Understanding & supporting your company’s risk tolerance as in-house counsel

Topics: Compliance, Corporate Legal, Government, Regulation & Compliance, Regulatory Intelligence, Risk Management, Thomson Reuters

risk tolerance

Law departments that provide services closely aligned with their organizations’ risk tolerance make significant contributions to organizational profitability and sustainability, according to a recent online panel discussion.

That message was conveyed at a recent Thomson Reuters webinar, Managing Risk as an In-House Counsel: How to Understand and Support Your Company’s Risk Tolerance, at which the panelists noted that many corporate law departments are facing mounting pressures to manage an increasing level of risk, which has only been heightened by the current pandemic.

Jen Dezso, vice president of Thomson Reuters Acritas, kicked off the panel by reviewing key findings from the 2020 State of Corporate Law Departments Report, published in April by Thomson Reuters and Acritas. After touching on the report’s findings that law departments are experiencing both expanded responsibilities and cost pressures, Dezso focused on the guardianship role increasingly played by general counsel.

General counsel can best discharge their guardian role by closely aligning themselves and their lawyers with their organizations’ risk tolerance, the panel noted. As panel moderator, I was able to define this risk tolerance as the level of risk an organization is willing to take as it conducts its operations.

“Some organizations establish their risk tolerance through well-defined processes while others make their decisions on a case-by case basis,” I said. “Regardless of how their organizations’ determine risk tolerance, law departments have to align with that tolerance. If they don’t, they end up being ignored or sidelined.”

Panelist David Martin, general counsel at QVC International, agreed, adding that “in some cases, risk tolerance is discovered after an event occurs rather than being set in advance. There are sometimes differences in how senior management feels about risk in the abstract versus when a problem arises.” To address this fluidity, law department attorneys need to stay closely connected to their commercial colleagues and calibrate their risk management practices accordingly, he explained.

Dezso cited the Acritas report’s findings of three approaches in-house counsel can take to maintain the balance between risk and reward:

  • Have a clear understanding of the company’s attitude toward risk and how that fits with its growth strategy.

  • Fully communicate with business units to identify and understand their acceptable risks and their redlines.

  • Be willing to explore solutions rather than simply block activity.

Outside counsel play a particularly important role in helping law departments successfully manage risk, suggested panelist Jane Caskey, global head of risk advisory for Norton Rose Fulbright. She also stressed the need for law departments to deeply understand their organizations’ unique risks. “By using their industry experience and insights, outside counsel can help in-house lawyers identify their companies’ upcoming legal and regulatory challenges and develop strategies to address them,” said Caskey.

She also observed that law firms’ access to benchmarking data can help law departments understand what their industry peers are doing around risk management, identify best practices, and successfully apply those practices to their department operations. Martin and I agreed, lauding the value provided by benchmarking and citing the relative invisibility of industry data to in-house departments and the safety of staying in-step with industry standards.

The panelists also addressed several other risk management topics, including:

  • The importance of department leaders providing risk-alignment guidance to lawyers on the front lines and supporting their well-reasoned risk advice even when the outcome is less than optimal.

  • The rightful expectations from clients that risk advice will be consistent across all department attorneys rather than vary according to a particular lawyer’s tolerance or experience.

  • The effect that early law department involvement in developing corporate initiatives can have on surfacing and addressing risk issues before they become problems.

  • The roles legal operations professionals and department and law firm technology can play in keeping a department aligned with an organization’s evolving risk tolerance.

The panel had some final advice for those law departments that are now only starting their risk-alignment journey. “Don’t wait, start,” said QVC’s Martin. “Don’t make perfect the enemy of good. If the choice is between doing nothing and having a rough list of five top risks on one page to guide a short monthly discussion, then do the latter.”