With effective risk management at the top of companies' agendas, the pressure is on in-house counsel to lead the way in this new landscape. BLP's Matthew Whalley explains how you can take a more proactive approach

It is impossible to ignore the catalogue of serious problems that have caused significant damage to large businesses in the UK and internationally over recent months and years.

This has led to a fresh focus on why the material risks faced by those businesses, seemingly obvious when viewed with hindsight, were not clearly identified and managed more effectively.

Against this background, general counsel are under increased pressure to minimise their overall legal spend, yet at the same time to become better at managing legal risk within the business. The importance of effective legal risk management has never been greater.

Traditionally, legal risk has been managed in an event-driven, reactive manner. This approach is rapidly becoming outdated. The time and cost devoted to legal issues needs to be commensurate with the level of risk presented by those issues.

General counsel need to be able to go to sleep at night confident that the legal risks faced by the business have been properly identified, assessed and appropriately managed.

To date, few in-house counsel have received specific risk training and many find it difficult to gather information that effectively supports their need to move their teams towards proactivity.

Being prepared

The landscape has changed and in-house counsel should position themselves as proactive legal risk management as opposed to a reactive advisory role.

In risk parlance, the in-house legal team is a 'second line of defence' – an unglamorous description of our profession, but an uncomfortable fact that many in private practice should remember.

Law firms need to help their clients identify, assess, mitigate and report the legal risk exposures of their business.

The problem faced by in-house counsel now is that legal risk incidents are coming thick and fast.

Demand for legal services in-house is spikier, and spikes in demand are coming more frequently and lasting longer.

Working harder is no longer a sustainable strategy – new methods are needed to help the in-house counsel operate effectively in this increasingly demanding environment. Effective demand suppression models are key to managing in this difficult environment.

Berwin Leighton Paisner's recent report titled 'Managing legal risk effectively – an evolving approach' indicated a clear trend in more regulated sectors towards using process to support lawyers in identifying and managing legal risks.

You cannot, of course, manage legal risk with process alone. Good process management must be combined with clear senior support, adequate and skilled resource and an open and committed culture.

Legal risk management cannot be successful if the only results are documents and reports being created for their own sake.

To be effective, legal risk management processes must be more than a check-box exercise.

They should guide conversations with clients, lead to quantitative analysis of specific risks and result in real reductions of inherent and forward looking exposure.

Describing legal risk

Definitions must not dilute the legal adjective in the phrase 'legal risk'. Legal risk definitions act as the starting point for conversation with clients and, by incorporating prescriptive legal language into those conversations, will lead to discussion about the risks that lawyers are best able and qualified to manage.

Legal risk can be described using five primary categories: legislative, contractual, non-contractual rights, non-contractual obligations and dispute risk (see box, below).

Within each of the categories sub-definitions are more normative, describing in simple language the client-specific risk areas that are most likely to be seen.

Normative examples are depressingly easy to find. Scratch the surface of regulator action and press reports and you will often find a legal risk underneath.

Prioritising and