Risky business

The world’s largest companies are expanding internationally as they seek out new opportunities for growth, but managing business risk is a crucial element of their development. At Winston & Strawn, our latest global/ business research identifies the key issues in four areas where multinationals are most focused on such risks: data privacy, competition, bribery and corruption, and cross-border transactions. Our research conducted with a range of senior legal counsel working in house at multinational companies provides key insights into the risks on which these senior lawyers are focused.

Security risks

Data privacy is a crucial area, with leading companies increasingly focused on how to use big data and analytics technologies to add value to their businesses. Doing so exposes them to risk: two-thirds of companies (66 per cent) say safeguarding customer data is their number one priority.It is not the fear of sanctions from regulators or policymakers that worries these companies most but that a security breach affecting customer data would tarnish their brand equity and damage consumer confidence. They are most concerned with the scope and effect of regulation in Europe, rather than the US or other geographies.

Breaching competition law

Multinationals are also focusing closely on the risks competition issues pose to their businesses. Almost a third (30 per cent) of companies say vertical agreements with suppliers and customers put them most at danger of breaching competition laws, while half (52 per cent) warn arrangements with customers are most likely to prompt a competition of inquiries. The growing co-ordination globally of attempts to counter bribery and corruption – more than 40 countries have now put new regulation in place – is also having a significant impact on the business risks that multinationals are monitoring. Nearly half (47 per cent) say their comfort level is low when they consider their policies, controls and the oversight they have of third-party relationships.

Cultural concerns

Finally, as more companies do cross-border deals such as joint ventures and strategic alliances, they are coming under increasing pressure to manage the business risk of such transactions. The different cultural and market practices of their partners are the biggest area of concern to companies – what is acceptable in one country may expose the business to regulatory action in other geographies.

How, then, to respond to these risks without jeopardising the company’s growth opportunities? The key, say companies’ senior legal staff, is to plan ahead to avoid unpleasant surprises – by putting in place data security plans and checks, by incorporating audit steps into competition compliance procedures, by assessing the risk of bribery and corruption problems across the company and throughout the business, and by setting up risk matrices where potential transactional problems and solutions can be mapped.

Risk mitigation

Part of the planning process is to prioritise risk mitigation, by ranking the risks the company faces – both different types of risk and the same risks but in different markets - and dealing with them accordingly. Equally, corporate counsel stress that they can’t manage business risk alone – part of the challenge is to raise awareness of key issues throughout the company and to ensure that other staff are trained properly in what the traps are and how to avoid them.

Michael Madden is Managing Partner of law firm Winston & Strawn London