In the second article of a three-part series focusing on young in-house lawyers (read part one here), this article provides specific strategies for successfully articulating and explaining the concept of risk.
While many lawyers have been taught how to identify risks, or issue spot, often lawyers—particularly young lawyers—have trouble explaining risks with sufficient clarity to decision makers. In particular, young lawyers need to internalize their company’s appetite for risk, understand the different methods for explaining risk and provide diverse mitigation suggestions to their business colleagues.
Understand Your Company’s Appetite for Risk
Depending on numerous factors such as market share, anticipated revenue and executive personality, a company will choose to accept different levels of risk. While this risk allocation will vary depending on the specifics of each deal or decision, a good attorney needs to take the time to gain a baseline of their company’s appetite for risk from historic documents (i.e. internal memos, contracts and meeting minutes) and previous internal discussions with legal superiors. After internalizing this information, a young lawyer will be in a better position to recognize, leverage and capitalize on these reoccurring risk allocation patterns. Ultimately, this knowledge will provide invaluable information about the company’s culture, help anticipate similar risks in the future, and allow a young attorney to preemptively propose answers to difficult questions raised by business colleagues.
Methods of Explaining Risk
A comprehensive understanding of a company’s risk allocation behavior produces limited value without the proficiency to articulate the identified risks to the appropriate decision makers. Therefore, not only does a successful young lawyer need to identify risk, but he or she must also be able to articulate this risk. However, because decision makers come from a diverse set of backgrounds, young lawyers need to learn how to effectively categorize risk, explain the consequences of risk provide practical advice on the probability of such risks actually materializing.
Risk also comes in many different flavors and varieties. There are monetary risks (price, liquidity, inflation, etc.), market risks, operational risks and numerous other subcategories of risk, each of which has different issues and concerns. Therefore, young lawyers need to learn how to adequately categorize potential risks. Not only will this categorization highlight the breadth and scope of each risk, it will also help simplify relevant examples of these risks and more easily allow the applicable consequences of such risks to be successfully mitigated through internal operational changes, policy changes, or numerous different types of contractual assurances or carve-outs.
Unfortunately, even if lawyers adequately categorize risks, explaining the concept of risk can be challenging. It involves explaining the probability of a negative occurrence actually arising based on a set of assumptions and vulnerabilities (both internal and external). While most individuals understand this general concept, explaining the nuances and subtleties associated with risk (typically over the phone or conceptually via email) can be difficult at best. Therefore, young lawyers should attempt to focus on consequences of these risks, including but not limited to:
- Worst case scenarios
- Financial implications
- Operational impact
- Administrative burden
By being able to categorize a relevant risk, and then adequately explain the associated consequences of that particular risk, a young lawyer will have the necessary information to advise his business colleagues. However, having this information is necessary, but not always sufficient to successfully advise decision makers. Because these business colleagues come from different backgrounds and support the company in several different ways, young attorneys need borrow a few concepts from creative writers and appropriately illustrate the risks at issue by using narratives, descriptions and analogies.
Provide Mitigation Suggestions
Having identified and explained a risk, a young lawyer should also be in a position to suggest mitigation strategies, such as operational or technical solutions to a specific problem. If done successfully, this will create unexpected value in the eyes of any executive team and create an opportunity to change a potentially deal killing “no,” into a “no, unless you do x, y, or z” situation. At the very least, suggesting mitigation strategies—even if potentially infeasible or cost prohibitive in your initial opinion—will open the door for subject matter experts to at least propose creative solutions.
Ultimately, in-house lawyers not only need to be able to spot risks, but also have the ability to explain these risks. While difficult, categorizing these risks, understanding their associated consequences and being able to provide mitigation suggestions can significantly simplify this inevitable requirement of being an in-house attorney.