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The art of managing risk and oversight, while fuelling startup growth

Every lawyer knows about risk, particularly an in-house lawyer. Managing and mitigating risk comes with the job description. 

Different industries and organizations are adept at dealing with varying degrees of risk, none more so than startups. As they experience huge growth early on, startups are often left legally unprepared. We often see that startups begin as the brainchild of a small group of people who are focused on the product or service their company provides, as such sourcing legal advice from the get go is not always top priority until it is blatantly clear there is a legal issue at hand. 

If we were to focus on the relationship between a CEO and Legal Counsel in a startup context, the first step is to do with collaboration. CEOs of small businesses wear many hats and they relish being deeply involved in all facets of their company's operations, as such, relinquishing control of legal matters to another person is probably not the best idea. What is more fruitful, however, is a CEO who realizes early on that they need a legal partner, someone who still provides them with control but who can be across risk and has the company's back.  

Realizing the opportunity that embracing legal early on provides a huge advantage to the growth of a business, it essentially allows a burgeoning business to bloom without worry. Sam Kidd, CEO of LawVu describes his relationship with Shaun Plant, LawVu’s CLO as one that brings him peace of mind, “I don’t even have to think about it, because I know he’s there; he’s across everything. I never take for granted how lucky we are.” 

“Legal is a resource. We are here to be used and to help,” says Kate Sherburn, Senior Legal Counsel at Who Gives A Crap. Kate’s involvement in a startup that experienced rapid growth has demonstrated to her the value of a collaborative relationship between the CEO and legal, and the undeniable benefit of getting legal involved early on matters.  

The reality is that most people within an organization see their legal counsel as a handbrake, someone who will point out the red flags and put a damper on an opportunity, as such legal advice is often sought at the last minute in matters. Changing this mindset allows a business to grow with better oversight of the risks they are facing and how to manage them. Having legal along for every step of the way does not have to feel like having a watchful teacher over your shoulder, rather it should be a collaborative relationship that allows for the legal to have a clear picture of how they can best help the business achieve its goals. 

The Catch 22 is that this relationship between legal and the rest of the organization has to be reciprocal. The in-house team or counsel has to work at fostering a relationship where legal is trusted and involved in the business from an early stage, as the saying goes, it takes two to tango. 

Communication and relationships are key. General Counsel (GC) and their team should work with organizational stakeholders to communicate the risks posed to their growing business and what they can do to help, making clear why their early involvement is crucial to success. 

In the midst of the COVID-19 pandemic in 2020, toilet paper became a hot commodity. Who Gives A Crap experienced rapid growth as a result, with Kate at the helm of the legal ship. The employee count has almost doubled in the two years Sherburn has been with the company, and she says that to mitigate risk as the only in-house lawyer in the business, it was important to create legal processes and relationships with her colleagues. 

Perspective is imperative. Ultimately, establishing a transparent legal relationship with an organization comes down to framing risk as a natural part of growth that needs to be taken care of in order to seize opportunities, rather than a negative ramification for the business. 

Forbes compiled a rather daunting list of risks that startups face in different areas of the law: corporate, commercial, securities, contract, employment, executive compensation and benefits, intellectual property, real estate, tax, franchise data security, cyber and privacy law. Early involvement of legal and mitigation allows the business to be on the front foot in the legal playing field regardless of area. 

Some domains will be more pressing and of specific concern to a startup GC, and none more so than HR. A common issue of startups is a founder dispute, with the growth and distribution of company profits a cause of conflict. Establishing a company’s shareholders’ agreement early, and crossing and dotting the legal t’s and i’s, can save a growing business from unnecessary headaches down the line.  

Contract risk is also worthy of note. In the early stages of a startup, many CEOs enter verbal contracts without having a comprehensive understanding of possible consequences. As businesses grow and pivot, or are acquired, these contracts can cause issues. 

This leads us to regulatory risk, another hotspot for any General Counsel. Startups in heavily regulated industries such as education, finance, chemicals, food or transport, must comply with regulations specific to their products or services. Seeking or acquiring industry specific knowledge and advice is required as directors and CEOs may be liable for penalties and even convictions if regulations are breached. 

Then there is the environment, an area of risk that also provides a huge opportunity. In 2021, considering the environmental effects of your company is a must. Not only can liability follow environmental damage, but social harm as well. Modern media and customer power are interlinked to startup success as customers demand action and retribution from companies for their environmental actions. A smart GC will see this area as an opportunity to align their business to social values, thereby increasing brand credibility and success. 

Risk is not as scary as it seems. Startups are constantly dealing with risk, and as entrepreneurship proves, with risk there can be a reward. Agile GCs understand that early mitigation and legal advice create a positive business environment that is primed for growth. If a growing business can establish a transparent relationship between the CEO and legal counsel at an early stage this effectively turns on peripheral vision alerts to potential areas for concern. Legal isn't always seen in the best of light, but reframing this to help businesses see that legal are there to help, and the early utilization of them as a resource is a significant aid to business growth.

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