The founder’s 76-year-old partner, having been "screwed over" in past deals, acted out of extreme self-preservation. This past business trauma led him to prioritize his own financial security at all costs, even if it meant reneging on promises to his trusted partner.

Munger notes that many large law firms compensate senior partners equally, regardless of their individual contributions. This seemingly inefficient structure is a deliberate defense mechanism to prevent the powerful and destructive force of envy from creating disorder and tearing the firm apart.

The traditional view of a contract is a legal safety net to be filed and forgotten until a dispute arises. A relational contract, however, functions as an active 'playbook' for the partnership. It outlines the shared vision and guiding principles, serving as a practical, frequently referenced guide for collaboration and problem-solving, rather than a weapon.

Beyond not competing with partners, genuine trust is built by preventing "extreme favoritism to the bigger partner." Partners watch to see if you provide a level playing field for everyone, regardless of size. Trust is also solidified by how you act when things go wrong; a vendor that "shows up" during a crisis builds loyalty.

A key stakeholder within a client account may actively create friction and gaslight your team, not for legitimate business reasons, but to steer the contract towards a competitor where a friend works. This form of psychological warfare can derail renewals despite strong performance.

After working out 22 distressed joint ventures during the GFC, the key lesson was that partner quality dictates outcomes more than the deal itself. When things go wrong, good partners collaborate to find solutions, while bad partners create conflict, making even a good deal untenable.

Counterintuitively, the more complex a deal—spanning multiple countries and legal systems—the more suitable it is for a relational contract. Instead of attempting to codify every eventuality, this approach establishes a shared corporate culture and flexible principles that can adapt to unforeseen challenges, effectively trumping national or legal differences.

Instead of being unenforceable concepts, guiding principles like fairness and loyalty become a formal part of the contract. During a disagreement, parties can explicitly reference these agreed-upon norms ('you agreed to be equitable'). This reframes the conflict, reminds partners of their commitments, and provides a shared language to resolve issues without litigation.

Companies are trapped by the dogma of creating 'bulletproof' contracts, a process driven by legal precedent and risk aversion ('nobody got fired for having the lawyers look at this'). This institutional inertia, codified in policies requiring standard terms, prevents the adoption of more flexible, relational contracts, which are often dismissed as 'fluffy' despite being 'radical common sense.'