Risk Management as a Legal Service
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The Economist ’s March 21st, 2015 article, “Attack of the bean-counters. Lawyers beware: the accountants are coming after your business” identifies a second wave of legal hiring by accounting firms globally. The Economist takes the position that global accounting firms are building internal legal services capacity closely related to their core non-audit lines business. PwC, for example, is now the tenth largest legal services firm by headcount.
The Economist points to two factors supporting the trend to outsource legal services to accounting firms: an outmoded billable hour business model and lower-cost legal services in English-speaking jurisdictions around the world. These factors allow accounting firms to provide legal services more cost-effectively.
There is, however, another way to look at changes in the legal services industry. The billable hour is symptomatic of an approach to client relations that is, itself, a barrier to better client engagement. Litigation lawyers want cases and transactional lawyers want deals. Lawyers can then open files and begin billing hours and assigning associates.
Businesses need more from their lawyers. Businesses conduct much of their work without the input, or even the knowledge, of their lawyers. Business leaders often see lawyers as a necessary evil when a problem arises. Given the pressure to improve margins, business will always seek out more cost-effective answers.
Lawyers should be relevant before there is a problem or a deal. Corporate counsel and outside business counsel are often disconnected from important strategic decisions, because the business does not see them as forward thinking, constructive contributors to the health of the organization. Of course, nothing could be further from the truth from a lawyer’s perspective. It is up to the lawyers to change the perception.
Risk management helps to create a deep and lasting relationship between the lawyer and the business.
Risk management is long the purview of accountants and insurance brokers. With the advent of ISO 31000, lawyers now have a framework for advising clients about risk proactively. ISO 31000 is particularly useful for measuring legal and compliance risk.
ISO 31000 framework risk is the product of likelihood and consequences. Importantly, these are not quantitative measures. They are qualitative measurements of risk. The ISO 31000 framework establishes a consistent approach to risk. Of particular value to lawyers is the fact that ISO 31000 can assist in the evaluation of current cases, both litigation and transactional matters, as well as future or hypothetical issues.
Guidance on measuring and managing legal risk with ISO 31000 is available. Lawyers in the United States can broaden the scope of their services and deepen the nature of their relationship with business clients by delivering proactive risk management counsel.