The Hindu Business Line : Proactive legal risk management

A company's legal department has been traditionally seen as a `support' functionary, supervising regulatory and legal compliance. Regulatory compliance is mostly statutory and binding in nature and companies as legal entities are mandated to comply with them. Legal compliance has hitherto involved supervising legal documentation, fighting off lawsuits, to liaison with outside counsel, etc.

However, in the present technology/innovation-driven economy, legal compliance assumes, or ought to assume, a wider brief — that of pre-emptive legal risk management. It is essential for a service provider to know not only his business and how to run it profitably, but also understand the legal impact of his business on clients, upon itself and possibly on consumers at large.

How do legal risks arise?

Legal risks do not arise in vacuum, but owe their origin either to business operational loopholes or to subsequent breach of the manner a product or service is offered. Most legal departments within companies are deployed with the purpose of fighting and managing legal risks once they have arisen, meaning, the remedies deployed are often always reactions. Pre-emptive legal risk management, however, would imply taking a proactive role in understanding the nuances of the business, honing the capability to juxtapose the actions/omissions of the business on to a legal sphere, foresee potential legal repercussions of such acts and prepare possible remedies to avoid that risk.

Though there can never be fixed sets of rules on how to devise pre-emptive strategies, the basic principle remains common — the exercise must involve analytical questioning of the impact of the business process on various actors. Sample the following list of questions: Is there a possibility of the business violating some law indirectly or unintentionally though most applicable laws have been complied with? What is the likelihood of the end product or service hurting any legal right of consumers? Are the internal data security measures deployed capable of infringing any employee rights? Is the company's model of growth in different countries compliant with competition laws of the respective local jurisdictions?Is there a need to lay down standards governing employee-client or employee-third party communications so that proprietary or confidential information remains guarded?

This list is indicative only and many similar questions may, at times, appear merely speculative, though the importance of answering them cannot be underestimated.

Risk management strategies

An interesting fact is that risk management strategies not only serve their primary purpose, which is to lay off potential risks, but may also act as a vital business development tool. A business that is known to proactively deploy pre-emptive risk management strategies, turn them into standards of daily usable best practices guidelines and incorporate them into the business process would always be very reassuring to customers and clients. For instance, Information Technology Enabled Services (ITES) companies utilising direct marketing techniques in reaching out to target audience through phone, fax or email may face legal impediments owing to privacy laws of countries where target populations live, regardless of equipping themselves with quality technology and highly trained professionals to carry out direct marketing pitches.

In this case, a company that foresees such legal impediments evolves a strategy by questioning the potential repercussions of not abiding by privacy laws and then incorporates usable standards or best practices for its employees to follow while making pitches, will always have an edge over its competitors in the industry.

Contribution of legal personnel

Given this background, legal managers and corporate counsels have an opportunity to contribute not only to dispute management, but also towards developing the business by plugging loopholes and adding to operational and client assurance. Taking the cue from operations managers who are expected to continuously pre-empt operational loopholes so as not to jeopardise the production rate or client service quality; the time is ripe for legal managers to be aware of the need of assuming similar responsibilities.

Also, the value addition in devising such innovative strategies to the skill sets of staff concerned may be substantial, thereby contributing to employee satisfaction. In essence, the idea behind pre-emptive legal risk management is to drive an enterprise on the notion that business has to be conducted not only in a profitable manner, but also in the right manner with all operational, ethical and legal risks being accounted for. In the long run, this could well be the difference between businesses that survive and excel and those that fizzle out despite providing quality services.

(The author is Gurgaon-based legal professional.)

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