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VUCA

By:
Robert C. Bird*

February 4, 2018

“The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with
difficulty, and we must rise with the occasion. As our case is new, so we must think anew and act anew.”
- Abraham Lincoln, 1862 Annual Message to Congress

“Chance favors the prepared mind.”


- Louis Pasteur

Abstract: The legal environment is a significant source of disruption for business. With
this disruption also comes the opportunity for innovation by firms willing to understand
how legal systems function. This manuscript shows how firms can respond to legal
volatility, uncertainty, complexity, and ambiguity (VUCA) in order to capture value and
manage risk. Firms can manage legal volatility by developing an agile organization that
is able to exploit new regulatory opportunities before competitors. Firms can overcome
legal uncertainty by harmonizing legal and business functions and embracing lawyers as
a source of value. Effective management of legal complexity eliminates unnecessary
confusion and optimizes the diffusion of legal knowledge so firms can respond better to
legal challenges. Firms can thrive in legally ambiguous environments by careful
experimentation and developing a learning organization. Law remains one of the last
great sources of untapped competitive advantage, and managing legal VUCA
successfully can keep a firm ahead of its rivals and promote innovation in the
organization.

Failures in global risk management have created an increasingly volatile business environment. In spite
of risk management being an important business priority, and with substantial resources dedicated to
the task, global policy uncertainty is higher now than it was before the 2008 financial crisis, and at points
spiked nearly six times as high as pre-2000 levels.1 In a recent ten year period, business volatility

*
Professor of Business Law and Eversource Energy Chair in Business Ethics, School of Business, University of
Connecticut. Co-Director, Certificate for Corporate and Regulatory Compliance. My thanks for comments and
support from attendees at the Big Ten Business Law and Ethics Research Colloquium at Pennsylvania State
University and the Huber Hurst Research Seminar at the University of Florida. I also appreciate support from
attendees at the 2017 Academy of Legal Studies in Business annual conference at which an early draft was
presented. I am grateful for detailed comments from Robert Prentice, Todd Haugh, Dan Cahoy, and Stephen Park.
All errors and omissions are my own. Email: robert.bird@uconn.edu.
1
ECON. POL’Y UNCERTAINTY, MONTHLY GLOB. ECON. POL’Y UNCERTAINTY INDEX, http://www.policyuncertainty.com/ (last
visited Jan. 24, 2018). See also Ian Talley, Global Policy Uncertainty, A Drag on Growth, is Higher Than in Crisis Years,
WALL ST. J. (Oct. 13, 2016), https://blogs.wsj.com/economics/2016/10/13/global-policy-uncertainty-a-drag-on-
growth-is-higher-than-in-crisis-years/. The costs of risk management are significant. E.g., David Zaring, Informal
Procedure, Hard and Soft, in International Administration, 5 CHI J. INT’L L. 547, 576 & n.149 (2005) (noting that cost
of risk management for banks complying with Basel II regulations will be between $50 million and $100 million per
firm); Todd Haugh, “Cadillac Compliance” Breakdown, 69 STAN. L. REV. ONLINE 198, 199 (2017) (noting in the
compliance context that “[d]espite multinational corporations spending an average of $3.5 million per year on

Electronic copy available at: https://ssrn.com/abstract=3117932


doubled.2 Stock market volatility increased by forty percent in nine years.3 Ex ante risk management
practices failed to predict or prevent the global recession.4 Ex post risk management mitigation has not
done enough to curb the severity and duration of the global recession.5 The global economy is slower to
recover from economic shocks today than at any time since 1975.6

Risk management needs new theories in order to better manage the rising waters of global instability.
The World Economic Forum states that “[i]t is critical that policy-makers and other stakeholders – across
government, civil society, academia and the media – collaborate to create more agile and adaptive forms
of local, national and global governance and risk management.”7 The World Bank has advocated better
risk management as a “critical ingredient in the fight to end poverty” and a powerful tool for global
economic development.8 Numerous industry associations and government regulators are calling for
better risk management processes that can alleviate the increasing shocks of global instability.9
With already substantial political, economic, and social risks expected to increase in 2018,10 there is a
broad consensus amongst academics and practitioners that risk management systems must be
improved.11

compliance, and hiring ‘hundreds, even thousands of compliance officers at a time,’ compliance failures continue
to be commonplace, inviting significant regulatory scrutiny, legal risk, and reputational harm.”).
2
Daniel Mahler, Kevin McDermott & Martin Walker, Winning in a Turbulent World, AT KEARNEY, 2012,
https://www.atkearney.com/strategy-and-top-line-transformation/article?/a/winning-in-a-turbulent-world. See
also MAURO F. GUILLÉN, THE ARCHITECTURE OF COLLAPSE: THE GLOBAL SYSTEM IN THE 21ST CENTURY 2-3 (2015) (reporting a
dramatic increase in the number of crises impacting nations)
3
MICHAEL LEWIS, FLASH BOYS: A WALL STREET REVOLT 112 (2014).
4
Robert T. Miller, Oversight Liability for Risk-Management Failures at Financial Firms, 84 S. CAL. L. REV. 47, 50 (2010)
(quoting former Federal Reserve Chairman Alan Greenspan stating that “‘the most sophisticated private sector risk
management was unable to neutralize the burst’ of the asset bubble precipitating the crisis.”). See also Michelle M.
Harner, Ignoring the Writing on the Wall: The Role of Risk Management in the Economic Crisis, 5 J. BUS. L. & TECH.
45, 45-46 (2010) (summarizing warnings raised before the economic crisis and global recession).
5
See Michelle M. Harner, Barriers to Effective Risk Management, 40 SETON HALL L. REV. 1323, 1365 (2010).
6
The Global Risks Report 2017, WORLD ECON. FORUM 12 (12th ed. 2017),
http://www3.weforum.org/docs/GRR17_Report_web.pdf.
7
Id. at 15.
8
Press Release, The World Bank, Better Risk Management Can Unlock Opportunities, Prevent Crises, and Protect
Poor amidst Disasters and Shocks, Says World Bank (Oct. 6, 2013), http://www.worldbank.org/en/news/press-
release/2013/10/06/better-risk-management-unlock-opportunities-prevent-crises-protect-poor-amidst-disasters-
shocks. According to Norman Loayza, Director of the World Development Report 2014, “the most important finding
of the World Development Report 2014 is that risk management can be a powerful instrument for development.”
World Development Report 2014, THE WORLD BANK 55 (2014).
9
See, e.g., Larry Schlesinger, IIA President Calls for Better Risk Management, ACCOUNTANCY AGE (Oct. 4, 2002),
https://www.accountancyage.com/aa/news/1786143/iia-president-calls-risk-management; ASIC Calls for Better
Risk Management, INVESTMENT MAG. (Nov. 19, 2012), https://investmentmagazine.com.au/2012/09/asic-calls-for-
better-risk-management/; FRC Calls for Better Risk Management, MARKS SATTIN (Nov. 14, 2013),
https://www.markssattin.co.uk/blogs/frc-calls-for-better-risk-management--33191516251; Bank Regulator Calls for
Better Risk Management, CHINA DAILY (Sep. 21, 2009), http://www.globaltimes.cn/content/469882.shtml.
10
Global Risks 2018: Fears and Failures, WORLD ECON. FORUM 11 (13th ed. 2018),
http://www3.weforum.org/docs/WEF_GRR18_Report.pdf
11
See, e,g., Mike Wright et al., Introduction to THE OXFORD HANDBOOK OF CORPORATE GOVERNANCE 1, 16 (Mike Wright et
al. eds. 2013) (“In summary, risk management practices, in general, are insufficient to deal with the risks and
turbulence many companies are encountering in the current economic environment. Most of the guidance is too
high level, wedded to too few methodologies, and not sufficiently grounded in the business.”); Robert F. Weber, An
Alternative Story of the Law and Regulation of Risk Management, 15 U. PA. J. BUS. L. 1005, 1007 (2013) (noting that

Electronic copy available at: https://ssrn.com/abstract=3117932


Risk management currently operates at a constrained efficiency. Risk is currently defined by two
characteristics: probability and impact.12 Probability is the likelihood that the risk event will occur and
impact is the extent of the harm if the risk materialized.13 Multiplying the consequence of an event by its
probability that it will occur gives the expected value of risk.14 Probability and impact metrics are
fundamental to risk management, but fail to present a full account of a risk environment. This is because
risks can have similar probability and impact, but manifest so differently that they require distinct risk
management plans. For example, the defining characteristic of some risks is that they appear with
shocking and unpredictable speed. Other risks build slowly and with ample notice but are so elaborate
or poorly understood that they are difficult to counteract. Still others are so nebulous that firms do not
yet know what questions to ask about the nature of the risk, let alone plan an appropriate response.
Current risk management practice does not systematically account for these distinct characteristics. Each
of these risks compels a distinct ex ante preparation for risk management and a distinct ex post response
for risk mitigation. However, mechanisms for doing so are not currently available in the academic or
practical legal literature. This leaves firms and other risk-takers unnecessarily exposed to threats and
with insufficient tools with which to respond when these threats strike.

This article responds to this substantial gap by introducing the legal literature to VUCA. Designed by the
US military,15 VUCA describes an environment that is so continuously buffeted by legal, social, and
economic risks that it organizations persistently function at the edge of chaos.16 Threats are uncertain
and diffuse and conflict is inherent and unpredictable.17 VUCA is an acronym that comprises four
dimensions of risk – volatility, uncertainty, complexity, and ambiguity. Volatility imposes a sudden and
unstable risk. Uncertainty blurs the understanding of a risk’s significance to the risk bearer. Complexity
generates a convoluted network of interconnected variables and stimuli, creating a risk that defies
secure management without allocation of substantial scarce resources to unravel it. Ambiguity, the most
challenging risk condition, creates risk so nebulous that it defies prediction, leaving risk-bearers unable

“authorities have left critically undeveloped key questions of risk assessment--including, most prominently,
questions that touch on organizational goals and the events that threaten those goals.”); Miller, supra note 4, at 50-
51; Clifford Rossi, Banks Need Better Risk Management, Not More Regulation, AM. BANKER (June 14, 2012),
https://www.americanbanker.com/opinion/banks-need-better-risk-management-not-more-regulation.
12
E.g., David A. Hillson and David T. Hullett, Assessing Risk Probability: Alternative Approaches, PMI GLOBAL CONG.
PROC. 1 (2004) (“Although the precise wording of different definitions may vary, all agree that risk has two
dimensions. . . . It is common to use the terms “probability” and “impact” to describe these two dimensions”),
http://www.projectrisk.com/white_papers/Assessing_Risk_Probability-_Alternative_Approaches.pdf. See also
Mark Klock, Two Possible Answers to the Enron Experience: Will it be Regulation of Fortune Tellers or Rebirth of
Secondary Liability?, 28 J. CORP. L. 69, 96 n.196 (2002) (“The fundamental problem with measuring risk is that it
depends on two dimensions: (1) probability of being different and (2) magnitude of the difference[.]”) But see T.M.
Williams, The Two-Dimensionality of Project Risk, 14 INT’L J. PROJECT MGMT. 185, 185-86 (1996) (criticizing this
perspective).
13
Hillson & Hullett, supra note 12, at 1.
14
Michael Hill, NEPA at the Limits of Risk Assessment: Whether to Discuss a Potential Terrorist Attack on a Nuclear
Power Plant Under the National Environmental Policy Act, 78 FORDHAM L. REV. 3007, 3024 (2010).
15
See, e.g., George W. Casey, Jr., Leading in a VUCA World, CORNELL S.C. JOHNSON COLLEGE OF BUS. (2017),
https://www.johnson.cornell.edu/Portals/32/PDFs/execed/Cornell%20Executive%20Education%20-
%20VUCA%20Leadership%20-%20February%202017.pdf. The US military applied the theory to respond to life-
altering and instantaneous changes to local, regional, and global military crises. Id. at 2-3, 5.
16
Oliver Mack & Anshuman Kare, Perspectives on a VUCA World, in MANAGING IN A VUCA WORLD 1, 5 (Oliver Mack et
al. eds., 2016).
17
Id.

3
to conduct even basic inquiries about risk management and control. Understanding these combined
forces, and the optimal methods for responding to them, offers substantial potential for augmenting
modern legal risk management practices.

While receiving general acclaim in applied business publications, VUCA is largely unheard of in the
academic literature. This leaves a tantalizing opportunity in the literature to illuminate the full potential
of VUCA as a solution to persistent challenges facing the presentation and mitigation of legal risk. The
potential for applying VUCA to improve risk management is virtually limitless. Subjects as diverse as
poverty,18 banking,19 climate change,20 corporate governance,21 information technology,22 health care
management,23 the legal profession24 and numerous other fields all face risk management problems and
can benefit from VUCA-theorized solutions. The potential scholarship for understanding and responding
to VUCA is as diverse as there are risks to contemplate.

The purpose of this article is to systematically define the four VUCA risks, show how these risk
dimensions have direct applicability to legal risks, and then propose strategies for firms to response to
these risk challenges. Part I explores the modern concept of risk and the growth of VUCA from military
acronym to business catchphrase. Part II defines the four VUCA dimensions of risk, volatility, uncertainty,
complexity, and ambiguity, and shows how legal risks manifest in each of these dimensions. Part III
presents risk management strategies for organizations in order to respond to VUCA legal threats. Part IV
concludes. A summary of VUCA and responsive strategies is presented in Exhibit I.

I. THE DAWN OF MODERN RISK AND THE VUCA WORLD

A. The Emergence of the Risk Society

If prostitution is the world’s oldest profession,25 then accepting a risk is the world’s oldest decision.
Gambling has been common since the beginning of recorded history.26 The Bible records multiple

18
Jennifer Prah Ruger, Social Risk Management – Reducing Disparities in Risk, Vulnerability and Poverty Equitably,
27 MED. & L. 109, 110 (2008) (proposing a “social risk management system to provide both universal risk protection
and an efficient, more equitable approach to managing and reducing disparities in vulnerability.”).
19
Cynthia A. Glassman & Scott A. Stoll, Bank Risk Management: How to Operate in the New Environment, 17 BANK.
POL’Y REP. 1 (1998).
20
Christina Ross et al., Limiting Liability in the Greenhouse: Insurance Risk-Management Strategies in the Context of
Global Climate Change, 26A STAN. ENVT’L L.J. 251 (2007) (identifying “practical risk-management strategies that will
allow insurers and other businesses to preemptively mitigate their exposure to climate-change liability.”).
21
Betty Simkins & Steven A. Ramirez, Enterprise-Wide Risk Management and Corporate Governance, 39 LOY. U. CHI.
L.J. 571 (2008); Robert Eli Rosen, Risk Management and Corporate Governance: The Case of Enron, 35 CONN. L. REV.
1157 (2003).
22
Kenneth A. Bamberger, Technologies of Compliance: Risk and Regulation in a Digital Age, 88 TEX. L. REV. 669
(2010).
23
Linda Skaggs, Hospital Risk Management Programs in the Age of Health Care Reform, 4 KAN. J.L. & PUB. POL’Y 89
(1995).
24
Anthony E. Davis, Legal Ethics and Risk Management: Complementary Visions of Lawyer Regulation, 21 GEO. J.
LEGAL ETHICS 95, 96 (2008) (demonstrating “demonstrate the complimentary relationship between the goals and the
mechanics of risk management on the one hand and the principles of legal ethics and professionalism on the
other.”).
25
The modern origin of the phase likely originates from Kipling. RUDYARD KIPLING, IN BLACK AND WHITE 135 (1899)
(describing a prostitute as a “member of the most ancient profession in the world.”).
26
PETER L. BERNSTEIN, AGAINST THE GODS: THE REMARKABLE STORY OF RISK 11 (1996).

4
examples that imply risk taking.27 Soldiers serving Pontius Pilate cast lots for Christ’s robe while he
suffered in the cross.28 The Koran cautions against gharar, careless risk taking or hazards, especially in
the commercial context.29 Talmudic scholars compiling Jewish law interpret the Commandment “to save
a fellow man” as embodying a duty to take a calculated risk.30 Individuals in the middle ages were
exposed to variety of natural risks including earthquakes, plagues, and severe weather, and in addition to
secular protections relied heavily on prayer, belief, and relics to shield them from harm.31

The modern conception evolved from a notion of chance to one based on mathematical probability.32
Renaissance mathematicians solved the puzzle of how to divide stakes in an unfinished game of chance
where one player was ahead of the other.33 That seemingly simple innovation led to the discovery of
probability theory, the mathematical core of a quantitative concept of risk.34 As a result, individuals
could forecast the future, and make decisions based upon that forecast, with mathematical precision and
greater confidence.35 By the eighteenth-century, mathematicians competed to produce tables of life
expectancies for insurance and by the nineteenth century the concept of regression to the mean in
statistical analysis was discovered.36 By the mid-twentieth century, a young future Nobel Laureate
mathematically demonstrated the power of diversification in investing, triggering an intellectual
movement that transformed business and investment decisions around the world.37 The mastery of risk,
whether it be economic, legal, political, or natural, has been the defining gradient between the modern
and historical eras.38

Risk in some form was ever-present, but as human civilization left antiquity behind and embraced the
seductive knowledge of modernity,39 something changed. Bonds forging the industrial society, seeded by
the renaissance and dominant for nearly a century in most Western societies, began to break down. The
industrial society cemented modern social stratification, standardized labor, segregated roles of men and
women, and the structure of the nuclear family.40 That industrial society was being replaced by

27
See, e.g., Ecclesiastes 11:1-3 (“Cast thy bread upon the waters: for thou shalt find it after many days.”); Mark
8:36 (“For what shall it profit a man, if he shall gain the whole world, and lose his own soul?”). See also Risk Taking,
OPENBIBLE.INFO (listing twenty-three bible verses relevant to risk taking),
https://www.openbible.info/topics/risk_taking (last visited Jan. 24, 2018).
28
John 19:23-24; BRIAN EVERETT, CHANCE RULES: AN INFORMAL GUIDE TO PROBABILITY, RISK AND STATISTICS 5 (2008).
29
See, e.g., A. Nehad & A. Khanfar, A Critical Analysis of the Concept of Gharar in Islamic Financial Contracts:
Different Perspective, 37 J. ECON. COOPERATION & DEV. 1, 1-3 (2016); Sherin Kunhibava & Shanthy Rachagan, Sharia
and Law in Relation to Islamic Banking and Finance, 26 BANKING & FIN. L. REV. 539, 548 (2011) (sales based on Gharar
“are invalid precisely because of the excessive uncertainty and risk involved.”).
30
Rabbi Shear-Yashuv Cohen, Breaking the Code: Was There a Moral or Legal Obligation to Warn?, 20 CARDOZO L.
REV. 543, 546 (1998).
31
See generally Christopher M. Gerrard & David N. Petley, A Risk Society? Environmental Hazards, Risk and
Resilience in the Later Middle Ages in Europe, 69 NAT. HAZARDS 1051 (2013).
32
BERNSTEIN, supra note 26, at 2-4.
33
Id. at 3.
34
Id.
35
Id.
36
Id. at 5-6.
37
Id. at 6. That future laureate was Harry Markowitz, then a graduate student studying at the University of Chicago
who emerged as a prominent scholar in operations management and a leader in modern portfolio theory. Id. See
also HARRY M. MARKOWITZ, RISK-RETURN ANALYSIS: THE THEORY AND PRACTICE OF RATIONAL INVESTING (2014).
38
BERNSTEIN, supra note 26, at 1.
39
See generally NEVILLE MORLEY, ANTIQUITY AND MODERNITY 21-47 (2009) (describing this transformation).
40
ULRICH BECK, RISK SOCIETY: TOWARDS A NEW MODERNITY 153 (1992).

5
substantially new architecture based on the principles of modernity.41 This modernization began within
the confines of the structures of industrialization, but eventually “consumed and lost its other” outsider
status and evolved its own structures and norms.42 This did not occur in an explosion of revolution as
some expected, but through the quiet dissolution of industrialization that “exits the stage of world
history on the tip-toes of normality.”43 Industrialization was not the pinnacle of development as some
believed, but a society broken down through the seemingly inevitable evolution of challenging and
questing established norms.44

These quiet (and sometimes noisy) exits of social structures have happened before – the industrial
society, for example, dissolved its long-reigning agricultural and fief-dependent predecessor known as
the feudal society.45 Though innovations in science and technology were substantial, a paradigmatic shift
from industry to modernity also came in the transformation of human risk. In the modern era, society for
the first time is plagued by manmade risks that individuals cannot fully control, avoid, or isolate.46 Risk is
not an inevitable force of nature or a gamble against harm, but an overarching and constant force known
and studied as the risk society.

In the risk society, risk has metamorphosed from intermittent hazard to constant omnipresence driven
by largely manmade forces. Risk in modernity is often systematic, whereby risk is not sought to be
eliminated but is expected in the very human constructs that society creates, such as the global financial
markets. Unlike pre-modern natural dangers, modern risks are often invisible, in that the endangerment
of an individual or a society to a risk, and the consequences when the risk manifests, cannot be observed
in society. For example, the poisonous mix of careless lending, stresses on liquidity, and global economic
trends went largely unnoticed before financial crisis of 2007-09.47 Both sophisticated investors and
individual citizens were “slapped in the face by the invisible hand”48 of a market fraught with risk which,
even after reforms, continues to have hidden fractures today.49 The risk society therefore becomes a
speculative society, whereby conjecture and projections drive everyday thought and perception.50

Risk in modernity is also susceptible to legal construction. The determination of what is and should be
publicized as a risk arises from science and politics, and the determination of who holds responsibility of
that risk comes from the legal profession.51 It is not merely the presence of pollution, for example, that
drives risk in modernity, but only when pollution emerges as a matter of public debate, and often global

41
Id. at 10.
42
Id.
43
Id. at 11
44
Id.
45
Id. at 11, 57.
46
MADS P. SØRENSEN & ALLAN CHRISTIANSEN, ULRICH BECK: AN INTRODUCTION TO THE THEORY OF SECOND MODERNITY AND THE RISK
SOCIETY 16 (2013).
47
See Anjan V. Thakor, The Financial Crisis of 2007-2009: Why Did it Happen and What Did We Learn?, 4 REV. CORP.
FIN. STUD. 155, 156-58 (2015).
48
GARY B. GORTON, SLAPPED BY THE INVISIBLE HAND: THE PANIC OF 2007 13 (2010). This of course refers to economist Adam
Smith’s popular concept of the invisible hand of the market, whereby a free market orders information, supply, and
demand through decentralized actions of individuals in a fashion superior to any central planner. See Adrian
Vermeule, The Invisible Hand in Political and Legal Theory, 96 VA. L. REV. 1417, 1418-20 (2010).
49
See RAGHURAM G. RAJAN, FAULT LINES: HOW HIDDEN FRACTURES STILL THREATEN THE WORLD ECONOMY (2010).
50
BECK, supra note 40, at 73
51
Id. at 23.

6
public debate, does the issue become part of the risk society and regulation commences.52 This is
exemplified by the numerous treaties and agreements that attempt to regulate or eliminate certain
types of pollution. A number of national representatives convene over the decades to address a
persistent, pervasive, and potentially permanent manmade risk. Risk thus permeates so completely that
“the life of a blade of grass in the Bavarian Forest ultimately comes to depend on the making and
keeping of international agreements.”53 Risk society is thus a world risk society, and manmade chronic
risks are inherent and inalienable traits of the legal environment.

B. The Evolution of VUCA: From Military to Markets

While sociologists tracked, and the world experienced, the emergence of the risk society, parallel forces
of instability were facing armed forces in the Western world. Military leaders observed the transition
from the industrial age to the modern age, and noted that the modern age would be complex and
demanded a flexible and adaptable military.54 They faced a constantly evolving environment whereby
the risks faced were persistent and rapidly changing. The need arose to train men and women who can
navigate unfamiliarity and anticipate conditions that do not yet exist, and the demand for such
strategists was greater than the supply.55

From this dynamic environment emerged the invention of VUCA.56 VUCA is a method of managing risk in
environments that are highly chaotic, dynamic, and opaque.57 VUCA enabled the US military to better
understand unstable environments, anticipate change, and manage risks.58 As the Joint Task Force
Commander during Operation Uphold Democracy in Haiti recalled:

The leader in today's environment will encounter, in many cases, situations that are
vague, uncertain, complicated and ambiguous. This is known as “VUCA.” . . . Any doubts
that I might have had about the significance of that point were certainly eradicated as
we kicked off Operation Uphold Democracy in Haiti. . . . We were en route to the
objective for forceful entry. . . However, while en route, the mission changed. Instead of
going in with a very clearly defined mission of, among other things, neutralizing the

52
SØRENSEN & CHRISTIANSEN, supra note 46, at 11.
53
BECK, supra note 40, at 23.
54
Wayne E. Whiteman, U.S. Army War College, Training and Educating Army Officers for the 21 st Century:
Implications for the United States Military Academy 2 (1998), http://www.dtic.mil/dtic/tr/fulltext/u2/a345812.pdf.
55
Robert H. Scales, Return of the Jedi, ARMED FORCES J. (Oct. 1, 2009), http://armedforcesjournal.com/return-of-the-
jedi/. Robert Scales was a Commandant of the U.S. Army War College. See Major General Robert H. Scales, U.S.
ARMY WAR COLLEGE, https://ssi.armywarcollege.edu/pubs/people.cfm?authorID=104 (last visited Jan. 24, 2018).
56
For a summary of the four elements of VUCA and strategies to respond to VUCA threats, see Exhibit I.
57
Volker Franke, Decision-Making Under Uncertainty: Using Case Studies for Teaching Strategy in Complex
Environments, 13 J. MIL. & STRAT. STUD. 1, 1 (2011).
58
STEPHEN J. GERRAS, STRATEGIC LEADERSHIP PRIMER 11 (3d ed. 2010),
https://ssl.armywarcollege.edu/dclm/pubs/slp3.pdf. “21st Century leaders must approach this challenge with
intelligence, energy, and urgency, confident that these realities and complexities can as easily be transformed into a
competitive advantage when turned against the enemies of our nation.” Id. See also Charles D. Allen & Jeffrey R.
Groh, Avoiding Strategic Misfortune: A Framework for Defence Leaders, 159 THE RUSI J. 58, 60 (2014)
(recommending that senior military leaders use VUCA as a “functional framework to consider the factors for
strategic matters, to assess and judge their importance as points of leverage, and then develop a prudent
strategy.”). In the words of one author, “[e]very corporal is a strategic corporal,” and the responsibility for dynamic
leadership is shared throughout. Franke, supra note 57, at 4-5.

7
FAHD [Armed Forces of Haiti], and protecting American citizens, the mission changed to
reestablishing the legitimate government of Haiti in an atmosphere of cooperation and
coordination. We rapidly turned that around and came up with a new plan. The next
morning, as we landed at Port au Prince, I was met . . . by the Haitian major in charge of
the airfield security—the same airfield that we had been planning to hit early on in the
battle, if it had gone that way. As we walked off that airfield together I could not help
but think that under the original plan, in force just ten hours earlier, there would have
been very little left for the major to be in charge of.59

If the VUCA concept was useful enough for an organization charged with split-second, life-or-death risk
assessments, it was only a matter of time before the concept spread to other disciplines. Already long
comfortable with adapting military principles,60 business commentators applied VUCA to modern
commerce and coined the phrase “the VUCA world.”61 The VUCA world is volatile, unstructured,
complex, and “if you’re not confused, you’re not paying attention.”62 Authors applied VUCA to improve
adaptive management,63 teamwork,64 agility,65 talent development,66 decision-making,67 risk
management,68 responsible leadership,69 strategic thinking,70 simulations,71 and other management

59
Henry H. Shelton, The Second Annual Hugh J. Clausen Leadership Lecture: Attributes of a Leader, 151 MIL. L. REV.
216, 220 (1996). When General Shelton was given the opaque command to “cooperate in an atmosphere of
coordination and cooperation, he recalled:

What does that mean? I was forced as a leader to redefine it redefine it first of all for [Lieutenant
General in the Forces Armées d'Haïti] Cedras by saying, “The way I interpret this is that I will
coordinate with you about what I plan to do . . . and as long as you cooperate I will continue to
coordinate and when you do not you will cease to exist as an institution.” He understood that and
he took very detailed notes.

Id.
60
E.g., William A. Cohen, War in the Marketplace, 29 BUS. HORIZONS 10, 12-14 (1986) (applying military strategy to
marketing); David Cadwood, Managing Innovation: Military Strategy in Business, 27 BUS. HORIZONS 62, 62 (1984)
(noting that “[m]ilitaristic analogies to organizational life have been around for a long time” and will become
increasingly relevant in the future).
61
Bob Johansen & James Euchner, Navigating the VUCA World: An Interview with Bob Johansen, RES.-TECH. MGMT.,
Jan.-Feb. 2013, 10, 10.
62
Id. In addition, “actually being frightened is part of the game, too.” Id.
63
Adaptive Leadership for the VUCA World: A Tale of Two Managers, THUNDERBIRD SCH. GLOBAL MGMT. (June 6, 2016),
https://thunderbird.asu.edu/knowledge-network/adaptive-leadership-vuca-world.
64
Tom Cockburn & Peter A.C. Smith, VUCA and the Power of Emergence Teams, 5 PM WORLD J. 1 (2013).
65
Nick Honrey, Bill Pasmore & Tom O’Shea, Leadership Agility: A Business Imperative for a VUCA World, 33 PEOPLE &
STRAT. 32 (2010).
66
Amit Mukherjee, How to Recruit, Prepare Leaders for a VUCA World, SHRM (Nov. 7, 2016),
https://www.shrm.org/ResourcesAndTools/hr-topics/talent-acquisition/Pages/How-to-Recruit-Prepare-Leaders-
VUCA-World.aspx.
67
Jyotirmaya Satpathy et al., Crafting Neuro Economic-Managerial Decisions, 3 INT’L J. TREND RES. & DEV. 469 (2016).
68
Foo See Liang, Lex Lee, Cheng Nam Sang, Risk Management in a VUCA Environment, DELOITTE, Apr. 22, 2016,
https://www2.deloitte.com/kh/en/pages/risk/articles/risk-management-in-vuca-environment.html.
69
Anita Sarkar, We Live in a VUCA World: The Importance of Responsible Leadership, 30 DEV. & LEARNING IN ORGS.: AN
INT’L J. 9 (2016).
70
Dale L. Moore, The Experience of Strategic Thinking in a Volatile, Uncertain, Complex, and Ambiguous (VUCA)
Environment (Aug. 31, 2014) (unpublished Ph.D. dissertation, George Washington University) (on file with author).
71
Tim Reeves, VUCA and the Value of “How-to-Think” Business Simulations, THE REGIS CO. (Aug. 24, 2017),

8
challenges.72

VUCA’s rapid and viral-like spread through applied business has been both a strength and a weakness.
This quick diffusion strengthens VUCA through repeated application across a variety of challenging
contexts. The lessons from these real world applications are then recounted and used to be better
develop the concept. The weakness, however, is that VUCA’s swath through business skipped the
traditional mechanisms of theoretical development and application. Theory typically develops slowly
and incrementally, with ideas crafted as a well-organized whole having an unambiguous logic and explicit
mechanisms of causation.73 Whereas academic theory turtles into prominence through construction and
revision, the ideas of VUCA spread with leporine speed.

The result is that VUCA, in spite of its potential illuminative and analytic power, has developed
chaotically. The theory’s surge enabled a wide distribution of VUCA principles, but at a cost of nearly
blurring VUCA into incoherence. Some comment on the existence of “VUCA world” and carelessly
conflate the four elements into “[h]ey, it’s crazy out there!”74 Other sources misstate the acronym
altogether.75 Still others have already ‘upgraded’ VUCA into catchy concepts like ‘VUCA prime’ and ‘VUCA
2.0’ before the original concept has hardly taken rigorous root in business.76 Authors have begun to warn
that “VUCA has become a cute, trendy way of saying ‘unpredictable change’” and even consider the
military acronym to be “hijacked” from the military with companies deserving “blessed relief from VUCA
anxiety.”77 Managers encountering VUCA may simply throw up their hands because of the lack of
actionable advice.78 If too many authors pull at the threads of VUCA, the idea risks unraveling into
another management fad that comes and goes without lasting impact.79

Fortunately, this theoretical instability brings with it promising opportunity. Fortunately, there are
authors that have explored VUCA rigorously, with graduate theses and dissertations methodically

http://www.regiscompany.com/blog/vuca-business-simulations/.
72
See generally MACK ET AL., supra note 16.
73
See Violina Rindova, Editor’s Comments: Publishing Theory When you are New to the Game, 33 ACAD. MGMT. REV.
300, 300 (2008); David A. Whetten, What Constitutes a Theoretical Contribution?, 14 ACAD. MGMT. REV. 490, 494-95
(1989).
74
SIMON HALSAM & BEN SHENOY, STRATEGIC DECISION MAKING: A DISCOVERY-LED APPROACH TO CRITICAL CHOICES IN TURBULENT
TIMES 14 (2018); PATRICK HOLLINGWORTH, THE LIGHT AND FAST ORGANIZATION: A NEW WAY OF DEALING WITH UNCERTAINTY 9
(2016); Nathan Bennett & G. James Leomine, What VUCA Really Means for You, HARV. BUS. REV., Jan-Feb 2014, at
27, 27 (criticizing this conflation because it becomes “difficult to know how to approach a challenging situation and
easy to use VUCA as a crutch, a way to throw off the hard work of strategy and planning. . .”).
75
See, e.g., Learning to Love the “VUCA” World with Shell and Nokia, 32 STRAT. DIRECTION 19, 19 (2016) (omitting
complexity and describing VUCA as “volatile, uncertain, chaotic and ambiguous”) [hereinafter Learning to Love the
“VUCA” World]
76
E.g., Tom O’Shea, Ready to Shift Your VUCA to VUCA Prime?, AGILITY CONSULTING AND TRAINING (Mar. 20, 2017),
http://agilityconsulting.com/your-agility-advantage/ready-to-shift-your-vuca-to-vuca-prime/; Bill George, VUCA 2.0:
A Strategy for Steady Leadership in an Unsteady World, FORBES (Feb. 17, 2017),
https://www.forbes.com/sites/hbsworkingknowledge/2017/02/17/vuca-2-0-a-strategy-for-steady-leadership-in-an-
unsteady-world/#22ca851613d8 (replacing VUCA terms with vision, understanding, courage, and adaptability).
77
Nathan Bennett & G. James Lemoine, What a Difference a Word Makes: Understanding Threats to Performance
in a VUCA World, 57 BUS. HORIZONS 311, 312 (2014); Nigel Nicholson, VUCA – What’s the Big Idea?, MGMT. TODAY
(July 9, 2014), https://www.managementtoday.co.uk/vuca-whats-big-idea/article/1301137.
78
Bennett & Lemoine, supra note 77, at 312. The authors interviewed one executive who lamented “How can you
plan anything in such a VUCA world?” Id.
79
Learning to Love the “VUCA” World, supra note 75, at 19 (terming VUCA a “faddy concept”).

9
exploring VUCA,80 at least one thoughtful book dedicated to VUCA,81 and a promising special issue
forthcoming in a reputable applied management journal.82 There is also a thoughtful applied article by
Nathan Bennett and G. James Lemoine, what I consider to be a leading article on VUCA, which is one of
the few that address the concept carefully and systematically.83 In spite of its viral evolution, with the
emergence of the risk society and chronic instability, VUCA can have a substantial impact. In legal
scholarship, where management of legal risks is of fundamental importance, VUCA is almost completely
unknown.84 This leaves the concept wide open for better understanding how to identify and understand
legal risk, as the next section will show, in a new and dynamic fashion.

II. THE VUCA WORLD AND ITS FOUR DIMENSIONS OF RISK

VUCA divides risks into four dimensions – volatility, uncertainty, complexity, and ambiguity. Each of these
risks has distinct causes, characteristics, and consequences. The purpose of this Part is not simply to
restate settled knowledge, but rather concretize and particularize a promising theory. Each section has
two purposes: to delineate the boundaries of the particular risk and then illustrate how that risks
manifests in the legal environment. This Part shows that not only are these risks omnipresent for
modern organizations, but they are also significantly driven by legal and regulatory forces.

A. Volatility: Unexpected and Dynamic Change

Volatility in business is usually tied to activity in the financial markets and is thus commonly expressed as
fluctuation of the price of a financial instrument over time.85 In spite of this focus, volatility is a much
broader concept than market changes, and can be experienced in any environment where fluctuations
exist over time.86 Since firms must continually respond to changing market and non-market conditions in
order to remain competitive, volatility can permeate virtually every aspect of an organization. Exchange
rate fluctuations impact the import and export of goods. Political instability from boycotts,

80
E.g., Adam A. Karaoguz, Preparing to be Unprepared: Ground Force Commander Decision Making in a Volatile,
Uncertain, Complex, and Ambiguous World (June 2016) (unpublished Master’s thesis, Naval Postgraduate School)
(on file with author); Laura E. Bernstein, The Perceived Importance of VUCA-Driven Skills for 21st Century Leader
Success and the Extent of Integration of Those Skills into Leadership Development Programs (2014) (unpublished
Ph.D. dissertation, Drake University) (on file with author); Moore, supra note 70.
81
See generally MACK ET AL., supra note 16.
82
See David Vogel & Kara Cypress, Call for Papers for a Special Issue on: Management Innovation in an Uncertain
World, CAL. MGMT. REV.,
https://cmr.berkeley.edu/documents/paper_calls/cmr_special_issue_management_innovation.pdf (last visited Jan.
24, 2018).
83
Bennett & Lemoine, supra note 77.
84
A Westlaw search for the term “VUCA” returned twenty-two sources. These mainly comprised of passing
references to VUCA or citations to unrelated subjects such as the Vanuatu Court of Appeal and the Valparaiso
University Center for the Arts.
85
Charles K. Whitehead, The Goldilocks Approach: Financial Risk and Staged Regulation, 97 CORNELL L. REV. 1267,
1286 n.91 (2012); Lawrence Harris, The Dangers of Regulatory Overreaction to the October 1987 Crash, 74 CORNELL
L. REV. 927, 928-32 (1989).
86
Joshua Aizenman and Brian Pinto, Managing Economic Volatility and Crises: A Practitioner’s Guide, in MANAGING
ECONOMIC VOLATILITY AND CRISES 1,1 (J. Aizenman & B. Pinto, eds. 2005) (explaining that volatility can be “applied to
the weather” as well as “to describe a political climate, such as that prevailing in Iraq or Haiti; or the procyclical
response of fiscal policy to fluctuations in the price of oil for an oil exporter such as Nigeria; or even the behavior of
a crowd in downtown Buenos Aires . . .”).

10
nationalization, and other threats can jeopardize a firm’s investments.87 Health epidemics, natural
disasters, and technology failures are other examples of volatile situations that can challenge an
enterprise.88 All of these events have a kind of ‘burstiness’, whereby sudden events generate significantly
enhanced activity over short periods of time followed by a longer period of stability.89 The challenge for
firms is knowing when the burst will appear and how to respond.

Volatility has four distinct traits that distinguish it from other types of risk. First, volatility is unexpected.
The appearance of a volatile risk cannot be fully predicted by the enterprise in spite of risk management
or other tools that attempt to control fluctuations. Firms can be aware that the volatile event could
appear at some time in the future. However, the unawareness lies in the specific time, place, and
circumstances that the volatile event could face the enterprise.

Second, volatility is a typically a sudden event. Volatile events, especially those in financial markets, that
increase a firm’s risk exposure can strike in a matter of seconds or as fast as securities can be traded on
the open market.90 Both large and small firms are vulnerable to sudden events. Small companies may not
have the resources to mobilize against a sudden threat. Large organizations may have substantial
resources, but can be impaired by substantial bureaucracies or an inflexible culture that slows responses.
Sudden events can catch a firm when it is especially vulnerable, leaving an otherwise prepared firm
unable to fully respond.

Third, volatile events are inherently unstable. Volatility can consist of a single and consistent disruption
or occur with a severe initial magnitude and then gradually dissipate. Volatility levels can also fluctuate
wildly within a single overall volatile event. Finally, volatile events have an unclear duration. The volatile
event may strike only once, such as a rapid market downturn, or continue over a period of days, weeks,
or months. Just as firms are unable to fully predict when a volatile event will begin, firms are similarly
unable to fully predict when a volatile event will subside.

In spite of these unknowns, volatility does not necessarily imply a complete lack of knowledge about the
particular risk.91 Firms facing volatility can be fully aware about the causes of a volatile event. For
example, firms realize that consumer trends, illegal trading scandals, or natural accidents can be the
precipitators of volatile risks in financial markets. Similarly, firms can also be fully aware of the
consequences of a volatile event, such as a loss of market share, reputation, physical assets, or firm

87
See, e.g., Matthias Busse & Casten Hefeker, Political Risk, Institutions, and Foreign Direct Investment, 23 EURO. J.
POL. ECON. 397, 412 (2007) (finding that “government stability, internal and external conflicts, law and order, ethic
tensions [sic], bureaucratic quality and, to a lesser degree, corruption and democratic accountability are important
determinants of foreign investment flows.”); Joshua Aizenman, Volatility, Employment and the Patterns of FDI in
Emerging Markets, 72 J. DEV. ECON. 585, 596 (2003) (concluding that “higher volatility in the emerging market has
adverse consequences on the multinational’s profitability, as well as on the expected multinational’s employment
in the emerging market.”). Firms can overcome political risk even in highly unstable environments. See, e.g., Jedrzej
George Frynas, Political Instability and Business: Focus on Shell in Nigeria, 19 THIRD WORLD Q. 457 462-67 (1998).
88
Oliver Mack & Anshuman Khare, Perspectives on a VUCA World, supra note 16, at 1, 9.
89
K.I. Goh & A.L. Barabási, Burstiness and Memory in Complex Systems, 81 EPL 48002-p1 (2008).
90
Christian J. Johnson, Derivatives and Rehypothecation Failure: It’s 3:00 P.M., Do You Know Where your Collateral
Is?, 39 ARIZ. L. REV. 949, 961 (1997).
91
E.g., F. Owen Hoffman & Jana S. Hammonds, Propagation of Uncertainty in Risk Assessments: The Need to
Distinguish Between Uncertainty Due to Lack of Knowledge and Uncertainty Due to Variability, 14 RISK ANALYSIS 707,
708-09 (1994) (distinguishing between what article calls “Type A” and “Type B” uncertainty).

11
value. A factory fire taking a chip supplier offline, the prices of a commodity convulses in response to a
shortage, and a sudden change in the cost of capital are just a few examples of volatile events.92

An obvious source of legal volatility is litigation risk. Litigation risk is the probability that an individual,
organization, or government entity will seek redress or compensation against an enterprise through the
mechanism of the legal, regulatory, or related system. The risk of litigation can come from virtually any
branch of a firm’s operations. Private entities and government agents seeking redress are under no
obligation to give the firm warning of an impending lawsuit no matter what the size or potential
consequences.

Once a company is sued, litigation risk becomes particularly problematic because it is one of the few
risks that cannot be substantially disposed of through the market.93 Firms can mitigate risk by partnering
in a joint venture, raising capital through markets, or purchasing a firm outright.94 Commodities can be
hedged against with futures contracts.95 Although insurance exists for litigation risk ex ante,96 litigation
risk after a firm is sued cannot be easily hedged away or ‘sold’ to insurers.

Unlike other forms of volatility that strike once and recede, the volatility of litigation risk remains over
time and changes as the risk winds its way through the legal process. Once a lawsuit commences, legal
volatility mutates into the risk of an unfavorable judgment or jury award. An unfavorable outcome can
occur even when firms believe they are in full compliance with the law. For example, when Ford Motor
Company was held criminally liable for deaths arising from its unsafe Ford Pinto, the company was in full
compliance with all existing federal, state, and local standards for subcompact cars at the time.97

Some litigation risks are largely outside the firm’s control. Litigation consequences of a single bad actor,
through the generation of adverse precedent or a broad interpretation of regulatory policy, can change
the legal landscape for the rest of the firms in that industry. An egregious event caused by a bad actor
can invite public scrutiny to not only that firm but also related ones, resulting in rapid changes in
regulation. When courts overrule prior decisions, legal instability increases and usually leads to an
inefficient result.98 Attempts to manage legal volatility through forecasting may be limited, as even legal
experts can correctly predict court outcomes at a rate (59.2%) not significantly higher than chance.99

92
Bennett & Lemoine, supra note 77, at 313.
93
Jonathan T. Molot, A Market in Litigation Risk, 76 U. CHI. L. REV. 367, 367 (2009).
94
Id.
95
Id.
96
E.g., Nancy H. Van der Veer, Employment Practices Liability Insurance: Are EPLI Policies A License to Discriminate?
Or Are They a Necessary Reality Check for Employers?, 12 CONN. INS. L.J. 173 (2005-06) (summarizing employment
practice liability insurance); Joseph P. Monteleone & Nicholas J. Conca, Directors and Officers Indemnification
Liability Insurance: An Overview of Legal and Practical Issues, 51 BUS. LAW. 573 (1996) (summarizing directors and
officers liability insurance).
97
Robert. C. Bird, Pathways of Legal Strategy, 14 STAN. J.L. BUS. & FIN. 1, 20 (2008) (citing Grimshaw v. Ford Motor
Co., 119 Cal. App. 3d 757, 771 (1981)).
98
Nicola Gennaioli & Andrew Shleifer, Overruling and the Instability of Law, 35 J. COMP. ECON. 309, 323-24 (2007).
The authors contrast this with distinguishing prior cases according to changed factual circumstances which
improves efficiency. Id. at 324.
99
Theodore W. Ruger et al., The Supreme Court Forecasting Project: Legal and Political Science Approaches to
Predicting Supreme Court Decisionmaking, 104 COLUM. L. REV. 1150, 1171 (2004). Intriguingly, however, the
“statistical model [developed by the authors] substantially outperformed the legal experts in forecasting case
outcomes . . .” correctly predicting case outcomes 75% of the time. Id.

12
Volatility can also arise from routine changes in legislation. Fifty states, not to mention tens of thousands
of local governments,100 can serve laboratories for innovation,101 but such laboratories can produce
surprising changes to firms that are unable to keep abreast of pending legislation. Such legislation can go
viral, producing an “epidemic” of legislative innovation forcing firms to quickly respond.102

Political forces are also a source of legal volatility. A change in political parties, especially in states where
the dominant parties represent disparate visions of governance, can impact the legal landscape. Decision
makers in firms are then tasked with adapting the firm’s practices to meet that new landscape, but with
the full knowledge that the landscape can change again in another election cycle. These forces are only
amplified when one considers the global political instability in developing economies.103

An indirect source of legal volatility for organizations is managers themselves. Individuals skilled in a
particular discipline such as management often display excessive confidence in their ability to avoid bad
decisions.104 Managers control their firms and by extension may by extension believe they can control
the law as well.105 Although litigation risk is no less harmful than other business risks, tools that are state
of the art for other areas of risk management still have little influence over the analysis of litigation
risk.106 The intellectual and perceptual gap between lawyers and management remains vast, hindering
the diffusion of analytical techniques and practices across disciplines.107 Thus, although firms are
spending billions of dollars annually on litigation and those costs are consuming an increasing
percentage of corporate revenue,108 legal volatility remains underappreciated and a threat to firm’s
profitability.

B. Uncertainty: Unraveling Information and its Significance

100
Richard Briffault, Home Rule and Local Political Innovation, 22 J.L. & POL. 1, 31 (2006) (“[I]f the fifty states are
laboratories for public policy formation, then surely the 3,000 counties and 15,000 municipalities provide
logarithmically more opportunities for innovation, experimentation and reform.”); Richard Briffault, Our Localism:
Part II--Localism and Legal Theory, 90 COLUM. L. REV. 346, 346 (1990) (remarking that there are “more than 82,000
local governments in the United States.”).
101
This concept can be traced to Justice Brandeis’s dissent in New State Ice Co. v. Liebmann, 285 U.S. 262, 311
(1932), where he explained, “[i]t is one of the happy incidents of the federal system that a single courageous state
may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the
rest of the country.” Id.
102
See Catherine L. Carpenter, Legislative Epidemics: A Cautionary Tale of Criminal Laws that Have Swept the
Country, 58 BUFF. L. REV. 1, 3 (2010) (providing a “cautionary tale about legislative epidemics fueled by high-profile
cases, emotion-laden rhetoric, and inaccurate, but embedded, assumptions about crime and criminals.”); Harris,
supra note 85, at 927-28 (noting the danger from legislative reforms that have unintended economic results).
103
Thorsten Kuznik, Risk Management in a VUCA World: Practical Guidelines Based on the Example of a
Multinational Retail Group, in MANAGING IN A VUCA WORLD, supra note 16, at 77, 84 (“The regulatory environment is
increasingly characterized by global political instability.”).
104
Donald C. Langevoort & Robert K. Rasmussen, Skewing the Results: The Role of Lawyers in Transmitting Legal
Rules, 5 S. CAL. INTERDISC. L.J. 375, 422 (1997).
105
Id.
106
Joseph A. Grundfest & Peter H. Huang, The Unexpected Value of Litigation: A Real Options Perspective, 58 STAN.
L. REV. 1267, 1271 (2006); Molot, supra note 93, at 368.
107
Bird, supra note 97, at 3-4.
108
LAWYERS FOR CIVIL JUSTICE ET AL., LITIGATION COST SURVEY OF MAJOR COMPANIES 2-4 (2010).

13
The capacity of a firm to innovate is based upon its internal environment and its capacity to acquire and
retain new knowledge.109 Uncertainty in a VUCA context describes a situation afflicted with a lack of
knowledge and an unawareness of whether the cause or effect of an event is significant enough to be
meaningful and to warrant a particular response.110 Firms are adaptively rational systems that leverage
their prior experience to make decisions in new environments.111 An uncertain environment occurs when
an organization encounters an environment where its prior experience does not help sufficiently guide a
future decision and thus impairs its function.112 Clear solutions may not be available.113 As a result firms
cannot measure the likelihood that their best predictions will be realized.114 The greater the gap
between best projections and reality, the greater the uncertainty for the firm.

Uncertainty can be generated under three conditions. The first and most common condition is
uncertainty driven by a lack of information. This is the most common understanding of uncertainty.
Managers will not confidently know how their well their actions will create the desired result.115 This lack
of information can create a sense of doubt that blocks effective action.116 Inaction in turn generates a
lack of influence over the uncertain environment, thereby generating even greater uncertainty.117 While
lack of information has historically been a greater problem,118 firms today still face a lack of information
when trade secrets, barriers in time and distance, or new technologies place organizations at a
comparative disadvantage.

Second, organizations can face uncertainty from too much information.119 Information overload or
“infobesity” can slow down the firm’s ability to respond to uncertainty-plagued decisions.120 Overload

109
Michael J. Mol & Julian Birkinshaw, The Sources of Management Innovation: When Firms Introduce New
Management Practices, 62 J. BUS. RES. 1269, 1270 (2009).
110
Bennett & Lemoine, supra note 77, at 314.
111
RICHARD M. CYERT & JAMES G. MARCH, A BEHAVIORAL THEORY OF THE FIRM 99-101 (1963).
112
Nicola Faith Sharpe, Questioning Authority: The Critical Link Between Board Power and Board Process, 38 J. CORP.
L. 1, 35 (2012) (“Records of past decisions provide stability to future organizational decisions, but where the
organization lacks prior experience with the situation, such as where a major environmental change occurs, like the
asset-backed mortgage crisis, most organizations adapt slowly.”).
113
Christopher R. Paparone and George L. Topic, From the Swamp to the High Ground and Back, ARMY SUSTAINMENT,
Jan.-Feb. 2011, http://www.alu.army.mil/alog/issues/janfeb11/spectrum_swamp_highground.html.
114
Bernstein, supra note 80, at 20.
115
Holly Doremus, Adaptive Management as an Information Problem, 89 N.C. L. REV. 1455, 1472 (2011).
116
GUDELA GROTE, MANAGEMENT OF UNCERTAINTY: THEORY AND APPLICATION IN THE DESIGN OF SYSTEMS AND ORGANIZATIONS 20
(2009).
117
Id. at 21 (“[U]ncertainty and influence are reciprocally related to each other.”).
118
See generally J. Michael Dunn, Contradictory Information: Too Much of a Good Thing, 30 J. PHIL. LOGIC 425, 426-
27 (2010) (“Information drought is a familiar part of human history, and the familiar apparatus of explorers,
scientists, scholars, authors, printing presses, publishing houses, academic journals, bookstores, libraries,
universities, etc. was built in response to this drought as a means of producing, channeling, and storing
information.”).
119
E.g., Charles A. O'Reilly III, Individuals and Information Overload in Organizations: Is More Necessarily Better?,
23 ACAD. MGMT. J. 684, 684 (1980) (noting that information overload occurs when capabilities of processing
information and the information quantity confronted are incompatible). Firms can also be the harmful providers of
too much information, for example in order to overwhelm consumers and discourage objective decision making.
Karen Bradshaw Schulz, Information Flooding, 48 IND. L. REV. 755, 775-76 (2015).
120
GARY A. KLEIN, SOURCES OF POWER: HOW PEOPLE MAKE DECISIONS 277 (1998); Olga Frishman, Should Courts Fear
Transnational Engagement?, 49 VAND. J. TRANSNAT'L L. 59, 81 (2016). See also Cynthia R. Farina et al., What Change
Will Come: The Obama Administration and the Future of the Administrative State, 65 U. MIAMI L. REV. 395, 424

14
can also impede a firm’s ability to evaluate the reliability of information or identify inaccuracies in the
information received.121 When decisions are finally made, they are susceptible to mental shortcuts which
expose the firm to unnecessary risk or encourage mimicking of other organizations.122 The result is that
beyond a certain point additional information actually reduces decision making quality and heightens
uncertainty.123

The third source of uncertainty, particularly important and insufficiently discussed for modern
organizations, is uncertainty created by information variability. Information variability occurs not when
information is too scarce or too plentiful, but when the dynamics of information acquisition, processing,
and evaluation are in a state of continual conflict or change. Information rarely flows in a steady stream
or offers a uniform picture. Data can appear in unmanageable bunches and then be separated by
disconcerting gaps. New information must also be processed, draining limited knowledge resources away
from the evaluating prior-received intelligence. Gaps in information gathering can leave firms wondering
whether all reasonable information has been received or whether patience will produce more
information over time.

Even when the firm receives consistent and useful uncertainty-reducing information, that information
can be held by someone who is unable or unwilling to use the information optimally. Barriers in firms
keep information segregated from those who need it most and promote inefficiencies.124 Conflicts over
‘turf’ between departments can impair information flow.125 Information that challenges mental models
or ‘ways of doing things’ the organization has developed from past experience may encounter resistance
to be adapted as a new way of thinking.126 The result can be that, even when a firm is in possession of all
the information it needs to overcome uncertainty, the fractured and diffuse nature of an organization
prevents the information from being used effectively.

In identifying VUCA uncertainty, it is equally important to know what uncertainty is not. Uncertainty
does not mean blind unawareness. Firms in uncertain environments are aware of the potential causes
and consequences of a particular event. The challenge lies instead in understanding the significance of
that event for the enterprise and the appropriate response. For example, if a firm learns that a
competitor is about to launch a new product, the firm is well aware of how research and innovation can
cause a breakthrough and how a new product can have consequences for market share and consumer
relations. The causes and effects are clearly understood.127 What the uncertainty-facing firm does not

(2011) (using the “infobesity” term) (citing Howard, Infobesity: The Result of Poor Information Nutrition, Etaoin
Shrdlu (Oct. 12, 2009, 4:36 PM), http://editor.blogspot.com/2009/10/infobesity-result-of-poor-information.html).
121
FREDERICK FUNSTON & STEPHEN WAGNER, SURVIVING AND THRIVING IN UNCERTAINTY: CREATING THE RISK INTELLIGENT ENTERPRISE
75 (2010).
122
Frishman, supra note 120, at 81.
123
Martin J. Eppler & Jeanne Mengis, The Concept of Information Overload: A Review of Literature from
Organization Science, Accounting, Marketing, MIS, and Related Disciplines, 20 THE INFO. SOC. 325, 326 (2004)
(conducting a thirty-year literature review and finding that decision accuracy declines beyond a certain level of
information); Angela Edmunds & Anne Morris, The Problem of Information Overload in Business Organizations: A
Review of the Literature, 20 INT’L J. INFO. MGMT. 17 (2000) (conducting a similar literature review).
124
Darren Bush, The “Marketplace of Ideas:” is Judge Posner Chasing Don Quixote’s Windmills?, 32 ARIZ. ST. L.J.
1107, 1118-19 (2000) (discussing inefficiency of information barriers in the producer-consumer context).
125
Cf. Nathan Alexander Sales, Share and Share Alike: Intelligence Agencies and Information Sharing, 78 GEO. WASH.
L. REV. 279, 313 (2010) (describing how turf wars between public agencies restrict information flow).
126
Jamison E. Colburn, The Indignity of Federal Wildlife Habitat Law, 57 ALA. L. REV. 417, 453 n.145 (2005).
127
Bennett & Lemoine, supra note 77, at 314-15.

15
know is whether the rival product will be a game changing device or a merely incremental improvement
in the market environment.128 Uncertainty is tied to significance as much as it is tied to the presence or
absence of knowledge. Uncertainty is also distinct from volatility. Uncertain events need neither occur
without warning or great speed. The competitor in the previous example may have announced a new
product launch years in advance and introduced a gradual rollout of the product, and significant
uncertainty can still remain.

Uncertainty is inherent in virtually any modern legal system. Laws are finite sets of rules that must apply
to an infinite set of facts.129 Courts make connections between facts and law in order to interpret and
apply the law appropriately.130 Laws are also principled and generalized so that they may apply in a wide
variety of contexts over time.131 This gives legal rules substantial flexibility to adapt to changing
circumstances, including those unforeseen by the drafters.

This flexibility manifests at numerous points throughout the legal system. Judges interpret prior court
cases through the well-known doctrine of stare decisis and have significant discretion to apply those
prior cases according to their best judgment. Judges are checked by appeals, but appellate courts are
guided by the same imprecise system of interpretation and application. Although the rules may be
exactly the same, appointed administrative agency heads can emphasize some rules over others.132 That
emphasis will change the strength of enforcement for regulations across the agency. Individual agency
regulators act as a multiplier of that discretion, potentially incorporating their own preferences in
choosing when and how to enforce rules. Prosecutors also have broad discretion to enforce violations for
political motivations or to advance personal ambitions.133 The legal system does have checks against
such uncertainty, with the void for vagueness doctrine in constitutional law and the arbitrary and
capricious standard in administrative law being two examples.134 Yet these checks are so necessarily
deferential that they provide little solace to quantitatively-driven and certainty-oriented businesspeople.

Further exacerbating legal uncertainty is the threat of legal backfire. Legal backfire occurs when a rule is
generated by a court, legislative body, regulator or other rule maker that produces results that are either
unintended by the rule maker or are even directly contrary to the intended goals.135 Incidents of legal
backfire are disturbingly common.136 Such backfire causes an initial phase of uncertainty as the regulated
entity determines whether the evolving unexpected interpretation is the legitimate one. Further
complicating decisions is that backfired rules cannot be entirely relied upon, as the possibility exists that

128
Id.
129
Liaquat Ali Khan, The Paradoxical Evolution of Law, 16 LEWIS & CLARK L. REV. 337, 344 (2012) (“The legal machine
of dispute resolution rests upon the principle of finitism, which relies on rules of evidence and procedure to extract
finite facts from an otherwise chaotic and infinite story; it then turns the extracted facts into finite issues, which are
resolved under finite laws within a limited time”).
130
Orlando I. Martínez-García, The Person in Law, The Number in Math: Improved Analysis of the Subject as
Foundation for a Nouveau Régime, 18 AM. U. J. GENDER SOC. POL'Y & L. 503, 538 (2010).
131
See Khan, supra note 129, at 360.
132
Jennifer Nou, Intra-Agency Coordination, 129 HARV. L. REV. 421, 431-35 (2015).
133
Sandra Caron George, Prosecutorial Discretion: What’s Politics Got to Do With It?, 18 GEO. J. LEGAL ETHICS 739, 740
(2005).
134
See, e.g., Louis J. Virelli III, Deconstructing Arbitrary and Capricious Review, 92 N.C. L. REV. 721 (2014); Cristina D.
Lockwood, Defining Indefiniteness: Suggested Revisions to the Void for Vagueness Doctrine, 8 CARDOZO PUB. L. POL'Y
& ETHICS J. 255 (2010).
135
Robert A. Hillman, The Rhetoric of Legal Backfire, 43 B.C. L. REV. 819, 820 (2002).
136
Id. at 820, 824-37 (presenting examples of legal backfire).

16
abuse of the poorly written rule will trigger a backlash and a counter-backfire tightening the rules still
further. Such rule tightening is often a patchwork affair, propping up a poorly written rule with
exceptions that may diminish the backfire but make the rule unnecessarily convoluted to interpret and
apply.137

From the perspective of businesspeople, the discretion, qualification, and flexibility in law means
uncertainty. Firms are not courts. They are not especially interested in the theoretical benefits of a
discretion based legal system. Every rule that enables discretion by an interpreting authority requires
enterprises to wrestle with the possible consequences. They must then make a decision without full
confidence that they will remain on the right side of the law. This runs contrary to the powerful and
fundamental managerial desire to eliminate uncertainty through careful and often quantitative research,
planning, and execution.138 Legal rules don’t allow this to happen. This encourages mangers to overreact
and interpret rules from the most pessimistic possible perspective.139 Such excessive conservatism in the
face of legal uncertainty drives up costs and impedes firm efficiency.140 As a legal counsel of a large
multinational explained, “[a]s long as I know what is required of me, I can deal with even the most
stringent [regulatory] requirements. It may be costly, introducing complex and excessive bureaucracy to
the company, but these challenges are manageable—and they pale in comparison to uncertainty”.141
Unlike the shock of volatility, uncertainty is a chronic product of the legal system, and a firm must adapt
and compete by managing this risk better than its rivals.

C. Complexity: Responding to a Dynamic and Adaptive System

The third dimension of VUCA is complexity. A complex environment is one that contains numerous

137
E.g., Sloan G. Speck, Tax Planning and Policy Drift, 69 TAX. L. REV. 549, 568 n.80 (2016) (“[S]ome scholars have
described the promulgation-planning-correction process as a “cat-and-mouse” game between the government and
taxpayers.”) (citing George K. Yin, Getting Serious About Corporate Tax Shelters: Taking a Lesson from History, 54
SMU L. REV. 209, 216-17 (2001) (summarizing cycle of promulgation, planning, and correction in tax planning)).
138
Oliver Mack & Anshuman Khare, Perspectives on a VUCA World, supra note 16, at 1, 10.
139
Jacob E. Gersen, Temporary Legislation, 74 U. CHI. L. REV. 247, 269 (2007) (“New risks in particular often pose
distinctive challenges for legislators and policymakers. The policy environment is dominated by uncertainty, and
both ordinary citizens and experts often overestimate and overreact to newly recognized risks.”).
140
John E. Calfee & Richard Craswell, Some Effects of Uncertainty on Compliance with Legal Standards, 70 VA. L.
REV. 965, 966 (1984) (“If the legal standard is uncertain, even actors who behave ‘optimally’ in terms of overall
social welfare will face some chance of being held liable because of the unpredictability of the legal rule. More
important, these actors can usually reduce that chance by ‘overcomplying,’ that is, modifying their behavior
beyond the point that would be socially optimal.”). This effect has been shown empirically. E.g., Robert C. Bird &
John D. Knopf, Do Disability Laws Impair Firm Performance?, 47 AM. BUS. L.J. 145, 177-81 (2010) (finding that firms
overreacted to new state employment disability laws by overinvesting in fixed asset investment); James N.
Dertouzos and Lynn A. Karoly, Labor-Market Responses to Employer Liability, RAND: The Institute for Civil Justice
(1992), https://www.rand.org/content/dam/rand/pubs/reports/2007/R3989.pdf (finding that adoption of a new
employment law protecting employees from certain types of discharge invoked a defensive response from firms up
to 100 times larger than the actual exposure of the rule). See also Michael W. Peregrine, Caution by Company
Officers Can Create Problems for Boards, N.Y. TIMES. (Dec. 22, 2015), http://nyti.ms/1YvboET.
141
François Garnier, In No Uncertain Terms: Regulatory Uncertainty Rather Than Complexity is the Biggest
Challenges Facing General Counsel of Multinationals, in GLOBAL INVESTIGATIONS: READING THE SIGNALS 2, 2 (James R.M.
Killck et al. eds., 2014), http://awa2015.concurrences.com/IMG/pdf/web-white-case-global-investigations-reading-
the-signals.pdf.

17
interconnected parts.142 These parts in turn interact with one another.143 A system of complexity is an
ensemble of these parts.144 These parts interact with one another in an uncoordinated fashion, but their
cumulative interactions generate a robust system that receives inputs, generates outputs, and has a
capacity to learn and remember.145

Complexity does not appear merely when a number of individual objects are put together. A million
grains of sand on a beach certainly has many elements but is of little interest as a complex system.146 A
complex system is also not necessarily one that is merely complicated.147 A system can have a substantial
number of elements that interact with one another in sophisticated ways, but those elements can be
fully analyzed and understood by the educated observer.148 A mechanical device such as an aircraft
engine with numerous moving parts and processes is certainly complicated, but is distinct from
complexity as discussed here. A complicated system can “yield to a statistical description,” whereas a
complex system cannot be so readily defined.149

142
Bennett & Lemoine, supra note 77, at 315.
143
Id.; Herbert A. Simon, The Architecture of Complexity, 106 PROC. AM. PHIL. SOC. 467, 468 (1962) (“Roughly, by a
complex system I mean one made up of a large number of parts that interact in a nonsimple way.”).
144
James Ladyman, James Lambert & Karoline Wiesner, What is a Complex System?, 3 EURO. J. PHIL. SCI. 33, 57
(2013).
145
Id.
146
PAUL CILLIERS, COMPLEXITY AND POSTMODERNISM: UNDERSTANDING COMPLEX SYSTEMS 3 (1998). That does not necessarily
mean that grains of sand are inherently simple. A military leader described the VUCA environment as like sand
shifting through an hourglass.

As the sand went through, it organized itself into a cone that from the outside looked quite
stable, but in reality was deeply unstable. Every grain of sand was connected by invisible
pressures and tensions, so the internal dynamics of the sand pile were unknowable and totally
unpredictable. You never knew which grain of sand would cause the sand pile to collapse.
Stability . . . was the passing phase; instability was the constant.

Casey, supra note 15, at 2 (citing JOSHUA COOPER RAMO, THE AGE OF THE UNTHINKABLE (2009)). Ramo, in turn, described
efforts by theoretical physicist Per Bak, who used the hourglass analogy to help understand how complexity arises
in the world.

As grains of sand trickle onto the cone-shaped hill, the structure grows larger and larger until it
reaches a point — a state of criticality — where it can grow no more. Each additional grain sets
off a landslide, paring the pile back down. What fascinated Dr. Bak was that it is impossible to
predict whether a particular grain will cause a tiny, barely perceptible shudder or a catastrophic
avalanche.

George Johnson, Per Bak, Physicist of Sudden Change, Dies at 54, N.Y. TIMES, Oct. 29, 2002,
http://www.nytimes.com/2002/10/29/world/per-bak-54-physicist-of-sudden-change-dies.html. See also Per Bak &
Kan Chen, Self-Organized Criticality, 264 SCI. AM. 46, 50 (1991); Per Bak, Simulation of Self-Organized Criticality,
1990 PHYSICA SCRIPTA T33, T33.
147
CILLIERS, supra note 146, at 3.
148
Id.
149
Henrik Thorén & Philip Gerlee, Weak Emergence and Complexity, PROC. OF THE ALIFE XII CONF. 879, 882 (2010) (“By
complicated systems we refer to those which consist of large number of interacting parts with many degrees of
freedom, such as an ideal gas, which yield to a statistical description, while complex systems are those which tend
to organise themselves and exhibit structure despite being governed by local microscopic rules of interaction.”).

18
From the perspective of an external observer, and most relevant for risk management, complexity begins
in a system when observed causality between input and output begin to break down.150 This creates a
lack of understanding in the observer of how the complex system works. A lack of understanding is
distinct from a lack of knowledge. Knowledge can be collected through collection of piecemeal research
and intelligence, which eventually construct a snapshot of the system.151 Understanding, by contrast, is
driven through a comprehension of the system networks and how their interconnectedness works.152
When an observer comprehends inputs, outputs, and how the interconnectedness of the system nodes
function, that observer understands how the complex system works. For example, observing a flock of
birds with a compass and learning that birds fly south for the winter is an example of knowledge. The
observer has perceived of the inputs and outputs of a system and inferred its overall purpose. Observing
a flock of birds and comprehending how birds coordinate speed and direction despite the erratic and
sudden changes of individual members is an example of understanding.153 The understanding observer
appreciates the connectivity and adaptability within the system, and can apply her knowledge to
contexts (e.g. group coordination of other species) as of yet unexamined. As management guru Russell
Ackoff summarized, “[a]n ounce of information is worth a pound of data. An ounce of knowledge is
worth a pound of information. An ounce of understanding is worth a pound of knowledge.”154

Complex systems are often hierarchical. A hierarchical system is one comprised of ordered and
interrelated subsystems.155 These systems and subsystems function in an organized way through
behavior that is regular, orderly, and driven by rules of causation.156 Systems can coordinate with one
another in parallel, be superior in one environment and subordinate in another, or shift their
coordinative role as circumstances warrant. Complex systems are also interactive. They respond to
interactions from forces outside the system, whether positive or negative.157 Complex systems also adapt
to changes within their own system. A flock of birds that loses its lead member is able to replace that
member immediately and continue flying. These responses enable the system to have a sense of
robustness and thus survive even if individual members behave erratically.158

Finally, complex systems maintain a sense of order without the presence of a central control. Complex
systems do not need a dominant mastermind controlling the operation of the system. Each element in
the system responds to information within its purview, and is not generally incorporating outcomes of
the system as a whole.159 In spite of this lack of central control, complex systems in their interaction with
feedback eventually create a higher order for the system, whereby it learns to respond without a leader

150
Ladyman, supra note __, at 36. (citing Nigel Goldenfeld, Editorial, No Man is an Island, 5 NATURE PHYSICS 1
(2009)).
151
Scott Brewer, Scientific Expert Testimony and Intellectual Due Process, 107 YALE L.J. 1535, 1591 & n.217 (1998)
(citing M.F. Burnyeat, Wittgenstein and Augustine De Magistro, 61 PROC. ARISTOTELIAN SOC’Y SUPP. 1, 20 (1987)). A lack
of knowledge is more likely to create a VUCA condition of uncertainty rather than complexity.
152
Id.
153
See Ladyman et al., supra note 144, at 39.
154
RUSSELL ACKOFF, ACKOFF'S BEST: HIS CLASSIC WRITINGS ON MANAGEMENT 170 (1999). Ackoff also acknowledges the value
of comprehension beyond understanding, which manifests as wisdom. William Finnie, Strategies, systems, and
organizations: An interview with Russell L Ackoff, 25 STRAT. & LEADERSHIP 22, 24 (1997) (quoting Russell Ackoff stating
that, “an ounce of wisdom is worth a pound of understanding.”).
155
Simon, supra note 143, at 468.
156
Ladyman et al., supra note 144, at 41.
157
CILLIERS, supra note 146, at 4.
158
Ladyman et al., supra note 144, at 39.
159
CILLIERS, supra note 146, at 4-5.

19
and adapt more effectively than it did in the past.160 Complex systems thus have the capacity to learn,
and that learning enables it to adapt to changes in its environment.161 This effect is a kind of emergence,
where the whole exceeds the sum of the parts and creates a synergy not possible through mere
accumulation of individual elements.

VUCA legal complexity arises mainly from the legal system itself. Legal systems must be complex, as any
regulatory system must reflect the intricacy and nature of the social and economic system which it
governs in order to be effective.162 Each discipline within law has its own sub-system, established in a
variety of legal disciplines ranging from administrative law to the law of war.163 This system functions
across fields through the hierarchical nature of the judiciary and the practice of stare decisis which link
individual court decisions with one another.164 Such interaction occurs across the entire legal system.
When Congress revises a statute, the judiciary must respond to the dictates of the new legislative
command. Conversely, interpretations of the constitution by the judiciary are generally binding on
federal and state legislatures.165 When a judge from the large U.S Court of Appeals for the Ninth Circuit
authors an opinion, that opinion reverberates through the federal court system of nine states and fifteen
judicial districts.166 These district courts then interpret and apply these precedents accordingly.

Signals are also sent upward from lower courts. Controversies in the lower courts can cause intra-circuit
or cross-circuit splits, which in turn require resolution from appellate bodies. Higher courts also
incorporate language from lower courts, with one study finding a systematic incorporation of reasoning
from lower federal court opinions to the Supreme Court.167 Reasoning from lower courts can become
“rulified” as an explicit standard for use in future litigation.168

Legal complexity also operates horizontally. The United States Code, for example, contains hundreds of
thousands of provisions.169 These provisions not only interact with the reader, but they interact with one
another heterogeneously and over time. Consider the following paragraph addressing acquisition of land
for the Alaska Railroad:

(b) Federal surplus property disposal; withdrawal or reservation of land for use of Alaska
Railroad

The enactment of this chapter, actions taken during the transition period as provided in

160
Ladyman et al., supra note 144, at 38.
161
CILLIERS, supra note 146, at 4.
162
Daniel Martin Katz & M.J. Bommarito II, Measuring the Complexity of the Law: The United States Tax Code, 22
ARTIFICIAL INTELLIGENCE L. 337, 339 (2014).
163
J.B. Ruhl & Daniel Martin Katz, Measuring, Monitoring, and Managing Legal Complexity, 101 IOWA L. REV. 191,
205 (2015).
164
Id.
165
Hanah Metchis Volokh, Constitutional Authority Statements in Congress, 65 FLA. L. REV. 173, 184 & n.45 (2013)
(citing Cooper v. Aaron, 358 U.S. 1, 18 (1958) (declaring that “the federal judiciary is supreme in the exposition of
the law of the Constitution” which binds federal and state legislators to follow the interpretations of the Court)).
166
See generally Marybeth Herald, Reversed, Vacated, and Split: The Supreme Court, The Ninth Circuit, and the
Congress, 77 OR. L. REV. 405 (1998) (discussing some of the unique challenges facing the large ninth circuit).
167
Pamela C. Corley, Paul M. Collins, Jr. & Bryan Calvin, Lower Court Influence on U.S. Supreme Court Opinion
Content, 73 J. POL. 31, 42 (2011).
168
Id. (citing Mark D. Rosen, Modeling Constitutional Doctrine, 49 ST. LOUIS U. L.J. 691 (2005)).
169
Katz & Bommarito, supra note 162, at 340.

20
section 1204 of this title, and transfer of the rail properties of the Alaska Railroad under
authority of this chapter shall be deemed not to be the disposal of Federal surplus
property under sections 541 to 555 of title 40 or the Act of October 3, 1944, popularly
referred to as the “Surplus Property Act of 1944” (50 U.S.C. App. 1622). Such events shall
not constitute or cause the revocation of any prior withdrawal or reservation of land for
the use of the Alaska Railroad under the Act of March 12, 1914 (43 U.S.C. 975 et seq.),
the Alaska Statehood Act (note preceding 48 U.S.C. 21), the Alaska Native Claims
Settlement Act (43 U.S.C. 1601 et seq.), the Act of January 2, 1976 (Public Law 94–204;
89 Stat. 1145), the Alaska National Interest Lands Conservation Act (Public Law 96–487;
94 Stat. 2371), and the general land and land management laws of the United States.170

This paragraph alone refers to six separate acts and the entire body of US land and land management
law. A single title of the US Code can have as many as 535 internal citations to another code title.171 If
any of these rules or references change, the interpretation of other statutes change with it. The legal
system thus dynamically changes from multiple connections and communications within itself.

If the legal system transmitted legal information mechanistically, with inputs and outputs clearly defined
and uniformly predictable, the common law would be better described as merely complicated rather
than complex. However, courts do not blindly copy themselves, as no two cases are alike. Instead, judges
adapt and incorporate language and the principles behind that language into their own opinions
according to the particular circumstances of given cases.172 Individual judges have their own preferences
that encourage them to interpret precedent broadly or narrowly, or within a given social or political
context, to reach a desired result.173 Principles are further adapted according to the technological, social,
and political changes happening in society. Society also directly participates in the system through the
institution of the jury.174 Through this feedback, the system of legal administration adapts and evolves
from internal and external feedback in ways that quite unpredictable even by experts in the discipline.

170
45 U.S.C. § 1212(b) (2015). This paragraph is cited as an example of legal complexity in a popular technology
publication. See Samuel Arbesman, Measuring the Complexity of the Law, WIRED (June 2, 2014),
https://www.wired.com/2014/06/scienceblogs0602law/.
171
Katz & Bommarito, supra note 162, at 363.
172
Corley et al., supra note 167, at 42. Interestingly, early complexity theorist Stuart Kauffman, himself a biologist,
cites the legal system as an example of adaptive and complex systems behavior. Id. (citing STUART KAUFFMAN, AT
HOME IN THE UNIVERSE: THE SEARCH FOR THE LAWS OF SELF-ORGANIZATION AND COMPLEXITY 169 (1995)). Kaufmann also
explains:

Due to the creation of a legal system I am able to enter into contracts. . . . and create a person
that can may live forever, the corporation, which takes on aims that survive and can even harm
the interests of many of those who founded it. Thus the modern corporation is a collectively self-
sustaining structure of roles and obligations that “lives” in an economic world, exchanges signals
and stuffs, and survives or dies in ways at least loosely analogous to those of E. coli.

Id. at 300.
173
E.g., R. George Wright, Pragmatism and Freedom of Speech, 80 N.D. L. REV. 103, 134 (2004) (explaining how
judges must decide whether to give narrow case context or incorporate broader systemic questions in their
decision making).
174
Felipe Sáez García, The Nature of Judicial Reform in Latin America and Some Strategic Considerations, 13 AM. U.
INT’L L. REV. 1267, 1306 (1998) (“The institution of the jury reflects society's ultimate reliance on the common sense
notions of justice held by the ordinary citizen and constitutes a crucial connection between the judiciary and
society in common law countries.”).

21
This gives the legal system substantial flexibility to engage novel questions, decide equitably, and evolve
to changing circumstances. However, this same adaptability causes the legal system to be profoundly and
indefinitely complex.175

For the educated insider, the complex legal system is challenging but manageable. The legal system,
however, is not driven by goals of simplicity. A judge is corrected when a decision gets the law wrong,
but is not corrected when the law is correct but made more complex by his or her actions. Law clerks
charged with supporting judges are not driven by goals of simplicity.176 Lawyers can be frustrated with
this complexity, but can point to the courts a cause for effort and information burdens needed to
manage that complexity.177 Those costs can, in turn, be passed along to clients. The result is a system
that can become increasingly complex over time with little incentive to consider the impact that system
has upon outsiders. There is a reason why the adage, “a lawyer who represents himself has a fool for a
client,” is one of the most well-known proverbs in the legal system.178

Perspective taking is the ability to appreciate how an environment looks the view of another person,179
and a healthy dose of it is necessary to fully grasp how incomprehensible the legal system can look to an
outsider. A reasonable manager can easily perceive the legal system as an obtuse and opaque regime
that generates unpredictable and sometimes costly outcomes that provide full employment to overpaid
legal counsel. Precedent rarely offers definitive answers, and new cases can just as often present new
risks as reduce them. When a lawyer responds to a question with “it depends,”180 the attorney likely
feels her caution and insight into nuance are marks of a careful and thoughtful practitioner.181 To the
businessperson, “it depends,” can seem like an evasive unwillingness to give a firm answer and thereby
avoid blame if the advice turns out wrong. Managers want clear and definitive answers that lawyers are
too often unable or unwilling to provide.182 This exacerbates the already existing gap between lawyer

175
R. George Wright, The Illusion of Simplicity: An Explanation of Why the Law Can’t Just be Less Complex, 27 FLA.
ST. L. REV. 715, 717 (2000).
176
This is not necessarily the fault of law clerks. Stuart L. Lustig et al., Inside the Judge’s Chambers: Narrative
Responses from the National Association of Immigration Judges Stress and Burnout Survey, 23 GEO. IMMIGR. L.J. 57,
66 (2008) (noting that “[t]he law has gotten exponentially more complex while the time pressures and resources
(like law clerks) inversely diminished to the point of being almost non-existent.”).
177
Ruhl & Katz, supra note 163, at 201 (“An effort burden would be associated with learning all the rules, and an
information burden would be associated with compiling the evidence needed to test for and comply with the
rules.”); Dan Awrey, Complexity, Innovation, and the Regulation of Modern Financial Markets, 2 HARV. BUS. L. REV.
235, 243 (2012) (similar).
178
Reed Willis, A Fool for A Client: Competency Standards in Pro Se Cases, 2010 B.Y.U. L. Rev. 321, 321 (citing Kay v.
Ehrler, 499 U.S. 432, 438 (1991)). This phrase is often attributed to Abraham Lincoln, but the phrase appears to
predate him. HENRY KETT, FLOWERS OF WIT 115 (1825) (“I hesitate not to pronounce, that every man who is his own
lawyer, has a fool for a client.”).
179
Douglas N. Frenkel & James M. Stark, Improving Lawyers’ Judgement: Is Mediation Training De-Biasing?, 21
HARV. NEGOT. L. REV. 1, 34 (2015) (citing Andrew R. Todd, et al., When Focusing on Differences Leads to Similar
Perspectives, 22 PSYCHOL. SCI. 134 (2010)). See also Thorsten M. Erle & Sascha Topolinski, The Grounded Nature of
Psychological Perspective-Taking, 112 J. PERSON. & SOC. PSYCH. 683 (2017).
180
Rebecca A. Fiss, When “It Depends” Isn’t Good Enough: The Problems Caused by the Supreme Court of North
Carolina’s Decision in State v. Mbacke, 91 N.C. L. REV. 1404, 1404 (2013) (“If legal academia were ever said to have
an inside joke, it would perhaps be the habit of responding to difficult or unanswerable questions with a smirk and
an evasive ‘It depends.’”).
181
Id. (“In its proper context, the response “It depends” is meant to convey the idea that a solution might be fact-
dependent and is followed by a barrage of examples of situations that might yield a different result.”).
182
E.g., KARL J. MACKIE, LAWYERS IN BUSINESS: AND THE LAW BUSINESS 100 (1989) (reporting comment of counsel in a

22
and client, if such a relationship even exists, and sours the perception of the legal system in the mind of
the manager.183 The result is that firms are too often buffeted by a legal system that, even with the
guidance of expert counsel, seems incomprehensible, indifferent, and invidious to the functioning of
business.

D. Ambiguity: Responding to Unknown Unknowns

In volatile, uncertain, or complex environments, firms hold pieces to the risk puzzle that they face.
Volatile environments may be unexpected and unstable, but firms are aware of the underlying causes
and consequences of volatile strikes. Firms facing uncertainty may not have all the answers to mitigate
the risk, but the firm knows that further information is needed and with that information will come an
optimal response. Complex environments challenge a firm’s ability to understand a given system, but the
firm also knows that unraveling how the system works will unlock important information. Responses to
volatility, uncertainty, or complexity may be neither inexpensive nor risk-free, but at least the firm knows
it is facing a problem that it can manage.

In an ambiguous environment, organizations are in the dark. None of the information for managing
volatile, uncertain, or complex environments is necessarily available. A firm may not know whether
events will appear and dissipate quickly or evolve gradually over time. Causes and effects driving events
in the environment are largely unknown.184 A firm does not know whether an organized system will
emerge. There is little, if any, historical precedent for determining the most appropriate course of
action.185 A firm facing an ambiguous puzzle may be barely aware that the puzzle exists, let alone have
access to the pieces or a plan for putting them together.

Too many firms operate with the implicit assumption that with enough preparation, research, and
strategic planning that risk can be managed or avoided altogether.186 However, modern environments
with technological and market dynamism are causing innovation to proceed at a rapid pace.187 As a
result, the speed of change is higher than the speed of learning to adapt to that change.188 As prominent
economist and venture capitalist William Janeway remarked, “[t]he Innovation Economy by definition is
saturated in unquantifiable uncertainty.”189 This ambiguous environment is inescapable, and firms will
simply have to function in environments of otherwise intolerable risk.

Most risky choices can be examined through a range of decisions from which probabilities may be
assigned through research and planning. Ambiguity denies the decision maker the ability to formulate a
range of outcomes. Probabilities simply cannot be assigned because no distribution of probable outcome

manufacturing company who reflects, “‘As from next week, what do I have to do.?’ ‘You have to do this.’ This is
what managers want to know.”).
183
See GEORGE J. SIEDEL, THE THREE PILLAR MODEL FOR BUSINESS DECISIONS: STRATEGY, LAW AND ETHICS 31-32 (2016).
184
Carson et al., supra note 208, at 1059. The authors summarize ambiguity as a state of uncertainty about four
conditions: “(1) lack of clear information, (2) uncertainty about the importance of environmental variables, (3)
uncertainty of cause-effect relationships between variables, and (4) uncertainty about available courses of action
and their potential effects.” Id.
185
Bennett & Lemoine, supra note 77, at 316.
186
Oliver Mack & Anshuman Khare, Perspectives on a VUCA World, supra note 16, at 1, 10.
187
See Eric H. Kessler & Alok K. Chakrabarti, Innovation Speed: A Conceptual Model of Context, Antecedents, and
Outcomes, 21 ACAD. MGMT. REV. 1143 (1996).
188
Oliver Mack & Anshuman Khare, Perspectives on a VUCA World, supra note 16, at 1, 10.
189
WILLIAM JANEWAY, DOING CAPITALISM IN THE INNOVATION ECONOMY: MARKETS, SPECULATION AND THE STATE 105 (2012).

23
is available.190 As a result, entities making decisions in ambiguity face the daunting prospect that there
are multiple solutions that appear equally viable.191 Decision makers cannot determine the ‘right’
response to a problem or a question.192 This is because such situations are what economist Frank Knight
calls “a high degree unique.”193 Interests in such a situation cannot be determined beyond a superficial
level of understanding.194 This does not mean that the entity’s interest is insignificant. Quite the
opposite, a firm can have a profound interest in the ambiguous environment and its potential for future
risk.195 Rather, decision-makers are fundamentally unable to determine which ends, to the extent that
ends can even be predicted, will serve those interests.196

Decision makers not only struggle with ambiguity, but its presence in any decision can be aversive. In a
classic paradox expressed by Daniel Ellsberg,197 an individual is presented with two urns. One urn
contains half red balls and half blue balls and the other urn has both colors in uncertain ratios.198 If the
individual chooses the proper color ball, she receives a reward.199 Individuals should be indifferent to
their choice, as the urns in terms of risk are identical.200 However, most people prefer the urn with the
fixed ratios, even when they are subsequently told about the paradox.201 This phenomena has been
backed by experimental evidence over time.202 One experiment even found the “quite surprising” results
that “ambiguity avoidance is so pervasive that it extends even to situations in which the likelihood of
winning in the ambiguity condition is higher than in the risky conditions.”203 Ambiguity aversion is a
powerful force that impacts decision making.

The chance of a negative outcome may even be more distressing than the negative outcome itself.
Researchers evaluated the stress responses of different forms of uncertainty by having participants
complete a probabilistic learning task.204 Participants were asked to predict whether a snake lay hidden

190
Jens Beckert, What is Sociological about Economic Sociology? Uncertainty and the Embeddedness of Economic
Action, 25 THEORY & SOC. 803, 804 (1996) (defining, for purposes of this article, ambiguity as “as the character of
situations in which agents cannot anticipate the outcome of a decision and cannot assign probabilities to the
outcome.”).
191
Brendan S. Gillon, Generality, and Indeterminacy: Tests and Definitions, 85 SYNTHESE 391, 394 (1990).
192
Oliver Mack & Anshuman Khare, Perspectives on a VUCA World, supra note 16, at 1, 10.
193
KNIGHT, supra note 208, at 233.
194
Mark Blyth, When Liberalisms Change: Comparing the Politics of Deflations and Inflations, in NEOLIBERALISM:
NATIONAL AND REGIONAL EXPERIMENTS WITH GLOBAL IDEAS 71, 78 (Ravi K. Roy, Arthur T. Denzau & Thomas D. Willett eds.,
2007).
195
Id.
196
Id.
197
Daniel Ellsberg, Risk, Ambiguity, and the Savage Axioms, 75 Q. J. ECON. 643 (1961). See also Daniel A. Farber,
Uncertainty, 99 GEO. L.J. 901, 928 (2011) (summarizing this experiment); Elena Kantorowicz-Reznichenko, Any-
where Any-time: Ambiguity and the Perceived Probability of Apprehension, 84 UMKC L. REV. 27, 34-35 (2015)
(similar).
198
Ellsberg, supra note 197, at 650-51.
199
Id. at 650.
200
Id. at 656.
201
Tony Khuon, The Ellsberg Paradox: Why You Don’t Take Risks and Settle for the Mediocre, AGILELIFESTYLE.NET (July,
24, 2014), http://agilelifestyle.net/ellsberg-paradox.
202
Gideon Keren & Léonie E.M. Gerritsen, On the Robustness and Possible Accounts of Ambiguity Aversion, 103
ACTA PSYCHOLOGICA 149, 149 (1999) (“Ambiguity aversion is one of the most robust phenomena documented in the
decision making literature . . .”).
203
Id. at 157.
204
Archy O. de Berker et al., Computations of Uncertainty Mediate Acute Stress Responses in Humans, 7 NATURE

24
under a rock, and when a snake was found participants received an electric shock.205 In some cases, the
participants could reasonably predict the outcome and in other cases the participants had little or no
power to do so. The researchers found that “irreducible uncertainty” drives subjective stress levels even
more than a baseline when an undesirable event was guaranteed to happen.206 Thus the uncertainty of
possible pain was more stressful than the inevitability of a painful event. As one co-author explained,
“[t]he most stressful scenario is when you really don’t know. It’s the uncertainty that makes us
anxious.”207 What these authors call ‘uncertainty’ is ambiguity in VUCA terms,208 where events cannot be
reasonably predicted and information giving desired certainty is unattainable.

Firms facing ambiguity will likely attempt to generate probability distributions with the information they
do possess. Firms crave certainty, or at least a measure of it, and decision-making feels comfortable only
when there is a solution derived from facts and figures.209 However, any probability distribution that may
be created in ambiguous environments is subjective. Thus, data-driven analysis offers comfort to the
decision-maker, especially managers in firms who are heavily trained in and reliant upon predictive
methods. But efforts to manage ambiguity through traditional risk management methods are little more
than analytic placebos for quantitative minds.

The need to address ambiguity may be so great that decision-makers slip into a shortcut system of
thinking that creates the perception of analysis while misdirecting the decision maker. Daniel Kahneman
defines two systems of the mind: System 1 thinking which operates rapidly and automatically, with little
or no mental effort and no sense of voluntary control, and System 2 thinking which is careful,
deliberative, and involves effortful mental activity driven by analysis and reflection.210 In ambiguity,

COMM. 1, 2 (2016).
205
Id.
206
Id. at 4. See also Lawrence A. Pervin, The Need to Predict and Control Under Conditions of Threat, 31 J.
PERSONALITY 570, 575 (1963) (finding that “under conditions of threat predictability is preferable to
unpredictability”).
207
Uncertainty Can Cause Stress More Stress than Inevitable Pain, UCL NEWS (Mar. 29, 2016) (quoting co-author
Robb Rutledge), http://www.ucl.ac.uk/news/news-articles/0316/290316-uncertainty-stress.html. See also Stephen
Feller, Study: Uncertainty Causes More Stress than Inevitable Pain, UPI (Mar. 29, 2016),
https://www.upi.com/Health_News/2016/03/29/Study-Uncertainty-causes-more-stress-than-inevitable-
pain/1931459263700/.
208
What the VUCA framework calls ‘ambiguity’ is termed by other sources as some form of uncertainty. See, e.g.,
David Teece, Margaret Peteraf & Sohvi Leih, Dynamic Capabilities and Organizational Agility: Risk, Uncertainty, and
Strategy in the Innovation Economy, 58 CAL. MGMT. REV. 13, 15 (2016) (using the phrase “deep uncertainty” to
describe ambiguity-like conditions). Others use ‘uncertainty’ in the context of the two-factor risk-uncertainty
dichotomy developed by economist Frank Knight and others. FRANK H. KNIGHT, RISK, UNCERTAINTY AND PROFIT 233
((photo. reprint 1964) (1921). See also Eric L. Talley, On Uncertainty, Ambiguity, and Contractual Conditions, 34 DEL.
J. CORP. L. 755, 759 (2009) (“‘Risk’ refers to randomness whose probabilistic nature is extremely familiar and can be
characterized with objective probabilities (such as the outcome odds that attend the roll of a fair die). ‘Uncertainty,’
in contrast, refers to randomness whose probabilistic behavior is extremely unfamiliar, unknown, or even
unknowable.”). Still other authors have broken down uncertainty into more refined elements. E.g., Stephen J.
Carson, Anoop Madhok & Tao Wu, Uncertainty, Opportunism, and Governance: The Effects of Volatility and
Ambiguity on Formal and Relational Contracting, 49 ACAD. MGMT. J. 1058, 1058 (2006) (“We . . . decompose
uncertainty into volatility and ambiguity.”).
209
Oliver Mack & Anshuman Khare, Perspectives on a VUCA World, supra note 16, at 1, 10.
210
DANIEL KAHNEMAN, THINKING FAST AND SLOW 20-21 (2011). See also Daniel Kahneman, Dan Lovallo & Olivier Sibony,
Before You Make that Big Decision, HARV. BUS. REV., June 2011, at 51. For a discussion of Kahneman’s work in the
compliance context, see Todd Haugh, Nudging Corporate Compliance, 54 AM. BUS. L.J. 683, 694-98 (2017).

25
System 2 does not deliver meaningful results, leaving System 1 to generate impressions, feelings, and
conclusions with little conscious effort or even awareness by the decision maker.211 Such shortcuts can
give the decision maker not just a false sense of security, but a blind confidence in the range of possible
outcomes that may either be inaccurate or entirely nonexistent.

Fortunately, environments of true legal ambiguity are uncommon. The price for flexibility in the common
law built by stare decisis is significant,212 but a major benefit of such a system is that it is adaptable to
changes in society. The English, and from it the American, common law has been a continuous stream of
precedent for over eight hundred years,213 and no change in politics, technology, economics, or human
relations has been able to entirely derail it. Perhaps the greatest achievement of the common law is that
it has been able to survive from the early middle-ages to the modern area entirely transformed but also
utterly intact.214

What the common law lacks, however, is the agility to keep pace with increasingly rapid changes in
technology and society.215 The common law of English kings was never designed to keep up with the
evolution of twenty-first century technology.216 The result is a persistent and increasingly frequent
regulatory lag between innovations and the ability to regulate them effectively.217 That lag is an
important source of legal ambiguity. Technology generates a new idea or practice that does not speak
even indirectly to established legal principles. Traditional analogy-making is sufficiently tenuous in
ambiguous environments that even lawyers cannot advise clients on how the law will develop. The result
is a gap between policy and practice where the rule of law does not guide actors toward acceptable
action.

Scholars can comfortably speculate from their ivory towers how the law could or should evolve.

211
KAHNEMAN, supra note 210, at 21.
212
See Robert Barnhart, Principled Pragmatic Stare Decisis in Constitutional Cases, 80 NOTRE DAME L. REV. 1911,
1921 (2005).
213
The first English common law treatise was published in 1187. THEODORE F.T. PLUCKNETT, A CONCISE HISTORY OF THE
COMMON LAW 18 (5th ed. 2001). The principles upon which the English common law is based originate from
antiquity. Id. at 3-4.
214
E.g., Paul J. Larkin, Jr., Revenge Porn, State Law, and Free Speech, 48 LOY. L.A. L. REV. 57, 89-90 (2014) (“The
ability to remain flexible to accommodate evolving personal and social interests is the very strength of the common
law.”); James L. Huffman, Speaking of Inconvenient Truths—A History of The Public Trust Doctrine, 18 DUKE ENVTL. L.
& POL'Y F. 1, 95 (2007) (“One of the great strengths of the common law has been its adaptability over many
centuries in the hands of judges with the wisdom to preserve the rule of law by adapting the law, not to the
interests in the case at hand, but to the realities of a changing society. This has been accomplished, for the most
part, through adherence to basic concepts and adaptation through evolving conceptions.”); Jno. C. Townes, Is A
Restatement of the Law as to Liability Arising from Dangerous Premises Desirable and Practicable?, 1 TEX. L. REV.
389, 402 (1923) (“The greatest boast of the common law, its greatest glory through the centuries, has been its
power to adapt itself to the everchanging conditions of life and the higher visions of the people, thus enabling it at
all times to secure the administration of substantial justice through its courts.”).
215
See generally Lyria Bennett Moses, Recurring Dilemmas: The Law’s Race to Keep Up With Technological Change,
2007 U. ILL. J.L. TECH. & POL'Y 239 (exploring how law lags behind technology and innovation).
216
Carla L. Reyes, Moving Beyond Bitcoin to an Endogenous Theory of Decentralized Ledger Technology Regulation:
An Initial Proposal, 61 VILL L. REV. 191, 202 (2016).
217
Sofia Ranchordás, Innovation-Friendly Regulation: The Sunset of Regulation, The Sunrise of Innovation, 55
JURIMETRICS 201, 202-03 (2015); Leading Cases, III. Federal Statutes and Regulations, K. Telecommunications Act, 116
HARV. L. REV. 442, 445 n.28 (2002) (“A regulatory lag is a delay between a change in market conditions or production
technology and the adjustment of regulations that are based on those factors”).

26
Organizations do not have that luxury. Markets are in a continuous state of evolution and competition.
Firms that postpone legal decisions until the common law has spoken leave an opening for rivals to
exploit the new innovation. Consumers will also not wait for regulation, plunging into whatever product
or service fulfills their need with little concern for regulatory questions. No company in a competitive
market can afford to wait for law to catch up to change. Thus, legal ambiguity for firms represents a
condition whereby legal rules do not provide sufficient direct or inferential guidance to evaluate the legal
risk of a given decision.

A useful example of legal ambiguity is the rise of the internet. During the 1990s legal experts were only
beginning to question the legal implications of online commerce. The evolving cyberlaw could have been
a new and distinct regulatory body or simply extended traditional principles no different than the ‘law of
the horse.’218 Time has shown that, while numerous traditional rules apply well to online activity, a
robust regime regulating internet-specific conduct spans across a number of disciplines.219 At the time,
however, no business could reasonably predict how cyberlaw would develop, leaving firms to face the
daunting legal risk of improvising within a novel and potentially lucrative sphere of commerce.

Decades later, this same legal ambiguity is appearing again with bitcoin and blockchain technology.220 A
variety of legal issues ranging from taxation to financial regulation demand immediate answers,221 and
only now are academics and eventually legislators and courts starting to address them.222 Firms using
blockchain cannot wait for regulators, as they risk losing lucrative opportunities that compensate for
investing in such a risky technology.

Ambiguity thus represents the most challenging of the VUCA environments. Traditional rational decision
making simply does not work.223 The environment is also highly averse, creating stress that can tempt
individuals to rely on misleading cognitive shortcuts to create a sense of control. Although fraught with
difficulty, like its volatility, uncertainty, and complexity siblings ambiguity is manageable and presents an
opportunity for firms to thrive.224 Ambiguity particularly offers a chance to profoundly influence a new

218
Frank H. Easterbrook, Cyberspace and the Law of the Horse, 1996 U. CHI. LEGAL F. 207, 208. But see Lawrence
Lessig, The Law of the Horse: What Cyberlaw Might Teach, 113 HARV. L. REV. 501, 534-49 (1999) (explaining that
cyberspace provides different behavioral incentives and constraints that existing law fails to accommodate).
219
E.g., Juliet M. Morningello, Survey of the Law of Cyberspace: An Introduction, 61 BUS. LAW. 431, 431 (2005)
(explaining that members of a Cyberspace Law Committee “work in areas of law as diverse as contracts,
jurisdiction, online financial services, consumer protection, privacy and intellectual property.”); John W. Bagby,
Cyberlaw: An Introduction, 39 AM. BUS. L.J. 521, 529 (2002) (“Cyberlaw spans a diverse group of fields that are
clearly cross-disciplinary, both between fields of law and with disciplines covering a wide range of technical, social
science, and human factors.”).
220
Daniel Smith, More Money, More Problems: The Bitcoin Virtual Currency and the Legal Problems that Face It, 3
CASE W. RESERVE J.L. TECH. & INTERNET 427, 442 (2012) (noting the presence of “a myriad of legal uncertainties
surrounding Bitcoin and virtual currencies in general.”).
221
E.g., Jerry Brito, Houman Shadab & Andrea Castillo, Bitcoin Financial Regulation: Securities, Derivatives,
Prediction Markets, and Gambling, 16 COLUM. SCI. & TECH. L. REV. 144 (2014) (examining financial regulation of
Bitcoin); Patrick McLeod, Taxing and Regulating Bitcoin: The Government’s Game of Catchup, 22 COMMLAW
CONSPECTUS 379 (2014) (examining taxation of Bitcoin). See also John Mckinlay et al., DLA Piper, Blockchain:
Background, Challenges, and Legal Issues (June 2017),
https://www.dlapiper.com/en/uk/insights/publications/2017/06/blockchain-background-challenges-legal-issues/.
222
See Carla L. Reyes, Conceptualizing Cryptolaw, 96 NEB. L. REV. 384, 387-88 nn.15-21 (2017) (citing recent
scholarship analyzing legal implications of Bitcoin and blockchain technology )
223
Oliver Mack & Anshuman Khare, Perspectives on a VUCA World, supra note 16, at 1, 10.
224
Bennett & Lemoine, supra note 77, at 312 (citing sources remarking that opportunity is embedded in all four

27
market, environment, or idea in a fashion that volatile, uncertain, or complex conditions do not. Like the
other types of risk, ambiguity is not just a problem, but also a possibility. These possibilities for firms
facing VUCA environments are the subject of the next section.

III. A PROPOSAL FOR FIRM RESPONSES TO VUCA CHALLENGES

The link between law and business is intricate, intertwined, and inseparable. As long as there are legal
systems, organizations will have to manage legal risk. This Part applies VUCA theory to firms by
presenting specific strategies that firms can utilize in managing a VUCA legal environment.

A. Respond to Volatility with Agility and Lean Absorption

The essential characteristics of legal volatility are speed and dynamism. An unexpected application of a
statute by a court creates new causes of action for future plaintiffs. A new agency commissioner
reinterprets a regulation broadly and places well-established business practices in jeopardy. A foreign
government threatens to apply new executive powers to seize foreign assets that compete with local
producers. The best firms will respond to the shock of sudden events like this better than their rivals.
They will act quickly, adapt seamlessly, and aggressively engage the new legal environment while
simultaneously minimizing or avoiding negative consequences. Firms that cannot ably respond will miss
market opportunities or carelessly increase their exposure to sanctions.

A firm’s propensity to respond effectively to legal volatility will be determined by a key characteristic –
the agility of the organization. Organizational agility is defined as, “the capacity for resisting, absorbing
and responding, even reinventing if required, in response to fast and/or disruptive change that cannot be
avoided.”225 Agility is more than flexibility, whereby a company handles routine fluctuations such as
changes in market demand.226 Rather, agility enables the firm to continuously adjust and adapt its core
strategic direction.227 The agile firm efficiently redeploys its resources to value creating and protecting
activities as new situations require.228 Agile firms are evocative of the Velcro organization, a concept
describing firms able to seamlessly reconfigure and deploy assets in response to even radical change.229
Agility enables firms to identify and capture business opportunities that would otherwise be unavailable
to rivals.230 Agility is a strategic trait, and with it comes the opportunity to generate competitive value.

VUCA environments).
225
Ian Reid et al., A Framework for Operational Agility: How SMEs Are Evaluating Their Supply Chain Integration, in
MANAGING IN A VUCA WORLD, supra note 16, at 151, 153.
226
Teece et al., supra note 208, at 17. See also John Baker, Agility and Flexibility: What’s the Difference? 5
(Cransfield Sch. Mgmt., Working Paper 1996),
https://dspace.lib.cranfield.ac.uk/bitstream/handle/1826/1151/SWP05-96.pdf?sequence=1.
227
Teece et al., supra note 208, at 17 (citing YVEZ DOZ & MIKKO KOSONEN, FAST STRATEGY: HOW STRATEGIC AGILITY WILL HELP
YOU STAY AHEAD OF THE GAME 65 (2008))
228
Teece et al., supra note 208, at 17.
229
Joseph L. Bower, Building the Velcro Organization: Creating Value Through Integration and Maintaining
Organization-Wide Efficiency, IVEY BUS. J. ONLINE, Nov.-Dec. 2003, at 1, 2. See generally C.K. Prahalad & Venkatram
Ramaswamy, Co-opting Customer Competence, HARV. BUS. REV., Jan.-Feb. 2000, at 79, 79-80 (presenting an example
of firm agility via incorporation of customers as co-creators of value).
230
Donald Sull, How to Thrive in Turbulent Markets, HARV. BUS. REV., Feb. 2009, at 78, 81-82.

28
Firms do not become agile overnight. Agility requires an investment of resources in order to be used
cost-effectively and in harmony with a firm’s overall strategy.231 Agility must also be fluid and quickly
deployable in order to prevent the firm from losing control of the rapidly evolving situation.232 This
capacity for agility is an ongoing process, like continuous improvement, that must be continually be
refined in anticipation of the next unexpected event.233 Agility is costly to develop and maintain, and can
require the commitment of various levels of the organization.234

Developing legal agility in an organization is challenging. Attorneys are well-known for their conservatism
and deliberativeness. These traits serve the organization well in stable environments when value must
be preserved and risks carefully avoided. When volatility strikes, however, legal staff must shift from
policing to thinking like a strategist or even an entrepreneur.235 Decisions made in response to legal
volatility must be made rapidly and decisively. This requires the organization to prepare beforehand by
developing a culture of innovation in its legal teams and empower lawyers to make confident decisions
and challenge ideas whose risks outweigh their returns.236 Agile decision making is risky, but what is even
more risky is an inflexible response to volatility that derails the organization while rivals nimbly defend
their value and exploit new markets.237

Firms have three strategies available to respond to legal volatility. First, firms can pursue lean absorption
in anticipation of volatility as part of the cost of doing business. Lean absorption is neither a passive
response nor mere acquiescence. Absorption involves skillfully investing in excess human or capital
reserves through stockpiling assets or overbuying talent in anticipation of the volatile event. Agile firms
deliberately build slack in the organizational system for the “long winter” that volatile environments
bring.238 The value opportunity in absorption rests in an absorption strategy that allocates slack
resources more efficiently than rivals do. Just as lean manufacturing systematically eliminates waste
from a production system,239 so lean absorption through preparation and cross-functional collaboration
can increase the efficiency of responses to legal volatility when the difficult conditions appear. Firms with
lean absorption will efficiently draw resources pre-allocated to the task when a crisis strikes. Firms
without lean absorption will haphazardly reallocate whatever resources are immediately available in
response to a crisis, potentially disabling key processes and grinding the organization to a halt to meet
the unexpected challenge.

Legal resources can be efficiently stockpiled for lean absorption. In-house legal departments should
retain specialists, whether in-house or in external law firms, in fields where volatility is expected. Firms
can also maintain legal defense funds that anticipate volatile litigation. These reserves are driven by hard
calculations of vulnerability as well as monitoring litigation-related activity throughout the industry.240

231
Teece at al., supra note 208, at 31.
232
Marianne W. Lewis et al., Paradoxical Leadership to Enable Strategic Agility, 56 CAL. MGMT. REV. 58, 60-61 (2014).
233
Abe Harraf et al., Organizational Agility, 31 J. APP. BUS. RES. 675, 675 (2015)
234
Teece et al., supra note 208, at 17.
235
See Robert L. Nelson & Laura Beth Nielsen, Cops, Counsel, and Entrepreneurs: Constructing the Role of Inside
Counsel in Large Corporations, 34 LAW & SOC. REV. 457, 463-68 (2000).
236
See Harraf et al., supra note 233, at 678-79.
237
Teece et al., supra note 208, at 17.
238
Bennett & Lemoine, supra note 77, at 314.
239
Racna Shah & Peter T. Ward, Defining and Developing Measures of Lean Production, 25 J. OPERATIONS MGMT. 785,
791 (2007).
240
Emily Flitter, In Wake of JPMorgan Settlement, Big Banks Add to Defense Funds, REUTERS, Jan. 17, 2014,
http://www.reuters.com/article/us-usa-banks-reserves-idUSBREA0G1PN20140117.

29
Firms can also invest in capital in anticipation of regulatory volatility. For example, investments in
pollution controls ahead of expected environmental regulation can be introduced gradually, more
thoroughly, and at a lower cost than a sudden and last minute response to a new rule.241 This also gives
time for employees to prepare for sudden regulatory changes and offers a margin of error above the
regulatory minima.242 Building in this slack can even encourage governments to accept them as a
substitute for more stringent regulation.243 Such a graduated investment strategy driven by conserving
resources allows a firm to adjust to a sudden regulatory change with lower financial and organizational
costs than its less legally knowledgeable rivals.

Second, firms should develop crisis management plans in order to apply stockpiled resources effectively.
Crisis management is a necessity for any organization of substantial size, as “a crisis in business today is
as inevitable as death and taxes.”244 Many crises are preventable; with sixty-five percent of corporate
crises preventable with advance notice and only the remaining thirty-five percent are considered truly
sudden events.245 Nonetheless, a smoldering crisis that a firm ignores can develop into a sudden event
requiring immediate attention.

Executives must have a crisis management team that defines membership on the team, individual roles,
and emergency flows of information. For legal crises, the Chief Legal Officer (CLO) in partnership with the
CEO and other executives should plan for quick collaboration with public relations, specialized outside
counsel, and relevant business units. Firms can assign emergency roles to legal personnel that supersede
ordinary obligations when an unexpected threat faces the enterprise. When firms prepare well for legal
volatility the time and cost saved can be significant. A study of tort cases arising from aviation litigation
found that firms with pre-established procedures for dealing with accidents experienced case
dispositions in one-half the time and thirty percent less cost.246

Externally, companies can retain law firms with rapid response teams offering immediate access to
counsel. Global law firm DLA Piper, for example, offers a rapid response app and hotline to its clients,
available at any time of day or night, which gives immediate access to crisis management lawyers and
communications specialists.247 Legal crisis management firms offer engagement with media to manage
instability in response to shock events. Lawyers playing a prominent role in crisis situations can qualify
information for special disclosure protection under the attorney-client privilege.248

Finally, legal volatility can also be a source of value. Court decisions and legislative pivots can open doors
to new opportunities that firms could not previously anticipate. A court decision could loosen a

241
Dennis D. Hirsch, Green Business and the Importance of Reflexive Law: What Michael Porter Didn’t Say, 62
ADMIN. L. REV. 1063, 1083 (2010).
242
See generally Richard L. Revesz & Allison L. Westfahl Kong, Regulatory Change and Optimal Transition Relief, 105
N.W. U. L. REV. 1581 (2011) (discussing costs of transition for firms in environments of regulatory change).
243
Hirsch, supra note 241, at 1085.
244
Harvey L. Pitt & Karl A. Groskaufmanis, When Bad Things Happen to Good Companies, 15 CARDOZO L. REV. 951,
959 (1994) (citing Steven B. Fink, When the Crisis Hits, CHIEF EXECUTIVE, Winter 1986-87, at 34, 34-35).
245
John J. Donlon & David B. Zoffer, Developing a Crisis Management Plan, 18 ACCA DOCKET 18, 18 (2000).
246
Id. at 22 (citing James S. Kakalik et al., Costs and Compensation Paid in Aviation Accident Litigation, RAND R-
3421-ICJ (1998)).
247
Press Release, DLA Piper, DLA Piper Launches Rapid Response App (May 6, 2014),
https://www.dlapiper.com/en/scotland/news/2014/05/dla-piper-launches-rapid-response-app.
248
Xenia Kobylarz, The Emerging Crisis Management Practice, LAWDRAGON (Oct. 23, 2013),
http://www.lawdragon.com/2013/10/23/the-emerging-crisis-management-practice.

30
previously closely regulated area of business. Governments can privatize previously government-
dominated practices. New legislation can erode the power of entrenched interests and enable new
competitors into a given market. Firms that can exploit these legal opportunities quickly receive a first-
mover advantage.249 A first-mover advantage enables a firm to capture lucrative contracts, penetrate
markets, and interact with regulators better than their rivals. Successful first movers introduce standard-
setting technologies and practices which, if well-entrenched enough, later firms are bound to follow at
significant cost.250 Consumers acquired while a first mover tend to be more loyal and experience higher
switching costs when considering a competitor.251 Legal agility can create first mover advantage. When
India strengthened its product-patent law in 2005, it eroded the entrenchment of generics
manufacturers and enabled quick-moving patent holders to penetrate the market ahead of rivals.252 This
in turn granted market exclusivity to market leaders, in turn encouraging investment in innovation of
new products by market leaders for that market.253 Preparation by hotel giant Starwood Hotels and
Resorts Worldwide enabled it to quickly leverage relaxation of US embargo regulations by government
officials, enabling it to be the first hotel chain to be authorized to operate in the Cuban market.254 Agile
responses to legal volatility can thus offer access to new markets arising from rapid deregulation or new
legal protections generated by institutions.

B. Overcome Uncertainty through Coordination of Legal and Business Functions

Firms that are aware of the cause and effect of a particular event, but are unable to determine the
significance of that particular event, are experiencing risk based upon uncertainty. A rival’s extension of
its product line can either be market-redefining threat or an incremental development over established
technology. Similarly, the introduction of a new regulation or statute can have wildly different
consequences for a firm based on whether the language is interpreted narrowly or broadly. Regulators
with overlapping mandates can amplify uncertainty through conflicting decisions.255 Given that legal
rules rarely express their application with perfect precision, this leaves the interpretation of their
significance, and decisions based upon that interpretation, to the attorneys and other legal knowledge
experts of the enterprise.

Such comprehension and interpretation of uncertain rules is a skill fundamental to most attorneys.
Managing uncertain information, and understanding that no ‘right answer’ may exist, is fundamental to
legal practice. As a result, lawyers and legal academics are more comfortable with uncertainty than most

249
See generally Marvin B. Lieberman & David B. Montgomery, First-Mover Advantages, 9 STRAT. MGMT. J. 41 (1988)
(surveying the literature and benefits of first mover advantages to firms).
250
See Elizabeth L. Rosenblatt, A Theory of IP’s Negative Space, 34 COLUM. J.L. & ARTS 317, 348 (2011).
251
Pamela Samuelson & Jason Schultz, “Clues” for Determining Whether Business and Service Innovations are
Unpatentable Abstract Ideas, 15 LEWIS & CLARK L. REV. 109, 122 (2011).
252
Ajay Bhaskarabhatla & Chirantan Chatterjee, First-Mover Advantages Before and After TRIPS: Evidence from the
Indian Pharmaceutical Industry 16 (June 19, 2014), https://ssrn.com/abstract=2154510.
253
See Michael Abramowicz & John F. Duffy, Intellectual Property for Market Experimentation, 83 N.Y.U. L. REV. 337,
354 (2008) (arguing that “increasing the degree of market exclusivity--in effect, providing legal protection to
increase the first-mover advantage--can promote social welfare by increasing the number of experiments that
private parties are willing to undertake.”).
254
Deanna Ting, Starwood Is First U.S. Hotel Chain to Receive Authorization to Operate in Cuba, SKIFT (Mar. 19,
2016), https://skift.com/2016/03/19/starwood-is-first-u-s-hotel-chain-to-receive-authorization-to-operate-in-cuba.
255
Colleen M. Baker, When Regulators Collide: Financial Market Stability, Systemic Risk, Clearinghouses, and CDs,
10 VA. L. & BUS. REV. 343, 385 (2016).

31
other professions.256 In-house attorneys are able to give their best estimation of the risks and
consequences to their corporate clients. Their counsel can lead to a number of governance-improving
effects for the enterprise.257 Thus in an ideal corporate environment, general counsel and her staff would
learn of potential uncertainty, evaluate the risks of that uncertainty based on their expertise, and then
make informed decisions or otherwise communicate so that decisions can be made with that
information across the enterprise.

As lawyers know, eliminating all legal uncertainty from the legal environment of business is impossible.258
Uncertainty is an irreducible byproduct of a standards-based and flexible legal system applied to a
dynamic market environment. Alleviating legal uncertainty in organizations through better information
management, however, is entirely possible. Organizations can accomplish this through better
dissemination of legal knowledge and associated risks. Getting the right legal knowledge to the right
people at the right time is essential to effective knowledge management,259 and in the context of legal
uncertainty will enable managers to make more effective risk-calculative decisions. With law remaining
the last great untapped source of competitive advantage in organizations,260 understanding the
significance of legal rules better than one’s rivals offers a promising opportunity to outflank rivals in a
VUCA environment.

The essential challenge for reducing legal uncertainty in organizations is to dismantle information
barriers. Organizations commonly have intra-organizational barriers,261 but the headwinds preventing
manager-lawyer communication are substantial. This is in part because lawyers and managers are
trained in different methods of thinking. Legal training has a firm foundation in the humanities, focuses
on the meaning of the human experience through its governance, and focuses on the critical analysis of
text and context.262 Business training, by contrast is deeply quantitative, seeking certainty and efficiency
through equations, data analysis, and statistical methods.263 Lawyers and managers speak two different
languages, each group finding it challenging to understand the other. The result is that lawyers and
managers can undervalue one another’s knowledge because of the cognitive load required to
incorporate it into their thinking.

Executives can extract value and diminish uncertainty through encouraging partnered engagement
between business and law. Partnered engagement means the sustained participation of legal knowledge
holders into major aspects of the enterprise. Legal experts should be involved early in any major

256
John Charles Kunich, A Climate of Disruption: Legal Measures for Adaptation and Mitigation, 17 MICH. ST. J. INT’L
L. 1, 29 (2008).
257
Robert C. Bird & Stephen Kim Park, The Domains of Corporate Counsel in the Era of Compliance, 53 AM. BUS. L.J.
203, 223-27 (2016).
258
See Ehud Kamar, Shareholder Litigation Under Indeterminate Corporate Law, 66 U. CHI. L. REV. 887, 897 (1999)
(noting that it is “futile to hope for the elimination of legal uncertainty in a standard-based regime . . . ”). In some
situations from the regulator’s perspective legal uncertainty may even be desirable. Adam I. Muchmore,
Uncertainty, Complexity, and Regulatory Design, 56 HOUS. L. REV. 1321, 1360-61 (2016).
259
Martin Nkosi Ndlela, Critical Success Factors for Effective Knowledge Sharing: Integrating Intra-Organizational
Communication and KM Tools, 2 EURO. CONF. KNOWLEDGE MGMT. 724, 724 (2014).
260
Larry Downes, First, Empower All the Lawyers, HARV. BUS. REV., Dec. 2004, at 19, 19.
261
See Mary L. Tucker, G. Dale Meyer & James W. Westerman, Organizational Communication: Development of
Internal Strategic Competitive Advantage, 33 J. BUS. COMM. 51, 52 (1996) (citing examples of firms reducing barriers
of communication to valuable effect)
262
See Robert C. Bird, On the Future of Business Law, 35 J. LEGAL. STUD. EDUC. (forthcoming 2018).
263
Id.

32
decision-making processes of the firm. Firms considering a merger or acquisition should have plans and
disclosure documents reviewed by legal staff. This not only protects against future wrongdoing but
preserves attorney-client privilege that can help keep communications confidential.264 Early consultation
with attorneys in new product development can prevent costly late-stage modifications, avoid infringing
the patent of another, or reduce exposure to unnecessary risk. The later attorneys are involved, the
greater the chance of law-business conflict as cemented business plans are jeopardized by last-minute
legal problems. Engaged participation by counsel can clarify uncertainty and inform managers about
legal rules before costly investments are undertaken.

Third, lawyer-executives, led by the CLO, must be involved in core decision-making of the strategic
functions of the firm. Once an underpaid ministerial function, the CLO is now one of the most important
positions in the executive suite.265 Today, “there has probably never been a time when legal
considerations have played such a key role in strategy formulation.”266 Although lawyers avoid risk, they
tend to be more adept at managing information uncertainty than most professions.267

Reducing legal uncertainty requires that top lawyers must be involved as highly-compensated executives
who regularly interact with and consult top management. Lawyers bring proven knowledge to key firm
functions. Firms that utilize highly talented CLOs are associated with superior firm performance and
more accurate earnings forecasts.268 Elite CLOs also deter insider trading, sensitize firms to litigation risk,
and improve corporate governance under times of stress.269 Firms that consign their legal experts to
anything less than core functions deny themselves critical information and exacerbate uncertainty.

Legal executives can reduce uncertainty by fully presenting the various risks as part of a senior
management team. That team is then responsible for creating a strategy to deal with the legal
uncertainty. Creation of that strategy requires a detailed plan which includes the actions to be taken as
well their relative priorities. Debate is inevitable between group members, but that disagreement and its
resolution is important for the execution of any strategy.270 Through discussions each group member
generates buy-in and a commitment to the final result. It also gives executives a clear sense of
responsibilities and accountability for tasks completed.271 Pronouncements by fiat from legal are more
likely to be met with indifference and also encourage the perception that the legal department is
disconnected from the business.

264
Yin Wilczek, Involve Litigators Early in M&A Deals to Avoid Disclosure Pitfalls, Attorneys Say, BLOOMBERG BNA,
Feb. 27, 2015, https://www.bna.com/involve-litigators-early-n17179923478/.
265
Carl D. Liggio, The Changing Role of Corporate Counsel, 46 EMORY L.J. 1201, 1201 (1997); A Guardian and A
Guide, THE ECONOMIST (Apr. 7, 2012), http://www.economist.com/node/21552170.
266
CONSTANCE E. BAGLEY, WINNING LEGALLY: HOW TO USE THE LAW TO CREATE VALUE, MARSHAL RESOURCES, AND MANAGE RISK
231-32 (2005).
267
John Charles Kunich, The Uncertainty of Life and Death: The Precautionary Principle, Gödel, and the Hotspots
Wager, 17 MICH. ST. J. INT’L L. 1, 29 (2008).
268
See Robert C. Bird, Paul A. Borochin, & John D. Knopf, The Role of the Chief Legal Officer in Corporate
Governance, 34 J. CORP. FIN. 1, 19-20 (2015); Byungjin Kwak et al., The Composition of Top Management with
General Counsel and Voluntary Information Disclosure, 54 J. ACCT. & ECON. 1 (2012).
269
Alan D. Jagolinzer et al., Corporate Governance and the Information Content of Insider Trades, 49 J. ACCT. RES.
1249 (2011); Linda Smith Bamber, What’s my Style? The Influence of Top Managers on Voluntary Corporate
Financial Disclosure, 85 ACCT. REV. 1131 (2010). Bird et al., supra note 268, at 19-20.
270
See Augustin Landier & David Sraer, Optimal Dissent in Organizations, 76 REV. ECON. STUD. 761, 762-63 (2009).
271
Jason Heinrich, Sean O’Neill & Neal Goldman, Cutting Through the Complexity of Compliance, BAIN & CO. (May
13, 2015), http://www.bain.com/publications/articles/cutting-through-the-complexity-of-compliance.aspx

33
From a VUCA perspective, the most vulnerable managers are those who don’t have the tools to
understand the significance of the legal environment they encounter. Managers thus make decisions and
implement strategies heedless of the vast legal uncertainty involved that could cost firms needless
lawsuits, sanctions, and bad publicity. Even managers who are cognizant of regulations may be resistant
due to out-of-date notions of how lawyers work. Lawyers and non-attorney legal staff must be allowed
to educate, consult, and strategize. Only when legal knowledge providers are engaged, treated like
partners, and participating in core decision-making can a firm get the most out of its legal resources and
manage legal uncertainty for the enterprise.

C. Control Complexity by Deconvolution and Restructuring Operations to Match the Legal Environment

Organizations face a substantial number of risks, yet VUCA authors regularly cite law as the model of
VUCA complexity.272 This is certainly correct, as the legal system fits the earlier-mentioned definition of
“an ensemble of many elements which are interacting in a disordered way, resulting in robust
organization and memory.”273 Multiplying this complexity is the territorial fragmentation of national legal
systems which have both subtle and significant differences, are largely uncoordinated, and whose
obligations can directly conflict with one another.274 Global companies must thus manage not just one
complex legal system, but multiple and disparate jurisdictions. The propensity to cite law is also a
window into how some businesspeople (including those who write on VUCA) view the legal
environment. They mainly see an impenetrable forest of confusing regulations that are difficult if not
impossible to fully manage.275 By contrast, lawyers may fixate on the trees, and sometimes the twigs, at
the expense of the larger picture facing their business client.276

272
E.g., Bennett & Lemoine, supra note 77, at 313 (citing “doing business in new countries often involves navigating
a complex web of tariffs, laws, regulations, and logistics issues” as an example of complexity); Bennett & Lemoine,
supra note 74, at 27 (similar); Oliver Mack & Anshuman Khare, Perspectives on a VUCA World, supra note 16, at 1,
12 (citing “Laws, Patents, Standards, Norms” as example of external market complexity); Thorsten Kuznik, Risk
Management in a VUCA World: Practical Guidelines Based on the Example of a Multinational Retail Group, in
MANAGING IN A VUCA WORLD, supra note 16, at 77, 84 (lamenting that “global companies are confronted by a high
number of rules in the form of constantly changing laws and regulations that greatly differ between countries.”);
Helen Lam, Addressing Volatility, Uncertainty, Complexity & Ambiguity (VUCA) Through Insourcing and Backshoring,
supra note 16, at 141, 144 (“The complexity of custom duties imposed by various governments on various products
can also give rise to much ambiguity when shipping goods across national borders. How many companies actually
have the in-depth knowledge on trade agreements and the custom laws to know what level of duty would apply
especially when it comes to a new product?”).
273
See supra text accompanying note 144.
274
THOMAS DEITZ, GLOBAL ORDER BEYOND LAW: HOW INFORMATION AND COMMUNICATION TECHNOLOGIES FACILITATE RELATIONAL
CONTRACTING IN INTERNATIONAL TRADE 183 (2014). For an example in the employment context where a firm can be
faced with directly conflicting legal obligations between sovereign states, see, for example Carrie Nie,
Extraterritorial Application of U.S. Employment Laws: Clearing the Murky Foreign Laws Defense, 46 INT’L LAW. 1027
(2012).
275
See Robert C. Bird, Law, Strategy, and Competitive Advantage, 44 CONN. L. REV. 61, 84-85 (2011); Ron Ashkenas,
Simplicity Minded Management, HARV. BUS. REV., Dec. 2007, at 101, 101 (“Well intentioned responses to business
challenges— . . . [including] regulations like Sarbanes-Oxley, to name a few—have left us with companies that are
increasingly ungovernable, unwieldy, and underperforming.”).
276
Raymond H. Brescia, Law and Social Innovation: Lawyering in the Conceptual Age, 80 ALB. L. REV. 235, 299 (2016-
17) (“[I]t is likely that most lawyers do not take . . . interdisciplinary approaches to the delivery of legal services and
are thus neglecting to see the forest for the trees, failing to recognize the nuances and multi-dimensional aspects
of the client's problems.”); Christine Zuni Cruz, Four Questions on Critical Race Praxis: Lessons From Two Young

34
Firms cannot simply wipe away undesirable regulations. Nor will aggressive corporate political activity
erase all complexity. Managing legal complexity is a systems level challenge that requires a systems level
solution. This systems level solution originates from an unusual source – cybernetics. Cybernetics is the
study of control and communication in complex systems in order to improve governance and minimize
mistakes.277 Commonly applied in computer and information sciences, cybernetics focuses on managing
internal processes in order to improve the effectiveness of inputs and outputs.278

A fundamental law of cybernetics is the Law of Requisite Variety, known as Ashby’s Law, which states
that complexity in a given environment can be externally managed only by matching the complexity of
that environment sought to be controlled.279 As one VUCA author explains, “only variety can absorb
variety. . . . [E]nvironmental complexity can only be handled by increased complexity of the individual
mind model or the organizational system.”280 Ashby’s law is analogous to a football team facing a skilled
opponent that must continually match the actions of opposing players in order to remain competitive.281
Similarly, firms without sufficient matching responses to their environment are unable to remain
competitive over time.282

Managing legal complexity demands application of Ashby’s law. For every rule a firm must follow, there
should be a corresponding individual or department accountable for that rule’s requirements.283 In VUCA
terms, a firm must respond to legal complexity by restructuring its internal operations to mirror and
thereby respond to the complexities it faces.284 Such restructuring can be accomplished on an ad hoc
basis, but is most effective when part of a firm-wide system. This system typically manifests in the
compliance function of the organization. Compliance is neither a result nor a goal, but a continuous
process.285 An effective compliance function does not just ensure conformance to rules, but builds a

Lives in Indian Country, 73 FORDHAM L. REV. 2133, 2138 n.17 (2005); Thomas O. Sargentich, Teaching and Learning
Administrative Law, 38 BRANDEIS L.J. 393, 396 (2000).
277
Erik Luna, System Failure, 42 AM. CRIM. L. REV. 1201, 1209 (2005). The term was popularized in the 1950s by MIT
Professor Norbert Wiener. NORBERT WIENER, THE HUMAN USE OF HUMANS: CYBERNETICS AND SOCIETY 26 (1954).
278
Luna, supra note 277, at 1209. Cybernetics at its core is about information and its exchange. James Buchanan,
Between Advocacy and Responsibility: The Challenge of Biotechnology for International Law, 1 BUFF. INT’L L.J. 221,
230 (1994).
279
W. ROSS ASHBY, AN INTRODUCTION TO CYBERNETICS 206-07 (1961). See also Shann Turnbull, Corporate Charters with
Competitive Advantages, 74 ST. JOHN’S L. REV. 89, 115 (2000) (explaining Ashby’s Law).
280
Oliver Mack & Anshuman Khare, Perspectives on a VUCA World, supra note 16, at 1, 11. ASHBY, supra note 279,
at 207 (concluding that “variety can destroy variety.”).
281
Turnbull, supra note 279, at 115-16.
282
Id. at 116.
283
See Oliver Mack & Michael Jungen, Program Management in VUCA Environments: Theoretical and Pragmatical
Thoughts on a Systemic Management of Projects and Programs, supra note 16, at 41, 52 (“on one side every
regulation should have an impact on the concrete acting within a program (because otherwise it would be useless)
and vice versa that every practical processing should have an impact on the regulation once more to strengthen the
definition and the agreement of an obliging process standard.”).
284
Elisabeth Ferrari et al., Simply More Complex: A SySt® Approach to VUCA, in MANAGING IN A VUCA WORLD, supra
note 16, at 21, 22 (“[I]n times of increasing environmental complexity, the company’s own internal complexity must
increase.”); Bennett & Lemoine, supra note 77, at 313.
285
E.g., John Tishler, Coping with the Changing World of Corporate Governance and Securities Compliance,
ASPATORE, Mar. 2010, at *15 (“A strong corporate culture has a high ethic for compliance while at the same time
acknowledging and accepting that compliance is a process.”); Michael Miscoe, A Structured Approach to
Developing an Effective Internal Audit Program for Billing and Coding, 10 J. HEALTH CARE COMPLIANCE 17, 17 (2008)

35
system of practices and processes that systematize and operationalize the meeting of legal requirements
throughout the enterprise. Compliance is also about implementing and monitoring the system put in
place, ensuring the distribution of adequate regulatory information to affected managers, and auditing
the program should deviations from standards arise. Compliance is far from unknown to firms, and firms
can manage complexity through implementing a robust compliance program. This is simple to declare,
but the proverbial devil, and the competitive advantage, lies in the details of how effectively such
restructuring occurs.

Two broad strategies can make taming legal complexity effective. The first step is to ensure that a firm’s
compliance function generates no more complexity than the legal environment it is supposed to
manage. This is accomplished by aggressively eliminating any convolution in the firm’s compliance
system. I use the term convolution here to mean any complexity within a given system that is either
unnecessary or inhibitory to the system’s essential functions. If a manager must spend inordinate time
and effort decoding her necessary compliance obligations, that time and effort is lost to convolution. If a
firm imposes a ten-step compliance checklist where only five steps are necessary, the remaining five-
steps are convolution. If managers feel constrained by an “iron cage” of bureaucracy, that cage is
evidence of convolution.286

Convolution can arise from legal experts through the guise of legal jargon. A useful shortcut for
attorneys, legal jargon generates convolution by obscuring communication, frustrating non-expert
readers, and preventing managers from making optimal decisions with provided information.287 Jargon
can unnecessarily complicate firm processes in contract management, human resources, and other fields
by generating a system that requires needless steps in order to ensure appropriate rules are followed.

Convolution can also arise from internal policies implemented by the enterprise. Disparate compliance
systems, incompletely integrated after a merger or acquisition, can create redundant layers of
obligations.288 Policy modifications may be carelessly layered onto prior rules and create a labyrinth of
inefficiently expressed mandates.289 Legal staff applying rules can inadvertently create policies more
complex and burdensome than the law itself. Internal audit demands can increase faster than the
available budget or personnel to respond.290 Policies may also become fragmented across departments
and business units. If managers in different functions are not of aware one another’s internal rule
constrains, actions can be unnecessarily duplicative.

Firms can prevent legal convolution by simplifying their organizations. This begins with eliminating what
simplification expert Ron Ashkenas calls “stupid rules,” low value and high intensity activities that,
according to Ashkenas, “exist in abundance in most organizations.”291 Ashkenas recommends ruthless
prioritization, eliminating redundancies, challenging poor practices, and slicing layers of management

(“Compliance is a process, not a result.”).


286
Sim B. Sitkin & Robert J. Bies, The Legalistic Organization: Definitions, Dimensions, and Dilemmas, 4 ORG. SCI.
345, 345 (1993).
287
Terrill Pollman, Building a Tower of Babel or Building a Discipline? Talking About Legal Writing, 85 MARQ. L. REV.
887, 914-17 (2002).
288
Heinrich et al., supra note 271, at *1.
289
Id. at *3.
290
RON ASHKENAS, SIMPLY EFFECTIVE: HOW TO CUT THROUGH COMPLEXITY IN YOUR ORGANIZATION AND GET THINGS DONE 82
(2010).
291
Ron Ashkenas, Seven Strategies for Simplifying Your Organization, HARV. BUS. REV., May 28, 2013,
https://hbr.org/2013/05/seven-strategies-for-simplifyi.html.

36
and communication.292 These practices must be continuous in order to avoid “let[ting] the weeds grow
back,” and letting new rules reemerge.293

The most radical solution for eliminating legal complexity is zero-basing.294 Zero-basing implements a
fresh review all activities based on their priority and necessity, and nothing is supported merely because
it was present in the past.295 Every resource must justify its existence or be eliminated.296 Zero-basing can
be relentless, but can rapidly move an organization toward better competitiveness and returns.297
Compliance should not be immune from zero-basing merely because it involves legal liability. A firm’s
legal and compliance team should be no less aggressive in excising unnecessary rules and processes. This
does not mean exposing the organization to unnecessary risk, but rather shedding those activities that
impose compliance obligations with little or no benefit.

Once convolution is eliminated, the firm faces the second and more difficult challenge of managing the
remaining intricacy of legal rules. An intricate environment is one that is irreducibly complex because of
process and variables that are inseparable from that environment. Oversimplifyingg a complex system
below its inherent intricacy omits important information, exposes a firm to needless risk, and impairs the
effectiveness of managers who rely on that information to function. Oversimplification can also
encourage fallacies which in turn that cloud rather than illuminate effective decision making.298 The legal
environment of business can only be made so simple without increasing a firm’s exposure to lawsuits or
sanctions.

An organization can manage legal intricacy by removing barriers to accessing and understanding
necessary information. The application of technology to regulatory processes, known as RegTech, can
facilitate the monitoring and reporting of the compliance function.299 Information technology experts
who understand the firm’s business are necessary to translate and disseminate that information to a
non-legal audience. Compliance leaders and their staff must first determine what information is most
useful to which stakeholder. This requires legal experts who understand the operations of the business
as well as the managers directly responsible for a particular function.

The compliance function must then be able to disseminate customized legal briefings horizontally across
business units in the enterprise according to a department’s particular need. Engineers more than other
professions may need detailed information on patent law. Accountants will want to pay special attention
to financial reporting and disclosure rules. A transportation manager need not receive the nuances of
recent banking reforms but would be keenly interested in updates to shipping regulations. Each
organizational unit should receive its own unique ‘legal mix’ of information from which it can easily

292
Id.
293
Id.
294
This is also known as the clean sheet approach. Heinrich et al., supra note 271, at *2.
295
VINAY COUTO ET AL., FIT FOR GROWTH 70 (2017); Mark Judah et al., Strategic Planning that Produces Real Strategy,
BAIN BRIEF (Feb. 10, 2016) (“Zero-basing forces leaders to imagine the process with a clean sheet of paper and
determine what information is truly critical to making robust strategic decisions.”),
http://www.bain.com/publications/articles/strategic-planning-that-produces-real-strategy.aspx.
296
COUTO, supra note 295, at 70.
297
Id. at 76.
298
LEE G. BOLMAN & TERRENCE E. DEAL, REFRAMING ORGANIZATIONS: ARTISTRY, CHOICE, AND LEADERSHIP 41 (4th ed. 2008).
299
Douglas W. Arner, Jànos Barberis & Ross P. Buckley, FinTech, RegTech, and the Reconceptualization of Financial
Regulation, 37 NW. J. INT'L L. & BUS. 371, 373 (2017).

37
interpret, respond, and strategize.300 In this way the compliance function is fulfilling the aspirations of
Ashby’s law at the sub-organizational level.301 Each group or even manager should have the right legal
information they need, at the right time, and at the right level of complexity. The legal complexity of the
enterprise thus matches the complexity of the legal system, and the firm minimizes legal risk more
efficiently relative to its competitors.

D. Manage Ambiguity through Self-Regulation and Learning-Driven Experimentation

A firm facing ambiguity is confronted with an extraordinary challenge. The risk encountered is
unprecedented and significant. Failing to manage an ambiguous risk correctly can permanently derail an
organization, demoting it to a follower or second-tier market role while more agile firms leap ahead with
innovation. Mismanaging legal ambiguity can cause an enterprise to misread its legal and ethical
environment, subjecting it to crippling sanctions, damaged reputation, or a flood of litigation.

Misreading legal ambiguity as another and more benign VUCA risk can be costly. Stockpiling resources
and preparing for a “long winter” is appropriate for volatile situations, but is a costly waste of time and
effort for ambiguity as the firm can only guess what eventuality to stockpile against.302 Gathering
information and dismantling barriers to information is a driving motivation when facing uncertainty, but
inefficient in environments of ambiguity where little available knowledge is helpful.303 Restructuring the
organization as complexity demands is purposeless and potentially disastrous because managers cannot
understand if the restructuring would mitigate the ambiguity or make the situation worse.304 Decision
makers must avoid the allure of repackaging ambiguity as something else, comforting though it may be
in the short term to have the appearance of control.305

With cause and effect indecipherable, long-term consequences unknown, historical precedent
unavailing, it is tempting to dismiss VUCA ambiguity as an inescapably systematic and unalterable risk.306
Fortunately, unlike a meteor strike or a global pandemic,307 VUCA ambiguity can be managed by firms
and done so in a manner that is superior to rivals. Ambiguity presents a problem, but also an
opportunity. Ambiguous environments are ones that present the greatest risk, but also the greatest
return.308 Ambiguity can motivate entrepreneurs to not only exploit but also manage the unexpected.309
Like Bill Gates, Steve Jobs, and others who innovated in an unthinkably novel 1970s personal computing

300
See Bird, supra note 97, at 74 (“Each company has its own unique “legal mix” of regulatory issues that it must
face.”).
301
See supra text accompanying note 283.
302
Bennett & Lemoine, supra note 77, at 316.
303
Bennett & Lemoine, supra note 77, at 316.
304
Bennett & Lemoine, supra note 77, at 316.
305
See supra text accompanying footnotes 209-211.
306
In the financial context, a systematic risk refers to risk that cannot be diversified away and impacts most, if not
all, participants in a given environment. Steven L. Schwarcz, Systemic Risk, 97 GEO. L.J. 193, 204 (2008).
307
See Joseph G. Haubrich & Andrew W. Lo, Introduction to QUANTIFYING SYSTEMIC RISK 1, 9 (Joseph G. Haubrich &
Andrew W. Lo eds. 2013) (noting that “a market crash, the net result of many voluntary trades, is not a meteor
strike, and indeed financial markets have an element of self-fulfilling prophecy.”). See generally Dennis Pamlin &
Stuart Armstrong, Global Challenges Foundation, Global Challenges: Risks that Threaten Human Civilization (2015)
(describing twelve risks that threaten human civilization), available at https://api.globalchallenges.org/static/wp-
content/uploads/12-Risks-with-infinite-impact.pdf.
308
Jacqueline Best, Ambiguity, Uncertainty, and Risk: Rethinking Indeterminacy, 2 INT’L POL. SOC. 355, 360 (2008).
309
Id.

38
environment and would reshape the world, ambiguity can impact industries and spark new ideas for
decades to come.

As discussed earlier, environments of legal ambiguity can arise when a technology or innovation
generates a novel product or market that is unknown to regulators and without a ready precedential
comparison.310 However, while the content of future regulation is unknowable, the development of
future regulation is inevitable. It is virtually unheard of for an administrative agency or governing
authority to encounter a commercial novelty and simply leave governance of that novelty to the whims
of the market. Just as cyberlaw, for example, was once undeveloped and now has a mature regulatory
regime,311 so will future technologies yet undiscovered be governed by yet unwritten regulations.
Successfully adapting to legal ambiguity means managing the ‘when’ and not the ‘if’ of regulation.

Organizations have three strategies for managing legal ambiguity, which can be triaged according to the
environment in which the organization functions. The first strategy is to seek joint development of new
standards with public authorities. Such co-regulation takes a variety of forms, such as joint consensus on
targets rather than rules and enabling regulated entities the freedom to experiment with preferred
solutions to those targets.312 Co-regulation can also include experimentalist governance, which is
enabling open participation between public and private entities to deliberate and develop new
standards to resolve a common problem.313 Regulator and regulated provide regular feedback, make
evidence-based decisions, and are guided by rules that encourage cooperation and penalize defection.314

Such cooperative modes of governance could significantly reduce legal ambiguity. Firms could engage
and collaborate with the very source of the risk. Joint governance, however, is not always available.
Agencies may be too wedded to the command and control model, whereby regulators force top-down
compliance through enforcing rules and sanctioning violators. Even if regulators displayed a wiliness to
engage, the discretion may simply not be available to address a novel legal problem in a joint fashion.

In the absence of such joint regulation, a firm must fall back on its own expertise to develop a regulatory
strategy that minimizes risk through proactive self-regulation. Defined broadly, self-regulation is the
implementation of standards of practice that are established by a company or industry code of conduct
rather than by state control.315 In environments of ambiguity, the innovating firm likely has the most in-
depth understanding of the implication of the new technology or practice. The organization can then
apply that knowledge to set reasonable boundaries and controls for use of that technology.

310
See supra Part I.D.
311
See supra notes 218-219 and accompanying text. See also A. Brooke Overby, Will Cyberlaw be Uniform? An
Introduction to the UNCITRAL Model Law on Electronic Commerce, 7 TUL. J. INT’L & COMP. L. 219, 220 (1999)
(“[C]yberspace is now in its infancy, and cyberlaw still largely undeveloped. . . .”).
312
Michael C. Dorf & Charles F. Sabel, A Constitution of Democratic Experimentalism, 98 COLUM. L. REV. 267, 267
(1998).
313
Gráinne de Búrca, Robert O. Keohane & Charles Sabel, New Modes of Pluralist Global Governance, 45 N.Y.U. J.
INT’L L. & POL. 723, 738-39 (2013).
314
Id.
315
See Dennys Marcelo Antonialli, Watch Your Virtual Steps: An Empirical Study of the Use of Online Tracking
Technologies in Different Regulatory Regimes, 8 STAN. J. CIV. RTS. & CIV. LIBERTIES 323, 333 n.38 (2012); Jonathan P.
Cody, Protecting Privacy Over the Internet: Has the Time Come to Abandon Self-Regulation?, 48 CATH. U. L. REV.
1183, 1188 n.23 (1999).

39
Self-regulation is often discussed from the perspective of a delegation of state power to private actors.316
In this context government grants regulatory discretion to companies in established areas in order to
relieve pressure on burdened agencies and to avoid overregulation.317 The VUCA context is different. In
ambiguity, firms use self-regulation in unchartered regulatory environments in order to mitigate risk.
Firms are constructing standards before regulators have fully considered, developed, and implemented
legal rules in that legal arena. Firms are also potentially preempting the threat of litigation and the
demand of the public for controls by signaling that the organization can handle the task.318

This context can give self-regulation distinct power in ambiguous environments. While self-regulation
can certainly be driven by altruistic reasons of morality and professionalism,319 self-regulation benefits
the organization. Self-regulation is standard setting. An enterprise that self-regulates, and aggressively
proselytizes that self-regulation, can give the private standards an imprimatur of legitimacy. That
legitimacy, in turn, generates a “pull to compliance” that other firms in the industry may feel obligated to
follow in order to remain competitive.320 The ambiguous environment amplifies this standard setting
effect because there is no regulatory or norm-based competition to challenge it. States have leveraged
regulatory innovation, most notably Delaware in the discipline of business law,321 in order to create a first
mover advantage in attracting firms to reside there.322 The self-regulating firm facing ambiguity is
leveraging such innovation in reverse, establishing self-regulatory standards that pull other firms, and
perhaps even legislatures, to adopt these standards as their own..

Like pluralistic governance, self-regulation may also not be feasible for every enterprise. The organization
may not have the expertise or resources to develop self-governing standards. The organization may also

316
E.g., Douglas C. Michael, Federal Agency Use of Audited Self-Regulation as Regulatory Technique, 47 ADMIN. L.
REV. 171, 175 (1995) (“‘Self-regulation’ is delegation of the power to create and enforce rules to an entity outside
the federal government.”).
317
See IAN GOLDIN & MIKE MARIATHASAN, THE BUTTERFLY DEFECT: HOW GLOBALIZATION CREATES SYSTEMIC RISKS AND WHAT TO DO
ABOUT IT 218 (2014) (noting that the public sector cannot manage systemic risk without cooperation with the
private sector and civil society).
318
Jason M. Solomon, New Governance, Preemptive Self-Regulation, and the Blurring of Boundaries in Regulatory
Theory and Practice, 2010 WISC. L. REV. 591, 598.
319
Sylvia R. Cruess & Richard L. Cruess, From Teaching Professionalism to Supporting Professional Identity
Formation: Lessons from Medicine, 68 MERCER L. REV. 665, 670 (2016) (explaining how society grants professional
societies “the privilege of self-regulation on the understanding that the profession will demonstrate honesty and
integrity in its activities, be altruistic, devote itself to issues of importance to society. . . .”); David P. Baron, Morally
Motivated Self-Regulation, 100 AM. ECON. REV. 1299 (2010) (exploring the role of altruism in private governance).
320
Cf. THOMAS M. FRANCK, THE POWER OF LEGITIMACY AMONG NATIONS 26 (1990) (asserting in the international law
context that “legitimacy exerts a pull to compliance which is powered by the quality of the rule or of the rule-
making institution and not by coercive authority”).
321
See, e.g., Steven J. Cleveland, Process Innovation in the Production of Corporate Law, 41 U.C. DAVIS L. REV. 1829,
1832 (2008) (“Delaware is a leading producer and innovator of corporate law.”); Curtis Alva, Delaware and the
Market for Corporate Charters: History and Agency, 15 Del. J. Corp. L. 885, 890 (1990) (explaining that Delaware
law “not only governs the affairs of important corporations incorporated in Delaware, it also serves as a nearly
irresistible innovator, competitor, and model for the corporate codes governing many of the remaining
corporations.”). Not all commentators agree with this assessment, however. See, e.g., Roberta Romano, The States
as a Laboratory: Legal Innovation and State Competition for Corporate Charters, 23 YALE J. ON REG. 209, 231 (2006)
(“Delaware has not been at the forefront as a pioneering innovator in takeover regulation. Rather, it has been a
laggard.”).
322
William W. Bratton & Joseph A. McCahery, Regulatory Competition, Regulatory Capture, and Corporate Self-
Regulation, 73 N.C. L. REV. 1861, 1880 (1995).

40
not have sufficient legitimacy or influence to exert a pulling force that draws competitors and regulators
to see the self-governance as standard setting. Although tempting, firms should not respond to this
difficulty by withdrawing altogether from legal ambiguity. This could cede new and potentially lucrative
opportunities to competitors.

When the firm cannot co-regulate or self-govern, it must fall back again to another strategy that
mitigates legal ambiguity. This remaining strategy is to experiment with the legal environment.323
Experimentation is not merely blind trial and error. Rolling the proverbial dice in the legal environment
could be catastrophic. Experimentation instead requires the firm to carefully attempt new strategies in
order to assess responses by regulatory authorities. This experimentation must occur with the
knowledge that it places the firm at risk for a future and unknowable legal liability. A culture must be in
place that has evolved from failsafe design to safe-to-fail risk-taking.324 An experimentation strategy is
counterintuitive because it contradicts firm impulses to avoid legal risk.

Although experimentation may be the firm’s only non-passive option when facing legal ambiguity,
experimentation will have little value if the firm is unable to reflect on the experience. In order for a firm
to benefit from experimentation, it must first build a learning organization. A learning organization
generates an environment where employees “continually expand their capacity to create the results they
truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is
set free, and where people are continually learning how to learn together.”325 Learning organizations
have employees who value tolerance and promote holistic thinking. Learning organizations also have an
enhanced tolerance for unpredictable and ambiguous events, and can adapt quickly to opaque
circumstances.326 When learning organizations encounter ambiguity, they learn from their successes and
mistakes better than their competitors. Firms retain information from the event, process that
information for future implications, and distribute that learning across the organization. For example, a
legal threat such as a lawsuit or sanction can provoke a defensive turtling posture against a seemingly
hostile or unfair legal system. That same event can also invigorate an enterprise to improve its thinking
about the legal environment and redesign processes to better adapt to future legal ambiguity. The
difference between such viewpoints can be the result of whether the enterprise is a learning
organization.

Organizations that fail to manage legal ambiguity do so at their peril. Uber is the leading provider in the
real-time rideshare industry, using smartphones and GPS navigation to connect Uber passengers with
drivers. Uber requires that drivers supply their own cars and licenses while Uber calculates fares and
sends payments to the driver. Innovators like Uber radically transformed the personal transportation
market by giving riders real time access to transportation and drivers substantial flexibility to choose
markets and working hours.327

323
Bennett & Lemoine, supra note 77, at 316.
324
Oliver Mack & Anshuman Khare, Perspectives on a VUCA World, supra note 16, at 1, 11.
325
PETER M. SENGE, THE FIFTH DISCIPLINE: THE ART & PRACTICE OF THE LEARNING ORGANIZATION 3 (2006). Cf. Patricia H.
Murrell, Gary F. Schneider & Philip D. Gould, Courts as Learning Organizations: Towards a Unifying Vision, 93
JUDICATURE 14 (2009) (applying learning organization principles to the judicial system).
326
David A. Garvin et al., Is Yours a Learning Organization?, HARV. BUS. REV., Mar. 2008, at 109, 109-10.
327
See Rebecca Elaint Elliott, Sharing App or Regulation Hack(ney)?” Defining Uber Technologies Inc., 41 J. CORP. L.
727, 734-35 (2016) (summarizing operation of the Uber app).

41
As can happen with transformative innovations, Uber faced a legally ambiguous environment. Legislators
had yet to consider what would be permissible in a rideshare industry. Courts had issued no legal
decisions directly applicable to Uber’s business model. Local officials had little warning that Uber would
be so dominant and pervasive in the jurisdictions under their responsibility. In spite of this legal black
box, Uber raced ahead. Uber followed an ‘act first and ask permission later’ model. This may have been
because of entrepreneurial hubris or the disturbingly exploitative attitude that consumer demand would
leverage pressure against governments to give Uber an unprecedented free hand.328

What Uber encountered instead was a wave of unnecessary legal problems. Lawsuits against Uber allege
that it violated the Americans with Disabilities Act by not providing transportation for mobility impaired
customers. A taxi association in Seattle has sued Uber alleging unfair and deceptive business practices.329
When a six-year old was killed by a distracted Uber driver looking at his cell phone for his next ride, Uber
denied legal responsibility and faced wrongful death litigation.330 Uber has been sued for violating
antitrust laws for colluding with drivers to raise prices. Two women are suing Uber for fraud and punitive
damages after alleging sexual assaults by Uber drivers. Uber drivers in Austin, Texas, are suing for back
pay and benefits after Uber’s abrupt termination of service in the city.331 When Uber classified drivers to
save costs, it was met with a $100 million class action lawsuit from Massachusetts and California drivers
that it was recently forced to settle.332 Government officials have ramped up litigation against Uber for
deliberately ignoring local regulations and providing insufficient background checks.333 In the US alone
there are no less than 70 active lawsuits against Uber in US federal court with presumably many more in
state courts, and similar legal challenges against Uber appearing in India, New Zealand, and elsewhere
around the world.334 While Uber remains a profitable enterprise, with significant market power, many of
these problems could have been minimized if it had managed legal ambiguity more effectively.

IV. CONCLUSION

There are few more impactful external forces on a firm than the legal environment of business. Firms
must navigate complex and ever changing rules in order to survive. Failure to do so can expose a firm to
significant sanctions. Fortunately, legal VUCA represents an opportunity for value protection and value
creation for firms willing to understand how legal forces work. Firms can respond to legal volatility with
careful conservation of resources and an agile organization that adjusts quickly to rapid shifts in legal
rules. Legal uncertainty may be overcome by harmonizing the legal function with relevant business units,
promoting engagement, and building decision-making partnerships at the executive level. Firms can
control legal complexity by minimizing convoluted processes and managing intricacy through efficient
and tailored information management via the compliance function. Legal ambiguity, the most invidious

328
See Elizabeth Pollman & Jordan M. Barry, Regulatory Entrepreneurship, 90 S. CAL. L. REV. 383, 385-89 (2017)
(summarizing deliberate exploitations by Uber of an ambiguous legal environment).
329
Anna Gallegos, The Four Biggest Legal Problems Facing Uber, Lyft and Other Ridesharing Services, LXBN (June 4,
2014), http://www.lxbn.com/2014/06/04/top-legal-problems-facing-uber-lyft-ridesharing-services.
330
Joe Fitzgerald Rodriguez, Uber Sues Wrongful Death Lawsuit of Sofia Liu, S.F. EXAMINER (July 14, 2015),
http://www.sfexaminer.com/uber-tentatively-settles-wrongful-death-lawsuit-of-sofia-liu.
331
Heather Kelly, Uber’s Never-Ending Stream of Lawsuits, CNN (Aug. 11, 2016),
http://money.cnn.com/2016/08/11/technology/uber-lawsuits.
332
Rich McCormick, Uber Settles Lawsuits to Keep Drivers as Independent Contractors in California and
Massachusetts, THE VERGE (Apr. 21, 2016), http://www.theverge.com/2016/4/21/11485424/uber-suit-california-
Massachusetts-drivers-employee-contractor.
333
See Kelly, supra note 331.
334
Id.

42
business environment, can be managed through pluralistic governance, self-regulation, or through
careful experimentation and learning. The legal environment represents a powerful example of an
unstable force. Firms that embrace legal VUCA, rather than avoid it, can use their legal resources to
capture value, manage risk, and promote innovation.

43
Exhibit I: Summary of VUCA Strategies

Legal VUCA Definition Sources of Legal Instability Coping Strategy Steps Toward Mastery
Volatility Volatility is an environment Threat of private litigation; Train agility to react with 1) build lean absorption through
where change is fundamentally Government enforcement of creatively and decisively stockpiling of resources, 2) establish
unstable and unpredictable. legal rules; Sudden legislative when even when rapid response plans to deploy legal
Forces in volatile conditions tend enactments and judicial rulings external pressures resources, 3) leverage preparation for
to fluctuate sharply and without demand immediate volatility to outflank firms and gain
warning. action. first-mover advantage
Uncertainty Uncertainty is driven by a lack of
Finite rules tasked with Obtain knowledge about 1) bridge the knowledge and
knowledge. This lack of regulating an infinite set of the legal enviornment attitudinal gap between lawyers and
knowledge is not of the cause or problems; courts giving that is shareable across businesspeople, 2) foster partnered
effect of a particular event, burconflicting interpretations of functional units and is engagement between business and
rather hether an event is the same rule; government integrated into decision- legal departments, 3) involve key
significant enough to require a agency discretion encourages making processes. legal executives to improve core
meaningful response. varying applications of decision-making functions
regulations
Complexity Complexity is the presence of Necessity of legal rules to apply Restructure intra- 1) eradicate unnecessary convolution
numerous interconnected parts to complex transactions and organizational legal of legal rules, 2) manage irreducible
and variables in a given withstand circumvention; structures to align the intricacy in order to optimize utility
environment that are difficult to imperfectly written rules firm with irreducable for decision making, 3) restructure
process by an organization and as generate unnecessary complexity of the legal operations to align legal rules with
a result drain resources and complexity; refinement of rules environment environmental complexity through a
cofound decision making. to increase fairness also value protecting system of
increase complexity compliance

Ambiguity Ambiguity arises when Rapid changes in technology; Experiment with new 1) co-regulate with public entities, 2)
relationships between cause and accelerating growth in strategies, collaborate develop proactive self-regulation, 3)
effect are largely unclear, weak innovation; limited ability of with regulators when build a learning organization that can
historical precedent exists for a government officials to possible, process process and improve upon legal
decision, and consequences are antcipate and regulate in feedback, and adjust experimentation
largely indeterminate. advance of new ideas subsequent plans
according to the feedback
received.

44