Legal Risk: Definition, Management and Ethics Report

The Ethical Leadership Inititaive for In-House Lawyers was prompted by the Centre for Ethics and Law recently published its report on Legal Risk: Definition, Management and Ethics.

The report raises key questions about the role of in-house lawyers in balancing commercial and professional considerations; the readiness of in-house lawyers for the complex leadership and management tasks involved in legal risk management; and the extent to which professional ethics are embedded within those teams.

Professor Richard Moorhead, Director of the Centre for Ethics and Law said:

Growing evidence (Times Newspapers, GM, Standard Chartered Bank etc), our research and some anecdotal commentary suggests that the role of GC is under increasing pressure.  Their professional ethical boundaries are not as well drawn as may be necessary for the increasingly sophisticated world of in-house work.

Steven Vaughan, Birmingham University Law School, who co-authored the research said.

One of our respondents told us, “In-house legal management is in its infancy.” What is also clear is that the more-for-less challenge, and the need to be commercial and influential within a business context can pose significant ethical challenges for in-house lawyers.  They and their businesses are not always well prepared for such challenges.

Paul Gilbert, one of the leaders of the Ethical Leadership Initiative with the Centre for Ethics and Law, said:

It seems fair to assume that no one relishes more regulation, and more regulation of in-house lawyers/lawyers may be inappropriate anyway, but it is interesting to note that there are no qualifications needed to be a General Counsel, no commonly accepted guiding principles for the role and no requirements on business to create an environment in which it is appropriate to employ in-house lawyers.

Key Findings include:

  • There was no shared sense of the correct approach to legal risk.
  • The in-housers we spoke to were not always clear or confident about their approach, or the best approach, to legal risk management
  • There is a clear divide between those who take a, ‘I know it when I see it’ approach to legal risk and those who deliberately applied systems, foresight, thematic and strategic thinking around legal risk.
  • Those interviewees with the most developed systems seemed most likely to see cultural dimensions to legal risk, with some emphasising the need to be authentically committed to the spirit as well as the letter of the law as part of a business commitment to compliance, legality and business ethics.
  • There is a need for in-house teams to reflect on the extent to which processes of legal risk engage rigorously in assessment, mitigation, communication, monitoring and overall evaluation of legal risk management. Many of our interviewees did not have well developed approaches to each of these elements of a risk strategy.
  • Some aspects of risk management may lead to overconfidence and approaches to mitigation which shift risk from the company to third parties, with the potential to raise questions about the appropriateness of this in certain circumstances.
  • There is the potential for risk management to change risk appetite by altering perceptions of, and appetites for, risk. In general, risk management increased the appetite for risk because it increased confidence that risk was both understood and manageable.  This opens up for debate the question: is risk management as robust as such confidence suggests?
  • Objectivity and independence are necessary for risk assessment to be accurate and useful to the business but are in tension with the pressures on in-house lawyers to be commercial team players. These tensions are both overt and implicit.  There are overt pressures and implicit biases at work which may sometimes undermine objectivity.
  • Appetite for legal risk involves accepting, even welcoming, tolerance for conduct which may be, or even may be likely to be, unlawful. This is sometimes in tension with the professional obligation to promote the rule of law and the guidance to solicitors that they must treat the public interest in the administration of justice as definitive of conflicts between professional obligations.
  • Such tensions also impact on corporate interests: there are relatively recent, serious conduct risk examples of allegations involving lawyers in and/or instructed by Standard Chartered Bank, the News of the World, Barclays, The Times newspaper, BNP Paribas and General Motors.
  • The extent and nature of these public interest facing obligations are neither understood, nor well-articulated in professional practice generally, nor in-house practice in particular.

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