Article
Safeguarding your company when legal disputes are on the rise
Thomson Reuters 2021 State of Corporate Law Departments report documents the significant impact of COVID-19 on corporate law departments — increased workloads, shrinking budgets, operational challenges for departments that lagged in adopting technology, remote work practices, and greater emphasis on safeguarding companies from heightened risk.
“For most corporate law departments, 2020 will be remembered as a year where everything was turned on its head. Law department leaders had previously helped guide their departments through recessions, sales shortfalls, and restructurings — but never a global pandemic. However, the after-effects of 2020 will likely contain as many positives as negatives; if department leaders are smart, it should act as a catalyst for accelerating the change agenda in 2021 and beyond.”
Corporate legal departments are familiar with external forces impacting the number and magnitude of disputes it must manage. Historically, during economic downturns it’s common to see a marked increase in disputes. Conversely, in times of economic prosperity, the push for loss recovery and finger pointing is less prevalent. In 2020, we saw a perfect storm of political, economic, civil, and health-related forces converge. Marry those with public watchdog groups armed with smart phones and social media and the market was ripe for a spike in legal disputes.
Disputes and increased legal work also have resulted from heightened activation of force majeure contractual clauses that free parties from liability and obligations in the event of extraordinary events, including the pandemic. Economic difficulties were elevated due to business interruption that impacted employment, lending, housing, and spending. Additionally, pandemic-related corporate disputes are up in the insurance, regulatory, and cyber-security areas.
Despite shrinking legal budgets, the study found that 40% of law departments predict their spending on disputes will be higher in the coming months than it was before the pandemic. And 40% also said they’re implementing new dispute prevention measures.
Tangible steps to safeguard your business now
Four key workstreams emerged in corporate law departments due to the pandemic, including one driven by an intense focus on minimizing potential damages. The objectives of this workstream are to:
- Resolve labor matters
- Monitor contractual, compliance, and counterparty risks
- Mitigate disputes, often through early settlements
- Maximize government aid support
- Prepare the company for a staged return to “a new normal”
The top preventive measures implemented by legal departments have been reviewing and renegotiating contracts, ensuring compliance with new regulations, implementing new policies, and improving communications with employees, customers, vendors, and suppliers. Providing oversight to identify emerging issues so they can be addressed before they escalate is another important factor.
Given the increased role the in-house general counsel plays as a strategic advisor to the business, it’s no surprise that mitigating risk has been elevated as a top priority.
The study suggests that there is a great deal of work to be done in this realm across corporate legal departments. The most commonly deployed preventive measure — contract review and renegotiation — was implemented at only 30% of firms and other measures were implemented even less than that. Safeguarding is likely to remain a top priority for the foreseeable future, especially as law departments are increasingly expected to do more with less.
Safeguarding your business for the future
Continued economic and geopolitical disruptions — including the pandemic, a new U.S. administration, and the UK navigating its separation from the European Union — promise ongoing uncertainty for companies and continued need for their law departments to identify and manage near-term and long-term risks.
The Thomson Reuters report details many steps legal departments can take to succeed in this frenetic environment through strategic planning, measurement and reporting, budget management, talent management, technology utilization, process optimization, external counsel management, and culture shifts.
When it comes to minimizing legal risks, the report suggests in-house legal departments consider the following steps as they guide their companies through this challenging environment:
- Create and maintain a risk register that ranks all potential legal risks.
- Monitor and ensure compliance with new pandemic-related regulations across all jurisdictions in which the company operates.
- Stay engaged with business leaders to ensure all key meetings include a legal perspective, risks are identified early on, and corporate strategies and goals are proactively supported by the legal team.
- Encourage outside counsel to share risk mitigation ideas and best practices they gather from other clients.
- Ensure metrics, which typically cover the legal spend, are truly aligned with strategic objectives — including the mitigation of long-term risk.
“As we enter 2021, the challenges continue but many corporate law departments are now prepared — at least for what they have experienced through the pandemic,” the report says. “Legal budgets are likely to be further stretched, of course, as business-as-usual comes back to full force alongside rising work levels coming out of the dynamic COVID-19 environment and related disputes.”
In this challenging environment, many corporate law department leaders “have formed a new adaptable mindset,” the report notes. “Indeed, corporate law departments are in a unique position to drive more fundamental change across the legal industry and beyond in a number of ways.”
For more information about how companies are successfully safeguarding their own businesses and the pandemic’s impact on law departments, download your copy of the 2021 State of Corporate Law Departments Report.
Practical Law has the resources you need to minimize disputes and mitigate risk in your law department