A definition of the term legal risk

Many commentators about law department management speak of “legal risk.” They use the term as if its meaning were self evident. It is not, and therefore I want to draw on a discussion paper by Roger S. McCormick, dated February 2004, about the management of legal risk by financial institutions. Commendably, he took care to define the term (See my post of May 3, 2006 on definitions of key management terms and posts cited.).

McCormick defines legal risk as the risk of loss to a company that is primarily caused by: (1) a defective transaction; (2) a claim (including a defense to a claim or a counterclaim) being made or some other event occurring which results in liability for the company or other loss; (3) a failure to adequately protect assets owned by the company; or (4) change in the law. Broad, to be sure, but at least the definition states what he means by that much-used term.

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