Managing risk as in-house counsel

Understanding your company’s risk tolerance is crucial to effectively safeguard the business

General counsel has reached a crossroads. In-house lawyers are shouldering greater workloads while having flat or constricting legal budgets. They’re contending with increased regulations and new innovations in technology. And they’re under pressure to be more tightly synced with their company’s business objectives when determining risk assessments.

The Thomson Reuters webinar, Managing Risk as In-house Counsel: Supporting and Understanding Your Company’s Risk Tolerance, focuses on how general counsel is adapting to a new era in risk management. The “one-size-fits-all” approach to corporate risk assessment strategies no longer holds. Companies in the same sector or with similar organizational profiles may have substantially differing degrees of risk tolerance.

“The expression we keep hearing over and over again is that it’s not just about law anymore. That’s just the minimum,” says webinar speaker Jane Caskey, Global Head of Risk Advisory for Norton Rose Fulbright Canada. “It’s no longer enough to look at it through one lens. [There’s a need] for a more sophisticated relationship, where legal and business are working together to drive the business forward.”

Take two examples:

  • A company that lives and dies by its corporate reputation — for example, a hospitality provider like a resort chain. They may be comfortable with moderate litigation risk but also hyper vigilant about potential reputational risk.
  • A company whose revenues substantially come from monetizing intellectual property (IP) holdings. Here, protecting IP is paramount, with counsel running constant assessments of risks affecting IP holdings, such as litigation challenging copyright. But this company may be lenient about risks affecting less sensitive assets and its reputational risk is often a lesser factor.

In both cases, counsel is a key counterpart to a company’s strategists — not as an antagonist, but ideally as a partner to ensure the feasibility of long-term goals. This is why lawyers need to make sure they’re “in the room” when an important risk decision gets made in the C-suite.

“You could be dealing with any number of people in different jurisdictions and levels of seniority, operating in different markets that are aligned to different functions,” says David Martin, General Counsel International for QVC, and another webinar panelist. “You need to understand what everyone’s current attitude to risk is. And when you do the hard work of aligning, get right into the details.”

Strategy for risk assessment

For counsel, how you say no is as important as why you’re saying it. Frame your response to management as that of a strategic advisor, rather than acting as a legal guard dog that discounts the underlying commercial realities of the decision.

It helps to build consistency over time. “It’s always much better if you can connect a risk decision today to a similar decision that the CEO had to make before — it conveys a sense that you’re actively managing the risk,” Martin says. For example, if counsel is advising on a contract liability issue, they could remind the CEO that they faced a similar issue last month and the same factors apply here.

Post-COVID, many corporate legal departments are being asked to do more with less support. In a recent survey, Acritas Legal Research found that companies across the board said they planned to cut their legal expenses after March 2020:

  • 42% of companies with $50 million-$1 billion in annual revenue planned to cut legal spend.
  • 44% of companies with $1 billion-$6 billion in annual revenue planned to cut legal spend, whereas pre-COVID, 45% had expected to increase their budget.
  • 31% of companies with over $6 billion in annual revenue planned to cut legal spend, whereas pre-pandemic, only 25% planned to cut their budget.
  • At the same time, 79% of companies said workloads increased due to the pandemic.

This time crunch affects risk management analyses. Ideally, a company’s legal team could conduct post-mortems to determine how previous risk decisions were made, whether enough information was available at the time, and how the company could do things differently in the future. Yet, there’s often simply no time to review the past. As soon as one fire is put out, it’s onto the next one.

Using technology to reduce error

Recent technological improvements provide some relief. Increased standardization in such areas as contract management and electronic signature forms means fewer opportunities for error and more oversight. Further, data analysis software gives more insight into a company’s operations and can pinpoint areas of concern. For example, Caskey recalls a global airline for which legal determined there were increased claims on particular days and with particular crews. Not only was it a risk management win, but the information enabled the airline to improve operations.

Post pandemic, companies are moving out of survival mode and are now undertaking 12-month or three-to-five-year scenario planning. Risk assessment should be core to these efforts. For counsel, the goal is “making sure we all know what that acceptable level of risk is and looking at how you can be creative in an environment in which it feels like there are more constraints than ever on us,” says Jen Dezso, Vice President, US, at Acritas, and panelist.

Despite the turmoil of the past year, “something that hasn’t changed much is the over-arching goals of legal departments: making sure that we’re driving efficiencies and keeping the company safe,” Dezso adds.

Legal disputes are rising. Are you ready?

Stay on top of all matters – even those less familiar to you. Get the right answers faster with Practical Law.