Beyond the Parade of Horribles: Strategies for Nuanced Risk Communication

Here Comes the Parade

The parade of horribles is a trusted rhetorical tool for in-house lawyers counseling their clients on risk. When advising on a contract’s broad indemnity, for instance, an attorney might paint a picture of the company suddenly defending a multi-million-dollar claim. Or when counseling on licensing, a company’s IP lawyer may point to a past loss from using a photo without permission.

In-house lawyers highlight big risks because they carry persuasive impact. Examples help business clients understand their actions’ legal consequences. And they impart a more general lesson — that business teams should work with, and listen to, their legal colleagues.

Like a real parade, a parade of horribles is memorable. But also like a real parade, it can hinder people simply trying to get to work.

The Downside of Harping on Downsides 

While worst-case scenarios have rhetorical punch, simply flagging them brings little benefit to client. That’s because worst-case scenarios deal only with risk severity, that is, the extent of potential loss. And knowing risk severity alone isn’t helpful.

Assume, for example, that a company’s head of IT wants to end a vendor software contract before the term is up. Telling the leader that their action could lead to a lawsuit and damages might be true. But if the contract value is small, if the company has a strong relationship with the vendor, or if the term is nearing its end, litigation may be unlikely. Pointing out only the extreme downside misses that context.

To properly weigh risk, the business needs to know not just risk severity but also the likelihood that risk materializes. Indeed, a common method of assessing risk magnitude involves multiplying a risk’s severity by its likelihood.

Identifying bad outcomes without estimating their likelihood can be worse than unhelpful. It can backfire. When impending doom is a constant theme, the business may perceive all legal exposures as equally likely or unlikely. And if those exposures seldom materialize, the business may lose trust in their lawyers’ ability to measure risk, or even to advise the business. Paradoxically then, lawyers’ over-emphasis on downside can end up increasing organizational risk.

Laying Out Risk Without Losing Trust

Despite its pitfalls, the parade of horribles remains a legitimate rhetorical device for counseling clients on risk. Here are three strategies to do so effectively:

• Explain the “most case,” too. The worst-case scenario is typically one possible outcome, and often not the most likely one. In-house counsel should be transparent and should also lay out the “most case,” that is, the most likely outcome and most likely risk. Those predictions will inevitably be imperfect, so attorneys should explain the assumptions underlying their risk assessments. Business leaders live in a world of probabilities, and they’ll appreciate counsel who can meet them there.
• Use examples. Clients best appreciate risk when it’s illustrated with real-world examples. It may be accurate to say that a software vendor’s warranty disclaimer relieves the vendor from liability. But a more close-to-home framing carries more impact, for instance, describing how an access control flaw could compromise client data. Pointing to cases where risk materialized — like a widely-publicized data breach — can drive home that the risk isn’t hypothetical.
• Think risk optimization as well as risk mitigation. Outlining risk severity and risk likelihood focuses the analysis not just on mitigating risks but also on optimizing them. That means finding a risk level that efficiently balances benefits and costs, and sometimes taking risks that are worth taking.

Conclusion

For some legal issues, a risk-benefit analysis won’t work. A company should never violate a criminal law, for instance, even if they’re confident that they won’t get caught. And in such cases, the parade of horribles is inappropriate: It suggests that an illegal action shouldn’t be taken because of negative consequences, when actually the action shouldn’t be taken regardless of consequences.

This rhetorical tool shouldn’t even be necessary, though, when it comes to such hard no’s. If in-house counsel avoids hyperbolic risk assessments, they should have earned credibility with their business colleagues and won’t need colorful rhetoric for their clients to take them seriously.