Managing Legal Risks
Assessing the Legal Environment
Two Basic Approaches
Emphasis on compliance with legal requirements and anticipation of changes in the
A strategy in place to deal with legal problems that may materialize.
These two approaches combined reduce the impact of Legal Risks.
Legal Risks: A business risk with legal implications.
Legal Risk Management
Legal Risk Management Plan: A comprehensive action plan for dealing with the legal risks
involved in operating a business.
Four step process:
1. Identify the legal risks
2. Evaluate the risks
3. Devise a risk management plan
4. Implement the plan
Applying the Four-Step Process
Identify the Legal Risks
Assess Functional Areas
Some possible risks that are in functional areas
Review Business Decisions
How are finances handled?
How are the contracts worded?
Ownership and use of Land.
Decisions affecting personnel
Examine Business Relationships
Employees may create difficulties
Suppliers or lenders may complain
Regulators may press charges
Evaluate the Risks
Assess the probability of loss
Assess the severity of loss
Important to recognize that not all risks are alike, nor should they be treated alike.
Devise a Risk Management Plan
Avoid or eliminate the risk
Risk Avoidance: the decision to cease a business activity because the legal
risk is too great. Risk reduction
Risk Reduction: Implementation of practices in a business to lower the
probability of loss and its severity.