Risk on the other hand is exciting and get the amygdyla firing neurons all over the place.
In June, 2007, the opportunity to buy a choice piece of real estate in Manhattan was almost irresistible. By June, 2009, that same piece of property could easily bankrupt you. Statistics might tell you that buying is good in the long run (whatever that means) but would not really have given you much insight on when to buy. How do you calculate financial risk (ie the probability of profit over loss and in what amount)?
How do you calculate more generalized risk of a business decision? For example (See Globe and Mail) , the new CEO of Fiat, Sergio Marchionne, said of Fiat’s recent decision to expand in Russian and China:
"One of the things you can do in a period like this [2009 – 10 recession] is either throw yourself into a state of utter despair or start planning for a future that looks half-decent.”
When things are really expanding and the future looks rosy, the contrarians talk doom and gloom. When things are bad and seem to be getting worse, the contrarians are ready to buy, expand and take risk.
Another approach is to ask whether the risk associated with not making a decision or not taking some action outweighs the risk of taking action. Not taking action or accepting the status quo is a decision which entails risk, though it may not be perceived that way.
Does this have anything to do with practising law? I think it does, both from a legal perspective and discussing business decisions with clients.
A good example is found in the many articles on how to structure contract negotiations to minimize certain risks. This is prevalent in the construction contracts in which risk is allocated between the contractor and the owner (and sometimes consultants and architects) especially for matters which are unknown when the contract is entered into. However, this reduces the concept of risk to its simplest terms. The study of risk is much broader than that.
Clients may or may not think cognitively in terms of risk. Client may see their lawyer as a buffer between him and the potential risk of a deal. Any reasonable person knows that no transaction, or indeed any life experience, is wholly free from risk. But if the client sees the lawyer as a guarantor against risk ie the equivalent of investing in a Canada Savings Bond, the lawyer must approach the situation carefully. The client may not express his expectations until later. This translates into “I retained you to protect me” or “I told you I was not prepared to take any chances.”
The medical profession is constantly plagued by this syndrome and now we find doctors who will spend hours with their patients explaining in gruesome detail the possible complications and uncertainties of surgical procedures. They will use those damn statistics to emphasize the risks. Sometimes without further explanation of the risk either of the procedure or the risk of not doing the procedure. This can leave the patient with a sense of hopelessness and high anxiety. There are some doctors who use other metaphors to explain risk which may get the same point across but be more palatable and lead to a better outcome.
At least the risks associated with many medical procedures are reasonably well-known. The risks of winning or losing a legal action (or the infinity of outcomes in between) are generally not quantifiable. The risks associated with a business transaction are often very complicated and it is well known that many business people are prepared to act without full knowledge and in the absence of facts and this is what distinguishes them from lawyers who, being very risk averse, frequently want all the facts before they act.
The business lawyer will benefit by developing a better understanding of risk and how people manage risk.
