Risk is a constant for entrepreneurs but so is the risk-averse nature of lawyers. My friend and colleague Jim Schleckser addresses this dichotomy in the following article. This is an important topic, because entrepreneurs need checks and balances but must push the envelope to grow.
Contrary to popular opinion, most entrepreneurs are not free-wheeling daredevils but calculated risk-takers. Good ones have the ability to accurately understand and manage risk. Most realize that without some risk, there is no innovation, achievement, and reward.
In this context, always asking your lawyers for permission to take any risky action is a pathway to stagnation. Instead, Jim recommends a way you can work with your attorneys to manage risk as an opportunity, not a problem.
They are valuable, if they are used properly
by Jim Schleckser, CEO & Managing Partner, Inc. CEO Project
Most of us who run companies aren’t lawyers, perhaps fortunately. At the same time, we are dependent on the skills, education, and background of professional attorneys to advise us.
The challenge is that we have to be very careful about how we engage lawyers, because they typically see the world very differently than us entrepreneurs do. They are, as a rule, risk averse. Lawyers are trained to uncover risky or negative issues we might run into when we, say, sign a contract or strike a deal. A lawyer’s job is to protect us from every negative scenario that you can imagine. That ultimately gives them a bit of a dark view of the universe. On the other hand, that is an extremely valuable skill to lean on, and one entrepreneurs generally lack.
Where we entrepreneurs have to be cautious, however, is when you ask your attorney for advice to do something they might perceive as too risky. I’ve seen CEOs, for instance, ask their lawyer: Can we do this? The catch is that most of the time your lawyers will tell you, “No, you can’t take that action because it’s too risky,” because they wouldn’t do it given their perception and acceptance of risk.
But life is very rarely as black and white as a lawyer might paint it-especially when it comes to business. There are times when your job as a CEO is to assess what an acceptable level of risk is relative to the return you might get in return. To be successful in business, you can’t hide from taking on risk, rather, we intelligently embrace and manage it.
It’s also important to recognize that lawyers are typically only rewarded for helping steer you away from risk; all their incentives push them in this direction. They know that if the company gets into trouble that should have been avoided, they’ll potentially lose a client. So it only makes sense that they will use their skills and education to minimize those risks.
That’s why I’ve found a better way to tap the strengths of my lawyers. Rather than asking them for permission, I tell them I am going to do something. I then ask for their help in making sure that we do everything legally while also minimizing our risks. In other words:
Creative risk management: How can we do what I want to do without getting into trouble?
See what I did there? I took the question of taking the action off the table and shifted it to making sure the action we are going to take are vetted well by the lawyer. It’s a way to engage your lawyers in a creative risk management which yields a better outcome as a result.
I recall a time when I was involved in a contract to purchase a company with a customer and the lawyers flagged 60 different points of risk in it; in their minds they would never do the deal. But when we walked through those points, more than half of them involved minimal risk. We could then manage the risk of the next 25 points and get to the 5 that were really substantial. In the end, we made the deal – but we might not have if our risk tolerance level had been set to zero right from the start. It’s important to note that the last 5 points needed to be solved with all the business people in the room, we didn’t let the lawyers try to solve these most critical issues.
To be fair, I’m not saying that there aren’t lawyers out there that think and act like entrepreneurs when it comes to dealing with risk. But they’re rare. And if you have found a lawyer like this, you’d better hold on to them tight.