Legal Risk

"There are two dominant approaches to defining legal risk: 

• One is a broad definition of all business risks with legal consequences. This defines “legal” risk as significant legal consequences that flow from actions attributable to the business; 

• The other is narrow, defining legal risk as risk originating in legal work product or legal uncertainty (which in turn has significant business consequences).

Some definitions extend legal risk beyond strictly legal consequences (e.g. the risk of prosecution, regulatory action, claims or the loss of contractual or intellectual property rights) and look to:

• reputational concerns (especially, how a company’s approach to legal obligations may be interpreted by non-legal audiences, most often captured in the idea of ‘aggressive’ tax avoidance); and,

• intra-organisational culture (e.g. should the definition of legal risk encompass not just complying with the letter of the law, but also complying with the spirit of the law?)".

Source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2594228