Duplessis.SG.Chapter 3.pdf

16 Pages
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Department
Management and Organizational Studies
Course Code
Management and Organizational Studies 2275A/B
Professor
Henry Meredith

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CHAPTE3MANAGING LEGAL RISKS C HAPTER 3 M ANAGING L EGAL R ISKS Objectives After studying this chapter, you should have an understanding of: • methods of managing the legal environment of business • the development of a legal risk management plan • the importance of anticipating and reacting to developments in the legal environment • methods of managing legal services Learning Outcomes • Understand how a business can manage its interaction with the law and legal issues (page 51) • Understand the impact of changes in the legal environment on the business (page 52) • Develop and implement a legal risk management plan for a business (page 52-60) • Understand how a business can manage legal services (page 65) Chapter Summary A business can m anage its legal environm ent by assessing that environm ent, developing a risk management plan, reacting to changes in th e legal environment, and managing its legal services. It is crucia l for a busine ss to active ly manage the legal r isks arising f rom its activities in order to avoid and minimize legal claims and expenses. Legal risk m anagement involves a four-step process: id entifying legal risks, assessing those risks, devising a risk management plan, and implementing the plan. Risks can be identified through assessment of the functional areas of the busin ess, the decisions m ade within the organization, and the internal and external relationships maintained by the business. The risks are then assessed in terms of how likely they are to occur and how se vere the losses might be. There must be an action plan for dealing with each risthe risk b e avoided? If not, how can it be reduced or transferred to som eone else? T o what extent m ust tetained?be r Management must assemble a knowledgeable t eam of e mployees and experts in order to make the plan work. A business also m ust monitor and revise its plan to ensure that it is current and effective. No risk m anagement plan can antic ipate and de al with all possible developments. A business m ust be prepared to react in a co ordinated and timely fashion to unexpected events. A business also needs to acti vely manage its legal services, whether it is employing out-side lawyers or in-house counsel . This management involves identifying the legal services that are needed and carefully s earching out an approp riate lawyer or firm. Every business needs a stable relationship with its legal advisors, whether they are extern al or internal, and must be prepared to seek specialized advice as needed. 37 PART 1THE LEGAL ENVIRONMENT OF BUSINESS Study Outline Use this outline to prepare a complete set of notes for this chapter. Assessing the Legal Environment – page 51 ______________________________________________________________________ ______________________________________________________________________ Legal risk management plan ______________________________________________ ______________________________________________________________________ Applying the Four-Step Process 1. Identify the Legal Risks – page 52 ______________________________________________________________________ ______________________________________________________________________ Assess functional areas___________________________________________________ Accounting _________________________________________________________ ______________________________________________________________________ Finance __________________________________________________________ ______________________________________________________________________ Marketing __________________________________________________________ ______________________________________________________________________ Production __________________________________________________________ ______________________________________________________________________ Hum an resources_____________________________________________________ ______________________________________________________________________ Inform ation systems __________________________________________________ ______________________________________________________________________ Assess business decisions ________________________________________________ Financial arrangements and credit _______________________________________ ______________________________________________________________________ Standard form contracts _______________________________________________ ______________________________________________________________________ Ownership and use of land _____________________________________________ ______________________________________________________________________ Hiring and firing of employees__________________________________________ ______________________________________________________________________ Assess business relationships ______________________________________________ Identify relationships _________________________________________________ Clients __________________________________________________________ Copyright © 2011 by Nelson Education Ltd. CHAPTER3:MANAGING LEGAL RISKS Em ployees_______________________________________________________ Suppliers _______________________________________________________ Lenders _________________________________________________________ Regulators _______________________________________________________ Identify risks in those relationships ______________________________________ ______________________________________________________________________ 2. Evaluate and Measure the Risks – page 55 ______________________________________________________________________ ______________________________________________________________________ Assess the probability of loss ______________________________________________ ______________________________________________________________________ Assess the severity of loss_____________________________________________ ____ ______________________________________________________________________ 3. Devise a Risk Management Plan – page 54 ______________________________________________________________________ ______________________________________________________________________ Risk avoidance: cease particular business activity______________________________ ______________________________________________________________________ Risk reduction: implement procedures to reduce risk____________________________ ______________________________________________________________________ Risk retention: absorb loss ________________________________________________ ______________________________________________________________________ Risk transference: transfer financial risk to another by contract ___________________ ______________________________________________________________________ Insurance __________________________________________________________ ______________________________________________________________________ Limitation of liability clause____________________________________________ ______________________________________________________________________ 4. Implement the Plan – page 57 ______________________________________________________________________ ______________________________________________________________________ Carry out the plan _______________________________________________________ Clearly assign responsibility for implementing plan _________________________ ______________________________________________________________________ Explain why problem requires correction__________________________________ ______________________________________________________________________ Explain techniques to correct problem ____________________________________ 39 PART 1:THE LEGAL ENVIRONMENT OF BUSINESS ______________________________________________________________________ Prepare reference manual ______________________________________________ Inspection schedule________________________________________________ Accident-reporting scheme__________________________________________ Insurance coverage ________________________________________________ Monitor and revise ______________________________________________________ ______________________________________________________________________ Review __________________________________________________________ ______________________________________________________________________ Reassess __________________________________________________________ ______________________________________________________________________ Revise __________________________________________________________ ______________________________________________________________________ Interacting with the Legal Environment – page 64 ______________________________________________________________________ ______________________________________________________________________ Reacting when prevention fails_____________________________________________ ______________________________________________________________________ Managing legal services __________________________________________________ ______________________________________________________________________ Lawyers and the legal profession ___________________________________________ ______________________________________________________________________ When to seek legal advice_________________________________________________ ______________________________________________________________________ Identify who has authority to hire a lawyer ________________________________ ______________________________________________________________________ Identify required services ______________________________________________ ______________________________________________________________________ Identify authority given to lawyer______________________________________ __ ______________________________________________________________________ Identify extent of company involvement __________________________________ ______________________________________________________________________ How to choose a lawyer Ask business associates for recommendation_______________________________ ______________________________________________________________________ Discuss fee structure Hourly rate ______________________________________________________ Copyright © 2011 by Nelson Education Ltd. CHAPTER3:MANAGING LEGAL RISKS Annual retainer ___________________________________________________ Percentage fee____________________________________________________ ______________________________________________________________________ SELF-ASSESSMENT Key Terms Briefly define each term in the space provided. Legal risk – page 52 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Legal risk management plan – page 52 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Risk avoidance – page 56 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Risk reduction – page 57 ______________________________________________________________________ ______________________________________________________________________ Risk retention – page 58 ______________________________________________________________________ ______________________________________________________________________ _____________________________________________________________________ Risk transference – page 58 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Lawyer – page 66 ______________________________________________________________________ ______________________________________________________________________ 41 PART 1:THE LEGAL ENVIRONMENT OF BUSINESS ______________________________________________________________________ Law firm – page 66 ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Matching Match the correct letter of each term in the space provided before each sentence. A Legal risk B Legal risk management plan C Risk avoidance D Risk reduction E Risk retention F Risk transference G Canadian Law List 1. ____ A business risk with legal implications. 2. ____ A comprehensive action plan for dealing with the legal risks involved in operating a business. 3. ____ A publication giving basic information about most lawyers in private practice. 4. ____ Implementation of practices in a business to lower the probability of loss and its severity. 5. ____ The decision to absorb the loss if a legal risk materializes. 6. ____ The decision to shift the risk to someone else through a contract. 7. ____ The decision to discontinue a business activity because the legal risk is too great. Questions Write a short, poin t-form answer for each ques tion in the space prov ided. To assist you in understanding the chapter, it is recommended that you also us e additional paper to write a full and complete essay answer based on your points for each question. 1. Explain the preventative and reactive approaches to legal issues in a business. ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Copyright © 2011 by Nelson Education Ltd. CHAPTER3:MANAGING LEGAL RISKS 2. What must a business enterprise have if it is to meet its goal of producing a product at a profit? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 3. What mistakes will a business that deals intelligently with the legal environment avoid? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 4. What is the relationship between an enterprise risk assessment and a legal risk management assessment? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 5. Describe how the risk management function can vary depending on organization size. ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 6. What is involved in the creation of a risk management plan? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 7. Briefly describe what is involved in assessing the functional areas of a business. ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 43 PART 1:THE LEGAL ENVIRONMENT OF BUSINESS 8. Describe possible risks in a marketing, production, human resources, and information technology. ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 9. Identify the types of business relationships that business have that come with attendant legal risks. ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 10. What is the purpose of Step One of the legal risk management plan? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 11.Explain the two components of assessing risk in Step Two of the legal risk management plan. ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 12. What type of information may be relevant to completing Step Two of the legal risk management plan? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ __________________________________________________________________
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