Risk is an intrinsic part of business; and while the potential implications vary greatly depending on the type of risk, in essence, it’s how well you plan for them that really matters.
Most businesses should have an understanding of their key operational risks and have systems in place to manage them. But many don’t! Because the regulatory landscape is constantly evolving (the impact of COVID-19 on workplaces is a great example), many businesses are either unaware of and/or unprepared for the often crippling reputational, financial, and other risks they face on a daily basis.
You have worked hard to build your business and your reputation, so it’s imperative you can identify the most common risks and implement a plan to properly manage them. But how?
You need a good watertight risk management plan
As a business owner, you should be familiar with common risk management practices.
With the right planning, implementation, and monitoring and revision, sound risk management can produce the following benefits for your business, no matter what size it is:
- Lower insurance premiums
- Reduced likelihood of becoming a target of legal action
- Reduced losses of cash or stock
- Reduced management time dealing with incidents or business down time
- Acceleration of revenue
- Reduced chance of reputational damage
Of course you want to ensure that your company is profitable and maintains an excellent reputation. Why risk that by losing sight of the legal risks inherent in running a business.
What is legal risk?
Essentially, legal risk is the likelihood of financial or reputational loss resulting from a lack of knowledge (or misunderstanding) of how the law applies to your business, or operating with a reckless indifference to the law and how it applies.
Legal risk management starts with identifying possible threats, which could cause loss or disruption to your business, enabling you to implement processes to minimise or negate them.
First, you’ll need to compile a list of potential legal risks. Once identified, each risk will need to be analysed to determine how likely it is to impact your business and how severe the impact would be. Impact is typically measured and prioritised by financial impact, with priority given to the most potentially expensive risks. However, other factors such as reputational damage and cultural impact are also important.
Below are some of the types of legal risk a company should consider when creating a legal risk management framework, and some strategies for dealing with them if or when they arise.
1. Contract risk
Traditionally, contracting has been seen as primarily a cost-centre for the business. But contracts play a crucial strategic role in your business and should be given the time and resources to match.
An effective contract management system helps to ensure that contracts are properly executed, deadlines are met, and contingency plans are in place to mitigate risk.
Common contract risks include:
- Failure to properly review a contract, resulting in mistakes that could affect enforcement of its terms (i.e. referring to incorrect governing law)
- Inadvertent signing up to unlimited indemnities or other terms creating unexpected liabilities
- Products or services not accurately described, leading to a dispute or the inability to make a claim
- Not keeping track of deadlines, which could result in a breach or failure to close an important deal
Failure to identify changes to laws and regulations (and keep contracts updated), may result in a contract being rendered void.
2. Regulatory compliance risk
The regulatory landscape is constantly shifting, and it’s important that your company has systems and processes in place to identify when laws have changed that affect your business. You should be in a position to proactively implement compliance measures so that you can stay on the ‘front foot’.
In addition, you may need to ensure that staff are trained in new requirements and that policies can be effectively implemented before new laws commence.
Regulatory compliance gone wrong can be a hefty cost to the business, not just financially, but also in hours spent by staff in response to any regulatory action or investigation, not to mention potential reputational damage.
3. Privacy and data breach risk
A privacy or data breach occurs when the personal information that a business or other entity holds is lost or is the subject of unauthorised disclosure or access. If a data breach occurs that meets the criteria under mandatory data breach legislation, businesses are at serious risk of regulatory action, with hefty penalties for non-compliance.
New data and privacy laws – in keeping with the fast-paced digital landscape – are being introduced and updated constantly. Data breach and privacy risk also overlap with the contract and legal risks outlined above, further increasing your business’ exposure to risk.
It is important that any third parties (e.g. contractors or service providers) that are provided with your customer data handle that data with the same level of compliance and care as you would, so ensuring your contracts with them encompass privacy and data breach risk is paramount.
In Australia, many businesses are required to comply with the Notifiable Data Breaches scheme, which requires mandatory reporting of specific types of ‘eligible data breaches’. Your business’ Data Breach Plan should outline how you assess outline how your business will respond should such a breach occur.
Robust internal privacy management and governance is imperative for any business that handles personal information. Read our blog outlining some key steps to support your privacy compliance.
4. Human resources (HR) risk
A business can encourage its staff to undertake health and safety training and professional development to reduce its risk from compensation claims, but HR risk doesn’t end there. Common legal issues that arise in business stem from terminations, redundancies, discrimination or bullying allegations, and underpayment of awards.
So you want to minimise ‘surprises’ that could have a negative effect on your business and controlling them on an ongoing, long-term basis. It will save you time and energy – and very likely money in the long term – if you invest the necessary time and resources into ensuring that your business is compliant with all government laws and regulations.
Protect your business by seeking and investing in expert advice. Proactively addressing and managing risk will be better value in the long run, and makes better business sense than leaving yourself exposed to financial loss, reputational damage, or worse.
To book a complimentary 30-minute strategy session to discuss risk in your business, contact a PBLawyer today. Call 1300 774 788 or email firstname.lastname@example.org.
1300 774 788
Suite 17, 116-120 Melbourne St, Nth Adelaide, SA 5006
1300 774 788
Suite 17, 116-120 Melbourne St, Nth Adelaide, SA 5006