Vitasek and David Friedlinger, advocate for a new approach: relational contracts. Instead of trying to predict and document every possible contingency, relational contracts outline shared guiding principles, enabling partners to tackle unforeseen changes collaboratively and with fairness.

Key Discussion Points & Insights

1. The Problem with Traditional Contracts

• Limits of Predicting the Future:
  • Standard contracts operate on “if/then” statements, attempting to foresee every possible outcome.
    • "The most carefully worded bulletproof contracts can fall apart once they hit the reality of modern business dynamics." (Narrator, 01:31)
• Dynamics of Long-Term Partnerships:
  • Business realities inevitably shift, rendering even the best contracts obsolete.
    • "No matter how much you think about what you want to write in that contract, it’s obsolete. Day two, day 20, you know, two months in, two years in." (Kate Vitasek, 05:19)
  • This rigidity causes tension, distrust, and a cycle of “tit for tat” when unanticipated issues arise.
    • Example: Canadian health authority faced new workloads from unexpected legislation, sparking conflicts not addressed in existing contracts. (05:38–06:16)

2. Introducing the Relational Contract

• Core Concept:
  • Relational contracts acknowledge uncertainty and instead focus on guiding principles (social norms such as fairness, honor, reciprocity, honesty) to underpin the business relationship.
    • "A better approach is to acknowledge that you can't cover everything in the contract and try to figure out procedures you're going to use to deal with situations which the contract doesn't cover." (Oliver Hart, 06:37)
• The Process:
  • Foundation: Parties decide together if they seek a transactional or relational partnership.
  • Co-create: Shared vision and guiding principles are collaboratively established.
  • Governance: Define transparent mechanisms for staying aligned and solving disputes as they arise.
    • "The process is equally as important as the endpoint." (Kate Vitasek, 06:54)
    • "...they're developing, co-creating projects to eliminate the friction. We call them ponies. Everybody wants to find a pony when they're a kid..." (Kate Vitasek, 14:43)

3. Practical Examples & Financial Benefits

• Dell and FedEx Case Study:
  • FedEx handled Dell’s reverse logistics, creating dependency. Traditional contracting led to yearly price squeezes and declining trust, ultimately making the partnership unhealthy.
    • "All of a sudden you have a client that you can’t live without that is actually costing you money." (Emily Amanda Kersey, 13:29)
  • By piloting the relational contract approach—through open conversation, transparency, and a neutral meeting place—they achieved a 40% reduction in total cost of ownership within nine months.
    • "They followed the process. In nine months, they had reduced the total cost of ownership...by 40%." (Kate Vitasek, 14:20–14:32)
  • Improved metrics across the board, built trust, and aligned on mutual “big ideas.”
    • "So every single metric that they looked at improved." (Kate Vitasek, 15:11)

4. Barriers to Change

• Cultural & Organizational Resistance:
  • Many organizations have entrenched legal policies and are wary of departing from precedent.
    • "The only person that likes change is the wet baby. And the better we are at something, the more expert we get, the less we want change." (Kate Vitasek, 16:31)
  • Corporate structures and legal dogma often stand in the way until traditional contracts fail spectacularly.
    • "Where people have chased the perfect contract, it’s only until it’s impossibly broken that they’re willing to change." (David Friedlinger, 17:01)
  • Skepticism about enforceability:
    • "This is fluffy. Contract for the relationship, really? Where’s my statement of work?" (Kate Vitasek, 17:05)

5. Enforceability and Conflict Resolution

• Keeping Disputes Out of Court:
  • Mechanisms for discussing and resolving disagreements are built in, making litigation rare.
    • "We find it actually keeps people out of court because now they have a way of solving problems." (Kate Vitasek, 17:33)
    • "We will be in disputes. So rather than fight it, we're gonna embrace the fact that we have to have mechanisms to get through this and to stay in economic equilibrium." (Kate Vitasek, 18:04)
  • Guiding principles provide a common foundation if issues arise: both for internal review and, if needed, for legal authorities.
    • "You agreed to be equitable or to be loyal or to show this...when you point to it...now I'm going to therefore adjust my behavior." (Oliver Hart, 18:24)

6. Scalability Across Borders and Cultures

• Global Applicability:
  • Relational contracts may work even better across complex, international deals due to their flexibility and reliance on universally recognized values.
    • "Most of the deals that we see on are very large, complex deals. Maybe global in nature...the more complex it is, the more that this makes sense." (Kate Vitasek & David Friedlinger, 20:21–20:38)
  • Corporate culture can be more influential than national culture in successfully implementing relational frameworks.
    • "Corporate culture can trump national culture...you can activate these norms even if people come from different backgrounds." (Oliver Hart, 20:42)

7. Cultural Shifts & The Future of Contracting

• Embracing relational contracts requires a paradigm shift—moving away from pure legalism and “zero-sum” thinking toward dynamic collaboration, innovation, and joint value creation.
  • "We’re in the 21st century and have to embrace a more dynamic way to address these complex contracts." (Kate Vitasek, 21:49)

Notable Quotes & Memorable Moments

• On Traditional Contracts’ Limitations:

  • "However much time you spend trying to think about all the things that can happen, you’re never going to cover them all."
    – Oliver Hart, 04:59

• On the Need for Change:

  • "At some point I realized something must be gumming up the process, and I realized...it was behavioral things like a concern with fairness and that kind of thing."
    – Oliver Hart, 03:16

• On the Relational Approach:

  • "These guiding principles are social norms...that are proven to make societies work better. All we're doing is having the parties manifest them is the rule book of the relationship."
    – David Friedlinger, 07:21

• On Innovation and Trust:

  • "When your personal goals are aligned with the business, you can do some really cool and innovative things."
    – Kate Vitasek, 08:41

• On Common Organizational Resistance:

  • "The only person that likes change is the wet baby."
    – Kate Vitasek, 16:31

• On Enforceability & Conflict:

  • "We find it actually keeps people out of court because now they have a way of solving problems."
    – Kate Vitasek, 17:33
  • "If you imagine going before a judge...the fact that we use these words, they can take those into account in deciding what the right outcome is."
    – Oliver Hart, 18:24

• On the End Goal:

  • "The best outcome is when we create the optimal solution. We expand the pie, we share the pie. Or if it’s a losing situation, we lose together or we win together."
    – Kate Vitasek, 19:30

• Final Thought:

  • "Change the world one deal at a time."
    – Kate Vitasek, 22:01

Timestamps for Key Segments

• [04:52] Why classic contracts don’t work for long-term, complex partnerships (Oliver Hart)
• [06:37] What is a relational contract? Guiding principles and process (Oliver Hart, Kate Vitasek, David Friedlinger)
• [12:24–15:15] Dell & FedEx: A real-world transformation using relational contracts (Kate Vitasek, David Friedlinger)
• [16:31–17:21] Resistance to change and organizational inertia (Kate Vitasek, David Friedlinger)
• [17:33–18:24] Enforceability, conflict-resolution, and keeping disputes out of court (Kate Vitasek, David Friedlinger, Oliver Hart)
• [20:21–21:49] Global applicability and cultural aspects (Kate Vitasek, David Friedlinger, Oliver Hart)
• [22:01] Closing remarks and call to action (Kate Vitasek)

Conclusion

This episode offers a compelling argument for shifting away from hyper-detailed, adversarial contract models toward more adaptive, collaborative relational contracts. Such agreements, built on shared values and procedural transparency, allow businesses to handle the inevitable uncertainties and changes of strategic partnerships with trust, flexibility, and mutual benefit. As Vitasek puts it, it’s about “changing the world one deal at a time.”