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2020 ACC CLO Survey: Key Findings

The Legal 500 is a proud member of the Association of Corporate Counsel Alliance, and the latest survey of chief legal officers has been released. Drawn from interviews with 1,007 participants from 20 industries across 47 countries, the CLO Survey gives a unique insight into the current state of corporate legal departments.

‘As the role continues to evolve, CLOs need to think about the future on multiple levels,’ said Veta T. Richardson, ACC president and CEO.

‘Fundamental challenges such as increasing regulations, data privacy and digital transformation are not going anywhere. But today’s most effective CLOs are also focused on being strategic business partners, navigating business and legal risks, and supporting organisations to deliver greater value to their customers.’

The key findings from the report are as follows:

The CLO’s role and reach

Four in five CLOs surveyed report directly to the CEO: A five-year high, which reflects the growing importance for CLOs to have a seat at the executive table.

Compliance and risk are the top two corporate functions that report to the CLO: Over three-quarters of CLOs surveyed oversee compliance and more than one-third are in charge of risk management.

One-third anticipate outsourcing more work to law firms next year: Although departments are pressured to do more with less and insource work, the number of CLOs expecting to outsource more work to law firms remains stable.

The legal department’s value to the business

Business leaders consult with the CLO, but there is still room to advance: While 75% of CLOs report that executives almost always look to them for input on strategic decisions and risk areas, less than half regularly attend board executive sessions.

Compliance, data privacy, and security are the most important issues for businesses: These three topics continue to top the list of most relevant issues with no change from 2019.

The CLO has a multifaceted profile: lawyer and business leader: CLOs spend on average around one-third of their time providing legal advice. The rest is dedicated to managing the department, board matters and corporate governance, contributing to strategy development, and advising executives on non-legal issues.

Leadership and business aptitudes are the most desired non-legal skills for in-house counsel: 62% of respondents expect in-house counsel to demonstrate leadership capabilities. Business management and executive presence complete the top three most desired non-legal skills.

The political and regulatory landscape

New regulations and data protection issues expected to pose the biggest legal challenges: Around six in ten CLOs believe that new industry-specific regulations and data protection and privacy rules are likely to be the cause for future legal concerns, while 36% indicated that mergers and acquisitions will also create challenges.

Companies are ready to face new regulations and mitigate emerging risks: 60% of CLOs are very or moderately confident that their organisation can keep track of changing regulations and 54% believe that they are ready to tackle new risk threats.

Regulatory compliance spend is up: 58% of CLOs indicated that expenditure on regulatory compliance increased in the last year, with accommodation and food services, wholesale trade, and finance and banking reporting the highest percentages across all industries.

Geopolitical events have limited effect on organisational decisions: Around one-third of CLOs indicated that geopolitics triggered changes in the company’s plans to enter new markets, and in insurance and employee safety policies. Overall, the impact of geopolitical events was lower compared with 2017.

The outlook for the legal department

CLOs are implementing new technologies to improve efficiency: More than half of respondents either plan to adopt a new technological solution or have already done so recently. By generation, 48% of baby boomers are keen on adopting new technology solutions compared with 56% of millennial CLOs.

Use of artificial intelligence expected to accelerate: 69% of CLOs expect the use of artificial intelligence in legal technology applications to accelerate, while just 7% believe it is a temporary trend.

Delivering value to customers is now a priority over maximising profits: 50% of CLOs ranked delivering value to customers as their organisation’s top priority over the next five years. Maximising profits came second, with 35%, and investing in employees ranked third, with 10% of CLOs identifying this as their company’s top priority.

For further information, email: [email protected]

To view the full report, go to: acc.com/clo2020

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Sexual Harassment in the Workplace: a Global Challenge

Over 122 countries prohibit sexual harassment in the workplace and 116 extend this protection to both women and men. In the aftermath of the #MeToo movement, employers are, more than ever, acutely aware of the global risks posed by sexual harassment. These include individual and corporate reputational damage, the risk of litigation, vicarious liability (in some legal systems) and criminal proceedings, as well as a negative impact on staff productivity, recruitment and retention.

Businesses have acted to strengthen workplace policies, introduce training and reinforce a culture of dignity and respect. Yet surveys around the world consistently suggest that sexual harassment remains under-reported in the workplace.

A recent UK poll found that two-thirds of Britons who have been harassed in the workplace failed to report their experience to anyone. This is undermining the effectiveness of workplace policies which, typically, depend on reporting to tackle issues and prevent a reoccurrence.

In this article we highlight some key issues when managing global harassment investigations, and review the latest legal developments, to support employers in their efforts to build employee trust in reporting and to reduce sexual harassment in all jurisdictions.

Managing global sexual harassment investigations – lessons learnt

Investigating sexual harassment across different jurisdictions needs careful handling, both legally and culturally.

Legal pitfalls

Some countries have procedural requirements that can wrong-foot the unwary. These may mandate the appointment of specific bodies or people to investigate complaints, such as an Internal Complaints Committee in India which must be constituted with a minimum number of female members.

Déborah Attali, employment partner in Eversheds Sutherland’s Paris office, says that employers should take care to involve the works council in French sexual harassment complaints.

‘Generally, the works council members must be informed of the complaint and involved in the investigation process. As such, the complaint is “on the record”.’

Top tips: global sexual harassment policies and procedures

  • Take advice on local legal requirements and cultural differences.
  • Have global standards (which may need to sensitively transcend local norms).
  • Provide accessible, confidential and trusted reporting frameworks.
  • Monitor workplace culture – proactively identify inconsistencies between policies and values and what happens in practice.
  • Act on hotspots.
  • Require regular training and awareness raising.
  • Keep an open mind – avoiding a rush to judgement.
  • Use confidentiality (non-disclosure agreements) appropriately/lawfully.

DIANE GILHOOLEY (pictured)

Global practice head of the human resources and pensions group

Eversheds Sutherland

Similarly, in Germany, Frank Achilles, employment partner in Eversheds Sutherland’s Munich office, warns employers conducting sexual harassment investigations ‘to beware of triggering fixed timescales within which a dismissal must take effect in order to be lawful. This means that the investigation should commence as quickly as reasonably possible, with the alleged perpetrator interviewed last. The risk being that a dismissed employee may seek reinstatement if the dismissal is not handled carefully.’

Data privacy rules also differ across countries and non-compliance, particularly across the EU, risks significant penalties. As such, employers gathering evidence as part of an investigation must consider the lawfulness of accessing CCTV images, personal messages on a work device or other personal data. A recent Swiss court decision illustrates the difficulties for employers. The court held that an employer acted unlawfully when reviewing private WhatsApp messages on a business mobile phone. It decided that unless the employer had clearly communicated the rules around the personal use of work devices, then employees had reasonable expectations of privacy, even on a business mobile phone.

Cultural challenges

Workplace culture, particularly where operations are dispersed globally, far from the head office location, must also be addressed if businesses are to change behaviour. In our experience, the appetite to raise and address issues can vary and unless the business establishes a global standard of behaviour that is universally applied in local contracts of employment and workplace rules, it can be difficult to ensure consistency of approach.

Local resistance to sexual harassment investigations can also arise where the alleged perpetrator is a key performer or leader in the business. It may want to retain the employee, despite the misconduct. While #MeToo has helped to shift the debate on these issues, bringing in an independent investigator can also help to achieve an appropriate outcome.

An enduring cultural challenge is giving local staff the confidence to speak up, wherever they are in the world and whatever the size or structure of the local team. Employers should not assume that the number of complaints is an accurate reflection of the level of harassment happening in a country. Even if a business’s head office has launched sexual harassment policies and training, employees may not feel sufficiently secure to raise a complaint if the complaint involves a local manager who has the power to dismiss or to influence their career.

Other factors may also come into play, as Jennifer Van Dale, Eversheds Sutherland employment partner in Hong Kong explains.

‘Power dynamics can make it very difficult for employees to challenge their boss, and this can be made more difficult in some countries if the topic is socially taboo, such as sex.’

Monitoring the effectiveness of policies and taking proactive steps to detect harassment will help to identify any warning signs or hotspots. For example, employers should check what is happening in practice by conducting anonymised staff surveys, asking questions at exit interviews, analysing absence data and canvassing views through mentoring programmes and staff networks.

Recent legal developments in sexual harassment

The fallout from #MeToo has also galvanised legal change. In 2019, the right of everyone to work free from violence and harassment was agreed in an international treaty (the ILO Violence and Harassment Convention) and will be progressively ratified by the 187 International Labour Organisation member states.

A number of themes have emerged globally from those countries that have implemented or proposed new harassment-related legislation. One such theme is restricting or eliminating the use of confidentiality/non-disclosure agreements (NDAs). Whilst it is recognised that there may be legitimate reasons to use such agreements to the benefit of both parties, the concern is that they can be used inappropriately to cover up issues of harassment and silence victims, resulting in hidden systemic issues within an organisation not being tackled and eliminated, with risk to other workers.

Emerging legislative themes – a summary

  • The appropriate use of non-disclosure agreements.
  • Extending sexual harassment protection to all workers, regardless of contractual status.
  • A positive obligation on employers to take corrective action.
  • Mandatory training.
  • Mandatory reporting of complaints/settlements.
  • Regulator or governmental codes of employer good practice.

For example, in the US state of New Jersey, legislation now prevents the enforcement of certain non-disclosure provisions contained in employment contracts and settlement agreements. Other states have also passed laws banning mandatory arbitration for sexual harassment claims. In the UK, legislative proposals provide that confidentiality agreements will be legally ineffective to prevent disclosures to certain organisations, including law enforcement agencies.

Another emerging theme is to place a greater responsibility on employers to take action to prevent sexual harassment from occurring. In some US states there are new requirements for a sexual harassment prevention policy that meets minimum prescribed requirements, including revamping existing employee training or introducing new training.

Recent legislation in Denmark clarified what might constitute sexual harassment, which necessitates employers reviewing workplace norms against the new standard, and new government guidance requires employers to complete a written risk assessment on harassment in the workplace. In Romania, employers are now obliged to implement an internal policy aimed at eliminating harassment at work. Hong Kong has also recently expanded the scope of protection against sexual harassment in the workplace, with a new code of practice issued by the Equal Opportunities Commission. In the UK, developments have taken the form of proposals for a legal duty to prevent harassment and a statutory code of conduct to help employers understand and demonstrate that they have taken all reasonable steps.

Greater transparency, through corporate disclosures, is also on the rise. For example, in Canada, amended legislation has been proposed to ensure that employers respond effectively to incidents of alleged harassment, including mandatory recording and reporting obligations. In some US states, disclosure of settlements, and whether such settlements included a NDA, will be required.

However, legislative developments to protect against harassment have not been globally universal and, despite the significant impact of #MeToo in a number of countries, less traction has been experienced in others. For example, in some countries in Asia, criminal proceedings are the only legal recourse, which may contribute to workplace harassment going unchallenged.

Comment

With legal change ongoing in different countries and sexual harassment controversies continuing to attract public attention, employers around the world are advised to be vigilant and to regularly review their policies and training.

To maintain investor confidence, staff morale and avoid brand damage, employers will be expected to demonstrate a genuine commitment to eliminating sexual harassment in the workplace and ensuring wider issues of inequality are tackled. Achieving this will typically require a long-term focus on creating and maintaining trusted reporting frameworks, on ensuring an appropriate workplace culture and on the effectiveness of policies across all operations, whatever the location, including taking appropriate action if harassment is found to have occurred.

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Fighting Fires

Beginning in June 2019 with a series of uncontrolled blazes, Australia’s bushfire season – since dubbed the ‘Black Summer’ – has spiralled into one of the worst on record in the country, causing widespread devastation to communities and wildlife.

By the end of January 2020, the fires had claimed more than 30 lives, burned through millions of acres of bush, forest and parks, and led to the deaths of an estimated one billion animals – with fears that some endangered species have been driven to extinction by the disaster. Over 2,000 homes have been destroyed and countless communities evacuated by the unprecedented ferocity of the bushfires. Smoke from the flames has caused disruption to major metropolitan areas such as Canberra, Sydney and Melbourne, with the air quality in Australian cities sinking to among the lowest in the world at various points throughout the crisis.

The crisis has impacted all sectors, as businesses, government organisations and charities were called into action to battle the flames – either on the front lines, or behind the scenes. With the legal function playing an ever-increasing role in the management of crises of all kinds, in-house lawyers throughout Australia are diligently working to play their part in the management and mitigation of the unfolding disaster.

Feeling the heat

The scale of wreckage caused by the fast-moving Australian bushfires has been catastrophic, and has placed a lot of pressure upon organisations involved in the relief effort. But, for general counsel on the ground, their response to the tragedy has been similar to that of any crisis.

‘The bushfires are no different to any other crisis that in-house lawyers can face. I have worked in other industries throughout my career and this is no different. Crisis is something that is faced by all in-house lawyers at some point in their careers,’ says Tara Eaton, head of legal and policy at Australian Red Cross.

Australian Red Cross is a humanitarian and community services charity that has raised over AU$127m towards the bushfire disaster relief effort.

‘At the Red Cross, we do have an existing framework within the team and we build on that during times of crisis. For example, the team is set up to have a lawyer dedicated to a particular department – with that, we are able to build stronger relationships,’ says Eaton.

‘Therefore, in a crisis, different departments within our organisation immediately think of legal. They get you involved in the crisis management team from the beginning and, because of that, you are abreast of issues as they develop, you are part of the team that sits on daily, or even sometimes multiple times a day, update calls.’

The pressure to deliver timely, accurate and efficient legal advice is well-covered ground for in-house counsel, but in times of crisis, where life is at stake, this imperative only intensifies, explains Eaton.

‘One of the most challenging things in a crisis is being able to provide ad hoc legal advice. Not knowing all the information, but still having to make a call on things because the issues are moving so quickly, is difficult. One of the greatest skills for in-house counsel everywhere is the ability to trust your gut,’ she says.

‘It is absolutely necessary to provide ad hoc legal advice in response to a crisis situation.’

‘This is a necessary skill in a crisis. Having knowledge of your industry, business and the requirements to make decisions is essential to providing the best guidance you can at any particular time. So we have been doing that as a team, as the bushfires have been developing. We have been issuing daily emails to support our colleagues, saying here is today’s legal guidance, and we build on that as the team faces additional questions.’

‘During a crisis, general counsel need to show compassion and understanding for members of their organisation, while maintaining a clear head and providing objective legal advice under pressure,’ agrees Katrina Bullock, general counsel at Greenpeace Australia.

‘This requires resilience, a strong support network and self-care.’

Also feeling the pressure to provide speedy legal advice during this crisis is Sarah Donald, general counsel of Sunshine Coast Council. The Sunshine Coast is just one of many local councils across the eastern seaboard of Australia that have felt the devastating effects of the bushfires.

‘The recent bushfires presented unprecedented challenge to our community, with the immediate evacuation and displacement of thousands of people,’ says Donald.

‘It is absolutely necessary to provide ad hoc legal advice in response to a crisis situation.’

Sow the seeds

With times of crisis adding more layers of pressure to lawyers already grappling with the demands of the in-house job, steps taken pre-crisis can go a long way to ensuring the response to disaster situations is efficient and as stress-free as possible. Having systems in place aimed at mitigating risk during times of crisis is essential to providing effective legal advice.

‘Bushfires are not uncommon in Australia,’ says Donald.

‘As a result, significant systems are in place to manage these events. In Queensland, these are managed pursuant to the Queensland Disaster Management Act 2003. This Act outlines the principles of disaster management in Queensland.’

Provisions under the Act provide a legal framework for local councils during times of crisis, covering the disaster response capabilities required of local government and the training required of those involved in disaster management.

‘Local government is responsible for managing disaster events in our local areas, and this is done through our Local Disaster Management Group (LDMG). Our LDMG is coordinated by the Sunshine Coast Council, and membership is made up of liaisons from all emergency agencies (police, fire, ambulance, State Emergency Services), as well as community service providers (both government and non-government) and media representatives,’ outlines Donald.

‘The Council and in particular our disaster management team, works very hard to ensure we have excellent relationships with our emergency services partners, so we are able to have seamless operations when we are required to activate our disaster management plans and coordination centre in response to events affecting our region. These relationships were essential when we were managing the recent bushfires in our region.’

The importance of cultivating relationships extends to external counsel to whom the legal team can turn when crises demand specialised legal advice, fast.

‘You may be called on to give urgent advice on specialist areas that are not necessarily within your own expertise – then it is good to have good relationships with advisers that you can call on quickly,’ explains Astrid Heward, general counsel and general manager at the Bureau of Meteorology in Australia.

Bigger Picture

The crisis highlights the need for organisations and their in-house teams to be appropriately prepared pre-crisis, and efficient in the provision of advice mid-crisis. But, for some organisations, their work will stretch far into the future, beyond the crisis of the day.

‘We have a professional duty to ensure that our response is not just limited to the immediate effects of these fires, but rather focused on the root cause,’ explains Katrina Bullock, general counsel at Greenpeace Australia.

‘Climate change is driving catastrophic bushfires. This is a coal-fired crisis: coal is driving both the bushfire crisis, and the Australian federal government’s inaction on climate. We have ignited the shared social and economic power of Australians through our climate petition, which demands that the federal government respond to the bushfires by declaring a climate emergency and taking action to mitigate climate change. Over 81,000 people have signed to date. Across the organisation, we continue our multifaceted work to support renewable energy investments and dismantle the systems that support the climate crisis; to hold those responsible for contributing to climate change accountable – in the streets, at the ballot boxes, in financial markets and in the courts.’

She adds: ‘It is becoming increasingly important to embrace new, time-saving technologies and ways of working that empower our crew to make well-informed, timely decisions. I think we will also see increasing climate-related litigation against Australian directors who have acted negligently in ignoring climate risks, and a surge in activist investors who boycott fossil fuels. This will generate some interesting and complex legal work in the years ahead.’

‘For example, I’m no expert in industrial relations, so I have a couple of advisers I trust that I can call to bounce things off quickly.’

However, when time is of the essence, it is ultimately up to in-house legal teams to make initial assessments and provide preliminary legal advice in times of crisis.

‘Our external firms have been very supportive, but in a crisis you do not have a lot of time to go out to external counsel,’ says Eaton.

‘I have always described the role of in-house counsel as being a GP: we diagnose the head colds, the broken ankles, and then decide if we need to go out and see an ear, nose and throat surgeon. But we as in-house counsel are doing the first diagnosis of what is wrong.’

In the end, whether seeking guidance from external advisers or relying on internal resources, general counsel depend upon on the relationships they have developed.

‘To me, it boils down to relationships – we as lawyers work really closely with our colleagues to understand the issues that arise, and then work with them to find solutions,’ says Eaton.

‘It is important for in-house counsel to not become the department of “no” – of course we have to be that in this role sometimes – but particularly pointed in a crisis are the relationships you have built that enable you to have a seat at the table. Your practical guidance can be implemented very easily in a crisis; because you do not have a lot of time, you do not have the ability to come up with new policies and procedures – you just have time to give short, sharp guidance to help.’

Where there’s smoke there’s fire

Managing the legal efforts from the skies is Heward at the Bureau of Meteorology (BOM), an executive agency within the Australian government responsible for compiling weather forecasts, warnings and observations and delivering them to the Australian public.

‘The Bureau’s mission is “to provide trusted, reliable and responsive weather, water, climate, and ocean services for Australia – all day, every day”, and Bureau staff have a very strong sense of public service,’ explains Heward.

‘The majority of the work that my team does to support our operational groups during the extreme weather season in fact happens when Australia is not in its “severe weather season”.’

Australia’s severe weather season traditionally occurs in spring and summer, and features weather events such as drought, severe thunderstorms, flooding, tropical cyclones and bushfires.

‘A key factor in the success of the emergency service response to the bushfire crisis is the collaboration and co-ordination between the various agencies that are involved in the response effort. The legal team supports this with MoUs [Memorandum of Understanding]/agreements that facilitate the Bureau’s meteorologists to be embedded in the emergency services as required in extreme weather events.’

‘It is important for in-house counsel to not become the department of “no”.’

Nevertheless, as with many crises, planning can only take you so far. Severe weather is, by its nature, extremely volatile. Emergency situations are inevitable. When adversities such as the devastating Australian bushfires occur, general counsel are relied upon to provide fast, accurate and essential legal advice.

‘If I am called upon to give urgent advice, I try to keep an eye on the bigger picture, and the risk levels, to understand how the advice needs to be prepared and presented. It’s obviously important to give the right answer, but “right and done” is better than “perfect”,’ outlines Heward.

‘One of the most challenging issues that arose in my role over the last couple of months related to the Meteorological Authority Office. Under the Civil Aviation Regulations, the Bureau’s CEO is able to authorise equipment to be used to provide reports for use in forecasts for the purposes of civil aviation.’

Thick plumes of smoke that wafted into cities had an adverse effect on the visibility of crucial airport services. Providing visibility reports are essential. However, equipment used to provide such reports was not always regulatory compliant to measure smoke particles.

‘Existing runway visual range (RVR) equipment at certain airports in Australia was already authorised for the purposes of providing reports in relation to fog/mist, but not for other types of lithometeor particles (such as smoke),’ says Heward.

‘Due to the serious smoke haze experienced at these airports, the Met Authority team had to work urgently to manage the complex regulatory and technical matters that allowed for the RVR equipment to also be authorised for smoke.’

Paved with good intentions

On the ground, in-house counsel are supporting organisations dealing directly with the physical fallout caused by the bushfires. Life-or-death videos from inside the inferno have been viewed by millions of people across the globe, with the destruction sparking an outpouring of donations from those eager to help – both financially, and otherwise.

‘The images of the bushfires have been broadcast worldwide,’ explains Eaton.

‘The world is a much smaller place because of the speed in which news travels and just the outpouring of support from Australia has been phenomenal, as well as the outpouring from all parts of the world: Mongolia, Estonia, and the US – every corner of the world knows about the bushfires and wants to help. This is humanity in action.’

Greenpeace Australia has also drawn attention and support to the cause.

‘We raised over $74,000 on behalf of the Rural Fire Service to support their work in battling the fires on the ground,’ says Bullock.

‘Additionally, we have provided a platform for bushfire survivors to tell their stories to the world, and our creative team has been busy documenting the destruction of homes and nature to help people truly understand the effects of climate-related emergencies.’

The response of people wanting to donate to the cause has been overwhelming, and has been helped by social media. But, while undoubtedly positive, charity in the 21st century raises unique questions that must be addressed by legal teams such as Eaton’s.

‘A lot of the issues that we have been working through relate to the proliferation of social media and people sharing our fundraising links,’ she explains.

The response of people wanting to donate to the cause has been overwhelming.

‘This is therefore raising questions: can we accept donations from overseas? What are our limitations with respect to the donations? How do I characterise those donations? Could we be considered fundraising in other jurisdictions? If so, what does that mean?’

‘Coming up with this guidance in the online space can be very difficult, because you might have one link in Australia which now can be shared globally. Nowadays, those issues are just tricky for all businesses to navigate.’

‘This is not just relevant to us in this particular situation – talking about disasters – but I am sure many other legal counsels are faced with the issue of how do we make our laws, which are jurisdictionally based, relevant to a global online environment.’

Overcoming this challenge, Eaton focused on drawing legal similarities to other similar situations.

‘How I characterise this is similar to a financial services organisation,’ she says.

‘When they are running an IPO, you are getting money from the public to do something – namely, an IPO is aligned to accepting donations from the public – and with that comes great responsibility to make sure you are telling people accurately where that money is going, how that money is being spent, and where those funds are going to be allocated.’

‘So one of the more tricky issues we have been managing is around the social media response and global organisations wanting to fundraise on our behalf – what does that mean from a regulatory perspective?’

As in-house counsel operating on the front lines, crisis management should be viewed through multiple lenses, stresses Eaton.

‘Part of our role, I think, as legal is to not only approach things through a legal lens but, in times of emergencies, to also bring a different focus. By looking at it through the eyes of our donors – our very extraordinarily generous donors – as well as the community, we have to consider: what are their expectations? What are the needs of the community we are trying to serve? How are we balancing those needs? How are we trying to do the most good we can, and support people in this challenging time? All whilst making sure we have all the checks and balances in place.’

At your own risk

Whether battling the fallout of a financial meltdown, supply chain interruption or environmental disaster – such as the Australian bushfires – crisis management is a core skill for general counsel, irrespective of the industry they represent. Counsel will be relied upon to give efficient, fast and accurate legal advice during emergencies, and play a key role in navigating the business through complex regulatory challenges and obstacles in times of disaster.

Despite having to overcome major legal obstacles, the scope of legal work can be rewarding for those on the front lines, believes Eaton.

‘It has been fascinating, actually. One of the things I love about being in-house is the diversity of work that we are faced with on a daily basis, and when there is a disaster, such as the bush fires, it has really come to the fore.’

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Too much of a good thing?

Nearly $1bn was invested in legal technology and New Law disruptors in 2018. That was across more than 50 funding rounds and included start-ups through to more established players, according to research from Investec. Venture capital, private equity, non-legal companies and trade buyers are increasingly interested in what they see as a highly lucrative legal sector.

The frequency and scope of legal tech funding has also jumped markedly: a Thomson Reuters report in mid-2017 put investment into UK legal tech start-ups at just £16m in the previous 18 months. Hundreds of legal tech companies have subsequently popped up. Every law firm is quick to tout its latest innovation or partnership with a technology provider, while some even have incubators where they work with start-ups over several months, honing products.

But the adoption of legal tech and automation tools by in-house legal departments is harder to track. Many general counsel complain it is difficult to deduce the substance from the noise, believing in-house tech solutions largely fall into the latter camp. Others are more upbeat on progress made over the last few years: ‘There’s been a shift,’ comments easyJet group GC and company secretary Maaike de Bie. ‘Where tech and automation were once looked at by some in-house legal teams, they are now definitely mainstream.’

The growing influence and prevalence of in-house legal operations teams, continued pressure on budgets and a desire to improve the quality of work for in-house lawyers are all contributing to the change. There is no shortage of vendors looking to crack the in-house market either. With this in mind, we surveyed 70 legal departments and spoke to more than two dozen GCs to assess how much progress has been made with legal tech; what is being used and what for; the major barriers to adoption; and expectations for the future.

With two-thirds of in-house teams reporting they have no dedicated annual budget for legal tech and a third not currently exploring new tools, the conversation is shifting from what is out there to how teams can make use of existing technology and the importance of the broader digital transformation triumvirate of people, process and technology.

‘Technology is a facilitator and part of a solution. It is never in and of itself a solution to a problem,’ says Pearson associate GC for technology and operations, Robert Mignanelli. ‘You first have to scope your problem, understand what you’re trying to solve and then find a piece of technology that can help automate and drive that.’

Going mainstream

GCs constantly talk about running their legal teams like a business. To do that, however, you need to know exactly the nature of that business. Document management systems, workflow tools, e-billing solutions and management information services have existed for many years, but there has been a rapid evolution and increasing sophistication of these products. They have crucially become more user-friendly too.

Broadly, there has been an increase in basic management tools that are not necessarily cutting edge but vital to running a department. Increasingly, the point has been about finding systems that can talk to others so that, for instance, your workflow tool and document management system work in tandem. As an example, Neota Logic – which offers document management, expertise automation and workflow automation all in one platform – finds many legal departments need to start with a simple triage application to work out exactly what their department has to deal with on a daily basis and route those requests to the right people.

‘It’s changed rapidly,’ notes UBS investment bank and EMEA GC Simon Croxford. ‘I’m a big fan of the technology and process efficiency developments we’re seeing in the industry, because there is a lot that we can improve in our legal departments to become more efficient.’

Meanwhile, Barclays has integrated its matter management, e-billing, time recording and external legal spend tracker over the past three years. Head of legal transformation Ben Eason comments: ‘We’ve taken the time and the effort to do that, even if it’s not deemed the fancy work. That enables you then to start looking at stuff like AI.’

The consensus is that using tech has moved from rhetoric to action, particularly for larger in-house teams. At Vodafone Business, the FTSE 100 telecoms company’s B2B arm, legal director Kerry Phillip implemented a contract lifecycle platform three years ago. There are more than 60,000 searchable contracts on that system now, used across ten countries, while the workflow tool sends work directly to the relevant team. Phillip says that at the time it was first used, however, Vodafone was an outlier: ‘It is now accepted you need to do it and there are a huge range of providers out there. It’s unusual not to be thinking about or implementing some form of tech, which was not the case three years ago.’

‘There’s been a shift. Tech and automation are now definitely mainstream.’

As a further sign of growth, Thomson Reuters made a significant play in this area with the mid-2019 acquisition of secure file-sharing and collaboration platform HighQ for a reported £200m. HighQ sells to both law firms and in-house legal departments, marketing itself to the latter as a tool for streamlining operations. There has also been a boom in contract tools, broadly split into pre and post-signature analysis: contract review, due diligence, contract lifecycle management and understanding the data within contracts. Israel-based contract review automation company LawGeex, which announced a partnership with Neota Logic to automate a third-party non-disclosure agreement (NDA) approval process, is cited by multiple GCs. Liberty Mutual Insurance innovation director for corporate legal, Jeffrey Marple, comments: ‘In the last year or so there’s been a massive explosion in the contract space. Based on the number of products, there must be a market, because they seem to be popping up everywhere.’

Trainline GC and director of regulatory affairs Neil Murrin adds: ‘What you’ve got now is a lot of market entrants and that’s driving competition among providers, but we are still in a period of development. Certainly with some of the AI and legal tech we’ve used, we’ve been the guinea pigs.’

Back to basics

Automation of repetitive, low-value work has become more commonplace in-house, however. Tools for automating NDAs and self-service tools are widely provided by GCs as examples of successful recent tech projects. Just over a third of the in-house legal teams surveyed say they use tools to automate contract and data management, while NDAs and other forms and templates are automated by 8% and 14% respectively.

ICICI Bank UK GC Priti Shetty has introduced an internal chatbot, developed by the business itself. It is used to identify which clauses are important and do not necessarily need to be fielded by in-house lawyers. Sheldon Renkema, general manager of legal for Australian retail conglomerate Wesfarmers, used AI automation platform Neota Logic to build marketing review and contract review tools. The former is used to educate the business about the most important aspects of marketing campaigns from a legal perspective, a built-in response to the team being asked the same questions repeatedly. The latter, meanwhile, ensures contract owners in the business provide the legal team with relevant background data and context.

‘We’re looking at further opportunities for self-service tools, but you’ve got to do that quite cautiously because the personal relationship is super important,’ he comments. ‘It means we get a seat at the table because we are helping people, and have closer relationships, and get involved earlier on, which makes our lives easier.’

Many GCs are also not convinced their legal teams need to use specific legal tech products. ‘It’s not all about AI and complicated sounding terminology – at one of the biggest tech companies in the world, I have found that the most basic tools can transform how lawyers service their client teams,’ Facebook associate GC Caroline Kenny comments. ‘We use document-sharing tools like Google Docs and Quip, which clients can feed into in real time, saving the back and forth and duplication. These things are not specific to legal teams.’

Anglo American head of legal for M&A, Samantha Thompson, joined the FTSE 100 mining company at the end of last year. In March, she took on an optimisation and innovation role with a mandate to assess legal tech offerings. She quickly learned that the legal department was better placed to optimise use of existing tools within the organisation as a priority, such as Microsoft Office 365, rather than bespoke legal tech. That has involved talking to the company’s IT team to put the legal function forward for any upcoming pilots in areas such as document management. ‘What has struck me is there are an awful lot of different options out there, and people are trying to sell me things, and want to talk about legal tech,’ she comments. ‘I stepped back and said: “Lawyers don’t necessarily have special needs – we need to optimise the tech that we’ve got.”’

It is a common sentiment, with many GCs referencing Office 365 in particular, including those at blue-chip corporates Pearson, Centrica, Vodafone, Aviva, Spire, Three and easyJet. Most highlight it as an intuitive collaboration platform, while group communication tools such as Microsoft Teams are also widely used. Former Royal Mail GC de Bie, who joined easyJet in mid-2019, says when she is looking at tech, her first thought is not whether there is a tool on the market, but whether she can improve the process around the problem first and whether it can be solved by existing tools within the company. ‘Is there something I can adapt that works already within the enterprise environment, rather than bringing in another tool into the already many applications that many organisations have? The more you bring in, the more you are introducing complexity and risk.’

Case study: Wesfarmers

The Australian retail conglomerate Wesfarmers introduced a legal operations and tech working group three years ago, led by general manager of legal, Sheldon Renkema. The team of five had been looking at new processes and tech tools part time, alongside their day-to-day roles.

But they have already implemented a number of tech products: Xakia for matter management, Persuit for tendering work and Neota Logic to create various self-service applications in areas such as marketing. Xakia has established metrics around internal demand for the legal team, while Renkema says Persuit has saved the company hundreds of thousands of dollars on high-volume areas of work, such as public liability claims. Wesfarmers uploads a matter to the system that law firms then bid for.

Renkema comments: ‘We found quite quickly there was a huge delta between the top and bottom price, but within the space of a couple of months that narrowed and we discovered what the market price was. Some firms self-selected out of that and others love it.’

As part of its declared strategy of reducing the volume of low-complexity and low-strategic significance work that the legal team is engaged in, Wesfarmers focused on the automation of the high volume of NDAs that the company creates, choosing Neota to provide a solution integrated with Neota’s Workflow and Analytics Dashboard, allowing Wesfarmers’ lawyers a single console from which to view the status of every NDA associated with the business. The dashboard not only tracks at what stage of the process a particular NDA is up to, but also provides insight into each individual agreement.

Renkema noted that early business users of the application ‘Were surprised at how easy and intuitive the application is to use’ and highlighted the efficiencies it has created ‘By allowing for a much quicker turnaround.’

Aviva’s head of legal operations, Caroline Brown, adds: ‘While there are a lot of nuanced tools out there, there are also lots of non-legal tools we’ve been able to use. We’re looking at working with Microsoft to roll out Office 365 and we’re finding it to be an intuitive tool. People have been able to pick up the features easily, which raises the bar for other technology platforms on things like file and document sharing.’

Three GC and regulatory affairs director Stephen Lerner has similarly turned to a non-legal tech solution provided by Microsoft, using business analytics tool Power BI. Three years ago, he hired four non-lawyer business analysts and IT experts into his legal, commercial and regulatory affairs team of 130 staff. That team is tasked with using Power BI to mine internal data and track things such as resource optimisation – how many matters are coming into the legal function and how they are staffed. ‘It took probably a year or so to get it right, but now I can open up this tool on my desktop any time and see what demand is coming through the department, and how we are staffed to meet that,’ he comments. Similar outcomes can be achieved with an application built in by Neota Logic using its analytics component on its platform to access the various requests coming into the legal department.

GCs also say the people aspect is more important than the technology. Digital training programmes and the employment of non-lawyer professionals or lawyers with wider skillsets are firmly on the agenda. At the beginning of 2018, UBS kick-started an in-house legal team transformation and digitisation programme. Croxford says there has been a focus on enabling its lawyers to talk technology. This has manifested in a number of ways, including an in-house academy to educate lawyers in areas such as digital literacy – understanding the technology it uses and how it impacts the business. But there are softer aspects, such as sitting product-focused lawyers with data privacy and technology lawyers so they can mix ideas.

‘There are lawyers who exist with data and tech skills or exist with product skills, but the market hasn’t developed to the point where it’s doing what we’re trying to do, which is combine the two,’ he comments. ‘To be a successful in-house lawyer nowadays you need a variety of different skills that were rarely needed five years ago and definitely not ten years ago.’

Making the case

It is clear why GCs turn to existing company tools for solutions. The cost of legal tech, and finding ways to articulate the business case and expected returns, is regularly cited as a major obstacle to adoption. Of the third of survey respondents to report a dedicated budget for legal technology, most were at 10% or less of their overall legal spend. Many GCs say the cost of much legal tech has been prohibitively expensive, although it is improving, while establishing which metrics show return on investment remains difficult.

Two-thirds say their company’s IT department is involved in the decision-making process for implementing technology, with procurement and the C-suite involved for a third each as well. But for half of the survey’s respondents, less than 50% of their legal spend is on outside counsel. They are therefore looking for ways to reduce internal costs. Phoenix Group GC Quentin Zentner, who uses legal spend-tracking software Apperio, comments: ‘Securing a budget is key. You need a good, plausible business case. It was easier to secure approval by making the proposed technology spend part of a wider cost-cutting initiative.’

Liberty’s Marple comments: ‘Technology providers claim to save you money on x, y, and z, and they probably will, but unfortunately we may not have a clear understanding of the possible savings. You do all the research and analysis you can up front, but sometimes you just have to hold your breath and jump in, and hopefully it works out.’

There is also a sense that much legal tech offers solutions to non-existent problems and does not easily connect to existing tech infrastructure. ‘A lot of the solutions out there are looking for a problem. All legal departments are different and the tech all seems to be a bit one-size- fits-all,’ Spire GC and group company secretary Dan Toner comments. ‘The tech needs to come from the demand side. The cost of it is dropping rapidly, but it’s working out how much it works with our tech, and it’s getting the time and the head space to put work into it.’

Adds Anglo American’s Thompson: ‘The impression I get is people are just struggling with the number of products out there and it’s not clear that there’s a market leader or someone with longevity, or that there’s even a need for the niche tech.’ This is where the increasing prevalence of operations professionals within legal teams comes in. Only 33% of those surveyed have a legal operations role within their team, but many of those achieving tangible results with tech have done so through legal ops. Guardian Media Group GC and company secretary Stephen Godsell comments: ‘The great value of operations is that it gives somebody the task of driving change in a way that it’s their day-to-day job. Lawyers are very busy and there’s not a lot of space to investigate how we can do things differently.’

Neota, a no-code AI automation platform targeting professional services companies, is just about to launch a web-based tool called Canvas, which allows subject-matter experts, such as lawyers, to prototype apps for automating legal services. Vice president, markets and growth, Jackson Liu, says demand from in-house legal teams for technology has increased, led by the larger North American market, but with EMEA and Asia-Pacific growing quickly. Legal operations teams – which have featured in the US market for longer – led process improvements, with many now looking to add technology to those.

Implementing new technology: a guide for GCS

Finding internal technology champions, building use cases across multiple departments, learning how to measure return on investment (ROI), and simply being willing to give it a go: these are the keys to success for using legal technology, says Neota Logic’s director of client solutions and engagement, Shaz Aziz.

‘Tech providers should help people understand the market, especially when companies are early on in the technology-building and solution-finding process,’ he says. ‘You can look at the legal tech market and see 100 different names and it just looks like the Wild West.’

To navigate that plethora of providers, Aziz says in-house legal teams should expect potential tech partners to help them establish potential use cases and to understand their business’ needs and requirements. ‘Back in the day, you’d sell the software to somebody, chuck it over the fence and they’d work out how to use it.’

As technology providers are increasingly expected to be advisers on technology, in-house legal departments will need to identify internal technology champions – often legal operations staff but, just as regularly, legal counsel – and importantly, establish use cases across multiple departments. If a legal team can find a solution that crosses over into human resources or procurement then there is greater scope for adding value across the business, as well as sharing the cost. Aziz comments: ‘If you can connect those people up in the business and allow cross-sharing, then it makes the process of getting buy-in much easier.’

Furthermore, legal teams need to learn how to measure the ROI from technology. This can be difficult to do with potential tech partners as information on cost is not easily shared, however. ‘If you can, in a granular way, understand what the cost saving is and can start to be able to put figures to things, that can make a massive difference in the early stage,’ adds Aziz.

‘They’re now looking for a platform, an off-the-shelf solution, to look at how they can implement automation capabilities on top of those new processes. Having a separate team focus on the process and technology side in legal operations is good because it separates that from the legal counsel team, which means they’re not dragged away from the day-to-day tasks.’

GCs are also leaning on their law firm advisers to use technology to provide more efficient, and cheaper, services. There is a transparency issue on that side as well, however, with GCs unclear on what law firms offer, despite the bevvy of press releases each pushes regarding their innovation credentials. Anglo American group GC Richard Price comments: ‘They’re all talking about it and they’re all looking at it, and they’re talking to us about how they might be able to use tech in a way to optimise the service that they provide to us, but we’re yet to see significant applications of that.’

Others are more optimistic. UBS talks to the firms that run innovation and tech incubators to keep an eye on developments. Croxford sees the growth of managed service and contracting teams at some firms as an important development too. ‘It’s not just the sourcing of legal advice but how we run our departments as well. That’s the next evolution of relationships between banks and external law firms.’

Demonstrating value

The GC100 group, made up of more than 125 GCs and company secretaries primarily from the FTSE 100, has put tech growth and adoption onto its agenda. Everybody is keen to share and get a grip on the market. ‘Everyone assumes that they’re far behind and everyone else is much further ahead, and it’s helpful to talk to our peers to understand we’re all just trying to get our arms around it,’ Price comments.

There is undoubted appetite, and need, for in-house legal departments to adopt tech. There are multiple examples of early success in automating volume work, while many teams are now tracking data on their use of internal and external resource. That resulting data is where many GCs see the next wave of advancement. Analytics and then true AI and machine learning – despite the prevalent scepticism – will be used by GCs to understand their workflow and allow it to be optimised. More AI solutions aimed at interpreting and creating legal documents and contracts are expected to pop up as well.

But GCs are keen to pull the conversation away from a focus on pure technology, and back to a broader emphasis on how that fits in with people and teams. They are analysing whether they have the right people in the right locations, the right levels of seniority, and then whether they are doing the right work. ‘To run a truly successful and efficient department, technology helps you get there, but it’s not the be-all and end-all,’ Croxford comments.

Adds de Bie: ‘I’m a big fan of data. Business colleagues are used to presenting data and level of risk, and I don’t see any reason why we as a legal team cannot do the same. I’ve really seen the value of collecting data to demonstrate value.’

For more information, please contact: E: [email protected] www.neotalogic.com

Artwork and imagery used by kind permission of Haynes Publishing Group, a leading supplier of content, data and innovative workflow solutions for the automotive industry and motorists. For more, see www.haynes.com

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GC Insider: Timo Matthias Spitzer

In my personal opinion, to be a strong and independent leader, the general counsel needs the trust of the CEO – not only to advise on issues of legal compliance, but also on the righteousness of corporate action and, ideally as part of senior management, assist with the creation of sustainable stakeholder value. Importantly, the stakeholder group goes beyond the shareholder and also includes employees, customers, suppliers, the environment and the wider society in which a company operates as corporate citizen. A rigid adherence to the outdated doctrine of shareholder primacy could have the adverse effect of making corporate decision-makers potentially indifferent to the interests of other stakeholders, which, at least in the long run, may even harm the shareholders themselves.

Respectively, in his book Fixing the Game, Roger L. Martin, then-Dean of Rotman School of Management, made clear:

‘Total returns on the S&P 500 for the period from the end of the Great Depression (1933) to the end of 1976, the beginning of the shareholder-value era, were 7.5% (compound annual). From 1977 to the end of 2010, they were 6.5% – suggesting that shareholders have little to celebrate, despite having been made the clear priority.’

A sole focus on profit maximisation may not only overshadow a company’s true purpose in society, but even create unintentional pressures for corruption, which might ultimately tempt some managers towards taking irresponsible actions just to meet potentially unrealistic financial targets.

Consequently, human leadership with integrity is key, especially in a highly regulated and tech-reliant corporate environment. We must always retain and train our human ability to make responsible judgement calls in order to ensure sustainable decision-making in a fast-paced, globalised business. Leadership is not just about making shareholders wealthy. Leaders build a corporate culture where employees can feel safe and valued so that they may perform to the best of their abilities. It is about leading with kindness, concern and compassion, with regard to the society as a whole. The great thing about this is that it results in an organisation that creates sustainable benefits for all stakeholders, making a corporation a desirable commercial partner for anyone on a global level. Society does not want to do business with entities it does not understand and respect. A decent and humane management, relying on a strong, voluntary ethical framework and the power of morally capable people, is key to ensuring both internal and external sustainability.

Corporate governance codes around the world have begun to address the problem of shareholder primacy. For example, in the US, various state codes recognise the wider range of stakeholder interests beyond the shareholder. A revised UK Corporate Governance Code was published by the Financial Reporting Counsel in 2018, representing a refocusing of the role of the company and the board toward not only generating value for shareholders, but contributing to wider society. The German Corporate Governance Code, as amended in 2019 and about to enter into force, highlights the management and supervisory board’s obligation to ensure the continued existence of the company and its sustainable value creation that is in line with the principles of the social market economy. South Africa’s Institute of Directors published the King IV Report on Corporate Governance in 2016, establishing the transition from a purely shareholder-oriented capitalism to a wider stakeholder-oriented capitalism.

By elevating the general counsel to the C-suite, the CEO can ensure a cross-functional dialogue.

While this is a step toward recognising the problem of pure shareholder primacy, it is not a solution in and of itself. These codes cannot guarantee the inclusion of wider stakeholder interests when they are non- binding in nature and, as such, the company could easily opt out.

What, then, should be done to address this issue properly?

One solution is to move away from the classic corporate form where the shareholder(s) alone can dominate the direction in which a company is going. For stakeholder interests to be effectively included, we should change the corporate form by building an all-stakeholder entity where not only shareholders, but also employees, customers and representatives of the wider community could exercise a shared vote and, as such, have a legally binding say in the move toward sustainability. Such an entity would not only focus on the shareholder, but on each relevant stakeholder. In addition to maximising shareholder value, the effect of this would be that the company would fulfil its societal purpose by legally taking into account the entire context of its responsibilities.

However, achieving this legal solution is admittedly difficult. The fundamental changes to corporate laws required to create this multi-party entity are hard to achieve due to current market realities.

Nevertheless, there is a practical solution that can be done that does not involve significant changes to applicable corporate laws. By elevating the general counsel to the C-suite, the CEO can ensure a cross-functional dialogue within a working group on corporate strategy, and involve the general counsel in assessing wider stakeholders and general sustainability factors. The general counsel can play a cardinal role in supporting the CEO not only as a legal expert, but also as a trusted and accountable adviser, acting as part of the corporate moral compass.

Because while a company’s long-term success depends on strong performance and prudent risk management, it also depends on high integrity, which requires leadership from people with a refined ability to make moral judgement calls. The essence of integrity is, first, to ensure that the rules – whether legal, commercial, or ethical – are fair, and then to comply with them. Traditional moral values also must be reinforced, including (but never be limited to): honesty, fairness, trustworthiness, reliability and commitment to inclusion. It is crucial that the CEO and his or her colleagues around the table adhere to a sustainable corporate culture, in order to gain the trust and cooperation of all relevant stakeholders. A general counsel next to the CEO in the C-suite may prevent the company from significant costs and loss of reputation, ensure sustainable corporate decision-making and, last but not least, strengthen the legal function.