Understanding Management Risk

Lisa Carter, Managing Director - Clear Insurance

Understanding Business Management Risk

As business leaders, it's crucial to comprehend your risk exposure and evaluate the level of risk you're willing to accept when making operational decisions. In today's litigious environment, strong relationships alone are insufficient; understanding and mitigating risks is essential.

What is Business Management Risk?

Business management risk refers to the factors that may expose business owners and senior management teams to legal action. These risks encompass a variety of scenarios where the actions of a business or its employees might lead to legal consequences.

Three Business Management Risks to Consider

1. Defamation Risk

Defamation risk arises when comments about clients or suppliers, whether in emails or conversations, can lead to legal action against a business. It's important to consider who might be listening or what connections they may have.

Example: A senior employee sent an email with statements about two suppliers that were potentially defamatory. The suppliers discovered the email and initiated legal proceedings, resulting in the company paying $60,000 in compensation to each supplier and $57,390 in legal defence costs.

2. Crime Risk

It is vital to be vigilant about the potential theft of funds, inventory, or intellectual property. Theft by trusted employees can occur in unexpected ways, including:

• Distressing family circumstances leading to embezzlement.
• Selling or using products for personal financial gain.
• Sharing intellectual property with competitors.

3. Employment Risk

Employment-related legal actions can arise from issues like unfair dismissal, discrimination, or harassment. Such actions could also be due to the conduct of contractors or sub-contractors.

Example 1: An employee was dismissed without notice after posting negative comments online. The employee filed unfair dismissal proceedings and was awarded $26,000, in addition to the employer incurring $17,000 in legal defence costs.

Example 2: Three former contractors claimed harassment and bullying by managers. Legal proceedings resulted in the company paying $95,000 to each contractor and over $120,000 in legal defence costs.

What Can You Do?

To effectively manage these risks, it's advisable to seek professional guidance. Advisers, such as Clear Insurance, can evaluate your risks. They can work with you to ensure your insurances are robust and provide adequate protection. This proactive approach can safeguard your business from potential legal challenges and financial losses.

Clear Insurance Pty Ltd is a Steadfast Network Broker. ABN 41 601 916 689. AFSL No. 548953. General Advice Warning: This advice is general and does not consider your personal circumstances. You should consider whether the advice is appropriate. Read the relevant product disclosure statement before purchasing products.  

Should you require further information please feel free to contact us:
e: lisa.carter@clearinsurance.com.au | ph: 07 3174 5013 | w: https://clearinsurance.com.au/