The best defence for reducing the risk of litigation is to avoid it. The second-best defence is to be prepared for it in terms of structure, practices and processes that records evidence trails that provide a defendable position.
Regardless of the preventative measures put in place, it is inevitable at some point that a business’s activity could result in litigation or regulatory actions.
A technology lawyers, we’ve seen how litigation brings unintended outcomes that involve redirection of valuable resources, reputation risk, brand damage and personal liability. It’s costly, time consuming, distracting and an activity which contradicts the profitable nature of a business.
So, what can your business do to reduce the risk of a dispute in the first place? As the saying goes, better to be safe and prepared than sorry.
Let’s look at sensible and practical approaches that can help prevent or reduce the risk of litigation.
Strategies for managing and protecting against common commercial risks
We will look at five of the more common areas of commercial risk for a business. These are transactions, counterparties, jurisdictions, products and processes. In another article, we discuss them and their specific risk mitigation strategies.
For general business practices, we have set out some ideas of what you can do to manage commercial risks.
Comply with trade practices legislation
A product/service that is supposed to violate laws or standards can attract new regulations if it is perceived to damage markets, the environment or quality of life.
Sales and marketing activities are an area of risk that can give rise to misleading or deceptive conduct in contravention of trade practices legislation, including the Australian Consumer Law (ACL). The risk also applies to the need to act in a manner which investors and customers expect, for example, by ensuring proper corporate governance.
The vast and complex government guidelines for compliance means it can be easy for business owners to find themselves in violation, usually unintendedly. This means leaving their companies open to litigation risk.
However, everything can be avoided by developing a trade practices compliance program within your business.
Again, it is crucial to have a detailed and intensive training management of key staff in relation to misleading or deceptive conduct and how to avoid problems and the risks of non-disclosure.
- Review all representations, warranties and statements before they are used in the market and relied on by others; and
- Ensure that all advertising and marketing materials are vetted and approved by in-house lawyers before being used in the market.
Adapt to technological and regulatory change
Rapid developments in technology are changing how people work, consume, play and interact. It is imperative that a business can adapt to its Government policy and ensure regulations are enforced. These changes will influence the direction of technological developments, and laws and regulations.
Technological and regulatory changes occur at a rapid pace (and sometimes applied retrospectively or with short timeframes to become compliant), and it is essential that businesses are across them at all times.
- Ensuring that risk management systems require that risks arising from technological and regulatory change are identified and proactively addressed;
- Obtaining advice from appropriately qualified experts; and
- Giving particular focus to managing cybersecurity and data breach risks.
Risk management for new products and business activities
Staying competitive in the world of business is vital to every company, especially if it hopes to grow and expand. To achieve competitiveness, remain viable and profitable a business must be vigilant to its litigious risks across all fronts.
Behind the need to expand a business is an underlying risk for possible litigation problems.
Therefore, it becomes crucial for organizations to personalize their approach to each development project in order to lower risks associated with product development.
Issues arising from new products and marketing strategies may be a result of privacy breaches; intellectual property disputes; contraventions of anti-spam legislation; and contraventions of trade practices legislation.
Mitigate these risks by:
- Ensuring that risk management systems require all new product or services be reviewed by in-house lawyers before launch; and
- Reviewing and identifying any potential regulatory issues from a new marketing strategy or way of conducting a business before they are introduced.
Every business faces risks that could present threats to its success. The best way to manage these risks is to be perceptive and well-rounded in every step or decision you make, from transacting with other parties to policies and laws covering your industry.
Be mindful in identifying what the risks are. Take action before they fully affect the whole business adversely. It will not do you any good to just act when the problem has already damaged reputations, put the business at risk and has been costly. You’ll only end up “putting out fires”, spending your resources on damage control instead of investing them on growing your business.
Talk to us, your startup lawyer, and we can help you stay out of court.