The Logic Behind Implementing Legal Department Indicators

Incorporating legal department indicators on a balanced scorecard is indeed an effective technique that should be used by companies to determine progress and performance of their own legal departments. These indicators function much like the way KPIs or key performance indicators would, in the fact that they are quantifiable in nature already. This makes it much easier for your company’s legal department to check its performance because the measures are already translated into significant figures. All that has to be done would be interpretation and analysis of these figures and you would then have a clean-cut description of just how your legal department is presently doing.

In just about any corporate setting and industry, the legal department is actually that particular division that is responsible for the creation of policies, rules, and regulations that each member of the company or organization has to carry out and observe. Apart from that, the legal department is also in charge of handling any legal matter that the company faces. This includes the event of entering contracts or agreements, creating such contracts, creating proposals, dealing with internal legal disputes, incorporating discipline amongst members of the organization, and so many more. Such roles and responsibilities are very important and should be carried out with utmost care by any company. This is precisely why it is important for a company to monitor the performance and the effectiveness of its legal department – for there is just so much entailed in its tasks and responsibilities.

At present, there is much demand for performance measures and metrics to be more than satisfactory so that these would be effectively used in gauging the performance and value of any company’s legal services. It goes without saying that the success of any company also comes with the effectiveness of its legal department.

There are actually several perspectives to keep in mind here – financial, customer, internal business processes, and learning and growth. All of the perspectives here should have corporate goals and objectives incorporated here, as well as the company’s vision and strategy. This is something that should be practiced by retailers and manufacturers – how much more by legal departments. More importantly, the performance measures and indicators to be used here should be just a few relevant, to give way better interpretation and analysis. It might be tempting – even too tempting – to go with a lot of indicators. But really, it would be better to go with a relevant few.

Contrary to popular belief, the balanced scorecard is not a complicated tool to use at all. In fact, using the tool entails a simple process and it economical as well. You do not really need to be a master at measurement or an expert at evaluation and analysis to use the tool efficiently. Your company does not even have to shell out that much money for the development of the tool itself! The internet is laden with sources and materials that you can use in developing your scorecard. And if you are not too sure which particular legal department indicators to use, you can resort to using the ones used by other legal departments – only as mere guides, of course. The bottom line is, for your scorecard to be effective; you need to use indicators or measures that are relevant to your company.

Divorce – Understanding Child Joint and Legal Custody Laws

Both parties are given the right to make decisions about the child’s life and well-being. Joint physical custody is a bit more uncommon and involves the child living with both parents for an equal amount of time.

Fighting over child custody often requires the legal assistance of an experienced lawyer. There are various kinds of arrangements for custody and parents will need to decide which is the best fit for both parties. Assistance in these legal areas is really important with all the new laws and procedures causing confusion for either party. This is not mentioning the emotional toll that divorce takes on not only the two partners, but their children as well.

Legal custody and physical custody are the kind of custody’s that need to be solved between divorcing couples. It is important to understand the difference between joint and sole custody. Physical custody refers to who the child will live with permanently. Legal custody refers to making decisions about the child’s life such as healthcare, education, religion, etc.

Joint custody means that both parents share custody. Joint legal custody is common, as both parties are given the right to make decisions about the child’s life and well-being. Joint physical custody is a bit more uncommon and involves the child living with both parents for an equal amount of time each week or each month.

In sole legal custody, only one parent retains the right to make decisions about the child’s life and well-being. This is uncommon, although in cases in which one parent is deemed unfit to care for or make decisions for the child, sole legal custody may be granted to the other parent.

Sole physical custody is more common than joint physical custody. This is when the child lives permanently with only one parent, but the non-custodial parent is granted visitation rights. Of course, in cases in which the non-custodial parent is considered to be harmful to the child or it is decided that it is in the child’s best interest not to have contact with the non-custodial parent, visitation may be prohibited.

A child custody attorney is the most desired resource for more information about physical and legal custody and which types (joint or sole) are best for your specific case. Child support is another problem that should be discussed with an attorney. This is often a very serious matter, especially in cases in which the non-custodial parent does not make their payments. In situation like these, legal measures such as salary garnishments and suspension of driver’s license may be taken to force payment or as a penalty.

How to Define Legal Risk

What is risk?
The informal notion of risk as the chance that something bad might happen is not a bad place to start defining risk. Better management requires a better definition though. We need to break risk into distinct parts that are measurable.

Risk is the probability of loss given an event
Mathematical precision is possible and desirable in some cases. Large financial firms, for example, have sufficient data about operational losses that they can build predictive models based on experience to measure risk. They are the exception.

To illustrate how we might define risk in statistical terms take the formula:

R = p * LGE

In this case R stands for risk, p for Probability of Event expressed as a percentage, and LGE stands for Loss Given Event. LGE is a measurement of the financial harm from an event. LGE can include non-financial losses, but they must yield to measurement for the formula to quantify risk.

Most organizations do not have the data or resources (or confidence in) abstract models of risk. Organizations without statistically valid loss data can still measure and manage risk, particularly legal risk, by simply moving a few steps toward quantification, away from the “bad stuff” notion.

Risk under ISO 31000 offers an alternative approach
The traditional approach to risk suffers from another important deficiency. It focuses only on losses, presumably because the origins of risk models are in insurance (how much to charge for protection from “bad stuff”?) and credit risk (what happens if the borrower doesn’t pay?).

In 2009, the International Organization for Standardization (ISO) released a fresh approach to risk and risk management: ISO 31000:2009 Risk management – Principles and guidelines.

ISO 31000 provides a new definition of risk that is especially useful for measuring legal risk. Risk is the “effect of uncertainty on objectives.” Risk management then starts with identifying uncertainty and then evaluating effects (positive and negative).

Legal risk is difficult to measure. However, with the help of the ISO 31000 definition of risk, we can express legal uncertainties and then measure them and their potential effects. We may not achieve mathematical precision, but we can achieve better management.

Four types of legal risk
There are four broad categories of legal risk, or four areas of legal uncertainty: structural, regulatory, litigation, and contractual.

Litigation risk
Litigation is the most discussed legal risk in organizations. Litigation is often public and always distracting. The range of events that cause litigation is broad: employee misconduct, accidents, product liability and so on. The list can seem endless.

When management meets with the lawyer to discuss “What is the chance we will lose this case and what are the likely damages,” it is too late for risk management. Prior to litigation, we need to identify the areas of uncertainty that affect our objectives. Risk management is not fortune telling. Instead, we want to narrow the possible outcomes from particular events.

For example, a court case in an influential state invalidates a fee charged to consumers as an undisclosed interest charge subject to compensatory and punitive damages. Our organization charges a similar fee. However, the fee is charged a certain number of times and in known states. The statute in question carries known penalties. We have the building blocks to measure and manage legal risk from similar litigation.

Organizations invest significant sums to prevent litigation. It is helpful to weigh the cost of the risk management against the possible outcomes.

Contract risk

Contract risk is the most pernicious and difficult to track among legal risks. The traditional approach to contract risk focuses on a breach of contract by one party and the extra-contractual liabilities that might arise. This approach treats each contract individually and in isolation.

Most organizations focus their contract risk management strategy on drafting effective agreements. Quality contract drafting is necessary, but not sufficient to manage contract risk. There are cases where one contract can create significant risk, such as:

  • An exceptional share of revenue is tied to one contract,
  • Procurement or service contracts for critical components allow for disruption or price escalation, and
  • The counterparty does not indemnify us for damages that carry exceptional consequences like unpaid taxes and environmental problems.

In most cases, however, individual contracts often do not, on their own, have the gravity of litigation. The substantive, common and difficult to track risk is the uncertainty that arises from the contract portfolio in its entirety. Systemic under-management of contracts creates expense leakage and missed revenue opportunities.

Regulatory risk

The growth of the administrative branch of government is daunting to most business leaders. Regulatory risk represents the uncertainty of the consequences of an agency’s action.

A few examples will illustrate the point:

  • A transportation company applies for a license to expand its operations to a new hub. Uncertainty regarding the agency’s decision as well as the scope of the decision create risk. Under ISO 31000 the agency’s decision can have positive effects, but the uncertainty creates risk.
  • A product manufacturer and distributor offers a novel product warranty to generate additional revenue. State insurance commissioners can determine that the warranty should be classified as insurance. They can then impose fines, require insurance applications, impose conditions on the product and pursue civil remedies depending on the state statue.

Identification of regulatory risks is challenging, but the uncertainty about the effects is measurable. Regulations grant powers to the agencies charged with enforcement of the statute and regulations. Penalties range from fines to administrative orders.

Structural risk

Structural legal risk is rare for most organizations. Structural legal risks arise from uncertainty about the underpinnings of a particular industry, technology or method of doing business. When the airline industry was regulated, for example, there was a structural legal risk that the industry would be deregulated.

The scope of a structural legal risk is broad and it usually alters the competitive landscape.

Structural legal risks can arise from sources other than legislation. Antitrust litigation can significantly alter pricing in an industry or key business relationships. Consumer protection enforcement actions can also change the fundamental assumptions of an industry, but rendering a marketing practice (multi-level marketing, for example) unacceptable.

Structural legal risk is also a good example of the ISO 31000 definition of risk. We can be uncertain about the change from a regulated to a deregulated industry. The potential effects are varied, some are positive; some are negative. A structural change can benefit one organization while harming another.

Effective risk identification

To identify risks reliably requires a workable definition of risk. The ISO 31000 definition of risk usefully includes “positive risks.” This is right lens for identifying legal risks and, ultimately, managing legal risks.

Risk in an information problem. We can manage risk when we understand the scope and components of our uncertainty. The approach to risk can guide the organization to develop a risk management strategy.