In-house lawyers are frequently accused of slowing down business momentum with “red flags” and a general inclination toward the word “no.” Although deserved on occasion, this is mostly a misleading perception which attorneys can disprove by following a set of universal principles for demonstrating true value to internal clients. In previous posts, we discussed principle 1: “know your client’s business,” principle 2: “understand the real question being asked,” and principle 3: “stop saying no.” Finally, we will examine the last principle: “take more risk.”
Principle 4: Take More Risk
Lawyers are trained to provide legal advice and mitigate risk for their clients, and are hired, at least in part, based on their proven ability to perform these functions. However, risk mitigation is not always the end-game. In most situations, the actual objective for the attorney is finding the right balance between managing risk and achieving specific business goals on behalf of internal clients.
To do this effectively, a lawyer should get comfortable accepting more risk in contracting, which can be done by:
– pursuing more aggressive legal positions, – compromising on contract language, – challenging established norms or industry practices, and – fully employing principle 1: “know your client’s business,” in order to appropriately assess the real risk to the business, as opposed to purely “theoretical” legal risks.
By adjusting risk tolerance in their contracting approach, in-house lawyers can better support clients in their own quest to become more innovative, agile, and competitive in a rapidly changing business environment. It can also help foster a culture of entrepreneurship and model rational risk-taking within the company, which can ultimately lead to greater success.
That said, it is important to keep in mind the challenges and limitations that come with a higher risk profile, such as increased costs, reputational damage, loss of business and legal liability. Finding the appropriate balance requires lawyers to rationally evaluate contracting risk in terms of the likelihood and resulting impact of possible outcomes. This evaluation requires a thorough understanding of both the client’s business, and in particular, the ways in which the business can operationally mitigate potential risk, and the applicable law, especially the possible consequences of a legal violation.
To illustrate this balancing act, consider the following example. A company has a general policy against accepting unlimited liability for data privacy breaches relating to personal information. Legal counsel for a customer has asked that the company provide an unlimited indemnity for data privacy breaches. Given the current data privacy climate, this issue could prove to be a highly contentious during negotiations, delaying a potentially critical deal for the company. However, after speaking with the company’s delivery team (and asking the right questions), the in-house lawyer determines that the company can provide these services without needing access to any personal data of the customer. In other words, although the theoretical risk of liability from a data breach claim could be very high, the “real” risk to the business may actually be very low since it will never need access to customer data. In this case, the attorney can advise the client to take on more contract risk by agreeing to unlimited liability, knowing that the delivery team has operationally mitigated the business risk.
Of course, the risk spectrum for every company will be different based on the nature of the product/service, go-to-market strategy, business operations and controls, personnel and leadership, service locations and so on. Nonetheless, as their trusted advisor, it is the lawyer’s responsibility to consider all relevant circumstances and factors when assessing risk. By having an in-depth understanding of the business, people involved, and applicable legal principles, an in-house lawyer can make informed decisions about the level of risk the company can withstand while simultaneously pursuing its strategic business objectives.
