Tales of Our Times By JOHN BARTLIT New Mexico Citizens for Clean Air & Water
Legalistic Briar-Patch Aggravates Business Risk
A briar-patch of legalities has grown up around corporations in the last 200 years of our nation. That briar-patch is a luring threat to business. The perennial question is how closely does a corporation model a person, as opposed to being a strictly legal structure. The issue arose once again in the US Supreme Court’s 2010 decision in the Citizens United case.
Yet, 2010 did not start the question that has long blurred corporate efforts to minimize their financial risk. The perspective is easily torn among thorns. The trouble begins with the difference between legal risk and corporate risk.
Legal risk is the risk of anything bad that might happen due to legal words and conditions, current laws, and lawsuits under them. Corporate risk includes these, plus risks from whatever else might bring a company harm for other reasons. Corporate risk includes risks due to public opinion, unwritten obligations, work flow, customer opinion, the news media, new laws, other interest groups, and on and on.
The job of legal counsel is to advise company leaders on how to minimize legal risk. The duty of company leaders is to minimize corporate risk. The two risks are not equivalent, though some qualities of each make them all too often treated as such. Legal risk is formalized and prescribed in books, with the penalties set almost precisely, at least their type. By contrast, corporate risk is diffuse and amorphous, with the harms hidden in the haze of distance. Corporate risk is by far the less countable, yet as a rule it looms larger than legal risk.
One job lawyers are paid to do is to warn their clients to avoid moves that could be legally construed as setting a precedent or making a commitment. Lawyers also must warn against any doing that arguably could admit guilt or responsibility. As the law is designed, all these—precedent or commitment, guilt or responsibility—are real legal risks.
Yet, the very lack of commitment and responsibility is the prime stuff of corporate risk in the public and political arenas. In law, commitment and responsibility are “bad.” To the public, they are “good.” The conflict in these meanings feeds the ceaseless tug between legal risk and corporate risk.
An example always helps. Look at information: Information, however innocent, in the hands of others generally poses more legal risk than does no information. Therefore, legal advice often comes down in favor of silence. Yet, the tight-lipped approach can increase corporate risk—by priming the public with distrust, which works to jack up regulation. These days, perhaps half of all “green” regulations exist to drag information out of companies. And the distrust still spreads like an oil spill at sea.
Don’t get me wrong. This is not about advice on what violates the law, nor about scheming to break the law. There are no sinister plots in my theme. I only describe the structure of things. Lawyers understand the big machine and their part in it very well. Non-lawyers do not, so they often take the legal answer to be the final answer.
The fix is not to retool the system. The fix is to understand it: Non-lawyers have also to understand the big machine and its parts. All sorts need to know what lawyers know: The legal answer is not the whole answer. The whole answer—the best answer—always involves an additional, hard look at the wide and public origins of corporate risk.
So how might this broader look come about? One way is for corporate lawyers to describe more often and more explicitly the limits of their advice—what it is and is not. Then, save these thoughts in corporate memory.
Broader knowledge of the system will show up in fresh decisions and corporate moves. Such ways will look more sensible in the public eye, an essential matter in adjusting corporate risk.