What’s the Risk?

“What’s the Risk?”

That three word question is the most difficult question I posed in my role as General Counsel.  How it was answered told me a lot about the experience, level of judgment and readiness of the people providing the answer to counsel me and my colleagues.

Over the years I had countless conversations with attorneys advising me on a wide variety of risk-based issues.  I invariably heard that taking a particular action “carried the risk” of government disapproval, plaintiff’s lawsuit, regulatory investigation or failure to overcome a motion to dismiss. I also observed attorneys heavily marking up contracts to address “risk.”

When I dug deeper into the analysis and asked what risk needed to be addressed, it could sometimes be very difficult for my advisors to articulate and characterize the risk. These conversations frustrated me, and certainly frustrated my colleagues in the business.  If the person giving advice cannot articulate a risk they are attempting mitigate, how can they know whether the risk truly needs mitigating or how much mitigation is needed?  The first step in addressing risk is characterizing the risk.  Until then, you cannot competently determine the likelihood of the risk manifesting itself or assess the magnitude of the risk if it materializes.

When I was seeking advice from experts, I already knew there was risk.  That’s why I requested the conversation.  So being told there was a risk associated with my proposal was not helpful. In many cases, variations of those same risks existed regardless of the action taken or not taken.   I needed to know the risk I was facing.  Why the risk existed? How would it manifest itself? How could I mitigate it? How good were my defenses?  How did different course of action change the level risk?

The best advisors proactively answered all these questions.  They anticipated my inquiries into the statutory interpretations and precedents that informed their risk assessments.  They helped me understand whether the risk was low or redlining.  They walked through how the risk would manifest itself and the strength of our arguments.  They engaged in thought experiments as I tested the boundaries of their advice and variations on a proposed course of action.  They offered actionable suggestions for mitigating the risk and potential paths forward.  They explicitly told me when the risk was too great or when it was not an unreasonable risk to take.  They didn’t just do this with me, they did it with everyone they advised.

The best advisors also helped me formulate an explanation that resonated with my colleagues (the CEO, the Board, my C-Suite colleagues) and not just the legal team.  I couldn’t tell my colleagues the lawyers met and decided their proposals were too risky.  To be credible, we needed clear, practical advice about the risks, the severity and likelihood of those risks, the viability and utility of alternative courses of action (including doing nothing) and the strength of our legal position.  Only then could we credibly make our recommendations.

Legal practitioners need to address risk in this much broader and deeper context to add value and develop credibility with their colleagues and clients.  Giving advice that essentially confirms the existence of risk, or marking up contracts to address poorly characterized risks, does not add value, creates endless frustration and diminishes the legal team’s brand. On the other hand, thinking through and having a robust discussion of all these issues will give your colleagues and clients much greater situational and risk awareness, a better appreciation of the legal team's value and an incentive to seek out legal advice the next time it’s needed.