General Counsel Advise of New Business Risks, Duty of Care in Time of Geopolitical Change, ACC Report Finds

Tuesday, February 7, 2017 - 15:34
 
ACC Chief Legal Officers 2017 Survey Tracks Prevalence of Compliance Investigations at Multinational Law Departments, Trends in Outside Counsel Hiring
 
More than one-in-three chief legal officers (CLOs) and general counsel (GCs) say their companies adjusted plans to enter new markets following geopolitical events in the last year, and nearly half said they plan to terminate a law firm for underperformance in the year ahead, theAssociation of Corporate Counsel (ACC) CLO 2017 Survey, released today, reported. 
 
Data and insights from nearly 1,100 GCs and CLOs in 42 countries indicated that the in-house community and the businesses they represent faced questions about market plans, employee safety, and product lines following geopolitical changes and instability in 2016. The expected influence on government policies ensured that ethics and compliance and regulatory changes remained the leading issues keeping CLOs up at night. In light of world events where conflict or terrorism threatened to harm employees, CLOs also expressed concern over an employer’s duty of care and workplace safety, with 44 percent indicating this as a top concern. GCs in Australia and the Asia Pacific region were most likely to rate duty of care an “extremely” important issue.
 
“In the face of so much change, a company relies on its CLO to assess the situation at hand and anticipate what challenges may come next,” said Veta T. Richardson, ACC president and CEO. “The CLO has a crucial role advising on the balance of risk and opportunity as companies look to expand in new markets or employ new types of technology.”
 
In addition to external changes affecting business and the legal department, CLOs also made significant changes in their selection and hiring of outside counsel. Nearly one-in-three GCs said they fired an underperforming law firm in the past year, and 46 percent say they will “definitely” or “may” replace a law firm in 2017.
 
CLOs who said they fired a law firm in the past year were significantly more likely than others to plan increases to their internal budgets and use of alternative fee arrangements (AFAs) into 2017. Among those law departments firing their firms, two-thirds of CLOs said they are considering replacing a firm this year, which suggests departments are changing firms rather than “ridding themselves of their outside law partners,” the report states.
 
An overwhelming majority (77 percent) of CLOs stated that their department handled at least one compliance investigation in the past year, with the average department working on three internal or external compliance investigations. Twenty-eight percent of CLOs said a regulator has targeted their company within the past two years, slightly down from 31 percent last year.
 
“With so much change underway in Europe and the United States, in addition to geopolitical developments around the world, CEOs of enterprises with international operations face a great deal of uncertainty over the next few years,” said Iohann Le Frapper, chair of the ACC board of directors and the general counsel of ChetWode, a Paris-based fintech company. “These changes will yield an even greater need for strategic guidance from their CLOs to navigate through compliance challenges and new types of regulator enforcement – developments of direct impact to the work of the in-house community.”
Other notable findings in the ACC CLO 2017 Survey include:
 
  • Technology developments have grown significantly in “extreme” importance for CLOs, with a 14-percentage point jump for the 2017 survey compared to the 2014 survey.
  • On average, CLOs report that their litigation spend is 24 percent of their budget.
  • The educational services sector reported the highest percentage of data breaches, surpassing the healthcare sector from the number one spot, which it held for the past three years.
  • The gender gap in CLO compensation remains, with 70 percent of female CLOs reporting compensation under US$300,000 compared to 56 percent of males. Meanwhile, 44 percent of male CLOs reporting compensation of more than US$300,000 or more compared to 30 percent of females. 
  • CLOs in the United States report the smallest percentage of outside legal spend under AFAs compared to their peers in other regions.
 
For more information on the ACC CLO 2017 Survey, please visit www.acc.com/closurvey.