| Legal risk management has always been important | | | | course.) |
| for individuals, businesses and non-profit organizations. | | | | In its purest form, risk management is simply the |
| What has changed is this. In the current economic | | | | process of: |
| climate, when having to pay out of pocket for an | | | | 1. Identifying risks. |
| uncovered claim, legal defense costs or a settlement | | | | 2. Identifying the potential impact of those risks. |
| or judgment may mean the difference between | | | | 3. Deciding how to eliminate or minimize the potential |
| survival or failure, what has always been important | | | | impact of those risks. |
| has now become necessary and imperative. But it's | | | | So, when I am helping a client manage legal risks, I |
| not all about survival. Effectively managing risk now | | | | have two general goals in mind. They are (a) to avoid |
| will better position any business owner or business | | | | legal liability so that my client isn't taking any risks he |
| organization for greater success when the economy | | | | she/it does not need to (through risk shifting |
| turns around. | | | | provisions in a contract, for example) and (b) to |
| While there has been a lot of news chatter on the | | | | make sure that my client can survive the potential |
| internet and in business and insurance publications | | | | detrimental impact of those legal liability risks which |
| about risk management since the 2008 stock market | | | | cannot be avoided (through adequate insurance |
| meltdown, it has for the most part been without the | | | | coverage, for example). |
| benefit of a definition of the term. Most of the buzz | | | | Large corporations have their own in-house risk |
| has been about enterprise risk management and | | | | management staff and in-house attorneys to deal |
| insurance underwriting in the context of the insurance | | | | with the minutia. Individual entrepreneurs, small |
| and banking/financial industries. Given the fact that | | | | businesses and community organizations don't have |
| economic risk taking is the topic du jour, this may be | | | | any of that support. Which may leave you feeling like |
| interesting stuff, but not what those managing | | | | "tag, you're it". |
| smaller organizations' risks deal with from day to day. | | | | Sometimes handling your own risk management is a |
| What we are really interested in is trying to protect | | | | simple task. You're going sky diving, which involves |
| individual entrepreneurs, small businesses, non-profit | | | | the risk of hurtling to the ground from a great height, |
| organizations and their members, from bad things | | | | striking it and becoming a human pancake, so you |
| that could happen. Or, at least, from the | | | | use a parachute, making sure that it has been folded |
| consequences (generally financial) of those bad things. | | | | and packed correctly, that you are wearing it |
| We can get that accomplished without a lot of Wall | | | | securely, and that you have a backup chute. There, |
| Street mumbo jumbo, right? I mean, look where that | | | | that risk is managed pretty easily. But that's only |
| sort of thing has taken us. | | | | because (a) there's no uncertainty about the nature |
| That said, any effective risk management program | | | | of the risk or its potential magnitude and (b) there is |
| should start from academic risk management theory | | | | really only one way to minimize it. (To tell you the |
| boiled down to its basics, because they make a lot | | | | truth, if it were me this risk would be avoided |
| of sense and provide an excellent roadmap. A good | | | | altogether, since I would simply not jump - or better |
| "academic" definition of legal risk is as follows: | | | | yet, I would simply not get in the plane - but hey, |
| Legal risk is risk from uncertainty due to legal actions | | | | that's just me, and anyway, that would have been a |
| or uncertainty in the applicability or interpretation of | | | | lousy example for this article.) |
| contracts, laws or regulations. | | | | Most business activities involve more uncertainty |
| Depending on your type of business or organization, | | | | about the legal risks involved, which in turn means |
| you face certain specific legal risks, but in a general | | | | that deciding how to eliminate or minimize the |
| "big picture" sense, businesses and organizations all | | | | potential impact of those uncertain risks will |
| face the same two general categories of legal risks: | | | | necessarily involve a combination of interlocking legal |
| 1. Contractual risks. (Are your contracts legally binding | | | | mechanisms, so require the assistance of a business |
| and enforceable? How do they allocate legal | | | | attorney. These mechanisms, including business entity |
| responsibilities? Specifically, what responsibilities do | | | | creation, contractual risk allocation (such as hold |
| you have? What responsibilities do your customer or | | | | harmless, indemnity and/or warranty provisions) and |
| clients have? If your customers or clients do not fulfill | | | | implementation of effective business systems to |
| their responsibilities, what are your options?) | | | | manage operational risks such as potential employer |
| 2. Operational risks (defined by the Basel Committee, | | | | liabilities, work together to provide the maximum |
| an international committee that has played a leading | | | | available protection for you individually, and for your |
| role in standardizing bank regulations across | | | | business or organization. And like a puzzle, when it all |
| jurisdictions, as "the risk of loss resulting from | | | | fits together right, it's a pretty picture, and it makes |
| inadequate or failed internal processes, people and | | | | sense. |
| systems, or from external events"). | | | | If it doesn't all fit, if it doesn't make sense, if you are |
| So, as long as you don't have any relationships with | | | | left with a feeling of vulnerability to the shifting sands |
| any other parties in which you have any contractual | | | | of the legal liability risks you face, it is time for you |
| responsibilities, all of your internal processes and | | | | to consult an experienced business attorney to get |
| systems are flawless, and neither you nor your | | | | the mechanisms in place, or implement the systems |
| employees, subcontractors or vendors ever make a | | | | you need, to provide that protection so that you can |
| mistake, you don't have to ever worry about risk | | | | keep your eye on the future without having to |
| management. (That's said tongue in cheek, of | | | | worry too much about the past. |