De-risking Litigation Exposure: Conflict Management as an Integral Part of Business Administration
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October 01, 2024
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In today’s interconnected global economy, multinational corporations are increasingly exposed to a wide array of litigation risks. These risks, ranging from class action lawsuits to regulatory enforcement, contractual disputes and intellectual property infringements, pose significant threats to a company’s operations, reputation and financial health. As highlighted in our recent research, litigation has transitioned from being merely an operational concern to becoming a strategic priority for the highest levels of corporate governance, such as boards and executive committees.
The Decade of Disputes report by FTI Consulting confirms that litigation risk is now firmly on the boardroom agenda. This heightened focus is due to a number of factors ─ an increase in the frequency and materiality of litigation, the rise in class actions and escalating regulatory scrutiny across jurisdictions worldwide. Notably, over 59% of business leaders report an increase in litigation over the past year, with 52% expressing concern about potential future litigation.
Given the potential for substantial disruption, companies need to rethink their approach to managing litigation risk. This is where conflict management emerges as an essential component of business administration.
The Importance of Proactive Litigation Risk Management
Just as companies have invested heavily in crisis preparedness for cybersecurity threats, they must adopt a similar approach to litigation risk. Disputes typically do not arise overnight – they evolve from initial controversies to conflicts and eventually to formal disputes. Understanding this evolution is crucial for identifying the most effective points of intervention.
Research indicates that businesses are increasingly recognising the need for cross-functional engagement in managing litigation risk. Our report reveals that successful risk mitigation requires the involvement of various internal stakeholders, such as corporate affairs professionals, who play pivotal roles in protecting a company’s reputation and guiding strategic communications.
Key Strategies for De-risking Litigation Exposure
- Understanding the Global Litigation Landscape: Companies must develop a nuanced understanding of the legal landscapes across their operational jurisdictions, including the implications of political stability and the rising awareness of ESG issues. Proactively assessing the likelihood of regulatory actions or changes in the legal environment is essential to pre-empt potential litigation threats.
- Building Internal Governance and Risk Controls: To minimise exposure, multinationals need robust internal governance structures. This includes developing comprehensive compliance programmes and forming effective risk management committees to oversee litigation risk profiles, identify potential threats and ensure adequate mitigation plans are in place.
- Engaging Proactively with Regulators and Stakeholders: Proactive engagement with regulators, customers, and other stakeholders can prevent conflicts and reduce the likelihood of disputes escalating into litigation. As litigation risk continues to grow, maintaining open lines of communication with key stakeholders is vital to navigating complex legal landscapes.
The Role of Conflict Management in Strategic Business Administration
The findings from the Decade of Disputes report underscore that the most significant threat posed by litigation is reputational damage, followed by increased regulatory scrutiny and the potential loss of investor confidence. In light of these risks, conflict management must be integrated into a company’s core business strategy, not merely as a reactive measure but as a proactive stance.
By incorporating conflict management into strategic planning, companies can better anticipate potential disputes, identify early warning signs, and implement mechanisms to resolve issues before they escalate. This approach aligns with the report’s findings that many large corporations now prioritise protecting their reputation and stakeholder relationships over simply securing favourable legal outcomes.
Conclusion
As the frequency, complexity, and materiality of litigation continue to grow, global businesses must adopt a more agile and comprehensive approach to managing these risks. Conflict management should be seen as a critical component of business administration, essential for de-risking litigation exposure and safeguarding the company’s long-term sustainability. By staying ahead of potential disputes and strategically managing conflict, companies can minimise costly disruptions and maintain confidence in their global operations.
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Published
October 01, 2024
Key Contacts
Managing Director