Priori recently hosted a fireside chat with Marc Ackerman, General Counsel of Tough Mudder, on managing risk at an innovative company. Since joining the Tough Mudder team in 2012, Marc has spent substantial time grappling with this question and implementing his approach. He shared suggestions at the event:
Considering the full portfolio of risk: Annual risk management audit
In-house lawyers should realize that their internal clients worry about risk all the time but may be worrying about the wrong things. (For example, an individual may worry more about a plane crash than the taxi to the airport, when statistically the airplane is much safer.) In-house counsel can play a valuable role in helping business people manage their “worry” in a more effective way. Specifically, in-house counsel can develop a process by which all potential risks are identified, prioritized and, if necessary, mitigated.
One way to systematize this is to implement an annual risk management audit. This kind of audit gives in-house lawyers the opportunity to work with senior team members to think through the full universe of risk for the coming year and then consider the probability of, and cost of mitigating, each included risk. In addition, current mitigation measures are reviewed, and, most importantly, the risks are prioritized. The output is the identification of high-risk, high-impact, unmitigated risks, allowing senior management the ability to decide whether additional resources (both legal and otherwise) should be allocated to those risks throughout the year.
Framing the decision-making process
In-house lawyers should consider thinking about risk differently from private practice lawyers. For lawyers at firms, the goal is generally to identify and carefully weigh all risks, based on a meticulously researched and compiled trove of information. In-house lawyers, on the other hand, are often tasked with quick decision-making on a wide range of issues, often with imperfect or incomplete information.
One way to handle this tension is for in-house lawyers to comprehensively reframe the role of in-house lawyers with respect to risk. By this account, the role of the in-house lawyer is not necessarily to identify how to avoid a given risk completely. Rather, that lawyer’s goal is to estimate the likelihood that the risk occurs and the resulting cost to the company if it does (whether financial or reputational), and, based on this analysis, to provide timely actionable recommendations to the business side.
Managing Legal Risk in a Pioneering Business
For companies pioneering in newly created industries without a blueprint for compliance or authoritative account of applicable laws and regulations, properly implementing a legal compliance regime isn’t entirely straightforward. One approach for reducing uncertainty is for in-house counsel to lead or join-up with a relevant industry group or committee focused on developing core standards for applicable compliance. This approach allows the company to play an active role in developing fundamental industry standards and mapping the universe of applicable laws and regulations.
Managing Legal Risk in International Expansion
Depending on the degree of control and involvement a company plans to exercise as it expands across borders, a range of strategies is available for managing the legal risks posed by international expansion.
One option is to create an international expansion “playbook” that covers key business and legal questions required to be addressed with respect to each new jurisdiction. Such a playbook can also cover the local legal and commercial relationships necessary for doing business in the jurisdiction.
Where possible, a potentially less challenging approach is to explore a licensee structure or pursue partnerships with companies based in the applicable jurisdiction. Though such relationships can mean giving up a certain amount of execution control, working with these entities can also substantially reduce local compliance complexity and allow in-house lawyers to focus on big-picture risk items.