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Increased risks bring unexpected consequences

February 4, 2015

As corporations face growing levels of risk, many people anticipated an explosion of demand for legal resources to assist its management. Yet the market feedback I am receiving suggests, with notable exceptions, that is not happening – in fact, the reverse is often true.

The range of risks facing top management today often appears inexorable. Fast-changing, unpredictable markets, geopolitical conditions, the explosion in regulation, an increasingly intrusive media, shifting social expectations, the erosion of trust, greater demands on Board performance and integrity, growing dependency on global supply networks – the list seems endless and those who are trying to promote their careers or sell their services on the back of risk are ever more vocal.

Traditionally, the law department – and external law firms – have been a bastion in the approach to risk management. Their role in review and approval has grown, as well as the more obvious support in the case of major claims, disputes, regulatory issues or litigation. So why is it that we are hearing from country after country that in many industries, the number of lawyers is decreasing, or they are having to shift into different roles and functions?

Quite simply, top management seems to have concluded that specialist attorneys are too expensive and too narrow in their focus. Management needs people who actively find solutions to risk and who support improved, streamlined processes. Market and competitive pressures demand increased empowerment at the front-end of the business – they need knowledge and capability transfer, not centralized review and approval.

Therefore the trend is towards dynamic systems which support decision making and consolidate reporting. And it is towards placing relevant skills and resources at the front-end of each business. Hence, disciplines like contract and commercial management are growing, while specialisms like Legal and traditional Procurement and Finance are shrinking.

This doesn’t necessarily spell good news for established contract and commercial staff because today’s environment demands new skills and attitudes. In addition, they face growing competition from displaced lawyers.

There are exceptions to this trend, which often mask what is happening. Regulation in industries such as financial services and pharmaceuticals has driven massive demand for lawyers and law firms. But this is not sustainable. The resulting costs and inflexibility destroy competitiveness. They are being replaced by new organizational models – for example, within the pharmaceutical industry the emergence of ‘commercial excellence’ executives and functions.

The truth about risk is that it is either managed, or it puts you out of business. Executives value their risk advisors, but only in small doses and only if they bring practical solutions. The revolution in organizational design is only just beginning.

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