In-house counsel and compliance both assess risk. As such, they often vie with one another. A collaboration, however, can serve to raise both up and significantly enhance a company’s risk assessment overall.
Lawyers get a bad rap – not just as the subject of lawyer jokes. (This is not an invitation to recite lawyer jokes). I recently wrote about the unique skills that compliance professionals possess in risk management. CCOs are “comfortable” assessing risk, prioritizing risks and then mitigating risks based on a mitigation strategy.
A good lawyer knows the law; a clever one takes the judge to lunch. — Mark Twain
Let me add to the list. In-house counsel, among its many talents, has the ability to identify, assess and mitigate risks.
Lawyers, however, have a little different perspective. Lawyers operate with a “worst-case” scenario mindset that addresses a potential event which creates legal risks (e.g. breach of a contract, or an intervening event like an “act of god”). In response, the lawyers will protect against that risk. They may ultimately advise a company to reject a specific business arrangement or contract, or they may recommend entering into a relationship with a third party with appropriate legal protections.
In this scenario, in-house counsel needs to learn about the specific transaction or course of action, identify the risks, consult with the in-house business representatives and then ultimately guide the company with a balancing of benefits against risks. In doing so, in-house counsel’s assessment of risks incorporates reputational and business risks, along with standard legal risks and legal exposure to potential litigation claims.
On top of this analysis, in-house counsel is sensitive to company stakeholders, as well as government investigation and enforcement risks. In-house counsel, along with the CCO, brings together a powerful synergy where corporate risks can be considered in a holistic manner. Legal, ethical, culture, reputation and business risks can be identified, weighed and considered against the positive benefits.
In-House Counsel and Compliance Have Complementary Abilities When It Comes to Risk Assessment
In-house counsel always identifies and weighs potential litigation claims and possible government investigation and enforcement actions. Companies are risk-averse, and rightfully so, when faced with government investigation and prosecution risks. However, in-house counsel often weighs legal risks, possible claims against the company client and the realistic likelihood of litigation.
Talented in-house counsel is able to translate these skills to advise business leaders, and in many cases, the CEO, on business strategy, risk management and C-suite leadership strategies. In-house counsel that repeatedly points out worst-case scenarios is often ignored or has a minimized role; while successful general counsel brings a fresh and broad perspective to senior executives that incorporates sophisticated balancing of business opportunities, legal consequences and overall strategy.
General counsel and CCOs are natural partners in the corporate governance world. Because of the positive benefits from a coordinated and compatible alliance between legal and compliance, effective partnerships between these two functions should be carefully cultivated. Too much time is spent focused on internal turf wars. A legal and CCO partnership lifts the standing of both in the organization. Both win from an effective partnership.
The downside of a dysfunctional legal and compliance partnership is substantial. These unworkable situations are difficult to watch and navigate. It is such a tragic loss of a potential opportunity. In-house counsel and compliance professionals exist for specific benefits – the power of them together, however, is much more than the sum of their parts. If working together, in-house counsel and compliance can bring about a strong ethical culture, mitigated risks and minimal government enforcement risks.
This article was republished with permission from Michael Volkov’s blog, Corruption, Crime & Compliance.