The truth about transparency
15 July 2002
One such buzzword being a little greedy with airtime at the moment is 'transparency'. Whether in reference to the plague of scandals currently rocking the post-Enron corporate US or our own NHS, everyone wants to make it clear just how transparent they are.
The trouble with transparency is that it leaves you open to the sort of misguided criticism that the NHS faced recently when it published the first figures for incidents and near misses in hospitals. Law firms face similar issues when it comes to the sticky area of professional indemnity (PI). As society becomes more litigious and the size of awards rockets, so the cost of PI premiums continues its own inexorable rise and continues to nibble sizeable chunks from everyone's bottom line. Everyone, that is, except the insurance firms. They are the winners, as the only thing growing faster than premiums is the list of exclusions they place on policies.
The insurance providers are caught in a joyfully profitable paradox. More claims mean higher premiums, while fewer means that a higher proportion of premiums end up in their pockets. Insurance companies need to recognise that they are part of the problem, not the solution.
While their risk management services preach transparency and openness under the premise that the only good claim is one that never materialises, the brokers and actuaries continue to demand higher premiums for firms with higher numbers of reported incidents. How often do they look beyond the headline figure to find out whether the increase is due to better reporting systems? This short-sighted take is exactly what leads to the kind of cover-up culture that ultimately helps no one and results in claims and premiums playing a seemingly endless game of chase me.
Of course, every sensible law firm wants to reduce the possibility of claims being made against it for professional negligence; hence the boom in risk management and the desire to 'manage claims' before they even become claims. But does all this risk management activity have any real impact? Enter stage left the word of the minute - transparency.
Risk management activity can have a major impact both in reducing the number of mistakes made and the proportion of those mistakes that turn into claims. But not the sort of risk management that involves paying inflated sums to a bunch of insurance company consultants who leave behind little more than a beautifully produced risk manual to adorn the shelves or line the drawers of the firm's staff.
Even getting all staff to spend half a day sitting in a compulsory risk management seminar, being offered such inane truisms as "life is inherently full of risks - it's what you do with them that counts" won't do any good.
The only way to really reduce claims is to develop an organisation that is not afraid to admit mistakes. And this is where transparency comes in. A truly transparent organisational culture allows all staff to know how to recognise and deal with mistakes, near misses and potential complaints and claims. It involves collecting, and more importantly sharing, information right across the firm.
This involves all staff, from the receptionist to the managing partner, knowing where the risk in their area lies and doing whatever is required to reduce it, and where possible eliminate it. While senior lawyers need to know in detail about the correct procedures for ensuring that client files are in good order and are properly archived once a case is closed, receptionists need to think about more mundane, but equally important, matters, such as how to handle calls and take messages in the correct manner.
Above all, everyone must feel able to report incidents, mistakes and complaints. It has become a cliché, but critical to the success of risk management is developing a no-blame culture. Equally, someone must be made accountable for recording and ordering all the information. A regular monthly report on the number, frequency and types of incidents is essential. Have all the registered complaints been dealt with? Who contacted the aggrieved party? Was there a satisfactory resolution? More can be learnt about a firm from the way it handles mistakes than any other aspect of its operation. As anyone who has sat through a risk management seminar will readily testify, if you do not learn from your mistakes, there is little point in making them.
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