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6 Steps to Legal Risk Management

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

  1. 1. Steps to Legal risk management 6
  2. 2. 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
  3. 3. Select a framework Obtain organizational commitment Identify legal risks Analyze legal risks Evaluate legal risks Communicate and advise
  4. 4. 1Select a framework
  5. 5. 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
  6. 6. Objectives of the framework ! Simple but not simplistic ! Scalable but not overbearing ! Adaptable but with clear guidance ! Practical but not regimented
  7. 7. R = p * LGE
  8. 8. ! Risk is the likelihood of consequences
  9. 9. ! ! “…effect of uncertainty on objectives” - ISO 31000
  10. 10. 2Obtain just enough organizational commitment
  11. 11. ! Risk management is not all or nothing
  12. 12. Organizational commitment ! Scope: department, division, enterprise… ! Subject: contracts, regulations, litigation… ! Audience: management layer, functions… ! Budget: time, money, staff…
  13. 13. 3Identify legal risks
  14. 14. ! Discover and capture risks to identify risks for further analysis
  15. 15. Risk identification ! Find sources of risk ! Recognize potential and actual risks ! Record risks in a “risk register”
  16. 16. Find sources of legal risk ! Contracts ! Regulations ! Litigation ! Structural changes
  17. 17. Contracts Breach of contract ! Non-enforceable rights ! Unfavorable interpretations ! Evolving federal and state law ! Conduct of the parties
  18. 18. Contracts ! New or modified regulations ! Regulator focus ! Civil, criminal, injunctive remedies
  19. 19. Litigation ! Lawsuit based on conduct ! Civil penalties ! Equitable relief
  20. 20. Structural changes ! Fundamental industry norm ! Sweeping changes ! Alters competitive landscape
  21. 21. Recognize legal risks ! Hazards: physical harm ! Events: single occurrence ! Situations: enter new foreign market ! Scenarios: counterparty does X, Y, or Z
  22. 22. Record legal risks Risk register: list ! Risks: name ! Likelihood: simple scale ! Consequence: simple scale ! Risk rating: simple scale, combination
  23. 23. 4Analyze legal risks
  24. 24. ! Risk analysis is about understanding the risks
  25. 25. Analyze legal risks ! Controls assessment: effectiveness ! Likelihood: probability estimation ! Consequences: impact analysis ! Uncertainties and sensitivities: variables
  26. 26. Assessment of legal risk controls ! Contracts: exceptions, requirements tracking ! Regulations: compliance, reviews, ratings ! Litigation: insurance, training ! Statutory changes: maybe not…
  27. 27. Likelihood of legal risks ! ! Discovery: likelihood that other party learns Decision: likelihood of adverse decision
  28. 28. Likelihood of discovery ! Contracts: counterparty learns and sues Regulations: agency attention and review ! Litigation: aggrieved party motivated ! Structural changes: legislative, industry focus
  29. 29. Likelihood of decision ! Contracts: validity of legal theory Regulations: certainty of violation ! Litigation: probability of adverse decision ! Structural changes: certainty of adoption
  30. 30. Consequences of legal risk ! ! ! Damages: (primarily) economic loss (or gain) Frequency: number of occurrences
  31. 31. 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, … ! ! !
  32. 32. Frequency of legal risk ! Contracts: form contracts, repeat behavior Regulations: single incident, business practice ! Litigation: jurisdictions, plaintiffs ! Statutory changes: jurisdictions, scope ! ! !
  33. 33. Uncertainties and sensitivities ! ! Uncertainties: continuously reduce Sensitivities: use ranges !
  34. 34. 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
  35. 35. 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 !
  36. 36. 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 !
  37. 37. 5Evaluate legal risks
  38. 38. ! Make decisions and prioritize risks
  39. 39. Legal risk evaluation ! ! Risk tolerance policy to draw the line ! Risk treatment options for risks above the line
  40. 40. Legal risk tolerance policy
  41. 41. Legal risk tolerance policy
  42. 42. Legal risk tolerance policy
  43. 43. Legal risk treatment options ! ! ! Modify risks so that residual risk is tolerable !
  44. 44. 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 ! !
  45. 45. 6Communicate & Advise
  46. 46. ! Think holistically; communicate clearly
  47. 47. 20 Minute Risk Manager ! Avoid the inventory ! Start with revenue ! Identify major risks ! Recommend action
  48. 48. Select a framework Obtain organizational commitment Identify legal risks Analyze legal risks Evaluate legal risks Communicate and advise
  49. 49. 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

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