As a civilization, we must take calculated risks in order to grow and flourish. Effective risk management enables communities to accomplish their goals in a variety of areas, from energy to infrastructure, supply chains to airport security, hospitals to housing. What is enterprise risk management for your law firm? Let us analyze further.
In today’s fast-paced environment, the risks we must manage develop at a breakneck rate. We must ensure that risks are managed in such a way that their dangers are minimized and their potential is maximized.
As part of risk management, organizations must analyze and identify the risks that are preventing them from achieving their goals. As a result, it must be proportional to the organization’s complexity and nature. Enterprise Risk Management (ERM) is a holistic and integrated approach to risk management that spans an organization’s internal and external networks.
Because risk is embedded in everything we do, risk experts perform a wide variety of jobs. There are positions available in insurance, business continuity, health and safety, corporate governance, engineering, planning, and financial services.
How Law Firms Can Address These Concerns
To handle the daily risks that lawyers encounter, it’s critical to first be able to recognize them. The first step in accomplishing this should be to take a proactive stance and provide training and education to all law firm workers so that they are aware of impending dangers and how to protect themselves from them.
To summarize, the following are some legal best practices that you should include and teach throughout your risk management training:
Accept Not Every Case: If any element of a case seems to be too hazardous, do not be afraid to reject it or refer it to a friendly company that you believe is better equipped to handle it. Saying “no” to cases that are not a good fit for you will do much less harm to your law business and reputation in the long run than taking on matters that you are unable to handle effectively.
Maintain Transparency with Clients: Establishing expectations is a critical component of the legal risk management approach. When addressing realistic expectations and potential case outcomes with customers, it is critical to be candid in order to prevent overpromising and underdelivering.
Obviously, it should be a priority to ensure that every professional connection and effort is supported by a clear and enforceable contract. However, taking thorough notes and recording as much of the legal procedure as possible is another way to safeguard oneself against a range of potential dangers. Protect yourself against rumor by backing up your emails, keeping time-stamped notes, and even recording talks wherever feasible.
Insure Your Law Firm: Regardless of how robust your law firm’s risk management policy is, there are so many hazards inherent in operating a legal business that completely avoiding claims is almost impossible. Fortunately, purchasing the appropriate insurance coverage can enable you to close any gaps in your risk management approach and safeguard your law business and workers in the event of a claim.
Every law company needs get liability insurance in order to deal with the number of mistakes and omissions. This is often known as attorneys professional liability or legal malpractice liability.
Whether your law firm is accused of misinterpretation, offering harmful legal advice, missing deadlines, failing to protect classified information, conflict of interest, or any other reason a client might file a claim against you, a good legal malpractice insurance policy should cover legal defense costs, settlements, and trial-related expenses (expert witnesses, research costs, etc.).
The cost of professional malpractice insurance is decided by the size of your law business, its practice areas, claim history, and geographic location, among other factors.
As previously said, legal companies deal with a great quantity of sensitive information, making them ideal targets for cyber assaults. This is why cyber liability insurance is unquestionably the second most critical policy for a legal practice to have. Another kind of insurance that is suggested for legal businesses is employment practices liability insurance, which protects your company against employee-related claims such as discrimination, harassment, and wrongful termination.
Regardless of the size of your legal business, having an experienced broker on your side when putting up your insurance package is critical. You are welcome to contact a member of our legal insurance team at any time to discuss your law firm’s insurance requirements and alternatives.
Enterprise risk management (ERM) is the systematic identification and mitigation of possible events that may jeopardize the accomplishment of strategic goals or chances to acquire a competitive edge.
Achieving competitive advantage is important to strategic management of any company, and risk management is critical to this endeavor. Two commonly used frameworks are the Committee of Sponsoring Organizations of the Treadway Commission COSO’s ‘ERM – Integrated Framework’ and the guidelines produced by Airmic and the Institute of Risk Management IRM – ‘A structured approach to ERM and the ISO 31000 standards’.
ERM’s basic components are the identification of major risks and the execution of appropriate risk actions. Risk reactions include risk acceptance or tolerance; risk avoidance or termination; risk transfer or sharing via insurance, a joint venture, or another arrangement; and risk reduction or mitigation through internal control processes or other risk preventive efforts.
Additionally, critical ERM ideas include risk philosophy or strategy, risk culture, and risk appetite. These are indications of the organization’s risk tolerance and the amount of risk it is prepared to accept. These are critical components of government accountability.
The risk architecture or infrastructure, the documenting of processes or risk management protocols, the training, monitoring, and reporting on hazards and risk management activities are all examples of management responsibilities.
Enterprise risk management (ERM) is a risk management technique that takes a strategic approach to risk management from the viewpoint of the whole business or organization. It is a top-down approach aimed at identifying, assessing, and preparing for possible losses, risks, hazards, and other potential sources of damage that may impair an organization’s operations and goals and/or result in losses.
ERM takes a comprehensive approach and necessitates management-level decisions that may not be appropriate for each business unit or sector. Thus, rather of each business unit being accountable for its own risk management, the firm’s monitoring is prioritized.
For example, if a risk manager at an investment bank observes that two trading desks located in different regions of the company have comparable exposure to the same risk, he or she may compel the less significant of the two to remove that position. This choice is taken with the benefit of the whole business in mind (not with the specific trading desk).
Not only does ERM require corporations to identify all risks and decide which risks to actively manage (as other forms of risk management do), but it also enables top managers to make risk management decisions that may or may not be in the best interests of a particular segment—but that benefit the firm as a whole. This is because hazards may be compartmentalized inside particular business units that are unaware of or incapable of seeing the broader risk picture.
Additionally, it often entails making the risk management strategy accessible to all stakeholders as part of an annual report. Aviation, construction, public health, international development, energy, banking, and insurance are just a few of the industries that have switched to ERM.
Businesses nowadays confront a plethora of risks and possible hazards. Historically, businesses managed their risk exposures by having each division manage its own company. Indeed, many big companies responded to expansion by delegating increasing amounts of responsibility to heads of particular business units, with the CEO and other senior executives remaining aloof from day-to-day operations.
However, when businesses expand and acquire more divisions or business sectors, this strategy may result in inefficiencies, risk amplification, or misrecognition. Each section of a business becomes its own “silo” in this scenario.
Due to a lack of knowledge of how their risks interact with those of other divisions, their teams are unable to assess the risk exposure of other divisions. Thus, although a division manager may identify possible risk, he or she may be unaware of (or unable to understand) the risk’s importance to other parts of the company.
One of the most perplexing aspects of practicing law is that law firms face a significant danger of being sued. It is fairly unusual for current and past clients to pursue claims against their legal counsel for a number of reasons.
However, dissatisfied customers are just the tip of the iceberg when it comes to the many risks associated with practicing law. And, although these allegations do pose a genuine threat to legal practitioners on a daily basis, there are many more dangers to consider.
Whether you are a sole practitioner or a 50-person firm, the first step in developing a strong risk management strategy is determining the types of risks your law business may face in order to minimize potential exposure.
Risks Relating to Technology
It’s a well-known fact that cyberattacks are one of the most serious risks companies face today, regardless of industry. Cybercrime’s most prevalent forms, such as hacking, social engineering, and malware, cost companies globally literally billions of dollars each year. Given the high volume of sensitive client information stored on computers and other data networks by law firms, it’s simple to see why they’re such a favorite target for hackers.
In today’s risk environment, law firms should not be afraid to outsource cybersecurity specialists to secure and manage their networks, or to employ technological expertise in-house if the budget allows.
Hackers and the various types of malware, ransomware, and computer viruses used to attack businesses are becoming increasingly sophisticated and difficult to defend against, which explains why the number of data breaches reported by businesses (particularly small and medium-sized businesses) continues to rise.
Risks of Human Error
Human error risks are also linked to technology and cyber dangers, since the overwhelming majority of social engineering and phishing attempts rely on convincing company workers to download or click on anything in order to infect their networks and systems. However, there are many additional dangers connected with human mistake and carelessness, which may result in regulatory violations and severe legal malpractice claims.
Communication errors may easily result in claims. For instance, if a lawyer fails to tell a client about a subject relevant to their case for any reason. Even failing to maintain regular touch with your customer and neglecting to answer their calls may result in a lawsuit if the client thinks there was no clear explanation for the absence of communication.
A simple missed deadline is another example of a human mistake that poses a significant danger to your legal business. Missing hearings or forgetting to submit papers as a result of poor time management or carelessness may potentially result in lawsuits if your clients believe these mistakes harmed their cases.
Risks Associated with Clients and Colleagues
Another critical component of your law firm’s risk management approach should be an assessment of the working relationships you have with your clients and any other attorneys with whom you may have to collaborate. When it comes to clients, it is critical for attorneys to remain within their areas of competence and avoid taking on matters involving areas of law in which they lack experience.
Additionally, ensure that the scope of each client and case is defined before you commit to it. Accept no customer unless you think that your company has the resources necessary to provide the client with the professional services that their circumstance requires.
Conducting due diligence on customers before to agreeing to serve them should be a top priority in your risk management process because it enables you to prevent hazards such as having a conflict of interest that was not immediately apparent at the start of your engagement with the client.
You should use the same caution in selecting the attorneys with whom you collaborate on cases. Before agreeing to engage with them, ensure that they are knowledgeable in the field of law to which the issue pertains.
Additionally, before you decide to engage with another legal firm or outside attorney on a matter, do due diligence to ensure that they are trustworthy and have no history of malpractice claims made against them. What is enterprise risk management for your law firm? I hope this elaborate blog post answers the question.
Meet Krishnaprasath Krishnamoorthy, a finance content writer with a wealth of knowledge and experience in the insurance, mortgage, taxation, law, and real estate industries. With 15 years of experience and qualifications in insurance, mortgage, law, and investments, Krishnaprasath Krishnamoorthy has a deep understanding of the complex financial and legal issues that impact individuals and businesses alike.