InView Magazine: Issue 7 out now!
Risk is inherent to progress, and few businesses can achieve their objectives without at some point venturing into uncertainty. For in-house counsel, acting in alignment with your organization’s risk appetite is critical – but identifying what this means in practice can be a challenge.
For Emma Roe, Global Head of Legal Operations & Technology Consulting at DWF, when it comes to understanding your business’s risk appetite, “context is everything”. Speaking to InView, she offered some insight into how legal departments can take a structured approach to risk – one which calibrates collective instincts across both legal and the wider business to ensure that everyone is pushing in the same direction.
Risk appetite refers to the amount of risk an organization is willing to accept to achieve its objectives. It acts as a framework for decision-making, guiding everything from strategy to operations. However, risk appetite is often overlooked or misunderstood. Often, according to Emma, “it is placed in the too-hard pile for far too long”.
A common misconception is that risk appetite is static or universally defined. The reality, however, reflects multiple layers of complexity. Risk tolerance varies between individuals, teams and organizational levels. For example, a legal team may naturally lean toward risk aversion, prioritizing compliance and control, while a sales department might be more willing to tolerate risk to close a critical deal.
Emma emphasizes this variability with real-world parallels. “Think about booking a vacation. Some people plan for months with detailed itineraries, while others grab a last-minute deal and feel comfortable with the unexpected. Both approaches involve risk, yet the perception and tolerance of that risk vary.”
Similarly, organizations bring a wide spectrum of perspectives to risk, influenced by personal experiences, cultural factors and leadership context. Yet, without clarity and alignment, those differences can result in fractured decision-making and misaligned priorities.
To manage risk in a consistent manner, Emma identifies a range of potential approaches to risk that organizations should embed within their frameworks: Completely eliminating exposure to risk (for example, by pulling out of risky markets); reducing the likelihood or impact through proactive measures (for example, by diversifying suppliers to avoid single points of failure); and shifting risk to another party through methods like outsourcing or insurance, and choosing to proceed with a clear understanding of potential consequences.
She points out that it’s important to assess which strategy fits any given situation best, bearing in mind the unique needs of each scenario and the organization’s overarching appetite for risk.
Multiple variables interplay when organizations evaluate their risk appetite. These factors can shift based on internal and external conditions, which is why Emma stresses the importance of revisiting risk frameworks regularly. Emma suggests that the following factors tend to come into play when a business makes a decision on risk: Strategic goals, operational control, external context and leadership perspective.
Strategic initiatives typically involve a higher willingness to take risks. For instance, entering a new market, developing innovative products or acquiring competitors. High-risk tolerance here often aligns with the larger potential for high rewards.
Operational areas, such as procurement or health and safety, often necessitate stricter boundaries. Regulatory compliance, for example, demands tighter constraints, ensuring risk is minimized.
Market dynamics, economic landscapes and competitive pressures play a significant role as regards external context. A bullish economic outlook might open your organization to higher risks, while periods of market uncertainty tend to temper tolerance levels.
Leadership priorities and the cultural tone set by senior executives substantially shape how teams perceive and approach risk. If leadership viewpoints on risk remain ambiguous or are inconsistently communicated, organizations are left navigating blind. As Emma says, “Unless your risk profile is clearly articulated, you won’t know where you’re aiming as a team.”
When it comes to risk appetite, Emma says that discussions must begin with an empathetic understanding of individual perspectives: when teams revisit this dynamic collectively, patterns emerge, either confirming shared viewpoints or exposing valuable diversity.
And personal experiences count for a lot. “What risks do I seek or am I willing to take, and that I actually look for in terms of achieving something?” asks Emma. As an example, she relates what happened on an occasion when she and a friend headed out to lunch, and the very different reactions they had when crossing a road. “We were mid-conversation as we got to the road and we both saw a car coming towards us. While my friend jogged across the road, I stepped back and waited for the car to pass. We both saw the car, were working with the same information, and yet both of us interpreted the risk in a completely different way.
“What was it that changed the way we looked at the situation? For a start, my friend is twenty years younger than me, so perhaps she simply knew she was able to move more quickly. But perhaps there are other factors involved. Maybe I’ve had a family member affected by a car accident. Maybe it means I’m a little less willing to take that kind of risk.”
The next step is to expand the conversation to the team level. Are teams aligned in their approach to evaluating risks? Or are internal divisions creating inconsistent recommendations and outcomes?
Emma highlights the value of scenario-based exercises for teams. “Ask questions like, ‘How would the team respond to a high-stakes acquisition opportunity with regulatory and reputational uncertainties?’ and ‘Does the team perceive a long-term customer deal requiring supplier dependence as worth the risk?’
“Such discussions expose critical discrepancies or assumptions, enabling teams to understand and negotiate better risk-related decisions.”
Meanwhile, at an organizational level, Emma says it’s crucial to answer the following questions: Has leadership set a clear risk appetite? Is there consensus on the appropriate risk tolerance for specific initiatives? Are strategies like risk mitigation and transfer well-understood and actionable?
By layering the conversation, businesses can evaluate misalignments between individual teams and overarching organizational goals. “Understanding your team’s low-to-medium cautious nature while your organization operates at a medium-high risk tolerance can highlight disconnects and areas for improvement.”
Emma acknowledges that introducing conversations about risk appetite into an organization is no small task, and she offers valuable starting points to make this complex topic accessible:
Emma makes it clear that risk appetite isn’t just about limiting exposure. It’s about empowering organizations to make informed, confident decisions in uncertain circumstances. With clarity and alignment around risk, businesses gain a competitive edge, unlocking opportunities others may hesitate to pursue.
“Risk appetite evolves with context, growth stages, and external factors. Start small – with personal scenarios, team discussions and simple frameworks. But don’t shy away from empowering these conversations across the organization. If you bring honesty, transparency and collaboration into the picture, the benefits will speak for themselves.”
