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The concept of strategic legal risk management and the role of lawyers
The management of legal risks has dramatically changed in the last years. How would you describe Legal Risk Management in a few words?
In the last few years, for global companies, traditional views on legal issues have evolved into the concept of legal risk. Today, for a big global company, legal risk is often the most serious threat to its operations and the most important source of uncertainty. In a number of empirical surveys, board members and senior managers have stated that legal risks now outperform traditional risks like economic, technological or environmental risks. This needs an appropriate response, and this response has to come from the top of the company. Boards and senior management have to define their own role in this risk space and have to make their own considerations on how to handle these risks.
Based on your broad practical experience in managing legal risks what are your recommendations to a board beyond to simply complying with legal requirements?
Boards as well as senior managers have to take a very strategic approach to these risks. This implies that legal risk analyses have to flow into the companies‘ road maps, business plans and new business proposals. Withdrawing a product, changing an operational mode or not entering certain geographical markets contributes often more to manage legal risks then a whole army of lawyers. Precaution is better than ambulances. Based on the strategy, boards and senior managers have to define a legal risk framework, set appropriate operations up and assign work to suitable experts such as lawyers, compliance officers, internal auditors, communication specialists and so on.
Who „owns“ the legal risks in a company, and if not the legal function, what is the general counsel’s role in getting these risks under control?
The first responsibility for legal risk management is with the board and the line management. Thus, legal risk is owned by the line management. The experts and controllers such as internal lawyers, internal operational risk managers and compliance officers act as control functions and this implies a secondary responsibility for these risks. This is what we call the concept of three, or as I see it, four lines of defence.
What are the biggest challenges a general counsel may face when managing legal risks and what kind of advice would you provide?
The biggest risk for a general counsel is that she is not involved in the definition of the company’s strategy and therefore is not able to develop a deep understanding of the company’s business. With other words, the biggest risk for a general counsel is a wrong definition of her own role and a belief that she is just a traditional lawyer who happens to work in-house rather than in a law firm. Everything else follows from this: in-house lawyers who have a wrong concept of their own role tend to have little management know-how, run improper operational processes, do not use technology sufficiently, and lack a risk control and compliance orientation.
Looking at outside counsel it seems that – contrary to compliance – legal risk management has not yet become a theme where attorneys do want to provide particular assistance to clients. Are there any particular areas where outside counsel could even better satisfy a client than the own in-house counsel?
Outside counsels are experts on rules, contract drafting and dispute resolutions. In their normal mode they have little knowledge of managing a large scale business and scant understanding of broader strategy issues. They are not experts in processes, operations, technology or employee conduct issues. I conclude that their impact in the legal risk space beyond providing expert advice on legal issues and support in transactions or litigation is and will be very limited. If outside law firms would like to play a role in the legal risk domain, they would have to redefine their own business model considerably.
Analyzing the past, what are your predictions for the future with regard to the relevance of legal risk management? Anything a client could already prepare today in order to be ready for tomorrow?
The future is today. The key issue is that a company develops an integrated and strategic approach to legal risks from the top. These matters must not be left to the experts. It needs a framework, good operations and solid technology. In addition a new challenge has gained tremendous importance in the last few years, and this is the management of employee conduct. How can I influence my employees in such a way that they embrace proper legal conduct and compliant behaviour? In the long run, only companies which have a good answer to this important question will manoeuvre well through all the legal pitfalls of the modern global world.
Mr. Peter Kurer is a partner with the private equity firm BLR. He studied at the Universities of Zurich and Chicago and started his professional career with Baker & McKenzie. Since 1990, Peter Kurer was a partner of the Zurich law firm Homburger. He specialized in M&A and corporate law. In 2001, Peter Kurer joined UBS as General Counsel and member of the Group Executive Board. He served as the chairman of the bank during the crisis of 2008-2009. He now also sits on a number of boards and acts as independent advisor. His new book „Legal and Compliance Risk: a Strategic Response to a Rising Threat for Global Business“ was published by Oxford University Press in February 2015.
02/2015Read more interviews