Legislating for Black Swans – legal considerations for business crisis management

4 September 2017

The Black Swan Theory.

There is a risk management principle known as ‘Black Swan Theory’. It proposes, broadly, that conventional risk assessment practices are flawed, because they take insufficient account of what statisticians call ‘outliers’ – events that are unlikely, but may have massive impact.

Sadly, one of the factors driving the rise of business crisis management as a practice is the increasing incidence of events that would once have been considered outliers. Acts of terrorism, flooding, ransomware attacks – they make headline news and serve to heighten the focus on how organisations deal with significantly disruptive events, of human or natural origin.

For legal practices, there are two major considerations. The first is how to assist clients affected by serious incidents; the second is how to protect the practice itself against the impact of a crisis.

The fine legal print of crisis response, encompassing liability, post-event legislation and mitigation of reputational damage, is outside the scope of this article. What we can consider are some of the practical steps that legal firms can take to help deal with a crisis, which may also form part of the advice given to clients.

It’s worth acknowledging at this point that the term ‘crisis’ is relative. Not every incident is on the headline-making scale of a major disaster. But for a medium-sized engineering firm, a small explosion and fire, which causes minor injuries, can have serious consequences, perhaps even threatening the existence of the business.

Any hint of negligence, or possible breach of safety regulations, may leave the company open to claims for compensation, as well as significant fines. Ultimately, however, the reputational damage to the company, in the local community and within its industry, may prove even more harmful.

For the full article please visit Legal IT Insider.