Legal Risk Management

Abstract

Over the last few decades, regulators in most jurisdictions around the world have progressively required companies to incorporate systematic risk management into their corporate governance. This has led to the emergence of legal risk management (LRM) as an essential component. Aligning with the Law & Management movement, this chapter provides an overview of the emergence of LRM as a critical function for legal departments, emphasizing its integration with overall enterprise risk management processes. The discussion includes defining legal risk, balancing causal and consequential definitions, and introducing an approach that considers the impacts of legal risk on different areas of organizational value. The chapter also addresses methodologies for managing legal risks, emphasizing the importance of cyclical processes that include identifying, analyzing, evaluating, treating, and reviewing legal risks. The integration of technology and data analytics is highlighted as crucial for the future of LRM. Furthermore, the chapter stresses the need for a shared risk language and cross-functional collaboration within organizations to enhance risk management effectiveness. Legal professionals are encouraged to develop hybrid skills, combining legal expertise with organizational and business competencies to better address and manage (legal) risks. According the authors, the success of LRM depends on fostering a culture of information sharing and collaboration across all departments within an organization.