Focus on corporate identity and risk

Organisations have identities, and understanding this principle is key to effective in-house counselling. The closer one is to corporate decision-making bodies, the more relevant this principle becomes.

Regardless of the type of corporation, from an economic perspective, the general counsel and legal department’s central role is to design risk distribution mechanisms through, for example, adherence to commercial industry standards, contracting, regulatory awareness, compliance and legal strategy. When advising internal clients and managing their teams, in-house counsels constantly balance the act of pondering legal and non-legal risks. Striking equilibrium requires a strong knowledge of a company’s identity and psychology and careful analysis of its risk profile.

Lawyers are trained to understand, analyse and manage risks by relying on legal certainty. An orthodox approach to corporate counselling, legal risk management, and procedures may be appropriate for organisations with complex governance structures. In such companies, the legal department’s role usually is well defined. Other areas, departments and stakeholders will identify and manage different types of risks—for example, the effects of delays in commercial relationships or potential sources of financing. A top-down overview of these risks will likely be conducted through formal processes and governing bodies upstream.

This process will look very different in younger companies experiencing exponential growth. The in-house counsel might be closer to executive decision-making, governance, and residual risk bearing. A legally focused risk assessment approach may become narrow or detrimental to effective counselling in such cases. Speed may be essential to executing an ambitious, growth-oriented business plan. Legal certainty or immediate resources may be unavailable. Counsel may still have alternative methods to mitigate risk, and the deeper the business knowledge, the more effective those methods will be.

For lawyers, this constant process of truly understanding an organisation’s risk profile is both science and art. Companies change, and so do their risk profiles. Each relevant milestone or achievement can change a corporation’s business identity and, therefore, its risk appetite. Risk screening and mitigation mechanisms must be appropriately chosen for each type of transaction, project, and moment in an organisation’s life.

Sometimes, there might be no structure, established industry standards, defined counterparty, precedent, known stakeholders, or information. Legal mechanisms may not be the tool, but business immersive in-house counselling can still provide the smart and appropriate risk mitigation mechanisms organisations expect and need.