The Future of Risk Management
When negotiating an agreement recently I asked the counterparty's lawyer, “What level of risk do you think your client would accept?” His answer, “none”.Read the article
During a recent lunch with a GC of a multibillion-dollar global business he confessed to me that someone in the business sent him a coffee machine contract to review. “I am not joking. I didn’t know whether to laugh or cry” he confessed “I cost the business far too much to be wasting my time on this sort of s***”.
Many in-house lawyers can empathise with his dilemma. Tell the client where to shove her coffee machine and you feel like you are ‘damaging the relationship’. Review the agreement and feel like you need Xanax just to get through the day.
Although our research conclusively suggests ‘responsiveness’ is the greatest driver of internal client satisfaction it is also likely to be the greatest inhibitor of legal function productivity.
The truth is that the way legal teams think about their value is at the heart of the problem. Their paranoia about servicing ‘clients’ is not echoed by their colleagues. Functions like IT, Finance, Strategy & HR do not routinely call their counterparts ‘clients’, they are more confident about articulating the value they create, and more systematic about focusing on their ‘core’ value.
I said to the GC “what response would someone get if they asked the CFO to evaluate the risk in the coffee machine? Or the CIO, Head of Procurement or Head of Risk?”. Here are responses he gave (we have omitted any likely profanity for publication purposes):
And so it would go right around the executive table.
Not only would Legal be the only sucker reviewing the agreement late into the night. It gets worse. 99% of the risk in the deal is commercial.
In fact, we would go so far as to say that by supporting the wrong decisions Legal are damaging their relationships. Imagine if the CFO typed up your expense report for you. Would your perspective of her value change?
Or ask yourself this:
Have you ever found yourself wondering if the ‘client’ would have still asked you to look at the document if you were charging them $400 an hour? If so it is time to make a change.
People exploit natural resources, and pollute the environment for the same reason: we all place limited value on things with no cost. By undertaking low value tasks, at no implied cost, you’re putting your value onto a snakes and ladders board and rolling the dice. By ‘serving your clients’ you are turning legal into an all-you-can-eat buffet.
So what should we do about it?
The simple answer is that legal should be better at saying “no”. However, solutions are rarely as simple as the problems that create them. We believe every legal function should define their core competency, then set and communicate a legal strategy.
Although our research suggests that 77% of legal functions have a ‘legal strategy’, most are tactical extensions of their budgets which don’t address the key questions of what we will do, what we won’t do and why.
Here are the four things every legal function should do:
Legal functions that get the right answers here, and are disciplined about implementing them will unlock unprecedented value for their organisations. They will support the right decisions well – instead of supporting all decisions poorly. As the management guru Peter Drucker once said, “There is nothing quite so useless, as doing with great efficiency, something that should not be done at all.”
“As CEOs plan their strategies to take advantage of transformational shifts,” the consultancy PWC suggested in their annual survey of CEOs “they are also assessing their current capabilities – and finding that everything is fair game for reinvention.”Read the article
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