Law Firm Risk Management

Operating a law firm necessarily comes with risk. Law firm owners must actively and effectively manage and mitigate those risks. And Law Firm GC can assist your firm in identifying and proactively managing those risks.

What are some of the areas of risk that law firm owners should be monitoring?

While the specific areas of focus may vary depending on the size, practice areas, and geographic reach of the firm, here is a list of a number of key areas every law firm should be focused on:

• Compliance with ethics rules and regulations: Law firms must ensure that all their attorneys and staff adhere to ethical and professional standards set by the relevant bar associations and regulatory bodies.
• Conflict checks and management of conflicts of Interest: Law firms need to identify and prevent conflicts of interest among their clients. To that end, whenever a new matter is opened, your law firm should run a new conflict check.
• Client intake and screening: Law firms should establish thorough processes for client intake and screening to assess the suitability of potential clients and cases. In addition, a firm should be mindful of what kind of matters it is competent to handle and how many matters it can properly manage at any given time. Firms should use written retainer agreements with all new clients and ideally on all new matters.
• Malpractice prevention: Law firms should develop procedures to minimize the risk of malpractice claims, such as regular case reviews and attorney training. No matter how experienced, lawyers can make mistakes if they are overworked, acting outside their area of expertise, or are having mental health or substance abuse issues.
• Case Management and Client Relations: A firm with well-established workflows and processes will typically manage a client matter more effectively. And the more a law firm and its attorneys communicates with their clients, the happier their clients tend to be. Clients who feel they are not kept informed are more likely to file bar grievances.
• Insurance coverage: Law firms need to evaluate and maintain appropriate liability insurance coverage to protect against malpractice and other types of claims.
• Trust accounting: Lawyers are ethically required to maintain proper accounting and segregation of client trust funds to prevent commingling and misappropriation.
• Lateral hiring/onboarding: The lateral movement of attorneys is ubiquitous. When law firms bring new attorneys into their firms, they are adding risk. During the hiring process, firms should engage in thorough due diligence to ensure that the lawyer is a good fit and that there are no unknown issues. For example, if a proper conflicts check is not performed, the law firm may inadvertently cause a serious issue with a current client or current matter. Or the new attorney may have a history of malpractice claims. Or worse, the attorney’s license may have lapsed.
• Lateral movement from the firm: Various issues arise when lawyers leave law firms. Departing lawyers often seek to take clients with them. A departing lawyer may secretly download confidential information and documentation without informing the law firm. The loss of a departing attorney’s expertise may also affect a law firm’s ability to competently represent other clients.
• Marketing and advertising compliance: Law firms must ensure that their marketing and advertising materials comply with applicable ethical rules and regulations.
• Licensing compliance: Law firms should have a system to confirm that all of their have met their continuing education and other licensing requirements and that required annual bar dues are paid.
• Data security and privacy: Law firms handle lots of client data and confidential information. Firms must ensure that they properly maintain and secure client records and documents, both physical and electronic, to prevent data loss or unauthorized access. If a client or other data is compromised, a law firm may be subject to third-party claims for damage, increased compliance costs, and serious reputational damage. To protect themselves and their clients, firms should implement robust cybersecurity measures to safeguard against data breaches, hacking, phishing, social engineering, and other cyber threats.
• Financial risk management: Law firms need to manage financial risks, including collections, trust accounting, internal controls, preventing employee embezzlement, and financial reporting to clients.
• Human resources and employee supervision, training, and development: Law firms should provide ongoing training and professional development opportunities for attorneys and staff to enhance their skills and knowledge and to educate them about legal risks and their ethical and professional obligations. A robust set of policies and procedures will provide guidance and direction to your firm’s attorneys and staff.
• Lawyer well-being: The practice of law can be extremely stressful and take a toll on individual lawyers. Many lawyers suffer from depression, anxiety, and substance abuse. When a firm’s lawyers are not mentally well, client matters are at greater risk of being mishandled. Law firms should seek to implement policies that take care of their lawyers.
• Business continuity and disaster planning: Disasters happen. Lawyers suddenly die or become disabled. Law firms should develop plans for business continuity and disaster recovery to ensure the firm can operate in emergencies.
• Succession planning: Founding partners will not remain at their law firms forever. If the firm has a chance to survive after the founders are gone, the firm must create a plan for the orderly transition of client matters and firm leadership.