There is a real perception that both the range of future liabilities and the cost and time required to deal with liability-related issues is significantly on the rise.
1. With litigation and liability issues consuming a growing amount of corporate resources, companies will need to use these more effectively.
Legal teams – whether in-house, external, off shore or a combination of all three – will be an increasingly valuable but expensive resource, and the most forward-looking companies will regularly review their legal strategy and supplier relationships.
2. As a US-style compensation culture spreads, organisations in Europe and Asia, in particular, need to implement the right infrastructure to respond to new risks.
European and Asian companies believe that a US-style compensation culture is already well established, and there is a real danger that boards in these regions lack the experience of dealing with such a litigious environment. Organisations operating there may need to spend substantial time and resources improving their infrastructure, skills and capability to respond to this trend.
3. Financial services companies need to put in place formal processes to track emerging risks and ensure that they assess their potential exposure.
It is still early days in terms of assessing the impact of current financial market instability. However, a reported rise in class action lawsuits, combined with the widely held view that the litigation impact could exceed that of the dotcom crash means that financial services companies should prepare for the potential for high-profile, high-cost actions - possibly against individual directors.
4. Company boards that build a culture and process to anticipate emerging risks, rather than continuing to focus on existing threats, will manage liability risk most effectively.
Companies that are looking to diversify and expand will need to address these threats early in their development plans, if they are to successfully manage and mitigate future liability risks.
5. Leadership from the board is critical in improving the understanding of liability risk throughout the whole organisation
With lack of time and poor employee awareness of liability issues being the biggest obstacles to effective liability risk management, staff education is becoming essential. Boards which involve staff in developing and implementing effective risk management policies and processes can gain both a holistic view of the risks they face and a powerful early warning system to alert them to potential problems when they arise.
6. Among the most forward-looking companies, liability risk is viewed and managed as part of a broader enterprise risk management framework
Liability risk should not be seen as something that is simply left to lawyers. The best risk managers will integrate the management of liability risk within a clear overall enterprise framework. There are many effective options open to companies, from improving communication between legal teams and the rest of the business in the short-term, to lobbying for legislative change over the longer-term.
