Legal risk isn’t just about avoiding court; it’s about protecting your business’s reputation and staying ahead of change. Over the previous year, UK businesses, whether small startups or established enterprises, have been navigating a landscape shaped by rapid regulatory change, technological advancement and disruption, and heightened stakeholder expectations. Legal risk management has shifted from a reactive exercise into a practical business approach for resilience and long-term planning.
What do we mean by legal risk?
For many business owners, legal risk is often associated with disputes, compliance failures, or regulatory breaches and penalties. However, legal risk can arise from poorly drafted contracts, inadequate data governance, failure to anticipate changes in the law, or simply having unclear or outdated internal policies such as those governing ethics, anti-bribery, data protection, whistleblowing, employee conduct and management.
Challenges for SMEs and larger businesses
Small and medium-sized enterprises (SMEs) face particular challenges. Limited resources and lean legal budgets can make it difficult to stay ahead of legal developments or embed risk management into their day-to-day operations. Yet SMEs are not immune to the same risks that affect larger businesses, for example, employment disputes, contractual liabilities, intellectual property issues and data breaches, which are just as relevant, and often more disruptive. For example, ensuring robust data protection processes are in place can avoid a number of draconian consequences, including significant penalties, civil and contractual claims, reputational damage, as well as regulatory assessments, audits, reprimands and enforcement notices.
The shift towards integrated risk management
Many businesses, regardless of size, are recognising the value of working across teams. Legal, compliance, and risk teams are working more closely with departments such as HR, IT, procurement, and finance to identify and manage risks early. While larger businesses may have more formal structures to support this, SMEs are also finding that a joined-up approach across teams help them respond more effectively to legal challenges and regulatory change.
Key areas under the spotlight
- Data protection remains a key area of focus, particularly with the increasing use of AI and automated decision-making. If AI tools used for recruitment or credit decisioning produce biased outcomes, your business could face discrimination claims and reputational damage.
- Employment law is another rapidly changing area, with changes in working patterns, hybrid models, and evolving tribunal risks requiring constant attention.
- ESG (Environmental, Social and Governance) obligations are also climbing the agenda, with legal teams playing a central role in ensuring transparency and accountability. If ESG obligations are ignored, it’s not just the regulators watching; customers and investors notice too.
- The Economic Crime and Corporate Transparency Act 2023, has introduced new identity verification requirements, expanded Companies House powers, and created a new corporate offence of failing to prevent fraud.
Looking ahead: why proactive matters
What legal risk management in the UK looks like in practice varies across different businesses, but certain patterns are emerging. Many UK businesses are developing a clearer understanding of where legal risks may arise and taking proactive steps to address them.
- Employee training is increasingly used to support awareness and accountability.
- Contract reviews and updates are taking place.
- Regular policy and process reviews are taking place to help identify gaps and inconsistencies before they become liabilities.
- Leadership involvement is becoming more visible, with legal risk being acknowledged and processes being changed, including changes to business strategy and day-to-day business decisions.
When legal risk management is aligned with core business functions, it can influence how decisions are made, how relationships are managed, and how governance is structured. Businesses that take a more integrated team approach often report greater confidence in navigating new laws and compliance requirements, managing reputational exposure, and responding to emerging risks.
How can we help?
Cathy Clark is a Legal Director in our Commercial & IP team, specialising in commercial work (including contract drafting and advice).
For more information on the subjects discussed in this article, please contact Cathy or another member of the team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online enquiry form.
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If this article relates to a specific case/cases, please note that the facts of this case/cases are correct at the time of writing.