Risky Business

January 1, 2005

The attention focused on corporate governance and professional responsibility within all organisations is at an all time high. This has been driven by the collapse of some well known organisations and the need to visibly be regulating organisations more closely. This has forced risk management and compliance even higher up the agenda of law firms.

The key areas of risk in any law firm are around compliance, reputation, quality, consistency, business continuity and conflicts of interest. Increasingly complex legislation and regulation, for example on money laundering, financial services legislation and data protection, are leading to higher levels of concern and increased levels of caution in most law firms. In order for firms to manage their risk effectively and not just comply with regulations, a firm needs, more than ever before, to understand the type of firm it is and the key areas of risk it faces and then to analyse the significance, probability and consequence of any such risk occurring. To do this a firm must really understand its business and know what its people are doing.

So how does this fit with knowledge management? The scope of knowledge activity in law firms is expanding and is no longer constrained to the development and management of technical legal know-how. Increasingly the focus is moving towards integration of all of a firm’s knowledge and information resources, and looking at these in the context of client relationships, the matter management process (see Survey Results) and understanding how the experience and expertise of a firm’s people can be developed and utilised to maximum effect.

Strategy alignment

Knowledge is the intellectual foundation of a law firm and using it appropriately can ensure quality and consistency of service, improve client satisfaction, increase profitability and enhance reputation. Knowledge management and risk management are both essentially key in defining and managing client relationships and the matter management process.

Alignment of the respective strategies is essential, although at present seems to rarely be achieved in practice (see Survey Results). There is also an underlying tension between the two disciplines which needs to be recognised and dealt with. Risk management tends by its very nature to be risk averse whilst knowledge management should focus, at least in part, on creativity, innovation and personal development – generally seen as risk positive mindsets.

Survey Results

Results of informal survey held at the SCL KM Group meeting.

Firms with the same person responsible for knowledge management and risk management


Firms with aligned knowledge management and risk management strategies


Firms with integrated document management and email strategy


Firms considering knowledge management in the context of client relationship management


Firms considering knowledge management in the context of the matter management process


Firms where the impact of risk management is affecting the lawyers’/managements’ view of knowledge management


Organisational structure

In a few firms risk and knowledge are led by the same person, in most they are not (see Survey Results). There is merit and disadvantage in each approach. Unified management may result in a unified strategy – a holistic view providing the sought after alignment. In different management hands both may be pursued as disciplines in their own right each providing their own business benefit, but with an inherent danger that objectives may conflict. The current prevailing view is that both disciplines should be managed separately but with close liaison between those responsible for them so that the relevant strategies are aligned. This alignment should extend to the language used by both disciplines so that there is a common understanding of the respective terminologies.

Client relationships

Defining and managing the client relationship is a core component of risk management and understanding the client and its business should be an essential part of a knowledge management strategy. For this reason, improving availability of terms of engagement, matter opening protocols and easily accessible information about the client and its business are common objectives.

Ensuring that a firm and its people understand and can comply with the legislation and regulation surrounding a client relationship is critical. Technology is proving an effective enabler in bringing together processes and information from disparate sources so that a full picture of each client relationship is available to the relevant people.

Building and sustaining client relationships can be achieved through knowledge products (such as publications or on-line services) or the development of CRM processes which facilitate the internal sharing of information about the client. However, there is a danger that decreasing personal contact with clients may result in missed opportunities. Processes and technology should underpin the client relationship without it becoming a slave to them.

Matter management

The processes involved in managing matters can have an impact on the successful outcome of the matter and ultimately client satisfaction. An effective knowledge management strategy can capture both best practice documents as well as processes, enabling more extensive, safe delegation whilst ensuring that the right issues are considered and dealt with appropriately. This will in turn help manage the risks associated with the matter.

For knowledge management to be effective it is necessary to encourage formal as well as informal knowledge sharing initiatives to ensure that information, ideas and expertise are being fully exploited. The firm’s knowledge strategy can be used to break down barriers between practices and functions, encouraging the cross selling of services, creating opportunities for sharing and openness, whilst connecting the necessary specialists to the matter team.

Knowledge inputs

Part of having an effective knowledge management strategy in place is to ensure that a firm’s disparate knowledge resources are readily available to fee-earners to help them make better informed decisions. These resources will include the firm’s own know-how, access to external information as well as information about the firm’s own people, its clients and its matters contained in the firm’s financial, HR and CRM systems.

The right knowledge inputs are vital to managing matters effectively and from a risk management perspective they need to be encouraged and supported. With the right inputs the better informed the decision making process will be and the lower the risks associated with it. Technology can now play a huge part in enabling this. However, until recently using different resources has meant learning how to use a wide range of different user inter-face with a variety of searching capabilities. Technology is advancing and more firms are now moving towards integrated searching which enables users to search across disparate resources through a unified interface and searching mechanism.

A current knowledge management initiative in many firms [see box 1] is to enable the right knowledge inputs to be available at the right time in the matter management process. On the face of it this should assist with risk management. However, it is essential that firms have the proper processes in place (e.g. know-how collection management) to ensure that the knowledge management activity itself does not create its own risks for the firm. Further, the right supporting policies and procedures need to be available in an easily understood way so that the associated compliance risks such as data protection, copyright, confidentiality and security are properly managed.

Management of documents and advice

Quality of client service extends beyond getting the law right and managing the client relationship to a firm’s branding and reputation. In many firms an essential component of this will be how the relevant documentation is managed. Document management systems have become more common-place, enabling firms to ensure that lawyers have access to the right version of the right document at the right time. From a knowledge perspective document management is often core to a firm’s knowledge base.

Research by the legal document management vendors has shown that an increasing proportion of lawyers’ time is spent within their e mail (some statistics suggest 70%). E-mail is a powerful communication tool, both within and outside an organisation, but it has inherent risks associated with the way it can be used. Evidence suggests that less care is taken over the content, format and storage of e-mails than traditional letters of advice. E-mails may also contain valuable know-how which is often not captured by law firms in the same way that know-how in documents is. A fundamental challenge for law firms in the future is to achieve an integrated document and e-mail strategy [see box 1]. This will be of benefit from both the perspectives of risk and knowledge management.

Pushing the boundaries of experience

Risks are more likely to have a negative impact on an organisation when a firm attempts to do something that pushes the boundaries of its people’s experience and capabilities. This is where an effective knowledge strategy can come into its own. The ability to delegate work to more junior lawyers relies on the appropriate tools and processes being in place. These will include a formal knowledge communication strategy to ensure latest developments or lessons learnt from recent matters are shared on a timely basis. Knowledge databases are used to capture know-how from matters that may benefit others in the future. As practice becomes more standardised, the development of standard form or precedent documentation and supporting practice notes enables a firm to develop a consistent product and way of doing things across the organisation. This can be backed up with specific training programmes showing fee-earners how to do certain types of work and know what knowledge assets to use when doing so.

This strategy will help manage risk but it can create risks of its own. Is the right knowledge being communicated? Is the firm’s know-how up to date? Is the know-how being used properly? Is the training programme effective? Further, in an effort to maintain quality it is essential that a firm does not become so risk averse and reliant on formal know-how that innovation and creativity are stifled. A standard form might be a good starting point but its real value it to enable a fee-earner’s time and intellectual capacity to be utilised in dealing with the complex or unusual parts of the matter.

One of the perceived dangers of having know-how and information is that either fee-earners become over-reliant on the tools available or they do not apply critical judgement when using them. In some cases there is a fear that fee-earners will start to work on matters outside their own area of competence. It is absolutely vital to ensure that adequate training and coaching is delivered to fee-earners to help them think about when they should use know-how and information, what they should use and how they should use it. Otherwise there is a risk that knowledge management tools become a risk factor rather than a risk alleviator.

From a people perspective a firm needs to ensure that the right people are working on matters in the right way. The emphasis should be on developing the capabilities of an individual lawyer to make them more effective. Whilst risk management will require policies on supervision, knowledge management will look at coaching and mentoring. These may add up to the same thing if they are handled sensitively but they might be implemented in conflicting ways if care is not taken.

Being able to identify the expert in a legal subject or industry sector is often vital. The size and geographical spread of many firms can make it impractical for each person to know who is an expert in what. If the information is hard to find elsewhere there is a danger that busy people will not look for it and will risk relying on their own, unspecialised advice or advice which might not accurately reflect the best the firm can offer. At the moment no-one seems to have found a satisfactory way of dealing with this issue but it is a pressing one from both a knowledge and risk perspective.

Increased complexity for the multi-jurisdiction law firm

Consistency of advice and approach is an issue for all firms but the potential risks are magnified in firms which are multi-jurisdictional. Different legislative and regulatory requirements can make what is best practice in one jurisdiction impractical or illegal in another. Different cultures and approaches to law can impact the way lawyers approach client matters. In terms of client service most firms strive for a one-firm approach that transcends practice group, office and national boundaries. Being able to understand where things need to be done differently and where they can be the same means that knowledge has to be shared across offices. Knowledge management tools and techniques can assist in enabling consistency, for example through standard forms and precedents, document management and billing processes, but should not force consistency which is incompatible with local custom or requirements.

Effective learning

A comprehensive knowledge strategy will have a commitment to organisational learning. This will help underpin the firm’s risk management strategy by including a commitment by the firm to develop its people, so that they are as effective as possible, and to provide the opportunity for the firm and its people to learn from the work they have undertaken and the client relationships they have managed..

As well as technical legal training, lawyers need access to appropriate compliance and skills training to help them manage their clients and matters as effectively as possible, mitigating these areas of risk exposure.

An effective learning loop will help fee-earners to learn from their own and others’ work. Broad post-matter debriefs can assist in this process. Whilst in many law firms these exist as part of the mechanism for collecting know-how, they need to be extended to cover matter management issues generally. This may mean obtaining client feedback on what went well and what did not; considering how other tools and techniques might have helped the matter run more smoothly; looking at how well the matter performed against budget; and ultimately, matter profitability. This will ensure that knowledge about the way a firm handles its clients and work is distilled, lessons are learnt and best practice is shared across the firm.

Knowledge management risks – in brief

Is it clear to your lawyers when materials (in the widest sense: know-how, precedents, books.) are out of date?

How do you stop your lawyers using know-how to advise outside their area of competence?

How can you avoid a claim based on failure to follow the firm’s transaction manual?

Do you educate your lawyers as to the risks of over-reliance on know-how tools?

Is your know-how sanitised before it is made available?

What steps do you take to avoid information overload?

How good are your lawyers’ legal research skills?

Do you strip meta-data from your documents before sending out electronically?

Are your regulations concerning chinese walls adhered to in the context of know-how?

Do you have an effective e-mail policy?

Do you know if your firm is in breach of your copyright or licencing arrangements?

Do lawyers in your firm take proper ownership of their own work and development?

What measures do you have in place to prevent firm members taking know-how with them when they leave?


As with many issues the relationship between knowledge and risk management is more complex than might first appear. There is a wide synergy between the two disciplines and law firms need properly to engage with both to maintain reputation, consistency and quality and to ensure compliance.

Knowledge management is an enabler for better risk management but not a substitute for it. Similarly a firm’s focus on risk should not become a substitute for innovation and creativity or personal responsibility and accountability. Effective knowledge management is a powerful means of better managing risk by better equipping lawyers but this should not be done at the expense of lawyers engaging their own brains in the increasingly complex and regulated environments in which law firms now find themselves.

Juliet Humphries is Managing Director of Pierian Spring Consulting: www.pierianspring.co.uk.

Lucy Dillon is Director of Knowledge Management at Berwin Leighton Paisner.