In an ideal scenario, the in-house lawyer is an active member of the
management team and has a permanent seat at the table where business
decisions are made. To gain and maintain this seat at the table the lawyer must have an excellent knowledge of the business, the company strategy, the
industry, the regulatory framework and, more and more these days, the
geopolitical considerations that may directly or indirectly impact the business
strategy. With this knowledge, the lawyer will be better equipped to assess, adequately anticipate legal risks and eventually avoid the question “How did we not see this coming?”
For a robust legal risk assessment to be successful and add value to the
business, it must be embedded in the Law Department’s operating model.
In broad outline, a legal risk assessment can proceed along the following lines:
1. Identify and understand key company strategies and priorities and relevant
projects, always with eyes open to industry trends, competitors’ activities
and regulatory developments.
2. Interview internal stakeholders who can help identify the key business risks.
3. Prioritize risks considering likelihood of occurrence and potential impact for
the company (eg on a scale ranging from negligible to catastrophic).
4. Evaluate risks based on the organization’s risk tolerance that must be
defined by senior management and approved by the Board of Directors.
Risks may be avoided if the impact is not acceptable, mitigated with
adequate controls in place or tolerated with close monitoring to identify
potential pitfalls and react accordingly.
5. Use technology to streamline the legal risk assessment process, for example create heat maps to assess and evaluate legal risks.
6. Track risks over time and through regular reviews ideally on an
annual basis, ensure the risk assessment stays current and corresponds to
the business reality.
7. Report to the Board of Directors who are ultimately accountable to ensure a
robust corporate governance framework.
With a robust legal risk assessment process, the in-house lawyer should be
equipped to better counsel management with a business-oriented mindset, for example by conducting scenario planning and exploring alternative solutions to achieve business objectives with a calculated risk-taking approach.
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