Legal Risk Management - luxury or necessity?
- 4 days ago
- 4 min read
When legal issues arise unexpectedly in an organisation or business, they can disrupt operations, drain resources, and damage reputations. Over the years, we have seen in very real terms how some simple, pre-emptive steps can help organisations stay ahead of potential problems. We explain how in this article.
What is legal risk management?
Legal risk management is a process where (1) potential legal risks and exposure are identified; and (2) steps are implemented to reduce the likelihood of legal problems. Risk management solutions comprise a combination of policies, procedures, contracts and tools that help organisations to comply with laws and regulations while also protecting their interests. Each organisation is different - the interests and risks relating to a big commercial business, will be vastly different from those of a small retail store, a professional service business, or an educational institution.
The key is for management and staff to know enough to recognise legal risks early on and act promtply; but also to have the tools in place to address those risks - either pre-emptively, or by way of justified and defensible measures. This reduces surprises and helps maintain smooth operations and confident actions.
It is also very true that not all legal risks are created equally: some are more critical than others, or can have a bigger impact if things fall apart. Employers, business owners and Boards need to understand, from a strategic perspective, how to direct their available resources to address legal risks in the most effective way.
Steps for managing legal risks - WHAT to do
Following a combination of the steps below, tailored to the size of your organisation, should put you on the right track:
Risk Assessments - identifying where your business is vulnerable
This usually has to do with contract management, employment practices, intellectual property protection, data privacy, or regulatory compliance. Oh, and the new kid on the block: AI use, or more specifically, 'shadow AI' - where your staff uses random AI tools all on their own and unwittingly uploads confidential or protected information to public platforms because they think they are having a private conversation with the AI to help them with a work task!
Use checklists or risk assessment tools to evaluate all these areas in your organisation systematically, or ask a consultant to conduct an audit, assess your documents and recommend updates where necessary. South African law changes and evolves regularly - contract terms that would have been sufficient a couple of years ago, may not cover you any longer. Similarly, work policies may need to be updated from time to time to address new issues. Monitoring changes in the law and compliance requirements is an important part of legal (and financial) risk assessment - if you do not have an in-house resource to do this for you, having a legal professional on standby, is a prudent alternative.
Develop clear policies and procedures - use expert advice as required
This is a good first step towards establishing and communicating consistent, transparent and defensible employment practices and it provides guidance on how to handle legal and practical workplace situations. For example, a clear code of conduct helps employees understand acceptable behaviour; an IT Acceptable Use Policy reduces legal exposure when employees engage in online activities; employment policies relating to aspects such as leave, security, ethics, confidentiality, benefits, financial management, etc. can be clarified; and so on.
Train your staff
Staff awareness sessions and management training ensure everyone understands their legal responsibilities. Importantly, this is not a once-off exercise. It is not about ticking a box that 'employees have been trained' - but about reminding them regularly of important principles, and informing them of changing laws and risks.
Also, establishing incident reporting mechanisms and encouraging your staff to report potential issues timeously, allows for quick action before problems escalate.
Implement contract management systems
Keeping track of contracts and deadlines reduces the risk of breaches or missed obligations.
These steps can help you to create a framework that minimises legal risks and supports business continuity.
Implementing legal risk management measures - HOW to do it
It is a matter of prioritising and breaking it down into manageable steps. Resources are usually an important consideration when embarking on this, so be sensible about it.
Start small: Begin with the most pressing risks and gradually expand your efforts. Commercial contracts and SLA's can usually be reviewed one at a time. Employment contracts and policies are best reviewed together, because they need to talk to one another, and there is usually a lot of cross-referencing involved.
Engage your team: Involve employees at all levels to get diverse perspectives and buy-in. They may recognise or experience problems that you are not aware of. An example of this is the regulatory requirement for employers to do a 'Workplace Harassment Risk Assessment' before drafting their harassment policy.
Use technology - but do so responsibly: Tools like contract management software or compliance tracking systems can automate and simplify processes. AI-tools can also be used, but then it should still be subject to human oversight and evaluation, and the relevant employees should be held accountable for both the inputs and outputs.
Document everything: Keep records of policies, training, and risk assessments to demonstrate due diligence. Again - using AI-tools or automation via an 'AI black box' can cause problems with legal defensibility. You need to be able to explain how a decision was made in order to defend it.
Review regularly: Set a schedule to revisit your risk management plan and update it as needed. Also - make sure your risk management documents are workable and practical for the people who actually have to conduct these assessments. It is no use having an over-the-top, complicated, comprehensive risk assessment system using terminology that only risk experts understand, when your regular line manager is the person having to work with and complete the documents.
Conclusion
One of the most effective ways to manage legal risks is to build a culture of legal awareness within your organisation. This means making legal compliance a shared responsibility rather than just a task for the legal- or HR department.
Encourage open communication about legal concerns and reward proactive behaviour. When employees feel comfortable raising issues early, you can address them before they become serious problems.
Leadership plays a vital role here and leaders who demonstrate commitment to ongoing legal risk management, set the tone for the entire organisation and also enhance trust and reputation.
© Judith Griessel
