Corporate Counsel published an article by Bass, Berry & Sims attorney Marc Ackerman highlighting the ways to manage risks in high growth early stage companies. Drawing from his experience as general counsel at Tough Mudder, Marc outlined an effective framework for managing risk that consists of the following three questions:

  1. If we take the proposed course of action, what are the potential costs?
  2. What is the probability that the bad things identified in response to Question 1 will occur?
  3. What is the cost of mitigating or otherwise not taking the proposed course of action?

“By using the answers to these questions to assess risk, you are not managing risk based on hypothetical scenarios. Rather, you have identified the real risks and real benefits specific to the company,” said Marc.

After gathering this critical information, the next step involves applying a simple mathematical equation (detailed in the article), which will appropriately measure these factors in relation to one another to allow attorneys to arrive at a balanced, business-focused, strategic legal recommendation. “By employing this risk equation, we are now not just thinking like risk-averse lawyers, we are thinking like business strategists who can overlay a legal process and empathize with the executive and management teams on the front lines,” concludes Marc. “This gives the legal department credibility when providing recommendations, increasing the likelihood that the business will consult us on other key decisions early on.”

The full article, “Managing Risk in High Growth Early Stage Companies,” was published by Corporate Counsel on April 13 and is available online.