Legal Risk: Definition, Management and Ethics

40 Pages Posted: 14 Apr 2015

See all articles by Richard Moorhead

Richard Moorhead

Centre for Ethics and Law, Faculty of Laws, UCL London

Steven Vaughan

Faculty of Laws, University College London

Date Written: March 31, 2015

Abstract

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.

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.

Suggested Citation

Moorhead, Richard Lewis and Vaughan, Steven, Legal Risk: Definition, Management and Ethics (March 31, 2015). Available at SSRN: https://ssrn.com/abstract=2594228 or http://dx.doi.org/10.2139/ssrn.2594228

Richard Lewis Moorhead (Contact Author)

Centre for Ethics and Law, Faculty of Laws, UCL London ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

Steven Vaughan

Faculty of Laws, University College London ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

HOME PAGE: http://https://www.laws.ucl.ac.uk/people/steven-vaughan/

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