There is an element of risk in any business venture. Risk-taking is an essential element of business activity that enables businesses to thrive. Taking a leap into the unknown with a new product or strategy is what brings businesses rewards.
However, the risks that businesses are willing to take to generate rewards must be isolated as far as possible from other risks that may be inherent in operational activity but peripheral to its core purpose.
Certain identifiable risks such as those posed to customers or employees should be kept to a minimum or effectively managed to avoid or reduce the potential liability for damages.
A good example of the need for sound risk management was highlighted by the fire on the London Duck Tour vehicle on the Thames near to the Houses of Parliament.
Defining your Business Risks
Business risks can arise from variety of risk factors like financial risks or physical risks such as building or vehicle defects, fire, leaks, explosion and floods.
Generally all of these risks carry financial and legal elements which are best mitigated by a sound risk-management framework tailored to the individual business.
All businesses should ensure that they have a risk management system in place that identifies and monitors their business risks while providing for strategies to deal with any problems that arise.
Legal Risks for Businesses
The legal risk that flows from business activities can be separated out into a number of broad areas:
Legislative risk – Legislative risk occurs if a company fails to implement legislative or regulatory requirements. Businesses can lessen their liability by ensuring that they remain up to date with any developments in law and industry regulations through industry specific publications and consulting with legal advisors.
Contractual risk – Contractual risk can arise in relation to past, current and future contracts. Liability often comes through the use of non-standard terms and conditions in contracts, technical faults arising from a failure to provide an adequate ‘paper trail’ of documentation and authorisation of contracts, and failure to comply with standard terms and conditions.
It is advisable seek legal advice if you wish to make changes to your standard terms and conditions and ensure that any staff members involved in negotiating contracts receive instruction as to how the process should be recorded.
Non-contractual rights risks – these result from failure to manage and protect the business’ intellectual property rights, such as trademarks, patents, trade secrets and knowledge of sellers, buyers and advertisers.
You can reduce these risks by ensuring that you remain vigilant and act swiftly when infringements are suspected or reported. Employment contracts should include clauses which prevent employees from revealing trade secrets and client information to third parties both during their employment and for a defined period after it has ended.
Non-contractual obligations risks – these occur when a business acts unfairly or illegally by infringing a third party’s intellectual property rights or by failing to meet the requisite standards of care due to customers.
Dispute risk – dispute risks occur when a business fails to address disputes effectively.
Comment
A significant proportion of business risks can be mitigated by auditing a business to understand the risks that exist and implementing a properly structured risk management system. Risk management processes must be monitored and updated on a consistent and regular basis with reporting carried out at a senior level.
Risk management entails both physical and financial elements such as health and safety policies and insurance policies. A number of business risks such as employer’s liability to its employees will be captured by compulsory insurance requirements.
For specialist advice on carrying out risk audits or implementing risk management systems contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.
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