Planning for Growth: Crucial Areas for Proactive Risk Management
Good lawyers understand that not all risk can be, or even should be, eliminated. As time and resources are always limited, organizations should be focusing on risk management in areas that can most affect their business. Small risks and risks that are large but remote may not warrant the cost of addressing, so long as an organization makes an informed choice about living with these risks. However, risks that are existential to the business should almost always be addressed. In addition, managing and planning for legal risk is especially important for businesses that are looking to expand or scale as growing businesses and larger businesses have bigger targets on their backs and more to lose. An essential part of planning for growth includes proactive risk management.
Given the common corporate and legal trends that affect businesses today, here are the areas you should consider focusing on in the coming year when it comes to risk management:
- Intellectual Property. For most modern businesses, protecting intellectual property (“IP”) is essential to your on-going success and financial viability. You may think that if your business has taken the steps to protect “formal” IP such as registering trademarks, copyrights and patents, then you are covered. However, informal IP such as trade secrets may be just as important, if not more important, to your business. For starters, have you done everything you can to protect your formal IP? In addition, what is your process for protecting key trade secrets, and have you reviewed that in the last 12-24 months? Could newly developed IP benefit from the legal protections of a trademark, copyright or patent? The upfront cost of tackling these questions is much less than what you could spend if infringement arises and, in some cases, if the IP is not protected early it cannot be recaptured later.
- Employment and Human Resources. It is often said, and yet is worth reminding, that the most valuable assets of many businesses (their employees) walk out the door every night. Given that, do you have appropriate agreements in place to protect your business from an unexpected departure of one or more key employees (such as confidentiality, IP protections and no “poaching” clauses, among others)? Conversely, have you thought about how you might use employment arrangements to positively incentivize key employees? Lastly, do you have appropriate policies and protocols to handle #MeToo and other employment claims? An annual review of these issues is a best practice and is well worth the investment.
- Independent Contractors. Many growing businesses find the flexibility and efficiency of using independent contractors to be very valuable. However, there are a host of potential legal issues when hiring independent contractors, and the financial and regulatory consequences of using them can be significant if not taken into consideration. Additionally, many states, such as California and New York, are bringing heightened regulatory scrutiny to the “gig” economy and/or have imposed severe limitations on the use of independent contractors. Practices and behaviors that may have gone unnoticed before should no longer be assumed to be safe. While there are many situations where the use of independent contractors is wholly appropriate, if you use independent contractors you should review your situation with legal counsel to ensure compliance as the cost of a misstep in this area can be significant.
- Privacy and Cyber Security. We won’t be the first to warn you that privacy issues are becoming ever more important as cyber breaches have been on the rise for quite some time. Mismanagement of privacy and cybersecurity measures can create existential risk to your business from both a legal and PR perspective. This is no less true for small and mid-size businesses as they also may have significant risk in these areas without fully realizing it. While you can never reduce risk completely, there are many best practices to abide by to protect your company’s information and your customer’s information that meet the rising standards set by recent legislation like the EU’s General Data Protection Regulation, New York’s SHIELD Act and California’s Consumer Privacy Act. Dealing with these issues in 2020 is of paramount importance and is no longer a “nice to have”.
While many businesses come to us after an incident arises, we strongly advise a proactive and strategic approach to tackling these issues as it will save time, grief and money for you and your team in the long run and ensure that your business is in the best possible position to scale.