HBR On Leadership How Better Contracts Can Strengthen Strategic Partnerships
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Oct 15, 2025 
Oliver Hart, a Nobel Prize-winning economist from Harvard, and Kate Vitasek, a University of Tennessee expert in relational contracting, dive into the nuances of modern business contracts. They discuss why traditional contracts often fail, highlighting the impact of behavioral factors on fairness in agreements. The duo advocates for relational contracts that foster collaboration, emphasizing the need for a shared vision and guiding social norms. Their insights reveal how flexibility can strengthen partnerships, reduce disputes, and even cut costs, as seen in successful collaborations like Dell and FedEx.
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Why Classic Contracts Break Down
- Long-term legal contracts fail because they attempt to pre-specify an uncertain future and miss behavioral factors like fairness.
- Relational contracts accept uncertainty and embed social norms to prevent tit-for-tat escalation.
Design Procedures, Not Predictions
- Do design contracts around procedures for unforeseen situations rather than exhaustive if-then rules.
- Use governance mechanisms to keep parties aligned as business conditions change.
Start With A Shared Vision
- Start by agreeing the relationship type and co-creating a shared vision before drafting terms.
- Define guiding principles like honesty and reciprocity to serve as the relationship playbook.