Legal risks are always present for any company, but enterprise-level firms have higher exposure due to greater complexity and operational depth.
Corporate legal departments manage these risks through requests for legal expertise from other internal company departments. They also do the work of managing ongoing legal matters with various outside law firms. As a company grows, legal risks increase, and the cost of this legal work has also continued to grow.
According to a 2021 study by The Corporate Legal Operations Consortium, corporations spent almost twice as much on outside legal costs in 2021, as compared to 2020.
The following four main risk areas give an overview of a business enterprise’s typical legal risks.
Contractual Risk
Writing contracts is perhaps one of the most challenging areas to quantify risk. Hiring qualified, expert legal help means that a company can have its contracts written to provide maximum protection from lawsuits and other legal problems while ensuring the contracts’ enforceability and validity.
An additional risk arises when companies have signed several different contracts for various reasons. It is not uncommon for an enterprise to discover conflicts between a newly executed contract and other contracts it has signed. Enterprise legal management software is a tactical solution some firms use to reduce this risk by tracking the details of each contract, the outside counsel involved, related costs, and other details so that no contract falls through the cracks.
This software also makes it easier to manage the firm’s whole portfolio of contracts and spot any possible conflicts before problems arise.
Structural Risk
Structural risk, and legal risk in general, is a challenge of information. Risk management improves as you collect more information about your enterprise’s potential risks. Structural legal risk relates to a company’s industry and how it fits and operates within the larger business landscape. Industries such as video rental companies were new, exciting ventures a few decades ago, yet the entire industry collapsed with the advent of streaming media and other technologies.
Without a crystal ball, this type of risk is harder to predict, so company management must stay on top of trends and new industry developments. A qualified business attorney can also help strategize.
Regulatory Risk
Enterprise-level businesses can experience regulatory risk in many different ways. Even with smaller firms, the risk of legal problems around regulatory issues continues to rise. The Federal Trade Commission (FTC) has laws on truth-in-advertising and the Fair Packaging and Labeling Act of 1966 that govern all companies’ activities, regardless of size.
Manufacturing companies that work with potential pollutants must behave according to Environmental Protection Agency (EPA) regulations. Publicly traded companies are subjected to regulation by the U.S. Securities and Exchange Commission (SEC). The list goes on and on.
Larger companies with wide-ranging business divisions, products, and practices have significantly increased exposure levels to regulatory legal risks.
Litigation Risk
Litigation risk involves a disgruntled party suing your business for some actual or perceived wrongdoing. No company can escape this risk, and the list of potential reasons for someone to sue is very long indeed. It includes issues like clients and customers suing for product liability claims, alleged discrimination, or injuries on company premises. Patients, clients, and customers can sue attorneys and doctors for malpractice, insurance companies for acting in bad faith, and businesses for the activities of their employees while on the job.
Depending on the type of business, some of these lawsuits might be without merit, but they still need to be tracked and addressed, and the legal costs managed.
Managing and Tracking Business Legal Activity
The risk of a company becoming involved in a lawsuit increases with its size, complexity, industry, type of business operations, and other considerations. The cost of hiring outside legal counsel and the number of firms required to address various areas of expertise grows with the size and complexity of a business.
Enterprise-level software is built to handle the workload of tracking legal matters, costs, and other related information while producing useful analytics. Business enterprises are subject to a wide variety of potential risks, but managing the firm’s portfolio of contracts, keeping an eye on industry trends, and monitoring regulatory compliance issues are just a few ways that a business enterprise can manage and reduce its legal risks.
Stephanie Caroline Snyder graduated from The University of Florida in 2018; she majored in Communications with a minor in mass media. Currently, she is an Author and a Freelance Internet Writer, and a Blogger.
No Comments
Leave a comment Cancel