As in-house lawyers grapple with a riskier corporate environment, law firms face an even bigger challenge

Legal risks have become the most threatening source of uncertainty for global companies. Every day we read about billion-dollar fines, criminal prosecutions against venerable businesses, massive litigation and jailed executives. There are many reasons for this. Globalisation has made companies enter new markets in far-flung places, often becoming active in countries where there is no working rule of law. After many years of deregulation the economic crisis has given governments the upper hand again, and as a consequence many public authorities have come back with forceful new regulation, which has been eagerly enforced and is now well supported in many political quarters and large strands of the public.

Transparency has increased to hitherto unknown levels as a consequence of modern media, social media, the blogosphere and whistleblowing, as well as by demanding accounting, disclosure and self-reporting regimes. Any major crisis within a large global organisation is now made known to a wider global community within the hour, and the public is more than eager to name and shame failing companies.

The rise of legal risk has many implications for the leadership of global businesses, for their legal departments and for law firms.

The board members and CEOs of global companies have to invest and inject more strategy and integrated management into the control of these risks. The time when legal and compliance matters could be left to all the helpful experts who promised peace of mind is over. Boards and senior management have to make decisions about products, processes, market entries and company culture, not only from an opportunity point of view but also on the basis of appropriate legal risk analyses.

Legal risk must become an essential consideration in any business plan or proposal for new business. Often, the withdrawal from a certain country or changing a product or a mode of operation will do more to control legal risks than an army of skilful lawyers.

General counsel and in-house lawyers have to adapt to this and see their own work increasingly as one of a strategic contribution to their company's activity. The challenges of the legal threat are now so demanding that traditional legal professionalism has given way to a demand for efficiency and effective management.

How can I deliver more for less, how do I optimise sourcing and work allocation, how do I profit from technology, outsourcing and offshoring, and how do I act as a risk controller rather than a pure adviser or business enabler? These are the key questions for in-house lawyers in this new world.

The greatest challenge is for law firms. Businesses and GCs learn quickly, and the ability to adapt to a new landscape is a matter of survival. By contrast, law firms profited from the rise of legal risks and the woes of their clients, riding on the tails of global companies to success. The temptation to continue with traditional working patterns is big.

But things have changed. Clients have shifted from a paradigm of legal services to one of legal risk management – they ask for different services, different attitudes and different billing models. Moreover, there are new service providers entering the legal space: accounting firms, forensic analysts, risk consultants and information feeders like Thomson Reuters, which now sells more legal content than the biggest law firms in the world.

This has had a huge impact on the profitability and business models of traditional law firms. Many have overhauled their business models completely and offer new lines of services such as risk consultancy, online advice and lawyers on demand. Firms that refuse to think strategically and act along these lines will be dead by tomorrow.

Peter Kurer is the former chairman of UBS and author of Legal and Compliance Risk – A Strategic Response to a Rising Threat for Global Businesses. He is also a judge at the upcoming Legal Innovation Awards and speaker at Legal Week's upcoming Banking Litigation and Regulation Forum