Risky Business

Continuing my theme of picking up on recent correspondence, I received the following observation from one of my contacts earlier this week:

“As in-house legal counsel and contract professionals, our primary responsibility is to protect the legal interests of the corporation/entity that we represent. It is not to maximize profit, minimize losses, or ensure a healthy balance sheet. We certainly can and should play a role on the business/finance side, but this is secondary to our key function which is to always ask, “how does X, Y or Z impact our legal interests”? We meet our primary responsibility by minimizing and, where possible, avoiding risk. And, when a company is in the business of developing, manufacturing and selling consumer products, risk is all around — from identifying intellectual property issues in developing new technologies, adhering to appropriate manufacturing standards, and meeting consumer expectations based on our advertising and marketing materials.”

Now this is a common perspective, but is it right? And more importantly, does it work in today’s fast-changing business conditions? In my reply, I commented as follows:

“You say “We meet our primary responsibility by minimizing and, where possible, avoiding risk.” To many in the business, this might be seen as a negative statement, suggesting that you are not interested in meeting market requirements. Another way to express the same sentiment could be “We meet our primary responsibility by assisting the business in its ability to accept risk.” The implication of the latter is that Legal / Contracts staff have a key role in ‘business enablement’, by spotting trends, competitive initiatives etc. that may challenge the accepted policies, practices or performance capabilities that are reflected in the contract standards. The question is – does good risk management wait for bad things to happen, or proactively seek to understand and anticipate those bad things and therefore equip to manage them? And to what extent is it our job to explore the outcomes that are generated by the words we write or the policies we protect.”

Perhaps the real point here is that the old model of managing risk through narrow functional perspectives and groups that were committed to maintaining the status-quo was great in an era of low-cost manufacturing (for which the typical organizational model today was designed); but it is useless in servicing a fast-moving economy where the need for flexibility and change to meet market and customer needs is paramount.

Functional specialisms were established to ensure and maintain high levels of quality in a standardized output. They were designed for efficiency and speed in an environment that sought to eliminate ‘deviations’. Today, ‘deviations’ are fast becoming the norm, but they need to be handled in a standardized way to ensure they are planned and capable of fulfilment. That’s why views like those expressed by my correspondent actually increase risk. And that is why at IACCM I have been promoting new organizational models to address the needs of business today.

What do you think?