The corporate financial scandals of the past few years have emphasized the importance of legal risk management. Adam Frederickson analyzed a recent survey in a PLC Law Department (July 2005) post. The survey on managing risk and compliance, based mostly on European companies, highlighted the following challenges for general counsel:
• Developing a compliance culture at board level, along with a clear understanding by management and others within the company of what legal risks are acceptable to the board.
• Establishing the inter-relation between the legal and compliance function.
• Defining, identifying, measuring and prioritizing legal risk and subsequently implementing, monitoring and enforcing risk and compliance policies.
Key findings include:
• 82.5% of the respondent general counsel provide the principal advice to the board on corporate governance issues.
• 36% said that their board of directors did not have a good understanding of corporate governance issues.
• 31.6% said that getting board and senior management support for compliance programs was either extremely difficult or very difficult.
• In 61% of companies the compliance function reports to the general counsel. However in over a third (36%) there is no direct reporting relationship between the two.
• Anti-trust; regulatory and product liability risks were cited as the top legal risks facing companies. While most respondents cited anti-trust as a main area of legal risk only 55.7% have compliance programs in place for this area.
• The budget for legal risk and compliance has increased in 62.4% of companies in the last two years and is set to increase in 69.9% of companies in the next two years.