Covenants, Contracts and Leadership

So how then, should we regard the contract vs. covenant discussion? Contractual expectations are clearly common in most organizations, so we can’t really shun the concept.Yet, it’s important also to realize that an overemphasis on contracts can sometimes detract from the good faith and spirit of trust that are central to building healthy and productive relationships. When contracts become overly legalistic, trust and cooperation can quickly evaporate and potential and productivity are diminished.

I saw a firsthand example of this when a nonprofit client of ours recently went through a national search for a CEO. After several rounds of interviews, one candidate emerged as the clear choice. Both the candidate and the Board members were excited about the potential, as each of the parties assumed the best intentions of the other. They simply had to work out the details of the agreement.

After lengthy discussions the contract was just about finalized. The candidate then chose to have his lawyer review the agreement further. He came back with several additional demands that extended the negotiations and required more concessions by the organization. When that happened the trust, good faith and goodwill began to fade. Even though he had clearly been the most qualified candidate, as the negotiations dragged on, the Board and staff began to question whether or not they could trust this candidate and decided to reopen the search. Eventually, they found another CEO who was almost as qualified but much less demanding.

Unfortunately, the first candidate missed the opportunity to work with a great group of people because he simply could not bring himself to trust them. The “basis of good faith” that we discussed in last week’s blog was missing. As a result, he lost credibility with the group because they suspected he was greedy and interested only in himself. On both sides trust and good will diminished, which caused irreparable damage. Without trust there can be no covenant.

In short, the dynamics, characteristics and results of contracts are quite different than those of covenants. However, since contractual relationships are so pervasive in our culture, covenants and contracts must coexist productively. Understanding and then using those cultural differences appropriately (contractual vs. covenantal) is really a difficult balancing act that requires unique leadership skills. Yet, being able to pull this off is at the heart of what helps leaders succeed.

However, before we even consider the differences between covenants and contracts, it’s important to understand that while contracts speak more to tasks and practices covenants speak more to relationships. Neither one is mutually exclusive. You just can’t build organizational relationships without also attending to individual practices and the tasks of productivity and profitability.

Therefore, the choice to create either a contractual or covenantal culture is evidenced in every day practice. If that practice prioritizes results through policy, rules, terms, tasks, competition, schedules and productivity over people then the culture is clearly a contractual one. By contrast, if that practice values results through people who are treated as trusted partners and team members then the culture is more covenantal.

That said, understanding the tendencies and differences of covenants and contracts helps leaders to enhance productivity and make informed decisions about how to lead. Too often would-be leaders hope to achieve the benefits of a covenant, but they do so within a contractual framework with contractual expectations and they fail. This matrix is intended to illustrate the differences between the two concepts and equip leaders to use them both effectively.

In addition to today’s post on covenants vs. contracts, we have helpful content on capital campaign consulting, nonprofit fundraising and church leadership consulting. Check out our website for blogs on these and other topics.