The challenge of compiling a risk management manual - focus first on three key areas of risk management
John has had a nightmare of a day. Now it is fast approaching 5 p.m. and his secretary is annoyed that he has not even started to sign the huge bundle of mail sitting on his desk; his computer screen is decorated with post-it notes of the calls he has to return; and goodness knows what he will find in his email inbox. Just then, one of John’s partners puts his head round the door – “Just to remind you about the partners’ meeting next Thursday. It would be useful if you circulated copies of the first draft of the risk management manual before then.” John’s heart sinks. In a rash moment, full of enthusiasm after attending a risk management roadshow, he promised his partners he would prepare a first draft and had been given six months to do it. Now the deadline was fast approaching and he had not even made a start. In truth, he didn’t really know where to start.
A fanciful scenario? Perhaps, but it is no exaggeration to say that drawing up an office manual setting out the practice’s quality control and risk management procedures, can be a daunting prospect. It can take up a huge amount of time and effort and, in the end of the day, will all the hard work be worthwhile? That might well be the case if the manual resembles War and Peace in bulk and complexity and the proposed systems and procedures end up with everyone tearing their hair out in frustration. And then there is always the maverick who ignores systems and procedures anyway….
For those who may be put off by the size, not to mention hassle, of the task that confronts them, the answer is to divide it up into bite-size chunks. It must also make sense to start with those “chunks” that are likely to have the greatest beneficial impact on the practice’s risk profile – “the big three”.
Many claims resulting from a failure to advise on a particular issue, many disputes about fees, and many complaints from clients have underlying causes which may be traced to some failure in the engagement process. That being the case, it was therefore reassuring to note in a recent survey carried out by Marsh that 78% of practices which responded used letters of engagement in some or all cases.
As a minimum, the manual should include:
Money laundering: Identification of Money Laundering Reporting Officer; use of money laundering checklist (specification of form(s)); location of checklist (and evidence).
Client vetting: Procedures for vetting potential clients. Is the prospective client one whose expectations are reasonable and capable of being satisfied? Is their timescale achievable? Is the outcome deliverable? Do you really want to take on someone who has already consulted three or four other solicitors on the same matter, or would you prefer to avoid the risk that yours might be fourth or fifth firm to disappoint the client and to incur a complaint or a claim?
Transaction vetting: There may be some types of work which the practice, as a matter of policy, never takes on. No matter the kudos or the level of fee involved, there are instructions which you will want to decline – transactions outwith the practice’s area of expertise, transactions of much higher value than the practice normally undertakes and transactions for which the practice is likely to be under-resourced. Policies for dealing with these matters should be laid down in the manual.
Letters of engagement: A letter of engagement should be issued at the commencement of each transaction unless there is a good reason for not doing so. Of course, there can be different approaches to different types of work or different types of client but you should be clear as to the justification for departing from the practice of issuing a letter of engagement for each and every individual instruction.
What should be included in letters of engagement? The scope of the work and an indication of the timescale and the basis of the firm’s fees would seem to be among the obvious essential elements. Or maybe that is not so obvious. In the risk survey referred to above, 5% of those who responded indicated that they do not routinely describe the scope of the work in a letter of engagement, 17% do not indicate the timescale for completion of the work and 1% do not give an estimate of fees or an indication of the basis of charges. It makes one wonder what does go in to those firms’ letters of engagement!
If letters of engagement are to be as effective as they can be, it must make sense for them to address the following issues:
- Scope of work (be clear about what is not to being taken on as your responsibility)
- Fees and outlays: if no estimate of fees can be given, then the hourly charge-out rates (or other method by which the fee is to be calculated) should be stated. Provision should be made for fees that may or may not be applicable for abortive work. Arrangements for recovery of outlays should also be set out. In litigation matters, the potential liability for the opponent’s expenses and for recovery of expenses from the opponent if successful should be explained
- Identification of the fee earner(s) who will carry out the work and, if different, the responsible partner
- Timescale(s) for completion of the matter. If no indication of timescale can be given to the client, that should be stated. Otherwise, the client may have it in his head that the work can be completed within a certain timescale, a timescale which is impossibly short, but has not discussed that with you, with the result that the client’s unreasonable expectations have gone unchecked
- The responsibilities of the client(s) to provide timeous information, instructions, documentation etc and the possible consequences of delay on the part of the client(s)
- The requirement for the client to provide you with contact details if he is going to be absent e.g. on holiday, for any length of time
- Terms of business including invoicing arrangements
- Circumstances in which the engagement may be terminated
- Complaints procedure: The client should sign and return a copy of the letter of engagement. It needs to be stated whether any work will be carried out for the client prior to returning the letter of engagement duly signed and, if so, on what basis.
Despite the potential penalty of doubled self-insured amounts, and despite the fact that most, if not all, practices operate some form of diarying system, claims arising from missed time limits are still a prominent feature of the Master Policy claims experience. So, in addition to dealing with the basic diarying procedures, the manual should also cover fail-safe and backup systems. Some ideas are:
- Double diary system – perhaps with access to others
- Central diary system – perhaps with one person responsible for checking that all the day’s entries have been attended to
- Perhaps a separate triennium diary for those involved in pursuer reparation work
- Marking critical dates prominently on the front of the file cover
- Procedure to be followed where fee earner absent
- Procedure to be followed for handover of files where a fee earner leaves to ensure diary entries transferred to replacement fee earner
- Case management checklist
- File review/file audit could, arguably should, specifically cover checking diary entries
- Case review meetings for all cases that are within a specified period of becoming time barred
- A policy that court proceedings should be raised automatically within a specified period prior to expiry of the triennium or other prescription/limitation period.
Learn from your mistakes
The risk survey mentioned above revealed that 42% of respondent practices do not analyse complaints and claims on a regular basis, and 46% do not follow an investigation procedure where a time limit is missed. Yet it should hardly need saying that a fundamental part of good risk management is that practices should learn from their mistakes to prevent repetition by setting down in writing a procedure to be followed not only where claims have been intimated but also, just as importantly, complaints and “near misses”.
The analysis of these matters should focus on identifying not simply the legal cause of the claim or complaint but also its underlying cause and contributory factors. A risk improvement plan can then be formulated to put in place remedial and preventive actions. In the manual, one might expect to see the following:
- Identification of the partner responsible for claims, complaints and for risk management
- Procedure for notification of claims and complaints to the responsible partner
- Procedure for investigating claims and complaints to identify the underlying cause(s)
- Procedure for initiating and implementing risk improvement plan within agreed timescales and by nominated individual(s)
If you can start on your office manual with these three items, who knows, perhaps, in time, you will become one of the “Big Three” of risk management!
Russell Lang is a solicitor formerly in private practice who now works in the Finpro Division at Marsh Ltd (e-mail: email@example.com).