Three Questions with Christina A. Ferrari

Bernstein Shur’s Christina Ferrari gives a litigator’s perspective on risk management and mitigation for businesses post-pandemic.

As we continue to navigate this post-pandemic period, how can businesses be proactive in an uncertain time?

Since March 2020, businesses have operated in a constant state of flux and the need to remain nimble in a changing environment is ongoing.  Throughout this significant change, it remains essential to implement thoughtful, balanced risk management and mitigation strategies.

Successful businesses of all types and sizes depend on proper risk management and mitigation—an aspect of business that is sometimes not considered until it is “too late,” if at all. Today’s unique landscape (an uncertain economy and regulatory landscape, coupled with a volatile post-pandemic recovery period) offers an opportunity for businesses to review and strengthen their risk management and mitigation strategies with the goal of achieving a competitive edge and growth in the process.

How can a business get started with reviewing and strengthening its risk management and mitigation strategies?

It’s important to take a preventive approach to get ahead of potential issues or disputes by implementing risk management and mitigation strategies appropriate to your business. You can do this by working with a trusted legal counsel who speaks the language of your business and has the necessary expertise in the legal and regulatory environments that impact your business.  As a complex commercial litigator, I have seen many situations where unexpected liabilities that could have been avoided have negatively impacted a business, even if the resulting litigation against that business ultimately resolves in its favor.  If I do my job, my clients will not have a need (or as much of a need, at least) for my litigation defense services.

This preventative approach involves integrated decision making and strategic planning with several teams in the business, across disciplines and lines, and this core team must be brought along as decisions and plans are being considered. All businesses need to take on a certain degree of risk, but the key is balancing prevention with conducting business: the most effective risk management and mitigation strategies strike this balance, managing a business’s legal and regulatory risks as much as possible while also advancing the business’s mission and goals.

It is also critical during this process that leadership, management, and other stakeholders in the business work with legal counsel to change the business mindset across the company or organization from reactive to proactive. The saying, “an ounce of prevention is worth a pound of cure” is particularly on the nose here. The question of whether to conduct a thorough legal and regulatory risk management and mitigation analysis is fundamentally a financial cost/benefit analysis. In my experience, this is an investment decision that will create value for the business, and is not as expensive as one would think, if done properly. Achieving a more complete understanding of potential legal and regulatory risks in advance that allow a business to make certain decisions and implement key strategies well before major issues and expenses arise is a much less expensive approach overall, and changes in certain practices and plans can directly equal opportunity. This analysis can also be done in stages, by triaging the riskiest issues and mitigating them first, to further control costs and leverage resources.

What are 3 examples of “low hanging fruit” in terms of risk management and mitigation that a business should address first?

First, it is important to begin with a pulse check on the current state of the laws, regulations, rules, and other legal and regulatory guidelines or boundaries that apply to or shape your business or industry.  Many that arose during the pandemic have since disappeared, while some will stay on the books indefinitely, either in their original state or revised.  The crucial question to ask is whether your business operations are meeting the current (and anticipated) legal and regulatory environment.  If not, then creating and implementing strategies for coming into and remaining in compliance becomes paramount.  Areas in which there is enhanced scrutiny by federal and state enforcement authorities include licensing and certifications, including manufacturing and facility inspections, corporate compliance, financial accounting and reporting (especially as to receipt and use of COVID-19-related funding), and data security and privacy.

Second, it is also important to review contractual agreements with third parties, such as customers, partners/collaborators, vendors, and suppliers, and consider the approach your business takes in negotiating such contracts.  Does the business typically just agree to contracts as they are presented by the other side without negotiating key areas, or does your business try to negotiate certain provisions in contracts that are written by the other side, putting your business in a weaker position?  While ad hoc negotiation of a contract that is first presented by the other side is sometimes unavoidable (especially if there is unequal bargaining power between the contracting parties), it is far more advantageous and efficient for a business to work from templates that it has created for its most common types of contracts, containing already vetted and approved ideal language. This will  empower you at the negotiating table while ensuring that the business’ interests are favored and protected as fully as possible, even in instances where compromise occurs and final contracting provisions are changed from the template.

There are a number of risk-shifting provisions or terms that typically appear in contracts that a business should pay particularly close attention to and work to adjust if they are one-sided:

• Force majeure or material adverse change provisions
• Limitation of liability
• Indemnification
• Representations and warranties; personal guarantees
• Termination
• Notices
• Governing law and changes in law
• Dispute resolution
• Data protection and privacy

Finally, other areas to prioritize examining are insurance coverages, including any exclusions, and supply chain vulnerabilities. Regarding insurance coverage, it is valuable to evaluate if changes in policies and coverage levels are needed post-pandemic and whether a business should change internal practices to better protect itself and its assets if there is a lack of insurance protection. It is also helpful to work relationship protections against existing or potential supply chain vulnerabilities into your business’s contracts as much as possible. Such protections may include allowances for increased costs and price adjustments, conditions that trigger due to a lack of or delay in the supply of materials, components, and equipment, forecasting and building of inventories (and delineating ownership of inventories), and exclusivity provisions that may affect diversification of the supply chain.

If you would like to learn more, please reach out to Christina A. Ferrari.