In House Legal Departments and Risk

My next project is to work on a best practice guide for in house lawyers that focus on the difference between legal risk and commercial risk. What’s the fundamental differences? Mainly perspective. Legal risk is everything that considers the legal implications of a decision (like a project or any action). For example, if you decide to open an office in China, the knowledge of the regulatory environment will give you a very clear idea of what’s legally possible and what is off the menu. Commercial risk involves the risk associated with a product or service and the decision to put it out to market. For example, if you are a toy manufacturing company and decide to issue to new girly doll for children ages 8-11, the implications could be that you risk cannibalising any other offerings you already have out to that market, or that perhaps you are spending time and resource on a product that has not necessarily proved it can achieve expected ROI.

The problem with in house lawyers is that they are fluent in legal risk but barely proficient in commercial risk. Or, more apt, their focus dwells in the legal risk arena and rarely wanders over to the commercial risk side. There are missed opportunities all over this reality.
For starters, aside form your Risk department, I can’t think of any other corporate animal more designed for Risk analysis. Lawyers have genetic make-up to detect risk and sniff out the holes in any plan. If given the opportunity, I’m sure they’d be able to apply that same instinct in a commercial capacity. But, in order for them to be able to do this, they first need some support.

First, in house lawyers need to feel an expectation from the organisation to offer strategic insight. Whether this is the In house lawyers fault or the CEOs is not the point. Both can make an effort. The in house lawyer can work to offer an opportunity for every negative impact identified, and the CEO can open the floor for the lawyer to put forth his or her strategic ideas.
Second, whilst trolling through the in house lawyer’s usual pile of work, a forma risk model can be applied, which practically forces them to consider what opportunities can come out of negative risks that are being identified. This is a super important point and one I am learning most in house teams do not adhere to. If you do one thing, make sure that your team is using a basic risk model to assess projects. Ask your risk team to help you create one or learn PIMS (Probability Impact Matrix) so you can start speaking the lingo.

Lastly, what may need some work on the in house lawyer’s behalf is revamping their internal brand image. Let’s face it; entrepreneurs in the company don’t want to speak to the lawyers in their initial thought-phases because they are afraid their ideas will get poo-pooed from the get-go. Resist that urge! Identify the entrepreneurs in your company, invite them out for coffee and let them know that you want to help them, or maybe learn how you can support their good ideas. Encourage them to engage with you by engaging with them.

The areas that are still a little unclear for me are, the difference in how in house lawyers see themselves regarding strategy in the UK and the US – I know that in many US companies, the GC is the CEOs right hand man, often hands deep in implementing projects and not just drafting terms and conditions, whereas UK lawyers seem to be more the latter. Is this a cultural barrier or one which in house lawyers prefer in the UK? What is preventing in house lawyers in the UK to take a more strategic position in their companies?

Second, in terms of risk models, I am putting feelers out all over the place to find examples of ones that work. PIMS is a great basic model, but where are its derivatives? What companies have impressive risk models that show a direct impact on the company’s performance?

If you have any thoughts on this subject, please do get in touch.