One of the most important parts of a lawyer’s job is helping clients distinguish between legal risks and business risks that can often overlap.
Legal risks relate to a course of action’s legal consequences such as a breach of contract, regulatory action, litigation, and/or financial penalties. An articulation of legal risks answers the question of: What could happen under the law?
Business risks, on the other hand, involve business/outcomes such as lost opportunities, competitive disadvantage, reputational harm, customer relationships, operational disruption, and financial performance. An articulation of business risks answers the question of: What could happen to the business?
The mistake many organisations make is treating every legal risk as unacceptable whereas businesses succeed by taking informed risks, not by avoiding risk altogether. A low legal risk may be worth accepting to seize a significant business opportunity. By the same token, a legally compliant course of action may be a poor business decision if it damages customer trust or strategic relationships.
The role of a modern lawyer is therefore not simply to identify legal risks, but to place them in their commercial context. Good legal advice should answer not only “Can we do this?” but also “Should we do this?” and “What are the business consequences of each option?”