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ANALYSIS: Ten Challenges That Will Keep CLOs Busy in 2021

Feb. 5, 2021, 6:26 PM

The job of the chief legal officer is going to grow in 2021, and it will also become much more complex.

Businesses are being urged to expand their purpose and goals beyond the singular focus on shareholder returns. They are now expected to embrace such goals as improving the lot of employees, bolstering local communities, reducing climate change impacts, and reducing inequality, among others. While these goals have an aspirational and altruistic sound, corporations are well aware of the more tangible results of such commitments, as customers increasingly flex their purchasing power to hold companies to account.

For in-house counsel, their everyday legal and compliance tasks—which already involve dealing with the pandemic, supply chain weaknesses, and constantly changing privacy issues—must expand to take into account these commitments to additional stakeholders.

The job responsibilities that are likely to occupy the agendas of general counsel and CLOs in 2021 include the following:

1. Climate Change (the ‘E’ in ESG)

The public is becoming increasingly aware that, with the possible exception of the Covid-19 pandemic, climate change is the most challenging issue facing governments the world over. Businesses are seen as having responsibility for the problem, and for taking leading roles in finding solutions.

Growing stakeholder involvement in environmental, social, and governance (ESG) issues translates to greater interest in the boardroom, where general counsel will be called upon to provide the C-suite with thought leadership as well as practical solutions to implement changes in business relationships. While general counsel should expect that the Biden administration will bring different priorities and increased rigor to the regulatory field, particularly in the environmental area, environmental stewardship is no longer simply a question of cost and compliance. It is an indicator to stakeholders of whether the business is deserving of their trust. And the best defense here might be a good offense: ensuring that service and supply relationships demonstrate the climate commitments the Board has undertaken.

2. Reputation and Social Responsibility (the ‘S’ in ESG)

Reputations and public perceptions were once considered the responsibility of the public relations and advertising departments alone. But now, companies are under a spotlight for their actions, their values, and for the company they keep: their business partners, suppliers, and customers.

Ethical conduct extends beyond compliance with the letter of the law; it is evidenced by company attitudes toward its stakeholders. Are employees, customers, and communities treated with genuine respect, fairness, and transparency? Is company success a zero-sum game, or is it a shared phenomenon with all affected? More and more, CLOs and their staffs are called upon not only for legal advice but to provide moral leadership based on reasoned judgment, long-term perspective, and an interest in doing what’s right.

3. Attention to Process (the ‘G’ in ESG)

The tenure and composition of boards of directors are high-profile governance topics that have gained legislative and exchange listing attention. Boards are tasked with balancing the sometimes competing stakeholder interests of investors, employees, customers, suppliers, communities, and governments in their decision-making. With greater diversity of thought and experience at the board level, it is believed, these differing stakeholder interests are better represented.

As the principal legal advisor to the CEO and board, the CLO is in a position to ensure the proper functioning of the governance process, from candidate selection and management of information flow for board meetings to assurance of full and proper records of the board’s deliberations and bases for conclusions.

4. Supply Chain Resilience and Reshoring

The Biden administration has announced that it will conduct a comprehensive review of critical supply chains to protect against the recurrence of shortages such as those experienced in the 2020 pandemic, to increase efforts to source supply network requirements within national borders, and to limit the ability of other countries to exert leverage over the U.S.

Businesses that experienced supply chain disruptions during the pandemic will want to take the opportunity to shore up vulnerabilities through introduction of multiple sourcing options and early warning mechanisms. In-house commercial practitioners will be called upon to assist their procurement and risk management departments in this effort.

5. Cybersecurity Risk

2020 was one of the worst years on record for data security breaches, capped by the massive SolarWinds hack of federal government agency data disclosed in December.

Data security will continue to garner high interest at the top echelons of many businesses in 2021. Risk management programs will rely heavily on employee awareness of the role they play in safeguarding company data, particularly as more companies make work-from-home a long-term option for office workers. The process of auditing and upgrading policies on handling of company data and use of computer systems will be improved through legal input and guidance.

6. Covid-19 Litigation

The new year will likely see an upsurge in consumer, employee, investor, and business partner litigation, due to the pandemic and its aftereffects. The company’s pandemic preparedness, actions, and responses will be challenged and second-guessed by those with the benefit of hindsight. Management will look to the general counsel and staff to have a balanced and well-developed strategy to manage litigation exposures that’s consistent with company risk tolerance and values.

7. Staff Development and Well-Being

Like most senior managers, general counsel will be faced with new management challenges based on a remote work force and changing employee priorities toward diversity, equity, and inclusion (DEI) in the workplace. While virtual learning in compliance and practice areas is well-established, the “softer” elements of staff development—including mentoring, collaboration, and client relationship promotion—may require more attention and perhaps different approaches when in-person development opportunities are less frequent.

More companies are taking public positions on the DEI initiatives of service providers and supply chain participants. Changing attitudes toward work-life balance priorities, especially among younger legal professionals, may provide additional opportunities to recruit and add talent for the future needs of the department.

8. Privacy

Although not fully operational until 2023, the California Privacy Rights Act takes U.S. businesses another step closer to the robust data protection standards found in the EU’s General Data Protection Regulation. Planning for the compliance implications of the CPRA together with the ongoing requirements of the California Consumer Privacy Act will be front and center on general counsel agendas in 2021. In addition, ongoing standard contractual clause developments from Europe will keep chief legal officers and their privacy experts busy. Increased consumer awareness of available privacy protections may result in greater scrutiny of businesses’ use and retention of personal information. Plus, will Max Schrems have another banner year derailing EU/U.S. data transfers?

9. Restructuring

As the economy tries to emerge from the pandemic, companies will begin the process of jettisoning businesses they no longer perceive as adding value and picking up ones about which other companies have come to the same conclusion.

CLOs and their staffs will be deeply involved in all aspects of these portfolio realignments, including evaluation, diligence, negotiation and implementation.

10. External Counsel Interactions

Video conferencing, virtual depositions, and virtual trials allow in-house staff to partner and collaborate with outside counsel in real time, eliminating the inefficiencies of physical distance and extended lines of communication. This gives general counsel better control not only of legal costs, but also of outcomes through direct in-house staff participation in strategy and results. Technology will continue to provide tools to increase productivity and information sharing in legal practice.

Additional changes to these expanding roles are certain to occur as the year progresses. CLOs, with the support of their in-house legal staffs, will undoubtedly rise to the challenge.

Bloomberg Law subscribers can find related content on our In Focus: Remaining Operational and In Focus: ESG resources.

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