6 Steps to Legal Risk Management
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Identify, measure, and communicate legal and compliance risk in a whole new way. Lawyers, compliance officers, contract managers, and other legal professionals can discover how to measure and manage legal risk more effectively. "6 Steps to Legal Risk Management" provides practical guidance on developing a risk management framework and adapting it to legal and compliance risk. The approach is based on the internal risk management standard: ISO 31000.
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6 Steps to Legal Risk Management
- 3. Berkman Solutions 10260 SW Greenburg Road, 4th floor Portland OR 97223 United States ! 1 (855) 517-2193 North America +1 (503) 517-4293 Worldwide ! www.BerkmanSolutions.com info@berkmansolutions.com
- 4. Select a framework Obtain organizational commitment Identify legal risks Analyze legal risks Evaluate legal risks Communicate and advise
- 6. Quantitative model Predictive analytics Empirical, internal data Relevant external data Validated external models No risk management Incident response Ad hoc case management Constant surprise Assumed uniqueness Qualitative model Expert based assessment Empirical data Forward leaning RISK MANAGEMENT
- 7. Objectives of the framework ! Simple but not simplistic ! Scalable but not overbearing ! Adaptable but with clear guidance ! Practical but not regimented
- 8. R = p * LGE
- 9. ! Risk is the likelihood of consequences
- 10. ! ! “…effect of uncertainty on objectives” - ISO 31000
- 12. ! Risk management is not all or nothing
- 13. Organizational commitment ! Scope: department, division, enterprise… ! Subject: contracts, regulations, litigation… ! Audience: management layer, functions… ! Budget: time, money, staff…
- 15. ! Discover and capture risks to identify risks for further analysis
- 16. Risk identification ! Find sources of risk ! Recognize potential and actual risks ! Record risks in a “risk register”
- 17. Find sources of legal risk ! Contracts ! Regulations ! Litigation ! Structural changes
- 18. Contracts Breach of contract ! Non-enforceable rights ! Unfavorable interpretations ! Evolving federal and state law ! Conduct of the parties
- 19. Contracts ! New or modified regulations ! Regulator focus ! Civil, criminal, injunctive remedies
- 20. Litigation ! Lawsuit based on conduct ! Civil penalties ! Equitable relief
- 21. Structural changes ! Fundamental industry norm ! Sweeping changes ! Alters competitive landscape
- 22. Recognize legal risks ! Hazards: physical harm ! Events: single occurrence ! Situations: enter new foreign market ! Scenarios: counterparty does X, Y, or Z
- 23. Record legal risks Risk register: list ! Risks: name ! Likelihood: simple scale ! Consequence: simple scale ! Risk rating: simple scale, combination
- 25. ! Risk analysis is about understanding the risks
- 26. Analyze legal risks ! Controls assessment: effectiveness ! Likelihood: probability estimation ! Consequences: impact analysis ! Uncertainties and sensitivities: variables
- 27. Assessment of legal risk controls ! Contracts: exceptions, requirements tracking ! Regulations: compliance, reviews, ratings ! Litigation: insurance, training ! Statutory changes: maybe not…
- 28. Likelihood of legal risks ! ! Discovery: likelihood that other party learns Decision: likelihood of adverse decision
- 29. Likelihood of discovery ! Contracts: counterparty learns and sues Regulations: agency attention and review ! Litigation: aggrieved party motivated ! Structural changes: legislative, industry focus
- 30. Likelihood of decision ! Contracts: validity of legal theory Regulations: certainty of violation ! Litigation: probability of adverse decision ! Structural changes: certainty of adoption
- 31. Consequences of legal risk ! ! ! Damages: (primarily) economic loss (or gain) Frequency: number of occurrences
- 32. Damages from legal risk ! Contracts: agreed, implied fees and penalties Regulations: fines, penalties, orders ! Litigation: range of damages, attorney’s fees ! Statutory changes: operations, reporting, … ! ! !
- 33. Frequency of legal risk ! Contracts: form contracts, repeat behavior Regulations: single incident, business practice ! Litigation: jurisdictions, plaintiffs ! Statutory changes: jurisdictions, scope ! ! !
- 34. Uncertainties and sensitivities ! ! Uncertainties: continuously reduce Sensitivities: use ranges !
- 35. Rating scales Elaborate models create false sense of precision. ! Likelihood Consequences Risk Rating 4 – Highly likely (>75%) 4 – Substantial (> $z) 4 – Very high 3 – Likely (50 – 74%) 3 – Significant ($y – z) 3 – High 2 – Somewhat likely (<50%) 2 – Material ($x – y) 2 – Medium 1 – Unlikely (<10%) 1 – Insignificant (< $x) 1 – Low 0 – Unknown 0 – Unknown 0 - Unknown
- 36. Legal risk register, simple Risk title to easily find and refer to item ! Risk description to capture the scope ! Likelihood rating with 5 point scale ! Consequences rating with 5 point scale ! Risk rating which is a combined rating !
- 37. Legal risk register, less simple (the simple list, plus) ! Risk control process, tool to prevent risk ! Risk control effectiveness effect on rating ! Risk treatment process, tool to change risk ! Risk treatment effectiveness effect on rating !
- 39. ! Make decisions and prioritize risks
- 40. Legal risk evaluation ! ! Risk tolerance policy to draw the line ! Risk treatment options for risks above the line
- 41. Legal risk tolerance policy
- 42. Legal risk tolerance policy
- 43. Legal risk tolerance policy
- 44. Legal risk treatment options ! ! ! Modify risks so that residual risk is tolerable !
- 45. Legal risk treatment options Avoid by not starting or continuing ! Increase to pursue opportunity ! Remove source of risk ! Change likelihood and/or consequences ! Share with contract or insurance ! !
- 48. 20 Minute Risk Manager ! Avoid the inventory ! Start with revenue ! Identify major risks ! Recommend action
- 49. Select a framework Obtain organizational commitment Identify legal risks Analyze legal risks Evaluate legal risks Communicate and advise
- 51. Berkman Solutions 10260 SW Greenburg Road, 4th floor Portland OR 97223 United States ! 1 (855) 517-2193 North America +1 (503) 517-4293 Worldwide ! www.BerkmanSolutions.com info@berkmansolutions.com