Making risk a priority
24 May 2010
28 October 2013
1 May 2014
14 July 2014
13 January 2014
24 June 2014
The tough economic climate is forcing law firms to rethink their risk-averse strategies as they seek to gain new business. But caution has to be exercised when reputations are on the line, warns Yuri Frayman
How often do we prepare for the worst? Besides keeping our insurance cover up-to-date and perhaps setting some funds aside for a rainy day, most of us don’t want to focus on the risk in our lives. But at a law firm, doing business while managing risk is vital to the firm’s success
– and reputation.
With the continued economic uncertainty and challenging business conditions, firms are increasingly forced to change their traditional, highly risk-averse new business practices. With speed to new business a key ingredient to success, and in many cases a determining factor, firms are forced to
re-evaluate how they view and manage risk.
Senior partners, along with general counsel, are well served to ask questions when evaluating a comprehensive risk strategy:
- Are we taking on board the right business? And are we properly balancing speed with minimising risks?
- Are we protecting ourselves from accusations of impropriety, and can we prove it?
- Can we properly manage increasing numbers of lateral hires?
- Will we get paid for the work we do?
- Can we eliminate manual errors in our highest-risk business processes?
- Is our intellectual property and our client information well protected?
- Will senior partners be alerted to irregular activity within the firm before it’s too late?
Firms can face heavy fines from authorities when they ignore their business risks - such as Freshfields Bruckhaus Deringer - or, as with Jenkens & Gilchrist, even disappear altogether. Of course, any mishandled situation has the possibility to become an embarrassment and damage the firm’s ability to attract new business.
Importantly, in more than half of the serious incidents arising out of poor risk management, the partner involved is no longer with the firm within two years. Minimising risk is not just about protecting the firm’s reputation and hard-earned funds, it is also about protecting a valuable asset - the firm’s people.
Opportunity from overhaul
Firms that continue to maintain a strategic long-term view will come across a number of opportunities as they prepare for an overhaul of their risk management practices and the systems that support them.
Firms are well served by moving from bespoke, manual, disjointed, multi-vendor approaches to a single, holistic, end-to-end risk management platform. The promise? The ability to evaluate and accept new clients and matters within a fraction of the time it currently takes, with full audit capabilities, compliant with the ever-stringent and continuously evolving regulations and ethics.
The Solicitors Regulation Authority is considering important amendments to Rule 3 (conflict of interests) and Rule 4 (confidentiality and disclosure) of the Solicitors’ Code of Conduct 2007. Cases such as Winters v Mishcon de Reya may help clarify appropriate firm behavior in the short term - however, are all these changes being properly reflected in the firm’s processes and supporting systems?
Running the risk
Managing risk and securing information access across all personnel, offices and technology systems is no easy task. Traditional approaches that rely on fee-earners and support staff to enforce confidentiality and track for conflicts are no longer sufficient to satisfy clients’ needs and regulatory requirements.
For example, a simple error in incorrectly transposing a name from a conflicts tool to an ethical wall tool could have huge negative repercussions for the firm. Not only could such a mistake lead to major embarrassment, possibly in a very public forum, but the firm could also be disqualified fromthe case. A ’disqual’ can result in severe financial implications for the firm: lost man hours, government penalties and significant reputation damage.
While an error like this introduces risk to the business unintentionally, a business-minded partner must also protect the firm against potential intentional harm.
How can senior partners be immediately notified of irregular activity of one of the company’s staff - not simply the accessing
of a large number of documents in a short period of time but intelligently distinguishing between patterns of day-to-day activity across systems atruly atypical behavior? Will the systems in place automatically halt attempts to manually reverse security established by the ethical barriers system?
The firm’s intellectual property is second in value only to one thing - its reputation. And both are at risk in this situation.
Yuri Frayman is president and CEO of The Frayman Group