Federal Government

Agency Capture: Risk

When your client is a governmental entity, what is risk?

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When your client is a governmental entity, what is risk?

In a previous column, I argued that what constitutes “winning” is sometimes not obvious for a government attorney. Because of the complexity of many government programs as well as the fact that the government is the ultimate long-term repeat player, there are scenarios where a government attorney needs to think about more than a narrowly defined “win” in each discrete matter. Winning is a complex, long-term calculus. Today, I’d like to explore the unfortunate corollary: losing, and the risk associated with losing, is an equally complex calculus.

One of the core functions of any attorney is to advise the client as to his or her legal options and the consequences potentially associated with each option. A key component of this function is being able to accurately assess legal risk.

Prospectively evaluating risk for any complex enterprise is always going to be hard, of course. Risk assessment is essentially using legal knowledge to predict the future, and the more complex the enterprise, the greater the variance in your risk assessments. But generally, our profession knows how to do this.

We can divide the questions we ask to evaluate legal risk into two broad categories. The first set of questions is designed to help assess the chances of an adverse legal result in and of itself. This is a broad series of questions that can get enormously complicated, but this inquiry is very familiar to attorneys. We might ask, what is the marketplace doing, now and in the future? What is the current state of the law, and in what direction is the law heading? What state is a suit or regulatory action likely to arise in? There can be a lot of unknowns to manage here, of course, but generally we can provide a client with a decent assessment, with appropriate caveats, along the lines of “if we do it this way, you’re x percent likely to get sued, and y percent likely to lose.” While the substantive law and fact patterns will be different, this set of questions probably isn’t very different for a governmental entity as opposed to a private sector enterprise, assuming two organizations of similar complexity.

The second group of questions is different. Here, the client needs a “so what?” a “what happens if we go this route, get sued, and we lose?” And this set of questions might be inherently tougher for the government attorney.

For the private sector, the “so what” almost always ends up being a dollar amount. I’m oversimplifying, of course, but just like I said in the discussion about winning, private sector entities generally exist to make money for the owners of the enterprise. This means the private sector attorney has a handy metric to evaluate the consequences of losing. The central challenge here is that some things are harder to monetize than others, but this can be accounted for by adopting reasonable and careful assumptions and making sure the client is aware of the appropriate variances and caveats. And ultimately, we know the yardstick to use: dollars. We compare the expected payoff against the weighted value of an adverse judgment the advice ends up sounding something like this:

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“If you redesign your process this way, you expect $x payoff from the improved efficiency. We think there’s a 20 percent chance of a judgment against you, which is likely to cost substantially less than $x. We recommend you proceed.”

Sometimes the government attorney can probably give a similarly easy answer to the “so what?” In areas of law where the consequences are easily monetized, the government is probably able to approach things in a similar or at least parallel way, with similar X factors. Torts, employment matters, contract disputes, may often, but not always, be monetized with some degree of confidence. This enables us to assess the likely consequences to any decision that implicates these areas of law.

But what about in areas of the law that directly govern the content and conduct of the government’s programs and mission? In these scenarios, the risk of a negative result might be hard to quantify, with money or otherwise. When a legal question implicates this area, what is risk, and how should an attorney evaluate and describe it so the client can make informed decisions?

For instance, it is difficult to value the impact of a program not working as well as it otherwise could, with less flexibility and more friction, but for an adverse legal precedent. The negative outcome might get built in to the ordinary operation of the program, but that doesn’t mean the negative outcome didn’t happen.

Some risks will be realized on too long a timeline to value with any degree of certainty. For instance, a precedent relating to a core statute governing the scope of the government’s authority and obligations, even a seemingly minor one, can shape the law in such subtle ways over such a long period of time that its effects can be almost impossible to predict. This implies, of course, that the true magnitude of the legal risk associated with the events that led to that precedent is extremely challenging to nail down, and accordingly it is extremely hard to provide the client a comprehensive picture of the true consequences of any particular decision.

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Even more fundamentally, some programmatic risks are impossible to monetize because they transcend money, or really any quantification of value. While some might disagree, I think most of us will agree it is hard to put a price on public health, safety, national security, and the protection of basic rights. The substantive law tends to make allowances that account for this, of course, but a legal result that disrupts the government’s operations in these fundamental areas can potentially have significant consequences, even if limited to the short term.

So what is a government attorney to do? How do we answer the “so what?”

First of all, just because these challenges exist doesn’t mean they’re paramount at all times. Some programmatic risk can be valued depending on the substance of the question. After all, we’re presuming the attorney has already been able to answer the first set of questions: how likely is a lawsuit, and how likely is an adverse result? In the course of answering those questions, the attorney will necessarily develop an understanding of the facts and law at play. This will help the attorney predict the content of the adverse result. Accordingly, sometimes, the attorney will be able to say, “the only realistic negative outcome is that the program will become x percent more expensive to administer.”

But more fundamentally, these scenarios that defy valuation can and must be managed; the alternative is paralysis. The attorney must have an accurate understanding of the client’s objectives, the context in which those objectives are pursued, and the realistic potential ramifications of a decision. If the attorney adopts a healthy respect for the possibility of unforeseen consequences, particularly in the long-term, the attorney can still provide the client a reasonably accurate picture of the risk, and help the client make intelligent, informed decisions.

Earlier: Agency Capture — Winning

Brian D. Griffin began his legal career as an associate in the New York office of a Biglaw firm, focusing mostly on litigation. He is currently a staff attorney in the U.S. Department of Veterans Affairs Office of General Counsel. His duties include litigation, rulemaking, and programmatic legal advice. Brian attended New York University School of Law and Georgetown University for undergraduate, majoring in Government. You can reach him at BGriffin8134@gmail.com.

DISCLAIMER: The statements and views expressed in this column are entirely Griffin’s own. They do not represent the views of the Department of Veterans Affairs or the United States.

 

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