A recent study out of the U.K. has identified a “gap in the understanding of legal risk” between a company’s general counsel and its CEO and board of directors.
The “Legal Risk Benchmarking Survey” [PDF], conducted by global firm Berwin Leighton Paisner, questioned about 100 C-suite executives and found that while 73 percent of general counsel had a clear understanding of legal risk, only 50 percent of risk and compliance officers and a mere 25 percent of CEOs or directors do. The study also found that executives “lack confidence in the organisation’s ability to manage emerging and business-as-usual legal risks.”
Survey respondents said their biggest concern is failing to stay aware of existing legislation or regulation that could impact business operations.
“The potential impact of business risks that result from law and regulation are largely misunderstood,” said Stephen Allen, a former “Magic Circle” lawyer who is currently with PwC, in the report. “Losses are often written off as ‘operational failings’ because they materialize outside of the legal team. And the importance and underlying reasons for such losses are often missed.”
The respondents were mostly involved in the financial, legal, IT, media and telecom sectors, and were located mostly in Europe. The study recommends that legal departments report legal risk more clearly to the CEO and board of directors by broadly describing the company’s legal risks, then agreeing to a risk threshold and highlighting incidents that cross that threshold.
