Your business needs legal strategy
If some businesses have survived and thrived, it is due in part to their legal strategy. Businesses need to comply with government policies and regulations, while ensuring that they attain the best advantage in dealing with internal and external stakeholders.
A good legal strategy can help a company to cope better, fare better, even thrive better, in an uncertain landscape.
It’s no coincidence that observers have said that today’s world is a VUCA world – Volatile, Uncertain, Complex and Ambiguous. Your business needs legal strategies that help reduce volatility, improve certainty, reduce complexity, and enhance clarity.
You can be sure, all sorts of companies, from young, scrappy startups to established, multi-generational family businesses, need a good legal strategy. If your business doesn’t have one already, this article will help you get started.
But what is legal strategy?
Legal strategy can be described as how your business will use the law in executing its business model.
If you can answer the following questions, you may be on the right path to building a legal strategy for your business.
- What kinds of activities will your business carry out, and what kinds of resources are required for these activities?
- What kinds of licenses are required for the activities that the business will carry out?
- What are the legal requirements to secure the resources required by the business?
- Who are the stakeholders of the business, internal and external?
- What kinds of policies or contracts are needed in dealing with internal stakeholders, such as employees and shareholders?
- What kinds of policies or contracts are needed to secure the interests of the business with its external stakeholders, such as government, clients, and suppliers?
- What kinds of compliance are needed with government policies and regulations, such as data privacy and anti-money laundering?
This can be quite a large undertaking, but it can also pay off in the long run.
But first, a brief reminder
Legal strategy can only formulated after the business model has been adequately appreciated.
If a legal strategy is formulated without proper appreciation of the business model, the strategy may be incompatible with the business model.
A legal strategy should be customized to the needs of the business, rather than being an exercise in copy and paste (which does not need the input of a lawyer).
A clothes laundry would have different business model from a car wash, even if both are washing something belonging to their clients.
When we consider businesses are often in different industries, it becomes apparent that there is no “one size fits all” approach.
Of course, there is nothing to stop you from studying the successes (and failures) of others, and the approaches they took.
There is a good reason why business schools are fond of using case studies — it helps to stimulate thinking, and the students are saved the trouble of going through the same mistakes.
Identifying the Activities of the Business
Legal strategy flows from the activities of the business. Basically, what does your business do?
It’s not just what your business does on a macro level, but also on a micro level. You can start this assessment at a macro, birds’ eye view, but slowly work your way downward.
For example, a clothes laundry might have these activities.
First, the customer drops off the laundry for cleaning. At this point, the workers record the customer’s name and details of the clothes.
Next, the clothes are cleaned.
Next, if needed, the clothes are ironed.
Finally, the customer picks up the clothes and pays for the cleaning. At this point, the workers issue a receipt after receiving payment.
By breaking down the processes involved in the business, you can identify the activities the business will carry out.
Identifying the Resources the Business Needs
After identifying the activities of the business, it’s now time to identify the resources needed.
For example, recording the name of the customer may involve technology.
Recording the clothes, may also involve matching a job order to a customer. It may be technology-based, or not.
Cleaning the clothes may involve workers cleaning the clothes manually. At the same time, washing machines, soap and water are going to be required.
The clothes will need to be dried, so a space may be required. Sometimes, clothes driers are used.
Finally, clothes are stored until the clothes are picked up by the customer.
When the customer pays, payment needs to be recorded. This is the most important part of the whole process, the raison d’etre for the business — making a profit.
If the customer does not pay, the business suffers.
If the employees pocket the money, the business also suffers.
The money needs to be banked in, as soon as possible. So, a payment solution is needed.
By thinking deeply about your business model, you can see the resources required.
Who are your stakeholders?
“Stakeholders” can be simply described as those parties which your business will have to deal with during the course of its business.
It’s a simplified definition, and, there may be stakeholders that your business does not deal with directly. For example, if you are an outsourced service provider and produce work for an ultimate client that you do not deal with directly. But, for easy discussion, we’ll stick to the simplified definition.
Internal stakeholders
You will have internal stakeholders, such as employees, shareholders, and consultants (such as accountants and lawyers). Your business will often deal with them for the benefit of the business.
In such cases, do consider drawing up proper engagement documents (even as simple as a letter) so that you will know what your business can expect from them, and what your business needs to provide to them and pay to them.
Get them to declare and disclose what you need to know, because false declarations and non-disclosures should be their problem, not yours.
Create policies for the internal management of your business, so that your stakeholders know where you stand on issues that matter (like whistleblowing and no-gift policies).
External stakeholders
You will have external stakeholders such as suppliers, customers, and government. As long as your business is in business, it has external stakeholders. (On the other hand, it’s possible to be a one-man company, and so have no internal stakeholders aside from yourself.)
For customers, your approach could be to define and measure your deliverables, while securing your payments. Again, get them to declare and disclose whatever is necessary so that you are not caught unawares. Disclaimers and caveats should be included whenever appropriate.
Many suppliers have their ready-made legal documentation that they want you to sign before they start supplying goods or services (such as SaaS products). Read through, and check with a lawyer before signing.
As for government, your duty is to comply. If in doubt, engage a professional to know and understand what is required in terms of making your business model work. This may also mean engaging with the regulators to ensure that your business model gets the licenses it needs (especially important with disruptive startups which venture into regulated industries), or applying for a sandbox.
The legal strategy document
Business owners and founders often know the value of a business plan. But they are mistaken if they think that the business plan is the be-all and end-all of running a business.
Here is a parallel. When developing software, a business consultant would normally be engaged to understand the business model and how a software would serve the business needs. Then a BRD (business requirement document) would be prepared, identifying the needs of the business.
Once this is prepared, a second document – the FRD (functional requirements document) – is sometimes prepared, to identify what functions are required from the software.
Then, a third document – the SRS (software requirement specification) – is prepared. This last document identifies and describes the requirement for the software.
Even though they may go by other names, the flow is often from business requirements, to functional requirements, to software specification.
Hence, a document prepared for the purpose of formulating and crystalizing the legal strategy of the business, should also start with the business requirements of its legal strategy.
In other words, the first step is to identify, what is required by the business from its legal department?
And that means going through some, if not all, of the questions which we have outlined in this article.
Only when the business’s needs are identified, can you begin to formulate the legal strategy document for your business.
Keeping Your Legal Strategy Relevant
Unfortunately, this is where the similarity with building software ends. The legal strategy document may be a design for the “legal software” of your company, but as its needs evolve, so too should your strategy.
The answer is that periodic review is needed. In 1964, Peter Drucker, the founder of modern management, advocated for an annual business X-Ray. He suggested going through every component of your business, once a year, and evaluating whether the component was still relevant — or whether it should be axed, and resources devoted to other pursuits.
Peter Drucker’s idea was a tool for innovation — but you could also use it, for the continuous innovation of your legal strategy. (Your strategies have to stay relevant, too.)
Thanks for reading.
Disclaimer
This article has been produced for informational purposes only, and should not be treated as legal advice.
If you require professional legal services to help formulate your organization’s legal strategy, please get in touch.