Understand risk tolerance by adopting an owner’s point of view
Risk is simply part of doing business. Finding the right balance between risk and opportunity has always been something of a fine art. For the small business general counsel (GC), reaching this balance deserves special consideration. The modern legal advisor must align the company’s risk tolerance with the company’s business goals, which may be an expansion of the more straightforward general counsel role from days past.
How can you provide expert legal guidance that strikes the right balance of caution and risk tolerance for today’s volatile business environment, while also becoming a trusted in-house lawyer? The answer may be to think more like a business owner.
Risk tolerance, the business owner, and the attorney
Business leaders understand that their activities carry risk, but they tend to see that risk as one element among many they must balance to ensure the company’s success. They are likely to see a range of business activities as worth a certain level of risk in an effort to achieve the company’s goals.
In contrast, legal advisors for small businesses have traditionally been more risk averse. Lawyers for small businesses today are asked to provide strategic business insights beyond the traditional GC role to advise on what risks are worth taking. This means that in-house lawyers can benefit from looking at risk through the eyes of the business owner.
Five ways to manage risk from a business owner’s perspective
As a business lawyer for a small business, taking the perspective of the owner can give you a new angle on managing risk. With this broader view, you can align legal and business priorities to give your business leaders the expert legal guidance they need to pursue the right opportunities with the right level of risk.
1. Define and articulate the organization’s risk profile
Business owners look at risk in terms of the severity of the consequences for the business as a whole. In the whitepaper In-house Counsel: How to understand and support your company’s risk tolerance, Jane Caskey, global head of the risk advisory practice at Norton Rose Fulbright, says, “The number and range of potential risks are also pushing legal teams to adopt a more ‘holistic’ approach to risk management.” This might mean weighing types of risks differently, such as being more concerned with the potential to tarnish the company’s brand than about possible monetary damages. Certain companies may have priority considerations, such as protecting intellectual property.
There may be an impulse for in-house counsel to view all risks as requiring maximum mitigation. But when you have a broader view of the risks that your organization faces and how pressing each of them is, you can help your company choose the ones to address most assertively. Work with leadership to define and articulate each risk and its potential effects on the business so decision makers can understand the nature of the landscape and where they are most vulnerable.
2. Take ownership of business objectives
Running a business requires managing a range of priorities, departments, and processes to keep it functioning as a whole. Business leaders cannot assess any one consideration in isolation because each element of the business interacts with all the others.
As GC, you can better understand your business’ appetite for risk by expanding your sense of ownership about the organization’s business objectives, strategies, and tactics. Seeing the “business side” not as a separate set of interests but as a basis for legal decision making is a powerful way of aligning legal and business objectives.
“Given the highly regulated nature of Checkr’s business,” says Irene Liu, formerly the Senior Vice President and General Counsel at Checkr and now Chief Legal Officer at Hopin, “for gray areas, I like to consult two to three external counsels and experts – people that I know have varied risk tolerances. I want to talk to the one that’s most conservative, the one that might be business oriented, and the one that’s probably willing to accept more risk and go further. Having the range of perspectives allows me to be able to respond to business needs and fully understand the impact of our decisions.”
3. Put it in writing
Business leaders put things in writing when they want to make plans, tasks, and priorities concrete and communicate them effectively to internal and external stakeholders. They can also better incorporate differing perspectives into their decision making when they see those ideas laid out succinctly.
As a lawyer for a small business, you can use this strategy to increase your team’s involvement in scenario planning and decision making. Put your organization’s risk-assessment protocols and tolerances in a document that can serve as a basis for ongoing conversations and training but keep the document flexible. Legal protocols apply to real-world scenarios and may need to be adapted to on-the-ground realities in real time.
4. Engage in continuous, ongoing dialogue
Growing businesses move quickly and leadership often needs to make decisions without complete information. Business leaders will seek out the information they need, but they will be in a better position to make good decisions if they already know what’s important before having to ask.
Open lines of communication between the legal and business sides of a company are essential to ensure that a legal department is informed about the organization’s strategic priorities. They also help counsel ensure that business leaders are up-to-date on how current events create new risks or otherwise change the business’ risk profile.
As your relationship develops and trust is established, you no longer become the “department of no,” seen as constantly shooting down requests in an effort to protect the business. In the Thomson Reuters webinar titled “Managing risk as an in-house counsel: How to understand and support your company’s risk tolerance,” a panel of legal experts weigh in on the importance of establishing relationships with other leaders.
5. Use technology to bridge gaps
Technology can be game-changing in many aspects of operations. With the right technology, business owners can get their hands on critical data fast so they can make the right decisions at the right time. Technology is being used to eliminate data silos, foster collaboration, and bridge knowledge gaps across every business department. For example, know-how systems like Practical Law can ensure the entire legal department is working all matters consistently, following current market and best practices.”
Find your perfect risk balance by thinking like a business owner
When you think about risk like a business owner, you gain a bird’s-eye view of the business landscape in which your business makes its decisions — the opportunities as well as the risks. With this perspective, you’ll know how to become a trusted in-house lawyer by positioning yourself as a true partner with other teams in working toward the success, growth, and protection of your business.