Thought Leader

OWNERSHIP OF the risk-management issue is critical. There has to be someone in your firm who is in charge of managing risk. Appointment of a full-time risk manager has, until recently, been the preserve of a handful of the largest law firms, mainly in the top ten, but there has been a notable increase in recruitment of full-time risk managers in smaller firms in recent times, not even confined to the top 100.
There is no ‘one size fits all’ in terms of the appointment. Some firms have opted for people from an insurance background, some with risk-management experience but without experience of law firms (which is not to say that is a bad thing), some with experience of professional indemnity claims handling, and some from the accountancy profession. Doubtless the pool will expand in the years to come and with it, experience of the particular risks and needs of law firms. What is critical is that there is a willingness to learn, and a direct line of reporting to the senior management.
Legal Risk’s 'Top 100 Professional Indemnity Survey' over the past four years reveals a significant increase across that sector in risk-management specialists, partner committees and partners devoting at least half or, in some cases, all their time to risk management. Increased awareness of risk issues also manifests itself in the responses to questions on checks carried out when making lateral-hire partners, with significant improvement in all areas, of which more anon.
A key question is whether the investment in risk management brings a commensurate improvement in the business. Inevitably, it is hard to measure. Such evidence as there is suggests, as one would expect, that it does. The writer has heard of a survey in the US, which showed that of the firms that responded, those who had a full-time risk-management partner suffered $1m less on claims and defence costs than the average.
Further support for the benefit of expenditure on risk management can be found in the Annual Report for 2004 by the Independent Commissioner to The Law Society, Sir Stephen Lander, who found that firms with The Law Society’s quality accreditation, Lexcel, had fewer complaints against them – two open complaints per ten fee earners, while the non Lexcel firms in the sample group had three and a half.
The writer is also aware of a small firm with a highly profitable, high-volume business, which had a poor claims record. It appointed a full-time risk manager and eventually managed to go several years without a claim.

This is an extract from the second edition of Risk Management in the Legal Profession, which is soon to be published by Ark Group. For further information or to purchase the report, please contact Adam Scrimshire at ascrimshire@ark-group.com

Frank Maher is a partner in Legal Risk, solicitors. He can be contacted at frank.maher@legalrisk.co.uk