There are an amazing number of issues, trends, and headaches to keep track of as in-house counsel. So much, that it can be difficult to know what to focus on. When I was General Counsel I made time each year to step back and try to take a look at the big picture, i.e., given everything going on in the world, what should I and my department be spending time on right now? Certainly, I wanted to make sure things that were important to the goals of business where high on our list. But I also wanted to “benchmark” my team and make sure we were aware of what other legal departments were doing. I would gather information from many different sources and then come up with my own list of current essential “issues/best practices” that I thought we needed to focus on. Generally, my list contained items dealing with risk reduction, technology needs, management practices, key analytics, and ways to enhance the value of the department to the business.
Though I have not been GC for a little while, I keep my eyes and ears open to what’s going on in the world and how might it affect in-house lawyers. I thought I would highlight some of the important things I see out there right now — things that should be on every in-house lawyer’s “watch list.” This edition of “Ten Things” discusses the essential items I would be focused on right now if I were running a legal department in 2017:
1. Impact of the Trump Administration. The election of a new President of the United States brings changes to our country. Even more so when there is a change of party. And with the election of someone as unorthodox as Donald Trump, it is definitely a brave new world, especially for in-house counsel who have been used to eight years of President Obama. President Trump ran on a platform of drastic change, especially when it comes to many of the things President Obama accomplished via executive power vs. bills passed by the Congress. In the first 100 days, however, the new President has engaged in a somewhat bewildering series of “flip-flops” on many of his campaign issues. Still, there are a number of things that seem likely to change and, as in-house counsel, you should start thinking about how any change might impact your company. Here is a list of five things to focus on:
- “Obamacare” – the President and the Republican majorities in the House and Senate have made it very clear that undoing or drastically changing the Affordable Care Act is a top priority. This may well mean changes for employers, e.g., mandates around providing health insurance, etc. However, they obviously got off on the wrong foot the for the first attempt but that does not mean they will not try again (as appears to be happening) or, as he said, the President may switch up and work with Democrats to make changes. The one thing to count on is something will change with the ACA in the next year or so.
- National Labor Relations Board – the NLRB was hyper-active under President Obama, issuing controversial rulings on everything from employee handbooks to union organizing to social media to non-compete agreements. The NLRB General Counsel went so far as to release a lengthy memorandum about expectations regarding employer policies toward employees. Over time, you can expect the Trump Administration to reverse many of the changes implemented by the Obama NLRB.
- Dodd-Frank – another piece of legislation mentioned repeatedly by President Trump as needing to go or be radically changed, and he has the support in the Congress to do it. If you work for a publicly traded company or a bank you can expected to see changes in some of the most onerous provisions.
- Infrastructure opportunities – the President has promised to invest billions of dollars in new infrastructure projects throughout the USA. If you are involved with a company that might possibly participate in any facet of construction of things such as roads, ports, dams, rail, airports, etc., a comprehensive program could be a major economic boon for you and similarly situated companies. Boning up on government contract law might be in your future.
- Foreign Trade – The President promises to be the bull in the proverbial china shop when it comes to foreign trade (no pun intended). This could mean big changes to NAFTA and with trading partners such as China, though the President seems to be backtracking quite a bit on trade policy promises already. Depending on your business, any changes could be great or awful.
If I am an in-house counsel outside the USA, many of these still apply. But, I would also focus on the Brexit, the French elections, North Korea, and how things might play out in Syria. All will have potential big impacts on companies around the globe.
2. Data breach plan. Any company that handles data, especially personal data, needs to have a comprehensive data breach plan in place. This is a written document that sets out in detail such things as “what happens,” “who does what,” and “who gets contacted in the event of a data breach.” You do not want to be a company experiencing a data breach without such a plan. Moreover, you do not want to be practicing your data breach plan for the first time during a real data breach. You should run at least one “table top” practice exercise of your plan every year and use the results of the exercise to update and enhance the plan.
3. Legal department succession planning. If your legal department does not have a formal succession plan in place, you need to make it a priority for 2017. A succession plan is critical for a well-functioning legal department, especially with the “Baby Boomers” starting to retire in droves. A proper plan requires three key components: a) evaluation of succession needs in terms of legal skills and available talent; b) development of succession talent over time; and c) a formal plan and process to update the plan on a yearly basis.
4. Know these three budget metrics. Probably the biggest demand on in-house lawyers is managing outside counsel spend. There is constant pressure on you to get such spending “under control” – whatever that means. In my experience, it pays to have the following: a) a good relationship with the CFO and Finance generally – so they understand the “why” you are spending what you are spending; b) an understanding of where you are spending every dollar and why; and c) the following three budget metrics:
- Market rates for billable hours in your city (or nationally depending on the type of work): You also need to know your overall average rate for your legal spend. With these numbers you can determine if you are paying the “right” amount or if you need to cut new deals with your firms or move to the work to new firms. Without this information, you are simply at the mercy of “We’re giving you a 10% discount” but having no idea what that really means. You can get “market” rates via your e-billing vendor or you can purchase it from third parties (and it’s a worthwhile investment). Likewise, you should be developing a roster of boutique firms, i.e., small firms made up of lawyers who used to practice at BigLaw. You get the same quality lawyers but usually at 40% to 60% of the price of the big firms.
- Forecast vs. Actual: You need an accurate forecast of your legal spend on a monthly basis. All of your outside firms should be able to accurately forecast spend over the next 30 to 60 days. Demand such forecasts monthly along with the amount actually spent over the forecasted period at regular intervals. You do not want to wait until you receive an invoice to know what you actually spent. All of this is made much easier if you are using an e-billing tool. If not, you can still get it by having your outside firms provide you the information on a monthly basis – i.e., at the beginning of every month provide a forecast for the next thirty days and the actual spend for the past thirty days.
- Can you bring it in-house? Lastly, you should always be calculating whether work you are sending outside can be brought in-house – where it can be done at much lower cost. To do this, you need to be able to categorize the work you are sending out (and the more granular the better) along how much you are spending per category. Then, determine if there is someone on the team who can do that work or if you had permission to hire another person would the cost savings offset the cost of the new person? The answer may be “no” a lot of the time. But, the Finance Department and CFO will be impressed if you are regularly doing this analysis (and you bring it to their attention during any budget review updates or process).
Additionally, forward thinking legal departments are increasingly engaging operations managers to handle day-to-day tasks associated with operating the department, including budgets, forecasting, metrics, technology evaluation/implementation, purchasing/law firm fee negotiation, etc. For more on this trend, take a look at the Corporation Legal Operations Consortium website.
5. GDPR preparation. The new EU General Data Protection Regulation does not go into effect until May 2018. While that may seem like a long time, it’s not. The GDPR is a dramatic departure from the current the EU Data Privacy Directive regime. If you process data in the EU or process the data of EU citizens, you need to fully understand what’s new under the GDPR and start preparing for its impact now (and many companies will simply apply the GDPR requirements to all of their customers, regardless of location). If you haven’t started yet, you’re pretty far behind. But there is still time to get your act together. Key issues are the scope of who’s covered (e.g., data processors are now directly covered), the need for privacy impact assessments, tougher requirements around consent, significantly larger fines for violations, a new “right to be forgotten,” and most importantly, new requirements around the transfer of personal data outside the EU. As to the latter, ensure you have a valid legal basis to transfer personal data out of the EU, including for your employees and customers. Many companies are using the standard contract clauses and a number are signing up for the “Privacy Shield” agreement (though both of these methods are under attack). The important thing is to establish the right cross-company team to analyze and understand the new GDPR requirements and getting prepared to comply.
6. Artificial Intelligence. There is probably no hotter topic in 2017 than artificial intelligence (“AI”). While certainly true for businesses generally, the surprise is how quickly AI has come to dominate discussion in the legal world. Basically, AI means machines (e.g., computers) that can “learn” to do tasks. A simple example is a robotic arm that can weld pieces of metal together. In this next generation of AI, we see computers learning to do tasks typically reserved for “white collar” workers. In the legal realm, you see this with e-discovery and computers analyzing large amounts of unstructured data (e.g., emails) and finding relevant documents. The next level is computers doing basic legal research, due diligence, and simple contract creation. Beyond this will be computers that can draft complicated legal documents (like briefs for court) and constantly search company emails and other record searching for problems (e.g., bribery, trade secret theft) before they occur. Imagine how valuable that will be to in-house lawyers. And finally, the ability to actively interact with computers and ask questions, get legal answers, and other assistance in real time. As in-house counsel, here are some things you should be doing now to get ready:
- Find out which of your outside law firms are using AI or intend to use AI and volunteer to be part of any experimental use of the product – in exchange for a low cost point.
- Study up on AI use by in-house legal departments, looking to stay abreast of the latest developments and uses of AI. Seek volunteers in the department to help with this task, naming someone to be “in charge” of AI for the department. A good place to start are these two articles:
- Find a continuing legal education program on AI and/or attend a trade conference on legal technology (like Legalweek). Check out the International Association for Artificial Intelligence and Law.
- Find one use for AI in your legal department and start there. Don’t feel you have to go “all-in” on AI. It’s perfectly fine to start small and take your time. Look at all of the processes and work you do today in your department and is there something that is a good candidate for AI assistance? No matter what you select, be sure to dedicate the time needed to learn how to properly use the tool. Don’t let this be “someone else’s” job.
- Make a friend in the IT department, someone with an interest in AI who can help you get resources and be supportive of Legal’s use of the technology.
7. Company website health check. Unless your company is located in the 1970’s, it probably has a website. When was the last time anyone took a look at the website from a legal compliance standpoint? You’re not alone if it’s been a while as it’s common for websites to go years without anyone taking a serious look at them, even if it’s just to ensure all the links work. Focus on three things to start (and then ensure you schedule a yearly review of the website going forward):
- Terms and Conditions/User Agreement: this is the heart of your legal protection for transactions or activity on your company’s website. Make sure that you have the best language around limitation of liability, mandatory arbitration, choice of forum, Digital Millennium Copyright Act, class-action/jury trial waivers, etc. For a good summary of issues to consider, click here.
- Privacy Notice: a privacy notice informs users what the company does with the data it collects. The thing to consider immediately is whether your privacy notice is up-to-date and accurate? Does it correctly discuss what data is collected and what the company does with the data – have you verified with the business that all of this is still correct? Does it still reference the “Safe Harbor” agreement as the basis for transfer of data from the EU? If so, take that out immediately. Do the links work and is someone monitoring them? For a checklist of things to consider click here.
- Is it accessible by the blind? A big area of litigation has risen up over the issue of whether company websites must be and are useable by the blind (or otherwise ADA compliant). The Department of Justice has deferred for several years guidelines that would help businesses know what is required and expected. In the interim, your company is still required to comply with the law. And the law is messy, with US federal courts split over the issue of whether websites, like public businesses, must be accessible to the disabled. Led by the National Federation of the Blind, over 240 businesses have been sued since 2015 with the result typically being a quick settlement (with the cash going to – surprise – the class action lawyers) and an agreement to make changes to the website to accommodate the blind. Rather than wait for the problem to catch you off-guard, consider working on the issue on your own time frame without the pressure or publicity of a lawsuit filed by the blind.
8. Look into litigation financing. In its most basic form, litigation financing means a third-party agrees to finance your litigation (usually the plaintiff side, but it works for defense side as well) in exchange for a percentage of the recovery (settlement or post-trial) or some other agreed upon return on investment. The financing is usually “without recourse” meaning that if you do not win your case, nothing is owed to the group financing the litigation, they take all the risk. This is very different from a contingency fee arrangement with a law firm. With litigation financing your agreement is with a third party, not the law firm. Moreover, the financing can and does cover out-of-pocket costs in addition to legal fees, i.e., depositions, travel, expert witnesses, copies, etc. There are several pros and cons to litigation funding but one big pro is that the CFO will love it. This is because it takes the cost of litigation off the company’s books which means the company’s earnings, cash flow, and other measures of financial success are not burdened or diminished by big, hard to predict legal fee payments. While a litigation claim is an “asset” of the company, just like any other receivable, it is not treated the same under the accounting rules. This means costs related to litigation are usually not capitalized, they are expensed – so they hit the bottom line as incurred. Moreover, the unpredictable nature of legal fees, especially in big litigation, can drive problems with earnings for publicly traded companies as even a penny or two difference off expectations due to unexpectedly high legal fees can negatively impact stock price in a material way. Litigation financing can remove a lot of these problems, keeping legal fees off of the P&L until there is a positive event to report. Like it or not, every in-house lawyer should become familiar with this method of paying for litigation.
9. Protect the attorney-client privilege. Some courts are taking a harsh look at claims of attorney-client privilege involving in-house counsel, finding in a number of situations that the advice given by in-house lawyers was business advice and therefore not privileged. It should not be this way, but it is. The attorney-client privilege is an important asset of both the company and the legal department. When used improperly or with lack of care, all hell can break loose as communications people thought were confidential are now in the hands of the other side or even publicly disclosed. Ensuring that everyone in the legal department (not just the litigators) understands the do’s and don’ts about the attorney client privilege is a “must have” for 2017. This includes what types of communications are privileged (e.g., requests for legal advice vs. business advice) and how to properly create and mark a privileged document. See attorney-client privilege basics for more. Additionally, make sure your internal clients understand how the privilege works (e.g., not forwarding privileged advice outside the company) and how to properly and clearly ask for legal advice (i.e., “I need your legal advice about ….”).
10. Key compliance program health checks. While the Trump administration may change some of the focus on compliance, the better bet is that government regulators will continue to vigorously enforce key laws affecting corporations and senior management. One way the legal department can add additional value to the company is to be proactive in ensuring that compliance programs and training are up to date and widely available to all employees. Given the “Yates Memo” and trying to read the tea leaves, these are the areas I would focus on today:
- Antitrust: Ensure that your training program and compliance program around antitrust/competition law issues are up-to-date. Focus on a) communications with competitors (especially trade associations); and b) “writing smart” (as many competition law issues arise because people write dumb things without thinking, especially testosterone driven emails about “crushing competitors”).
- Anti-bribery: Enforcement of the FCPA and UK anti-bribery acts is increasing, with penalties getting bigger. See my column on giving your anti-bribery program a health check and focus on operations in countries with a high risk of corruption and bribery and on gift giving, especially around the holiday season as the “anything of value” test can take on many meanings in a regulator’s eye.
- “Up-the-ladder” reporting: Publicly traded companies in the US, have an “up-the-ladder” reporting requirement on lawyers under Sarbanes-Oxley, i.e., an obligation to report potential wrongdoing up the chain of command and be comfortable the matter was dealt with properly. Even if your company is not publicly traded, it is an excellent idea for the legal department to have a written process for what people should do if they suspect something is amiss in the company, including who to report it to (and alternative places to report if the attorney feels their concerns will not be or are not being addressed).
- Compliance hotline: If your company must have an anonymous hotline where employees and others and call in suspicions about wrongdoing. Make sure it is in working order (don’t laugh) and that someone is monitoring it daily. Most importantly, ensure that employees know it exists, how to use it, and that the company encourages employees to report issues and there will be no retaliation against anyone who reports issues.
- Standardize the internal investigation process: If wrongdoing is suspected, an internal investigation will be necessary. Be sure you have a standardized process to conduct investigations, including “who does what,” when outside counsel will be called in, a written “Upjohn” notice and how/when utilized, standard report formats, who gets the reports, follow-up with the person making the complaint, etc. An internal investigation is not something to undertake on an ad hoc basis.
The above is just my view. There are many other things that could make my list (or your own list). It’s also U.S.-centric (and apologies for that). The important lesson is to make it part of your daily routine to scour (or talk with) different sources of information for issues or trends that can affect your company and the legal department – good or bad — and find a way to put together a list of “essential issues” to focus on every year. You’ll never get it right 100% percent of the time, and that’s okay. Keep working on it and stay alert. Make your list and get going. Over time, you’ll find that you have likely saved your company from some real headaches. You may even save some serious money. Either one means a good day at the office.
April 28, 2017
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