6 Risk-Assessment Questions In-House Counsel Should Be AskingCatherine Dunn Corporate Counsel
02-15-2013
When Stuart Blake meets with a new client, he’s not just trying to get a narrow sense of their particular legal needs. Rather, he has to figure out the full scope of how his firm InnovaCounsel will deliver what they’re known for: in-house legal services for companies that don’t have a law department. And the best way to do that is to start asking questions.
In order for the firm’s attorneys to become immersed in the business (as any in-house attorney would), they had to learn more about the company up front. So the firm developed a risk-assessment evaluation to help gain better insight into what a client is facing. “We were seeing the tip of the iceberg,” says Blake, the former general counsel of Kinko’s and Baskin-Robbins who co-founded the Southern California-based firm in 2005. “We needed to have more detailed conversations with management, and even middle management.”
This business “check-up” is a tool Blake believes more in-house attorneys can put to good use. “It makes sense for any counsel to ask these types of questions,” he says. Blake shared a condensed version of his check-up checklist with CorpCounsel.com:
1. What are the consequences of undetected or unmanaged risk?
This question “really tried to get at dealing with legal services from a proactive, rather than reactive, standpoint,” says Blake. When companies adopt a “preventative mindset” toward legal issues, attorneys are involved in the business planning process up front. And even for companies that already have established legal departments, leaving in-house counsel out of that process is a “persistent problem,” he says.
2. What are the implications of trusting risk management to someone with limited legal and business experience?
All too often, companies leave the task of spotting risk to the chief financial officer, or perhaps a contracts manager. “You’re asking someone to identify legal issues who isn’t trained to do that,” Blake warns. “What are easily missed are issues that could lead to litigation.” Employment law claims, for example, could devastate a growing company—and that’s something an attorney would know to watch for ahead of time. “What we try to do is minimize the economic consequences of a company’s actions,” he says.
3. How much time is spent reviewing contracts, and is there a process that ensures the company complies with the contracts it signs?
“A lot of companies will just accept another company’s form contract,” says Blake. The problem in doing that, of course, is that they might be making unnecessary commitments to terms that could cost them substantial sums down the road. Recently, Blake reviewed a non-disclosure agreement that contained a liquidated damages clause. “That’s unheard of,” he says. “I caught it because the client asked me to review it. But if a client doesn’t have a process for an attorney to review even the simplest contract, it wouldn’t have been caught.”
Another common mistake is when a businessperson throws a contract in a drawer once it’s signed and doesn’t look at it again. “Three years later, they’re still acting under the terms of that agreement—and it expired two years ago,” says Blake. His advice: put a process in place to review and monitor all contracts.
4. Are business executives asking attorneys the right questions?
When issues arise, “a business executive will pick up a phone and call outside counsel,” Blake explains. “It’s reactive, and they don’t necessarily know the right questions to ask.”
So here’s an opportunity to educate—or, ahem, remind—the business team that in-house counsel can play the role of business adviser and strategic thinker, too. They offer a different filter on objectives and goals. A lawsuit, for example, might feel very personal to a business executive, says Blake, but counsel can help make decisions that aren’t based on emotion. That kind of perspective “goes for any business transaction,” Blake says.
5. If you could have unlimited phone conversations with a business attorney, what would you discuss?
Oftentimes, businesspeople approach discussions with attorneys with the sense that the clock—and therefore the hourly rate—is ticking. CEOs of companies with legal departments might also be hesitant to go to legal, out of fear it will end up costing them money.
But, by asking this question, in-house attorneys can re-frame such talks “under a different paradigm,” says Blake. The end result can be a deeper and more thought-provoking conversation. “It just gets them to think differently about how they utilize legal services,” Blake adds.
6. When was the last time you performed an internal legal audit?
At many small and mid-size companies, no one has ever undertaken a thorough review of the business’ legal needs. And, says Blake, “I’ve even seen it in larger companies where they’re resource-challenged.” In-house counsel become so busy with the day-to-day that they don’t step back to look at the big picture.
Instead, Blake recommends that companies conduct a legal audit once a year. Taking care of issues as they arise—as opposed to during crisis mode or crunch time—can add up to big savings. The due diligence process ahead of a transaction or an M&A deal offers a prime example. Companies will end up paying “three or four times as much money to resolve an issue” quickly, than they would have during the normal course of business, Blake says.
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