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Corporate counsel taking a ‘know it when I see it’ approach to legal risk

Research raises questions over whether current risk management approaches are fit for purpose

12 June 2015

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By Manju Manglani, Editor (@ManjuManglani)

In-house lawyers need to be more clear and confident about how to manage the legal risks facing their business, according to new research.

Professor Richard Moorhead and Dr Steven Vaughan conducted interviews with 34 senior in-house lawyers and senior compliance staff in large corporates and similarly complex organisations.

They found that there was no shared sense of the correct approach to legal risk management.

"A particular problem with a view of legal risk as the broad any-legal-consequences view is that it was often associated by our interviewees with a reactive, 'know it when I see it' approach to legal risk which inspired less confidence about the capacity for foresight and thematic and strategic thinking around legal risk," the researchers say in their report Legal Risk: Definition, Management and Ethics.

"A potential problem with a narrower, but more focused, definition of legal risk is that risk thinking became siloed, and that risks originating in other parts of the business which had legal dimensions or consequences to them would be missed or go under-appreciated."

They continue: "There is a broad question as to whether the reputational and cultural impacts of legal risk on conduct within the company are understood, accepted and acted upon. Those interviewees with the most developed systems seemed most likely to see these as beneficially addressed in definitions of legal risk."

The authors note that general risk and conduct risk are high on corporate agendas and that in-house lawyers are increasingly likely to face scrutiny and punishment.

"BNP Paribas, Standard Chartered Bank, the News of the World, The Times, Barclays and General Motors have all recently faced significant allegations of wrongdoing involving their legal functions. Others will follow," they warn.

Richard Moorhead is professor of law and professional ethics at the Centre for Ethics and Law, Faculty of Laws, UCL London. Steven Vaughan is lecturer in law at the University of Birmingham.



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