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Evaluating and aligning risk appetite: Helping the risk managers

22 May 2024

Almost inevitably, when I start talking with in-house teams and GCs about their role in their organisation someone will refer to the in-house legal team being the 'risk managers' of the organisation.  It's a fair assessment in a lot of places to say that the business regards legal as the hurdle they have to get past or the cover they use to say "well legal approved it" should anything come back to bite them on a commercial decision later down the line.

But if that's the upshot of being the risk managers how do we ensure the organisation has put that legal team in the best position to fulfil their role? After all, the risk managers can only work to manage the organisation's risk if they are all aligned on what the attitude to risk is at any given time.

I've started to use a series of layered exercises to bring about a more open discussion on evaluating risk and how we ensure we're all aligned for the future management of issues as they arise.

Making it personal

The first stage of this approach to discussions on risk is about finding a way to bring the question back to something relatable or personal, before we look big picture or organisation-wide.
I started to think a bit more about this personalised approach to risk when my team-mate, Rebecca, and I came out of the office to grab some lunch together the other day. We were in central London and you know how it is when you're walking and talking and keeping pace with the person beside you to continue the conversation and as we came to the next road crossing, we both saw to our right a car coming along, but clearly we both evaluated the risk of that situation differently.  

Rebecca quickened her pace and jogged across the street to the other side, whilst I stepped back to wait for the passing car and cross afterwards.  
I reflected afterwards why we both reacted differently to seeing exactly the same scenario and information – she was comfortable to risk crossing, whilst I held back.  Now you might consider that we're processing that information we've seen about the risk differently, knowing our willingness to jog rather than walk leisurely.  

Rebecca is 20 years younger than me, so perhaps she is more relaxed and comfortable with everyday risks than I am.  Maybe my experiences include a family member being hurt in a car accident and that colours my view on something as straight forward as crossing the road.  We might have any number of factors at play personally producing a different risk tolerance in both of us.

So how about using this type of personalised approach to lead the discussions on how the in-house legal team can ensure it is aligned with the business on managing risk.

Setting the risk spectrum

After setting some parameters describing what the risk spectrum is from one extreme to the other, it's useful to talk through how we're defining risk tolerance and risk appetite. Setting this type of scale gives everyone in the discussions the same benchmark from which to start placing themselves on that spectrum given different scenarios. 

Like the crossing the road scenario, once you think of different situations in everyone's personal life, you can start to ask across the in-house legal team where each individual would place themselves on the spectrum in each of those circumstances.  Doing so opens a discussion as to those particular personal factors that might impact one's decision-making and feelings about risk.   Like any good team-building exercise, there's no right or wrong answers here, just an improved awareness across the team of each other's viewpoints in different circumstances. By pulling the team's view together you can also start to get a feel for how diverse or perhaps similar the team's attitudes to risk are.  Have you got an in-house legal team which is naturally on the more risk-averse end of the spectrum, or perhaps you've got a really diverse, scattered range of views?

Translating that to the organisational perspective

Talking about a business's attitude to risk in the abstract is a tricky, rather nebulous concept for most of us. If you simply started by asking everyone in an organisation what the attitude to risk is at any given point in time you're likely to get a very wide range of answers.  And, of course, it can and should change during the lifetime of an organisation and depending on things like the macro economic factors at play, the financial health of the business or where the business is in a growth cycle.

However, setting the scene in the layered way described and encouraging discussions to enable a group to consider their own personal views on risk in different real-life situations first and then pulling that into an overall team viewpoint, gives a much better base point from which to jump into the organisation-wide standpoint.  

Similarly to how I've used personal scenarios in the first stages of this exercise, I've then moved the discussion onto considering corporate environment situations.  Thinking about customer-winning opportunities, corporate acquisitions and complex negotiations from the past are all useful ways of bringing real-life examples to the discussion.  Risk is easier to think about in terms of 'what would you do if…?' type questions when the setting feels realistic.  Even using a de-brief example of something from the company's recent past can be a useful way to ensure these conversations come to life.

Taking these corporate setting examples as the last layer of discussion gives you the final input into a way of looking at how aligned the approach to risk is.  We started by gaining a better understanding of the risk appetite of the individuals from an in-house legal team in their role as 'risk managers', placing that into a team-wide collective positioning and then finally asking how does that sit with the organisation's attitude to risk?

Layering those individual and then team viewpoints against our organisational risk attitude, we can then ask ourselves if we've got an alignment or whether we might find that the in-house legal team is operating in a different part of the risk spectrum when managing the organisation's risk.  For example, does the organisation in fact have a much higher risk appetite than the current in-house legal team and does this give us the start point of discussing how to ensure those viewpoints could better reflect a more aligned voice for the future?

As mentioned above, this is not about finding right or wrong answers as such, but opening the door to much more self-awareness on a topic which can be difficult to discuss.  Taking this layered approach one step at a time, using real-life tangible scenarios, can be one way of getting some really meaningful answers to the questions of how closely aligned are the in-house legal team when they're managing the organisation's approach to risk.

Watch an extract of Emma's recent session here;


If you'd like help designing and facilitating productive, and most importantly fun, workshops to help answer the big questions in how your in-house legal team is working effectively, do get in touch with our Legal Operations Consultancy team via Emma Roe.

Further Reading