If you’ve recently taken a job as in-house counsel, and particularly if you’re early in your legal career, you may still think your job is about giving clients permission. Clients may even ask for permission–who hasn’t received an email from a client asking if they “can” do X or Y?
But giving permission (and asking for it) misunderstands a lawyer’s job and sets the lawyer and business at odds unnecessarily. Part of the problem is a lawyer’s fundamental incentive to advise inaction. The risk of incorrectly advising a company that it can do something dwarfs the risk of incorrectly advising the company that it can’t – nobody’s ever been sued for standing still, after all. That fundamental imbalance paralyzes lawyers and frustrates business people who are accountable for moving a company’s needle in a profitable direction.
If you’ve been in house for a while, you’ve been in enough meetings to learn that the job is not about giving permission, because nothing frustrates business people more than being denied permission when they don’t fully understand the risks and you don’t fully understand the business. In-house, the press of business requires lawyers to think like business people, and to translate risk discussions into a language both sides understand.
A lawyer’s job is about providing information, not permission. Every business decision balances risk and reward. Decisions with a legal component are no different, except for an asymmetry of information about risk: without a lawyer’s input, there’s no way a business can accurately estimate the complete downside of decisions with legal risk.
Of course, the trouble is that legal risk is especially hard to quantify. That’s why many lawyers tend to throw up their hands and deny permission: “can’t do it–too risky!” When I led the legal team at a FinTech startup, I challenged our lawyers to avoid that tendency by quantifying risk into four basic categories.
Think of the world of legal risk like a bullseye with four rings. The lawyer’s job differs slightly in each:
1: No Risk. Think of the first category as the center of the bullseye. In that category, there is zero or de minimus legal risk to consider, and nothing for the lawyer to do but give a thumbs up.
2: Some Risk. The second category is one ring outward, where legal risk is material but not substantial. There, the lawyer’s job is to make sure the business has clear information about the legal risk to weigh against the business reward. The vast majority of business decisions live here.
3: Substantial Risk. This risk is more than material, and significant enough that the head decision maker in any business (CEO, CFO, business line VP) should understand and approve the risk. Many business decisions fit this description, but with good advice about alternatives can often be moved down into the 2nd category.
4: Unacceptable Risk. This is the last category, and the outermost ring, is where legal risk is unacceptable. Here, the legal risk is fiscally existential, criminal, and/or threatens the careers and livelihoods of employees. In other words, it’s risk that no reasonable business person would take. Few business decisions fall into this category, and lawyers facing those that do should offer alternatives and persuade their clients off the ledge.
Good lawyers know that the best advice provides a client with enough information for it to reach the right business decision without a lawyer’s “permission.” Many lawyers never get past the permission mindset. But doing so aligns a lawyer’s and client’s objectives, and if you’ve recently gone in-house, may even help you get through that next business meeting.