Deck 3: Managing Legal Risks

Question 1

What does the term "legal risk" mean in the business environment?

A) risk of being held liable under the civil law
B) the risk of breaking the law
C) the risk of conviction of a white collar crime
D) any business risk with legal implications

Answer 1

D

Question 2

Toyota Motor Corp. recalled 8.8 million cars after some of its vehicles were found to have unintended acceleration problems. Which goal of a legal risk management plan were Toyota's actions meant to achieve?

A) elimination of risk
B) facilitating self-insurance
C) evaluating risk
D) reduction of impact by implementation of plan

Answer 2

D

Question 3

Benta recently purchased an office cleaning business with established long-term contracts to provide cleaning services to a number of large office building operators. Which of the following actions would immediately allow Benta to be aware of the potential legal risks with the building operators?

A) consult with a law firm to devise a legal strategy
B) consult and arrange insurance to cover legal risks
C) schedule introductory meetings with customers
D) review contracts and customer payment history

Answer 3

D

Question 4

What set of methods is used when forming a risk management plan to limit exposure to legal risks?

A) avoid, reduce, transfer, and absorb
B) divert, decrease, and align risk
C) avert, tolerate, and lessen risk
D) reduce, shift, diversify risk

Question 5

A business finds that employees are involved in many road accidents that result in damages to its fleet of motor vehicles, despite having driving training and instruction. Rather than fully insuring its equipment, the business elects to insure its vehicles subject to a deductible of $1,500 per vehicle. Which approach to risk management does this plan reflect?

A) risk avoidance
B) risk reduction
C) risk transference
D) risk retention

Question 6

Which of the following is an example of risk transference?

A) insurance policy deductibles
B) self-insurance
C) noninsurance
D) insurance

Question 7

Which of the following is the term "in-house lawyer" used to describe?

A) a lawyer working from home
B) a lawyer specializing in home sales
C) a lawyer working inside the business
D) a lawyer working in a law firm

Question 8

Why does one assess the severity of potential losses when creating a legal risk management plan?

A) to establish insurance policies for employees exposed to greater risk
B) to delegate responsibility for devising the risk management plan
C) to prioritize identified risks and guide a given risk through the process
D) to identify mechanisms to adopt, avoid, or eliminate existing risks

Question 9

The shifting of risk to someone else through a contract is an example of what type of risk management strategy?

A) risk avoidance
B) risk transference
C) risk retention
D) risk acceptance

Question 10

Which two approaches are recommended for businesses to effectively manage their interaction with the law and legal issues?

A) precautionary and reactionary
B) risk aversive and risk detractive
C) preventive and reactive
D) managerial and risk detention

Question 11

Which of the following are usually classified as functional areas of a business?

A) production, human resources, finance
B) finance, accounting, training
C) marketing, education systems, finance
D) accounting, marketing, training

Question 12

In which of the following circumstances would a risk manager consider risk avoidance to be appropriate?

A) where it is possible to minimize risk by diversion to another
B) where self-insurance or risk transfer is a considered option
C) where the disadvantages would outweigh the advantages
D) where the undesirable result of an activity is less than its advantages

Question 13

A senior manager conducts five seminars to review the company's legal risk management policy revisions with employees. Concerns raised during this process are sent in a memorandum to the department head. What activity and corresponding step in the legal risk management process is this?

A) evaluating potential risk; third step
B) reducing risk; second step
C) implementing, monitoring and revising; final step
D) carrying out the plan; third step

Question 14

A private investment firm that deals exclusively in derivative investment products is concerned its market activities may become regulated. What measures should the institution take to begin to address its concerns?

A) establish an adequately funded cash reserve
B) manage legal risk with a plan to prevent loss
C) appoint a junior trader to monitor and assess possibility of loss
D) prepare a risk aversion policy manual

Question 15

What is the overall primary objective of the legal risk management process?

A) prevention of loss
B) reduction of risk
C) transfer of risk
D) eliminating loss

Question 16

What is the goal of the third step in the legal risk management process?

A) to hire a legal professional or insurance consultant
B) to carry out the plan, assess the probability of loss, and revise the plan
C) to determine priority concerns for risk management
D) to be aware of risks and make conscious decisions about handling them

Question 17

Prior to completing the financing arrangements needed to fund the purchase of an IT consulting firm, Albert Brinkman met several times with his bank and his accountant to review the terms of the bank's financing offer against the business's financial statements. What activity and corresponding step in the legal risk management process is this?

A) avoiding the possibility of loss; first step
B) transferring legal risk; fourth step
C) evaluating severity of potential loss; third step
D) identifying risk in business decisions; first step

Question 18

Why is the inclusion of a limitation of liability clause in a commercial contract considered to be an effective solution for business legal risk management?

A) It triggers avoidance of liability in standard form commercial contracts.
B) It creates equity because it imposes the same terms on every customer.
C) It limits financial responsibility for damages if there is a breach of contract.
D) It transfers risk from the business owners to the business and its customers.

Question 19

What position, if any, would a lawyer have on the risk management team?

A) professional risk management supervisor
B) part of the executive management team
C) excluded from team; acts as legal consultant
D) part of the team or a consultant to the team

Question 20

After several interviews and calls to follow up on references, Fashion By Design Inc. chooses a seasoned lawyer from a well-known commercial law firm to provide legal services to the company. Why does the company's management expend substantial effort during the lawyer selection?

A) to reduce stress level put on in-house counsel
B) to establish a productive, long-term relationship
C) to allow the risk to remain outside the business
D) to delegate risk management to outside source

Question 21

Dontally Imports Inc. has an expiring contract that the overseas supplier is anxious to renew. However, supplier shortages caused difficulties for Dontally. Recently, it was able to secure a reliable, alternate source to meet its obligations to its large merchant customers. Which of the following actions should the legal risk department recommend regarding expiring contracts?

A) reduce the risk
B) eliminate the risk
C) transfer the risk
D) retain the risk

Question 22

A salesperson contacts the risk manager to report substantial damage to a customer's production line due to the malfunction of equipment purchased 12 months earlier. Why doesn't the salesperson contact a lawyer instead?

A) The limitation of liability in the contract was not known.
B) Sales departments are not part of risk management.
C) The customer has not commenced legal action yet.
D) Authority to contact legal counsel is restricted.

Question 23

What approach to managing interaction with the law and legal issues has the following distinguishing characteristics: compliance with legal requirements and anticipation of changes in the legal environment?

A) preventative
B) anticipatory
C) precautionary
D) reactionary

Question 24

Which of the following would immediately indicate that there are circumstances in need of priority consideration when measuring legal risk?

A) implementation of a standard form contract
B) matters where the potential loss is high
C) a review of long-term supplier contracts
D) topics for inclusion in risk policy manuals

Question 25

A staff member employed in the purchasing department has been experiencing a number of sexually harassing telephone calls from a sales representative of a new supplier. The matter is referred to the legal risk management department for analysis. Which function of the business must be analyzed?

A) business relations
B) human resources
C) employee relations
D) supplier relations

Question 26

Which of the following risk management objectives would be strongly supported by the use of a limitation of liability clause in a contract?

A) It reduces the liability for the risk and is legally enforceable.
B) It transfers the risk, is legally enforceable, and is acceptable to the other party.
C) It eliminates the risk, limits the liability, and is acceptable the other party.
D) It retains a standard form of contractual of limited liability.

Question 27

Against which of the following possibilities should a high probability that a particular loss-causing event will occur be weighed during the risk evaluation process?

A) that the event will definitely occur and the loss is unavoidable
B) whether the likely occurrence may be offset by a low level of associated loss
C) whether a low probability will be offset by a high level of associated loss
D) that the event will likely never occur and should be ignored

Question 28

A legal risk management team meets with their manager to discuss their inability to complete their assignment without the outstanding legal opinion. What element in the criteria for selecting a lawyer is obviously missing from this arrangement?

A) willingness to communicate
B) scope of legal services required
C) understanding of the business
D) knowledge of the industry

Question 29

In which risk management process would consumer protection regulations regarding advertising be noted?

A) evaluation of potential losses
B) identification of legal risks
C) implementation of the plan
D) devising the management plan

Question 30

During a recent takeover of a competitor, Jordden Jeans Corp. was able to realize significant cost savings due to advice from its lawyer throughout the negotiation process. How does this result support the primary function the organization's risk manager required the lawyer to fulfill?

A) provide current industry knowledge
B) provide advice at a reasonable cost
C) provide business evaluation skills
D) provide practical bottom-line advice

Question 31

A food producer inadvertently labelled a batch of a food product incorrectly, indicating it was sulphate-free when sulphate was a standard ingredient. A number of incidents involving severe allergic reactions resulted in the product's removal from shelves and fines levied. What business function did this legal risk rise from?

A) labelling
B) production
C) marketing
D) advertising

Question 32

A cost-benefit analysis is conducted to assess the benefits of substituting a key compound in a herbal health specialty product formula. The substitution would involve the use of an untested inexpensive compound. What business function should be analyzed for legal risk?

A) costing
B) production
C) marketing
D) analyzing

Question 33

Which of the following would strongly support a business strategy for managing risks uniquely associated with commitments made by employees to suppliers or customers?

A) Identify a knowledgeable individual to be risk department manager.
B) Retain legal counsel to act as in-house counsel to the business.
C) Establish policies and financial limits for commitments to customers.
D) Deal with each risk and assign responsibility for each action.

Question 34

Why will a legal risk management plan be an effective tool for a business experiencing a breach of customer security data?

A) A plan to address the risk is already in place.
B) Senior management must manage the risk.
C) Security breaches are considered commonplace, low-level risks.
D) Computer security breaches generally pose less serious risk.

Question 35

Which of the following methods should be used to manage the risk of non-delivery by suppliers?

A) Impose arbitrary performance standards.
B) Check with the supplier's competitors.
C) Charge most supplier losses as expenses.
D) Perform a credit check on the supplier.

Question 36

Rollie's Electric Ltd. notes its lawyer's account for annual corporate fees has been paid twice. No refund was received; instead, a second account has been sent, marked "paid in full." Why are Rollie and his business associates now contacting other lawyers?

A) to devise a plan to recover the overpayment
B) to determine what action would be best
C) because lawyers' billing practices may vary
D) because circumstances warrant a change of lawyer

Question 37

Among its inventory of business decisions to be assessed for possible legal implications, Bellamy Solar Panels Inc. must review its ownership of land and the wording of its warehouse leases. Who has the ability to contribute the most to this assessment?

A) senior managers
B) a lawyer
C) in-house counsel
D) a leasing agent

Question 38

Duble Mining Ltd. began gold mining operations in Brazil a year ago. Recent changes in government policy cause the risk management department to transfer some uninsured risk to satisfy their commercial lenders. Which of the following actions by Duble Mining would immediately confirm to the commercial lenders that their requirements have been met?

A) hiring private security to guard the mine
B) selling shares to the public to raise capital
C) arranging a political risk insurance policy
D) engaging in political lobbying efforts

Question 39

Which of the following correctly identifies elements that would be contained in a legal risk management plan?

A) Transfer the risk and recommend contracts to address changes.
B) Identify the risk and hire insurance professionals to develop policies.
C) Identify the risk and monitor changes in legislation.
D) Track new manufacturing processes and implement new technology.

Question 40

Escalating insurance premiums force Econo Courier Ltd. to re-evaluate its fleet's windshield coverage. The company negotiates a special rate with a local windshield chain and routinely sets money aside to pay for those costs when they occur. What form of risk retention is Econo using?

A) insurance deductibles
B) uninsured
C) noninsurance
D) self-insurance

Question 41

Law firms typically comprise a group of lawyers practising as sole practitioners.

Question 42

Having a legal risk management plan is unnecessary for a small business entity.

Question 43

The most common way to transfer risk is by buying insurance.

Question 44

Rahim's decision to increase the amount of the deductible on his business liability insurance policy will result in the business having to absorb the loss resulting from a future materialization of a legal risk.

Question 45

Consulting with business associates with similar legal problems about the service they have received from any prospects is one method that can be used to choose a lawyer or law firm.

Question 46

A business can transfer specific types of risk by choosing professionals based on their reputation and proven performance.

Question 47

Legal risk management is an optional practice businesses undertake only if there are adequate resources to allocate in-house legal staff to carry out the task.

Question 48

Risk avoidance is always the best policy.

Question 49

The point in evaluating risks is to recognize that not all risks are alike, nor should they be treated alike.

Question 50

Most lawyers can be expected to have the expertise necessary to head up a risk management department.

Question 51

Identification of loss is the primary goal of a risk management plan.

Question 52

Risk managers should have ample knowledge of the business, its activities, and the industry it operates in.

Question 53

Insurance policies covering business risks will provide coverage for all losses as part of their standard terms, so there is no need for the legal risk management team to review the policies.

Question 54

Identification of potential exposure to legal risks involves assessing the organization's functional areas and reviewing its business decisions and business relationships.

Question 55

A legal risk management plan must be continually reviewed, reassessed, and revised.

Question 56

Employees are generally considered to be an unreliable source for identifying risks in an organization's functional areas.

Question 57

The fact that an organization's human resource department is typically exposed to potentially serious risks supports the need for a legal risk management plan.

Question 58

In-house legal counsel are highly trained commercial law specialists, capable of handling all of the business's litigation matters.

Question 59

The best mix of approaches to risk management is rooted in cost-benefit analysis.

Question 60

Anders will be able to support his recommendation that the business undertake development of a legal risk management plan by performing a subjective evaluation involving an assessment of both the probability and the severity of loss.

Question 61

What are risk avoidance, risk reduction, risk retention, and risk transference? When is each appropriate?

Question 62

What is the value of having a legal risk management plan?

Question 63

Identify and describe the four steps in creating a legal risk management plan.

Question 64

Identify and briefly describe the legal risks associated with the human resources function of a business organization. Discuss the implications of not having a risk management plan in place with regard to its human resources.

Question 65

What initial step would you suggest that a business should go through in selecting a lawyer?

Question 66

What is enterprise risk assessment, and how is it related to a legal risk management plan?

Question 67

Should circumstances require a business to retain outside legal advice, what three things are important to communicate to a potential lawyer?